You may remember the Middle East as that part of the world that overspent on opulent development.
It was easy to do in the mid 2000s, as oil was ticking up to $147 a barrel...
You've heard the stories of the man-made palm-shaped islands full of luxury villas and indoor ski resorts. Or maybe you've seen the Youtube videos of young sheiks destroying Lamborghinis for fun.
Then last year, we heard news that Dubai World had run out of money and needed to restructure its debts, as it could no longer make payments. There was even fear that the loss would take down some well-placed banks in Europe.
And to tell you the truth, I believed that it would take years to sort out that business, so the oil production capital of the world dropped off my radar screen.
Events have transpired
But now there is a new reason to look at the Middle East, for the times have changed.
Oil prices rebounded sharply in 2009 and have held steady this year around $75.
That means that most of the region will see growth in 2010 and it is likely to expand. And in fact Qatar is leading the world in GDP growth this year at a staggering 18% (Bloomberg doesn't track Mongolia).
Qatar is booming on LNG
Most OPEC members took a hit as they cut oil production in light of the global slump. Non-OPEC oil producers maintained their production and came out on top.
This situation will reverse as soon as oil prices move up and OPEC members start pumping more.
Qatar has done well because they are the third largest producer of natural gas and have been spending on infrastructure to support a long-term liquefied natural gas shipping industry.
|GDP Growth by Country*||2009||2010|
| Saudi Arabia
*Source: International Monetary Fund
And they are buying
Credit Suisse says that “Gulf Arab investors will increasingly look for opportunities outside the region, with deals in emerging markets and real estate helping to diversify holdings.”
And the facts on the ground are proving Credit Suisse correct.
The Qatar Investment Authority — the Persian Gulf country’s sovereign wealth fund — recently put $2.8 billion in the Agricultural Bank of China Ltd’s initial public offering. Kuwait Investment Authority, the wealth fund in neighboring Kuwait, bought $800 million of stock.
According to a London Real Estate Consultant report: “Wealthy UAE investors are among the biggest buyers of luxury properties in London, especially in the posh areas of Belgravia, Hyde Park, Knightsbridge, Mayfair and Richmond-on-Thames.”
The report added that international demand had helped to “drive prices higher by 24% in the 15 months since March 2009, and prices were now only 6% below their March 2008 market peak.”
The Qatar wealth fund bought a plush development on Oxford Street for $270 million pounds. Then, to top it off, they bought London's famous Harrods department store and the largest portion of Canary Wharf.
Granted, a lot of this buying is due to extreme value caused by a low currency in the UK. And it's nothing compared to what Obama is spending, but still...
Maybe we can get the Arabs to check out Vegas?
In another sign of big purses, just this week Middle Eastern Airlines bought $6.5 billion in new planes from Airbus.
The U.S. Aircraft defense companies Pratt & Whitney and Boeing (NYSE: BA) are also getting deals — Pratt & Whitney is selling $145 million in engines to the Royal Moroccan Air Force, and Yemen Airways is buying planes.
Boeing sold thirty 777-300s to the Emirates. GE (NYSE: GE) sold the same guys thirty GE90 engines, valued at $2 billion.
The Middle East has more than 400,000 millionaires and their combined wealth grew 7.1% in 2009 to $1.5 trillion, according to a report by Cap Gemini SA and Bank of America Corp.’s Merrill Lynch unit.
In the last few recessions, it has consistently been the American consumer who was credited with pulling the rest of the world out of recession. Now, of course, that same U.S. consumer is out of money, employment, and credit.
China, India, and other emerging (maturing) markets will be the ones to pull the world out of its current economic malaise. And in doing so, these markets will push up the demand side of raw materials — and therefore, the price of energy.
This, in turn, will create another boom in the oil-producing countries.
One way to play the growth in the Middle East is to buy the WisdomTree Middle East Dividend (NASDAQ: GULF).
This is a fundamentally weighted index that tracks companies in the Middle East that pay regular cash dividends.
Stocks in this ETF have listings on major stock exchanges in Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar and/or the UAE.
Editor, Energy & Capital