One of the tenets of investment wisdom is that politically unstable nations, areas or regions cannot attract capital. In the minds of many W...

One of the tenets of investment wisdom is that politically unstable nations, areas or regions cannot attract capital. In the minds of many Western investors, the Middle East in recent years has seemed like the textbook definition of instability.

However, on a trip to the Gulf states and then the World Economic Forum in Davos, Switzerland, in January, an interesting paradox became increasingly apparent: The Middle East has become a compelling opportunity for intrepid investors, as opposed to a region to be avoided.

Fact is, whether you invested euros, dollars or yen, over the past one-, three and five-year periods, among the top performing country indexes have been the Kuwait Stock Exchange Index and the Saudi TASI stock index, with Egypt’s Hermes Financial Index close behind during the first two periods.

Of course, it might be argued that all three indexes benefited from the US invasion of Iraq, and there is certainly some truth to that. But if you look at the five-year performance of these exchanges, Kuwait and Saudi Arabia’s numbers are even more astounding than the three-year figures – showing that they surged in 2000 and 2001, well before any invasion was contemplated.

Finally, some might suggest that the region’s good fortune has to do with the rise in the price of oil, but that windfall didn’t occur until last summer. So there has to be some other explanation for the Gulf’s out performance.

In fact, in talking with clients in the region, there are four: First, money is increasingly returning from global to local markets, or repatriating home. Whereas years ago Middle Eastern citizens felt more comfortable investing overseas, in recent years the reverse is true. Increasingly, investors feel that they can combine good instincts with good contacts at home.

Second, the declining US dollar, along with the fact that, historically, global portfolios were overexposed to dollars, has left higher yielding, non-dollar denominated assets both underweighted and increasingly attractive.

Third, the local economies in the Middle East, along with other emerging markets, have become a beacon for trading and construction opportunities.

The initial awareness of this was China’s appetite for materials such as steel, cement and, of course, oil. Just as in resource-rich Brazil, for example, in oil-rich Gulf states long absent infrastructure is finally and dramatically being built. Throughout the region, a sense of opportunity has been unleashed. The building of the city of Dubai is perhaps the most remarkable example, but the same deployment of resources is under way in the other Gulf states as they participate in Saudi Arabia, Iran and Iraq.

Fourth, as the Fed lowered US interest rates, so did emerging nations, leading to record-low rates, which boosted local real estate prices, as has occurred in the US, UK and Europe. However, unlike these other developed markets, the Middle East has much more property to develop before it meets domestic demand.

Indeed, the growing strength of Middle Eastern stock markets indicates that the region is already well on its way to becoming what the rest of the world would like to see: peaceful, energetic and open for investment; in short, an opportunity in the making. That echoes what I heard in Davos – the global economy is ready to soar, and once peace is secured, prosperity should prevail.