How regional and global capital markets interact

But is it really that simple? In 1998 the Asian Crisis also managed to crash Middle East stock markets, albeit also because of hopeless management by Opec which expanded oil supply into a falling market and sent oil prices tumbling to $10 per barrel.

Oil prices are, of course, the key to any assessment of Middle East capital markets as this is the source of the enormous cash flow that drives these markets up and down.

The link to global capital markets is that when oil prices are high, the industrialized economies tend to slowdown or fall into recession. Thus the Middle Eastern Oil States will boom when the rest of the world in reeling from high oil prices, this is the inverse correlation.

However, the danger is that high oil prices will trigger a financial crisis and bankrupt the customers of the Oil States. Now bankrupting the people who you depend on to buy your product is not good business practice. Hence, most Opec members prefer oil prices to stay in a price band appropriate to market stability.

But what happens when market forces push oil prices higher? When demand is higher than supply or the security of supply is under threat? This is where we see to be today.

The upshot is that investments in international financial and even global property markets look very close to a major correction, while in the Middle East stock markets are generally very strong and real estate is booming.

Clearly if there was to be a serious financial crisis in global markets, this would tend to accelerate this trend with more Arab money flowing back into Arab markets.

Conversely if high oil prices fail to produce inflation and higher interest rates, and devaluation can successfully solve the US twin budget deficits, then we could expect to see funds from the Middle East flowing back into international capital markets.

You can take your pick of which scenario seems more likely. But remember to consider valuations. Which markets have the lowest stock and property valuations, and the best outlook for profits?