DUBAI (Reuters) – Gulf Arab investors are increasingly looking to Asia to invest windfall oil revenue, eager to ride the rise of China and India and diversify away from their traditional ties with the United States.
“If you look at some of the big investment houses in the region, their appetite for Chinese is high,” Nasser al-Shaali, chief executive of the Dubai International Financial Center (DIFC) Authority, told the Reuters Middle East Investment Summit this week.
Public and private companies in the world’s largest oil-exporting region want to take luxury hotel and resort brands to Beijing and Shanghai, invest in Indian power stations and funnel billions of dollars into Pakistani real estate.
“What you are going to see is capital moving eastward from the Middle East,” said Shaali, whose dollar-based investment zone in the Arab world’s commercial hub hopes to eventually rival financial centers in London, New York and Hong Kong.
Gulf Arab investors have spent around $94 billion on foreign mergers and acquisitions since 1997, about two-thirds of that in 2005 and 2006.
But only 10 to 15 percent of the $1.1 trillion surplus regional oil producers accumulated between 2003 and 2007 has entered regional economies, Shaali said.
The United States, a traditional home for parking petrodollars, may be falling out of favor as investors count the risk that assets in the U.S. could be targeted over security concerns since the September 11, 2001 attacks.
“We try to avoid deals that have a political angle to it,” said Atif Abdulmalik, chief executive of Arcapita, a Bahrain-based Islamic investment bank.
Dubai Ports World was forced to relinquish six U.S. assets that were part of its $6.8 billion buy of British ports operator P&O in 2006 following a political furor stemming from concerns over national security.
The move brought talks for a U.S.-UAE free trade deal to a standstill, and made regional investors cautious.
“In two relatively short sweeps we’ve damaged in the minds of people a reputation built up over 200 years,” said David Jackson, chief executive of Dubai government investment agency Istithmar.
“The U.S. talks about how ‘We are the greatest capital market in the world and we are open to everybody’ but the evidence is against that, whether Unocal or DP World,” Jackson said.
DP World’s expansion into India and China and Istithmar’s purchase of around 2.7 percent in Standard Chartered last year to tap the London-based bank’s strong focus on Asia indicate that Asia stands to benefit from this reticence.
“We have a lot of surplus liquidity and people don’t know what to do with it,” said Sarmad Zok, chief executive of Kingdom Hotel Investments, owned by Saudi billionaire Prince Alwaleed bin Talal.
Zok said Gulf Arab investors have been willing to pay premiums for “trophy assets” in the west in order to get global exposure, but doing so has also cut into their returns.
Asian investments, he said, involve higher risks and higher rewards, he said, underpinning a trend among Gulf Arab companies to include Asia into billion-dollar spending sprees.
Abu Dhabi National Energy Co. is eyeing Indian power generation and natural gas projects in a $6 billion spending spree this year, while Dubai-controlled hotels group Jumeirah expects Asia to contribute up to 40 percent of its revenues by 2011.
“I think our progress into India will wallop up over a number of years,” said Tim Clark, president of Emirates airline which, like Abu Dhabi-based Etihad Airways, is adding flights to Indian cities to meet growing demand.
Political risk concerns aside, Gulf Arab investors are not about to avoid the world’s largest consumer market.
Global Investment House will push ahead with plans to buy a New York-based asset manager in order to tap U.S. wealth, executive vice-president of the Kuwait-based investment bank Bader al-Sumait said.
“Definitely it is not a ports issue when it comes to asset management,” Sumait said.
Dubai’s Damac Properties is also eyeing U.S. real estate acquisitions, following the lead of Emaar Properties , the largest Arab property developer by market value, which bought U.S. John Laing Homes last year.
“You will see more acquisitions,” said the DIFC’s Shaali.
“Reverse globalization – when you have emerging market players going out and acquiring developed institutions – is a tide that no matter how you try to swing against it, will be very very prevalent in the years to come,” he said.