Gulf Arabs put brakes on buying spree, await bargains

By Daliah Merzaban and Simon Webb

DUBAI/ROME (Reuters) - Gulf Arab exporters awash with cash from record oil income have put the brakes on foreign asset buys as the global credit crisis promises more bargains later and the political spotlight falls on how they invest.

Economists say the battle against domestic inflation in the world's top oil-exporting region is capping spending at home, leaving sovereign funds that invest much of the surplus oil revenue struggling to find a profitable home for their money.

"They are doing a little bit of hoarding right now while they take stock of the situation," said John Sfakianakis, chief economist at SABB Bank, HSBC's Saudi affiliate.

"For two years they were on a buying spree. But there is an anticipation by sovereign wealth funds that financial assets will depreciate further as credit turmoil spreads in the West."

Acquisitions outside of the region by Gulf Arab buyers more than tripled to $89.13 billion in 2007 compared with the year earlier, according to London-based research firm Dealogic.

But buys slowed to $19.8 billion in the first quarter, down over 30 percent from the fourth quarter despite some big-ticket deals that helped shore up Wall Street financial institutions.

Growing sovereign fund acquisitions have raised concern among U.S. lawmakers about foreign influence and control over assets and questions as to whether investments are politically motivated. This may have made Gulf funds more cautious.