Thursday, January 24, 2008
The new darlings of Davos

Almost as heavy as the snowfall that greeted participants at this Swiss Alpine resort, was the cloud of anxiety hovering over the start of this year's World Economic Forum.

Stock markets around the globe were badly shaken by the potential spread of a credit crisis from the U.S. This was not lost on Middle Eastern markets which started selling-off Sunday, their first day of trading, and carried through Tuesday.

The dramatic, and what some saw as a panicked, reaction by the Federal Reserve, to cut interest rates by three-quarters of a percentage point sent mixed signals. What is the Fed seeing that others might not? Certainly the signal is that the bottom certainly has not been found on Wall Street, and for that matter some of the European banks as well.

That, however, does not mean the rest of the world should freeze in its tracks and that growth should come to a halt. The Middle East in fact is coming off some of the fastest growth in three decades. The excess liquidity of $400 billion each year from oil prices in the $80 per barrel range has changed the dynamics of the region and what these players are doing with their capital.

The International Monetary Fund estimates that $800 billion will be put into infrastructure in the region. Tall buildings, new financial centers, energy cities, new university hubs -- they are all being built. But the region can only absorb so much capital.

This is where the new darlings of Davos come in: The sovereign wealth funds. In case you missed it, the funds were the subject of front page articles on both Business Week and the Economist over the weekend. The danger from my vantage point here is that there is a lot of discussion about moving fast, taking advantage of buying opportunities (like Citigroup & Merrill Lynch), but also about competing with each other. There is a hint that some of the players are getting ahead of themselves.

Giant Stimulus Plan

There is potential here in Davos to bring like-minded players together for the greater good of the global economy. While the White House debates the merits of the $150 billion stimulus package, there is $1.5 trillion available in the Gulf. That is a serious stimulus package. As respected economist and old Davos hand Fred Bergsten rightly said, this liquidity could lead to a re-coupling of east and west. The investment money from the Gulf, China and Singapore will help avert a recession in the U.S. if, and a big "if" here, the funds are welcomed.

Some anxiety about this was expressed this morning by Mervyn King, now of Standard Chartered Bank, but formerly head of the Bank of England. He said that the funds should agree to a code of conduct for transparency or risk being labelled "irresponsible." That certainly does not set the tone for a collegial Davos-like discussion on closing the gap between those in need of capital and those who hold it right now.

Another Davos veteran, Arif Naqvi, Chief Executive of Abraaj Capital sees this in two stark colors: Black and white. The region is sitting on two commodities in great demand right now: Oil and cash.

Those commodities put the 200 or so players from the Middle East in an enviable position within the halls of the conference center; now if we can only work on the politics so the money can get to work in the right way.

-- From CNNI Marketplace Middle East Presenter John Defterios
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