Jim O'Neill - Goldman Sachs Asset Management
By Jim O'Neill, Goldman Sachs Asset Management.
I returned from a brief 3-day trip to the Gulf this morning, after visiting Abu Dhabi and Dubai. I spent much of the time highly stressed about the path of the Icelandic ash cloud, in view of a rather important event that I needed to get back to London for Saturday evening. As is often so typical of life these days, it looks as though it was all blown out of proportion, and my own personal black swan event didn’t happen. Mind you, if the bookmaker’s odds are to be believed, then United are merely there to make up the numbers in tomorrow¡¯s Champions League Final. We shall see.
Beyond the ash-induced stress, the trip was very interesting. We hosted a client conference in Dubai and I also met with a number of important clients. In addition to discussing the world and global markets, I had fascinating exchanges with people about the so-called Arab Spring.
THE ARAB UPRISING.
Most people locally were as concerned as many people around the world seem to be about the possible future paths. That said, it was fascinating to hear this as well as comments about all the specific nuances. There were some I chatted with that shared my view that this could be the Middle East and North Africa (MENA) Berlin Wall ‘moment’ but not many. Most see the possible paths as highly uncertain and worrisome. One local fund manager put it to me differently. He said that there is always uncertainty about the future in this part of the world. But these uprisings have eliminated this future uncertainty. Instead, the uncertainty is here now. Linked to what I wrote about recently following my Singapore trip and fund managers’ experience, if you combine uncertainty with lower valuations, this spells opportunity.
Much discussion focused on each of Egypt and Syria, both being seen as key countries for the region. But the more the discussions advanced through a dinner where it became the featured topic, the more uncertain it became. On Egypt, views ranged from the most negative outcomes post the September elections to some thinking that, while Mubarak has gone, not much has really changed, as the Army will remain in charge. Regarding Syria, many see it as even more interesting, since a change in regime could have big consequences for Iran and support for the more extreme terrorist organizations.
DUBAI AND N11 CAPITAL?
This was the first time I had spent a few days there since the bursting of the property bubble. The damage could be seen everywhere, with many half-finished projects. That being said, the main artillery roads seem to function better based on my trip over to Abu Dhabi and back. I can’t help wondering whether it is all really sustainable in Dubai, but as I have found on past trips, the more I found my mind wondering, maybe there is more substance than meets the eye. With the troubles of Bahrain, and the never ending volatility of Beirut, and the clever way its leaders have allowed the local atmosphere to develop, Dubai seems to really benefit from some of the large nations not so far away. Moreover, it seems to benefit from those that are doing well, and possibly also from those that are less stable. Two of the BRIC countries, Russia and India, especially have positive relevance for Dubai, and a number of the Next 11 Group; Egypt, Iran, Pakistan and Turkey, all have differing degrees of relevance.
I would encourage anyone to take a visit to this part of the world. It is quite mind opening.
ABU DHABI AND GOLD BARS.
I had been planning to add a picture to this week’s Viewpoint. Abu Dhabi is the more sober of the major UAE conurbations and has always a more straightforward raison d’etre owing to its oil reserves and revenue. However, not to be completely outdone, as I am sure many of you know, it has a 7-star hotel, yes 7 stars. We managed to slip into the Emirates Palace for a quick (and not so cheap) cup of tea in between meetings, particularly to visit the Gold Bar ATM that is present in the lobby. Yes, there is a Gold Bar machine, and I have a picture on my blackberry to prove it. A shame that my technology skills are sufficiently limited that I can’t upload it for all you Gold bulls to see.
WORLD MARKETS AND THE MAY FACTOR.
Not because of this particular anecdote, but the Middle East being what it is, my meetings involved more discussion about Gold prices than is usually the case in other parts of the world. While the gold bar machine anecdote adds to all the other colourful stories I pick up, the recent remarkable resilience of gold, despite what has happened to silver and other commodities, is rather impressive. This gold price strength may perhaps be just a simple function of both the extremely low level of G7 real interest rates and the prospect that they might not rise anytime soon. I got the impression that there a quite a few bulls of Gold in the Middle East.
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