Middle East Money Starts Flowing to Asia

Arab investors have typically looked West, rather than to China and India. But with oil at over $100 a barrel, that's changing in a big way

by Bruce Einhorn

Standard Chartered banker V. Shankar, head of corporate finance and private banking in Singapore, these days spends much of his time focused on the Middle East. Three years ago, he says, he didn't have a single M&A or project finance banker in the Gulf. Today, Standard Chartered has a team of 50 scouring the region for deals. And they're going to get busier, he predicts, as more investors from oil and gas-rich states in the Gulf look to Asia's giant emerging economies. "This is really the beginning," says Shankar. "You will see a lot of this happening."

The deals are already starting to flow. For instance, on Apr. 8, Saudi-based Al Futtaim , advised by Standard Chartered, agreed to pay $436 million for a 95% stake in Singapore retailer Robinson. Last year the bank advised Saudi Telecom in its investment of $3 billion in telecom operators in Malaysia and Indonesia. And the bank is now teaming up with Istithmar, the private-equity arm of Dubai World, on a $1 billion real estate fund that will invest in China, India, and Southeast Asia.

The emerging Middle East-Asian investment axis got another boost on Apr. 14. That's when Dubai International Capital announced a partnership with Hong Kong-based First Eastern Investment Group for a $1 billion fund focused on China. The two plan to invest in Chinese companies and try to take them public in Dubai.

Backlash Against the West

Typically Arab investors have looked west to the U.S. and Europe, rather than east to China and India, but that's starting to change, says Ashraf Zeitoon, director of special projects for the Mohammed bin Rashid al Maktoum Foundation in Dubai. Zeitoon, like Shankar, was one of several hundred business leaders from the Middle East and Asia to attend a two-day conference in Dubai on Apr. 15 and 16 organized by BusinessWeek. "There's tremendous interest in China across the Arab world," says Zeitoon, whose foundation plans to start sending MBA exchange students from Arab countries to Chinese universities. "There are a lot of synergies between our region and Asia."

The attention to Asia is in part a reaction to a backlash in the West against investment from Arab countries, says Nabil Ali Alyousuf, executive director-general of the Dubai School of Government. "One of the reasons is investors face difficulties and are treated with suspicion, when investing in the U.S. and Europe, of being tied to terrorism," he says.

Not a lot of Middle Eastern money has gone to China and India so far. Most of China's $70 billion in foreign direct investment comes from nearby Asian countries or from the West. India had $25 billion in foreign direct investment last year, says Anil Gupta, a professor at the University of Maryland's Robert H. Smith School of Business, but less than $5 billion came from the Middle East. With oil prices over $100 a barrel, though, the investment figures are bound to jump, he predicts. According to a McKinsey estimate, countries from the Gulf will have $9 trillion to invest by 2020. "There is no way the Middle East region could absorb that," says Gupta. "A good chunk of it will probably find its way to India."

China Has More Cash

The Indian government, which wants to spend $500 billion over the next five years to improve the country's creaky infrastructure, needs the influx of cash from the Middle East. But China, which has set up its own sovereign wealth funds to invest overseas, already has abundant capital of its own and has less need for support from the Gulf.