Global perspective on trading, investment

Dubai - The UAE economy is probably more resilient to a financial meltdown than some of the heavily indebted European nations.

Investors and traders regardless of where they are in the world say the same, never ever risk more than you can comfortably afford to lose, otherwise your emotions will get in the way of your trading or investment decisions, said Fawad Razaqzada, technical analsyst, Forex.com and City Index.
By keeping emotions in check and risking small amounts, traders can take advantage of extreme volatility to either pick good stocks on the 'cheap' or sell short markets that look too expensive relative to their fundamental values.
In the current scenario, diversification is a necessity and the UAE has been going in the right direction in this regard, as it has reduced its reliance on oil heavily over the years. Though oil will eventually bounce back, it could remain low for a long time. For this reason alone, the UAE and other Middle East economies should be looking at other sources of income.
The UAE economy is probably more resilient to a financial meltdown than some of the heavily indebted European nations. But the UAE's debt to GDP ratios hasn't fallen significantly since peaking in 2010, following the global financial crisis. Thus, it is not too resilient, especially as revenue from oil sales are now a lot lower because of the recent slump in crude prices.
"Currently we were relying too heavily on China and emerging markets to help the recovery. But, given the recent sharp falls in key commodity prices and the apparent slowdown in the China, growth in the global economy is likely to be subdued for the next several years. I think the US dollar could be a good investment in the short term, because of the likelihood of an imminent rate hiking cycle from the Federal Reserve. The dollar may also find some safe haven flows if the stock market turmoil deteriorates. In terms of the long-term, precious metals such as gold and silver could be a good investment because we think global inflation is going to pick up significantly within the next two years due to the major central banks' ultra-easy monetary policy stances. Gold is also close to the cost of production for many miners, and so the downside could be limited," added Razaqzada.
The global economy is facing a tussle between the forces of recession and reflation. Developed economies such as the US, Japan and Europe are part of the reflation story on account of recovery measures taken after the global financial crisis. However, the recovery in advanced economies is not vigorous and the emerging economies particularly China could be a challenge to global growth. Brazil and Russia are also struggling, with only India showing growth.
Dr R. Seetharaman, group CEO of Doha Bank, said: "There is a risk that slowdown in emerging economies could defeat the weak advanced economic recovery. The deflation risks can also emerge on account of significant fall in oil price and other commodities thereby contribute to global slowdown. The risk of a currency war has also emerged on account of yuan devaluation by the Chinese Central Bank."
China's role in fueling global economic growth has been neatly highlighted by the recent events. Post-2008 global financial crisis, China has emerged as one of the twin engines of world economic growth. The investment-led, export oriented growth model led it to become the manufacturer of the world. However, with now the economy transitioning into consumption (domestic) driven growth model the authorities are finding it hard to control a 'managed slowdown'. Efforts to ease rates by PBOC and yuan devaluation are increasingly looked upon as futile attempts.
M.R. Raghu, senior vice president for research at Markaz, said: "Commodity markets took the first hit as iron ore and oil prices swooned. Commodity exporting countries such as Australia, Indonesia, LatAm countries and Sub-African countries felt the pressure. Developed countries, which exports capital goods, primarily Germany, could also feel the pinch. Luxury car maker BMW has already slashed their profit forecasts.
"Though exports from US to China aren't as high as other nations, China represents a huge market for American products. Indeed, Apple sells more iPhones in China than in the US. Thus, the rise of China and its integration with the world economy must be acknowledged and the economic data emanating out of China must be subjected to greater analysis than it is accustomed to," added Raghu.
- sandhya@khaleejtimes.com