A hot summer for GCC inward investment

An article on Wall Street the other day mentioned two possible investment outlooks, both of them negative.

The first was that US interest rates rose rapidly making equities unattractive by hitting company profits. The second was that US interest rates rose slowly indicating a slow recovery, suggesting that share prices were overvalued.

Heads you loose, and tails you loose as well! Now compare that with the immediate outlook for Gulf stocks and real estate. Oil prices are higher and for longer than anyone expected this year, and seem likely to stay strong.

The 9/11 effect is also encouraging inward investment with nationals worried about funds being frozen in the US, and regional government's keen to promote investment at home to keep populations happy as regional democracy evolves. Even Saudi Arabia has just announced municipal elections this September for the first time in decades.

This is producing a virtuous local investment cycle with money that used to be siphoned into the capital markets of the world being invested into local industrial infrastructure, the service sector and real estate.

The effects are most visible in the real estate sector. From the Bahrain Financial Harbour to the $55 billion worth of projects now underway in the UAE, there is a massive building boom in key cities of the Middle East.

Even in the depths of the Arabian summer there is no let up in the flow of new property deals. This week saw the launch of a $500m golf themed residential development, part of the Dubailand development, and Nakheel recently sold 700 apartments on The Palm Jumeirah in 72 hours.

Local stock markets have also headed skyward. Saudi Arabia, Qatar and Kuwait jumped last year, with the UAE following up behind in 2004. Now valuations may be looking a little full, but there is still much upward momentum in these markets.

In short, the Middle East is enjoying one of its periodic great oil booms with a permanent enhancement of national incomes and standards of living. That this should be happening against a backdrop of geopolitical instability and violence is very sad but a reality.

No wonder GCC investors are increasingly putting their money into their own backyard rather than taking a punt on very uncertain global markets.