2 Jan MiddleEast

I have quite a lot of subscribers who are from the middle-east. Possibly of my contrarian views. I got a question from a middle-easterners on the prospect of middle-east market. Here is my answer:

Middle-East thrives on Oil, no doubt about it. It has tried to diversify, e.g. with its massive infrastructure projects. Most commendable is the establishment of the King Abdullah University with which I have the opportunity to deliver some lectures on financial engineering as well.

However these project takes time to fruitation, much like trying to plant lavender in the desert. Incidentally, there was a plan to curve out a canal through the desert.

However danger is lurking around the corner. With US pulling out of Iraq, Iraq oil reserve (the second largest in OPEC) would be keenly contested by the Shiites and Sunis. And with the current Israel bombing of Palestine, we just have a new episode in the Middle-East turmoil.

In other words, the Middle-East equities are capped by geopolitical events. Oil having plunged from 147 to 34 would not rebound in a whiff. With the coming reorg of the CFTC (US Commodities and Futures Commission), we would see speculation in Oil or Commodities a tougher task.

We would see a change of leadership from US market to Asia market, primarily China/HK market in 2009. Not bços China has the largest capilitalisation or the most instruments. As US and Europe market would languish in market negative growth, monies would flow into Asia one more time.

Middlest East monies would flow out as well. Hence middle-east equities are not the best deal even how low it is now.

However I would not pile into China equities now, bços come February, March, April, we are going to see a deepening of the China crisis before the government monies take effect.

Shanghai Composite has so far been holding around 2000, even since it flirted with 1500. If it ever goes to 1200 to 1500 once more, it is a buy.

However the China market is only for trading, not long term investment. Bços come 2011-2012, we have the burst of a bigger bubble again.