Economist warns of 'carry trade' risk to GCC

Jarmo Kotilaine, chief economist at NCB Capital, the Saudi-based bank, said that the GCC region faces a potentially destabilising effect from a bubble which could hit emerging markets.

Gulf economies face a potentially destabilising influx of capital as a result of a bubble affecting emerging markets, the chief economist of one the region's largest banks is warning.

Speaking at the Meed Capital Markets conference in Abu Dhabi today, Jarmo Kotilaine, chief economist at NCB Capital, the Saudi-based bank, said that the currency carry trade is "increasingly emerging as one of the great risks and great sources of concern in the global economy.

"We have had an interest rate differential for some time and there's a risk of an emerging markets bubble."

Currency carry trade is the strategy in which an investor borrows a certain currency with a relatively low interest rate and uses the funds to invest in a different currency yielding a higher interest rate.

Mr Kotilaine said: "Investors in the west are moving their money to a place where markets are much more benign.

"Capital markets are still in progress, these economies are attractive as their prospects are good but they may struggle to absorb the money which is attracted to them."