Are Asian Investors Pulling Back from the Middle East Amid the Crisis? "Safe-Haven Image Damaged"

[The Financial News, Tokyo] Correspondent Seo Hye-jin – Nikkei Asia reported on the 16th that, amid the war involving the United States of America (USA), the State of Israel and the Islamic Republic of Iran, Asian investors are rethinking their investment strategies in the Middle East. Experts expect that the conflict will damage the safe-haven image of Dubai and other markets, and that investor sentiment will remain subdued for a considerable time even after the war ends.
According to Nikkei Asia, the war erupted just as Asian companies and investors were increasingly looking to the Middle East as a new growth base.
A recent announcement by the Dubai Chamber of Commerce and Industry showed that 46.9% of multinational companies that entered Dubai last year were from Asia. This share is higher than that of companies from other Middle Eastern countries or the Commonwealth of Independent States (CIS), the former Soviet bloc.
However, as the war involving the Islamic Republic of Iran shows signs of becoming protracted, experts say Asian investors are reassessing their positions in Middle Eastern assets.
After the attacks by the USA and the State of Israel on the 28th of last month, the Islamic Republic of Iran launched ballistic missile and drone strikes against the Kingdom of Bahrain, the Republic of Cyprus, the Republic of Iraq, the State of Israel, Jordan, the State of Kuwait, Qatar, the Kingdom of Saudi Arabia (Saudi Arabia) and the United Arab Emirates (UAE). It also effectively shut down the Strait of Hormuz, a key chokepoint for global oil and gas shipments.
George Chen, a partner at the consulting firm Eurasia Group, said, "Recently, wealthy clients who had relocated from the Hong Kong Special Administrative Region of the People's Republic of China to Dubai have been asking Hong Kong banks and law firms about moving back for safety reasons," adding, "The fear created by experiencing bombings and drone attacks will not fade easily."
He pointed to the United Arab Emirates (UAE), which many Asian investors had regarded as a safe destination, and noted, "It will be difficult to restore investor confidence quickly."
The real estate market in the UAE, especially in Dubai, has benefited greatly from inflows of Asian capital over the past decade. A survey conducted last year by global real estate firm Knight Frank found that about 19% of high-net-worth individuals in East Asia planned to purchase property in Dubai within the next two to three years.
Jean-Claude Knebel, executive director at Hong Kong-based asset manager Admiralty Asset Management, said it is time for investors to think seriously about diversification, commenting, "It may be the right moment to shift allocations to other regions or other asset classes."
He added, "Even before the conflict, the UAE property market, one of the most profitable in the world, was already expected to undergo a price correction this year due to an increase in new supply."
Some experts argue that the UAE’s image as a "safe investment destination" has already been tarnished. Yasser Elsheshtawy, a researcher at the Arab Gulf States Institute in Washington, recalled the 2008–2009 global financial crisis, saying, "At that time, a large number of foreigners left Dubai, major real estate projects were halted and property prices plunged," and, "It took years for the market to recover and required massive government support."
He went on, "In Dubai and in Riyadh, the capital of the recently fast-growing Saudi Arabia, real estate is not just another industry; it functions as a growth engine based on perceptions of safety and political stability," warning that "when those perceptions are shaken, capital can move very quickly."
Nikkei Asia also reported that investment flows into stock markets in the Gulf region may weaken.
Saudi Arabia has been actively opening its real estate and stock markets under its Vision 2030 policy to attract foreign investment. However, analysts say that, given the current situation, many investors are likely to move to the sidelines.
Mohanad Yakout, senior analyst at Dubai-based financial services firm Scope Markets, observed, "Equity flows from Japanese and Chinese institutional investors into the Gulf region, which they had viewed as a stable investment base, are being reallocated."
He added, "It is still too early to draw conclusions about foreign direct investment, and even if the conflict drags on, investment in strategic sectors such as Saudi Arabia’s economic reform projects is likely to continue."
The Economist Intelligence Unit (EIU), a UK-based economic analysis firm, expects that China’s investment in the Middle East will broadly continue. As long as Middle Eastern countries push ahead with economic diversification policies to reduce their dependence on oil, Chinese companies are likely to remain active participants in construction and other projects, the EIU assessed.
However, the EIU noted that, with the exception of the Republic of Iraq, most Middle Eastern countries are still maintaining a relatively low level of security risk.
sjmary@fnnews.com Seo Hye-jin Reporter