Arabian Capital Markets on Sale
The Arab world might not be on most investors' radar screen, but the Gulf Co-operation Council and other Middle Eastern markets now rank as the cheapest in the world following big bear markets.
I've been writing about Middle Eastern markets over the last six months and continue to find this exciting but high-risk region very compelling. Most regional stock exchanges from 2000 to 2006 literally went through the roof, gaining more than 350%, including Dubai, Cairo, Amman, Riyadh and even the bourse in Palestine. Even while most global markets were plummeting during the 2000-2002 bear market, these stocks were still soaring. Then, like all "bubbles," the region imploded starting earlier last year with most markets still down more than 25% from their all-time highs. Enter the investment opportunity.
According to the Dow Jones Arabian Titans Index, a composite of the region's largest stocks, Pan-Arabian blue-chips trade at just 4 times trailing earnings -- a massive 74% discount compared to the MSCI Emerging Markets Index. Equities in the region also boast a 3.7% dividend yield, almost double the rate currently available from global benchmarks. And year-to-date, the DJ Arabian Titans Index has gained 12.8%, continuing a recovery following a severe bear market in 2006.
In addition to stocks in the Arab world, local currencies also offer long-term upside. That's because some of the biggest concentration of U.S. dollar reserves are in countries like Saudi Arabia and the UAE. At some point, these and other regional markets will begin the long process of selling dollars and replacing these reserves with more euro, gold and eventually, an Asian-Pacific currency unit, if one is ever created.
Countries in the GCC, or Gulf Co-operation Council, harbor mostly positive trade balances and bulging foreign-exchange coffers, the result of enormous oil wealth accumulation. That makes owning stocks and bonds denominated in local currencies a good speculation over the next several years. Also, the Arab markets offer negative correlation to other stock-exchanges representing the MSCI World Index, providing a good degree of portfolio diversification.
In the May issue of my Global Mutual Fund Investor (GMFI), I'll tell you how to play the Arab world, recommending the world's top-performing money-manager based in Dubai.
