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Last week, amid stock market crashes, I had lunch with a university colleague who lamented that he and his wife had a "largish" amount of cash banked in the United Kingdom. What, he wondered, could he do to protect this money.
It was a remarkable comment. He was basically telling me that he had lost faith in a respected depository institution in a major developed country. His sentiment vividly illustrated why investors the world over are seeking safe harbours for their assets.
Expats are often lured to foreign lands, Dubai included, for the opportunity to salt away savings. Yet these days, finding secure investments with reasonable returns is tricky business.
Investment-minded expats typically follow one of two broad investment paths. The first is to take advantage of local high growth opportunities or those in developing nations like China or Russia.
A recession, the logic goes, is less likely to affect investments in these countries as deeply. High growth economies will simply cool to more "reasonable" but still quite handsomely profitable levels.
But it's not so simple. Recent International Monetary Fund research demonstrates that equity markets like the UAE's are not insulated, but in fact are vulnerable to global risk as expressed in higher market risk premiums.
However, internal economic and credit market growth as well as higher capital market capitalisations - all found in the UAE - buoy equity prices.
But on the downside, exchange rate appreciation also plays a role. Unfortunately, the dollar-tethered dirham would fare less well than, for example, the floating Chinese yuan.
Expats also pursue a second strategy, which is to repatriate earnings and invest in familiar stocks or funds. But over the past year, equity markets in developed countries have been hammered.
For example, shares on both the London Stock Exchange and New York Exchange lost 36-37 per cent of their value over the past year. The Dubai Financial Market has followed suit, though a bit lagged. The DFM index has dropped 38 per cent since the high mark in the early weeks of 2008.
The largest impact has been from real estate, financial and investment firms which are disproportionately large sectors. Throughout the year, banks, insurance and transportation have been resilient.
But such losses only whet the appetite of contrarian investors. Ignoring losses on past investments, expats who heed John D. Rockefeller's advice about getting rich ("buy low, sell high") would view this as an opportunity going forward.
Indeed it is. Consider that anyone who bought Fannie Mae shares just one month ago on the heels of the US Government "bailout" would have since tripled his or her money ($0.35 - Dh1.28 - versus $1.10), although Fannie Mae shares are now less than two per cent compared to their price one year ago.
Rod Monger is an independent journalist who writes on economic and business issues. No part of this article should be construed as investment advice.
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