Several emerging markets are finding the going difficult in the face of Fed’s taper implemented in January 2014. This has caused massive outflow of cheap money from the developing nations. In fact, these countries are trying every means to lure foreign capital.
India, Turkey and South Africa have recently hiked their interest rates to protect themselves from the taper sword.
While that’s the case for these nations, the one region that is standing head and shoulders above the others is the Middle East.
Middle East in Focus
Though most of the emerging market space delivered negative returns last year, the Dubai Financial Market (DFM) was the second best financial market in the world. Its markets returned an astounding 107.6% in 2013. Another Middle East market, Abu Dhabi, returned an exceptional 63% last year.
This outperformance of the Middle East markets was partly due to their upgrade by the international index compiler – MSCI – last year. MCSI has upgraded Qatar and UAE from frontier markets to emerging market status. As such they will join the MSCI Emerging Markets Index in June this year.
The Gulf countries are noted for their huge oil reserves which have led to high GDP per capita. Many of these countries have spent substantial resources on building institutions and introducing business friendly reforms. Due to expansionary fiscal policies and low interest rates, economic activity has remained steady in recent years.
If this isn’t enough, investors will surely be enticed by the latest development in the Middle East. In November last year, Dubai won the bid to host the World Expo 2020, becoming the first Middle East nation to host the event.
This win is surely expected to be a milestone for UAE and is expected to boost the economic growth of this region (read: Can Gulf ETFs Keep Glowing?).
The Expo 2020 win and the inclusion in the MSCI index are expected to be the major catalysts for economic growth in this region.
The inclusion of Qatar and UAE in the MSCI Emerging Markets Index will prompt the funds that track this index to buy the stocks of these nations. Thus, these markets are expected to continue to outperform this year as well.
For retail investors though, the most convenient way to target the booming Middle East is through ETFs. In order to do this, investors can take a look at the Zacks ETF Rank and find the top ETFs in the region.