With Dubai in the spotlight for all the wrong reasons, investing in Gulf equity markets now may seem to be dangerously contrarian. The manner in which Dubai communicated its decision to disaggregate sovereign and quasi-sovereign debt will weigh on credit spreads and local market performance until it can demonstrate that it can repay its debts in a timely and transparent manner.
But the structural and fundamental underpinnings of these markets paint a different and attractive picture for the long-term investor. The outlook for Dubai's hydrocarbon-rich neighbours such as Saudi Arabia, Kuwait, Qatar and Abu Dhabi is rosier. Despite having only 40m people, these countries have two-thirds of the world's oil and 45 per cent of its gas reserves. Debt levels are minimal and recent high hydrocarbon prices have led to huge reserve accumulation of over $1,000bn.
Gulf countries plan at least $2,000bn of spending on infrastructure projects in the coming years in order to diversify their economies away from oil.
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