In Theory: Europe, Asia are better bets

Since the financial crisis has hit the world, many of the once prevailing concepts and investment fundamentals have changed.

In the past few decades, companies and businessmen did not have to ponder for too long about the available options for investment, especially from a geographical aspect. The United States of America was looked upon as the ideal and guaranteed choice for investors.

This was because the American market was filled with investment opportunities that provided profitable returns, thus giving the USA priority over other countries.

Although Western Euro-pean and East Asian countries had acquired a significant portion of foreign investment, particularly Arab in the past, America remained the top choice on the world map. Until the financial crisis, the US was the world's most attractive investment hub.

But over the years, the country witnessed a frenzy of speculative and derivative manipulations in the financial realm, mainly due to laxity in regulations.

As a result, American and foreign investors suffered huge losses as they saw many of their invested funds in the US market going under.

By contrast, foreign investments in Western Europe and Asia remained relatively safe from the financial derivatives due to European regulations which helped curb manipulation and asset-inflating operations without any material foundations.

Lehman Brothers

Therefore, we can see that most foreign investment losses, especially Arab ones, were incurred in the American market with the collapse of the Lehman Brothers investment bank and others that followed.

The American currency's huge decline in value increased the amount of these losses.

These developments and the harsh experience of investors is leading to a comprehensive review of foreign and Arab investments around the world.

The American market is no longer considered the ideal market for foreign investments, and with the Federal Reserve's ongoing policy of quantitative easing, which essentially means printing more dollars and putting them out in the market, it is likely to get worse with more serious financial and economic consequences.

Attractive hubs

Despite temporary obstacles faced by the euro, Europe and East Asian countries, especially China and India, in addition to Russia and Brazil, are still safe, attractive investment hubs.

This is due to their regulations that allow investors to manage their investments based on solid economic and financial grounds that are far away from harmful speculation and the exaggeration of assets.

In general, it seems like most investment bodies around the world, have recognised this reality. Global investment now focuses on Europe and East Asia. This means the world investment map will be reshaped in the coming years.

For example, the Qatar Investment Authority (QIA), which is one of the world's most successful investment authorities, put $21.6 billion (Dh79.32 billion) in global financial markets during 2010.

Of this amount, more than 40 per cent was invested in Europe, 13 per cent in China, four per cent in Saudi Arabia, only three per cent in the United States, and 2.3 per cent in Russia. These investments are considered one of the lessons drawn from the global financial crisis.

Correct approach

Coinciding with these developments, it has been noticed that internal investments are increasing in rich countries, including oil-exporting countries.

This is a correct approach that will diversify sources of income as well as minimise the risks that these stocks might be exposed to in foreign markets.

To make matters worse, the financial reforms being carried out by US President Barack Obama are facing challenges after the Republicans, among who were radical right wing "Tea Party" supporters, took control of the House of Representatives.

In a lighter vein, this requires investors to pay more attention to investments in "Chinese herbal tea, French coffee and Swiss chocolate flavoured Italian cappuccino".

The columnist is a UAE economic expert