Why international business is likely to pay even more attention to the Middle East

Capital markets have taken a tumble over the past month, with around 10% being shed off the value of global equities. Mainly this is down to the weakening US dollar and the fear of higher US interest rates to support the greenback and fight inflation induced by high energy prices.

But the inversion of the yield curve last week is also an ominous indicator, with short-term interest rates falling below 10-year bonds. This is the classic harbinger of a recession ahead, although this measure does not have an infallible record of prediction.

However, all the more reason for multinationals and financial institutions to look again at business opportunities in the Middle East. For when the domestic markets are in trouble, heading overseas becomes much more attractive.

Capital market woe

If this summer's stock market sickness turns into something nasty this autumn then expect the steady stream of foreign business visitors to become an exodus. The visitors may also have something more attractive to offer in terms of investments than in recent years, as a recession will bring down asset prices.

The cash-rich Middle East will be ideally placed to take full advantage of such a downturn in asset prices. This is a bit like what happened in the 1970s during the oil boom when Arabs bought up vast swathes of London property at what we now know to have been bargain basement prices.

With oil revenues likely to top $300 billion this year on some estimates, of which less than a half can be absorbed by investments at home, Middle East buyers will soon be out in force. And foreign businessmen looking to sell assets in industrialized markets will clearly get a good reception.

Dubai buys abroad

Dubai has already blazed a trail with its investments abroad, whether shares in DaimlerChrysler, New York hotels or the Madame Tussauds wax museum in London. And indeed it will probably be the investment bankers now setting up in the Dubai International Financial Centre and Qatar Financial Centre who strike such deals in the future.

For investment has increasingly become a two-way affair in the Middle East with governments requiring a commitment to the local economy from would-be overseas investment agents. And this time around petrodollars are being invested locally as well as abroad, making the GCC states attractive places to set-up business.

Hence with high energy prices seemingly a fact of life for the foreseeable future, it is hardly surprising that international business is paying attention to the Middle East, and if times get tough globally there will be even more interest.