As we seek sanctuaries from meltdowns, toxic assets, spiraling budget deficits and depreciating currencies, it behooves us to take a second look at the GCCGCC as it continues to evolve into an internationally competitive region with successful industry clusters. By Majd Shafiq

Amid the recent turmoil and mayhem in global capital markets triggered by a meltdown in US real estate, a corner of the world stands out as a good example of "managed capitalism." And while there is no doubt that increases in the price of oil since 2000 have had a significant impact on the economies of that region, credit is due to the way ruling elites in the United Arab Emirates, Kuwait, Bahrain, Oman, Qatar and Saudi Arabia have managed over the years to orchestrate competing local, regional and international expectations and steer their countries forward.

The financial muscle generated by being the repository to some of the world¹s largest oil and gas reserves and production capacities have positioned the six countries of the Gulf Cooperation CouncilGulf Cooperation Council well. Whether they are Sovereign Wealth Funds or private sector entities, GCCGCC investors are not only being welcomed with open arms but are actively sought after. Indeed, Gulf investors have crossed a Rubicon.

However, capital flows should not be in one direction only. International investors are well advised to give the GCCGCC economy a serious look. The types of investment opportunities currently present in both public and private equity situations offer excellent value propositions.

As GCCGCC companies move from being successful local operations to becoming regionally competitive enterprises with, sometimes substantial, tranches of international activities, CEOs and Boards of Directors have gained added appreciation of the role that equity plays in their capital structures.

They realize that to make this leap forward, GCCGCC companies need to expand their equity base. Raising seed and venture capital, seeking private equity injections for turnaround or growth, and exiting via a trade or a financial sale, or an IPO, are becoming common practices in a region that has traditionally relied on debt.

For certain sectors, consolidation is already under way, both in country and across borders. Although oil wealth is a driver, it is by no means the only one. Plugging an investment gap that has been developing for two decades during which oil prices were in the single digits or low teens; the bilateral trade and investment agreements that the GCCGCC countries are in the process of negotiating with the US and the EU; WTO accession; the global competitive landscape and what Robert Reich terms as the ³shifting of power to consumers and investors;² and, the aspirations of an upwardly mobile middle class are all propelling the region forward.

When the Dubai Financial MarketDubai Financial Market started paving the way for its two investor road shows in London and New York City last year, the region was off the radar screens of many international investors. GCCGCC stock markets had experienced their own version of irrational exuberance, peaking in November 2005 and driven largely by local investor appetite and speculation. The markets eased throughout 2006, hitting bottoms towards the beginning of 2007. With earnings growth rates in the 20s and 30s and P/Es in single digits, it did not take long for international investment funds to realize that they had discovered a new ³alpha² and a wave of foreign buying swept the region.

It is difficult to say with certainty which portions of those funds sought long-term gains and which were "hot monies." Among the Special Sits, Quants, Macros and a plethora of new names for an old theme that cropped up in London¹s Mayfair and midtown Manhattan, international funds were betting on anything and everything in the GCCGCC from currency revaluations to real estate booms to international mergers and acquisitions. Finally, the credit crunch had its say and many got out mostly to cover positions elsewhere. Valuations of GCCGCC listed equities are now close to the levels witnessed at the end of 2006.

As we seek sanctuaries from meltdowns, toxic assets, spiraling budget deficits and depreciating currencies, it behooves us to take a second look at the GCCGCC as it continues to evolve into an internationally competitive region with successful industry clusters. Opportunities in both private and public equities present compelling value propositions. Those who find common investment ground with the region will be part of the world¹s next success story.

All rights reserved. The writer is Managing Partner of United Advisors and was formerly Senior Advisor to the Dubai Financial MarketDubai Financial Market and Borse Dubai.
mns@unitedadvisors.org

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