The Middle East nation of Dubai has become the emerging market story of the month as the city-state's largest corporate entity, Dubai World, asked creditors for a six-month reprieve on repayment of its $60 billion in debt. The nation that has been categorized by its excessive spending spree, including constructing indoor ski resorts, some of the planet's tallest buildings and man-made private islands, built it all on the backs of debt. The real concern stems from lenders' belief that this debt was guaranteed by either the government of Dubai or by the central government of the United Arab Emirates, of which Dubai is a member state. Similar to what investors thought about Fannie Mae and Freddie Mac debt, "state sponsored" doesn't mean "state run". Both governments have washed their hands at the matter and there is now a real possibility of default on nearly $26 billion in debt. While Dubai may or may not return to its former glory, the situation has spilled over to other nations in the Middle East, and investors have begun to take a hard look at sovereign debt and risk.

IN PICTURES: Learn To Invest In 10 Steps

Long-Term Opportunity
While Dubai World's potential default and asset sales are a sign that not all governments will bail out struggling corporations, the "crisis" does signal longer-term opportunities in some frontier markets. These countries fall under the notion of the emerging markets of tomorrow. The special appeal of the Middle East region is that energy-driven profits will spur growth in other areas, including infrastructure and healthcare. Analysts estimate that these nations will generate an oil surplus of $1.1 trillion - equal to about $30 million per resident. In terms of per capita GDP, the region sports an overall average of $7,000 per resident, making the Gulf States second to Latin America in terms of emerging economies.
Adding The Gulf To A Portfolio
Dubai's problems have and will continue to cause exchange-traded funds (ETFs) focusing on the region to fall in the upcoming weeks until a solution is reached. Investors with longer-term time lines and strong risk tolerances may want to add these to a watch list, as any dips may be the perfect time to strike out into the region.

The WisdomTree Middle East Dividend (Nasdaq: GULF) and the PowerShares MENA Frontier Countries (Nasdaq: PMNA) are two broad-based funds that focus on the Middle East and North America. These include investments in Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates. GULF follows a dividend-weighted index, while PMNA uses a more traditional market capitalization index. Absent from both ETFs are a strong representation of oil and gas companies, as most are state-owned entities. The ETFs are relatively expensive with GULF charging 0.88% in expenses and PMNA charging 0.95%.

Water Deficit
The world has an average of 8,500 cubic meters of fresh water per person. The Middle East only averages around 1,000. This water deficit has led to the region becoming one of the largest operators of desalinization plants, however demand is still growing. Huge water infrastructure spending will need to occur as the nations in the area grow richer and more populous. The PowerShares Global Water (NYSE: PIO) invests in 29 global water-based firms including arid land specialist Veolia Environment (NYSE: VE).

Like Japan, the Middle East can't get enough luxury goods. The region has one of the highest per capita spending amounts on such things. The Claymore/Robb Report Global Luxury (NYSE: ROB) focuses its attention on the purveyors of high-end merchandise. Holdings such as Tiffany's (NYSE: TIF) will benefit as energy revenues continue to flow into the Gulf.

Bottom Line
With the recent Dubai debacle, the Middle East is in turmoil as investors re-evaluate their risk profiles to the region. However, the long-term story is still intact. Investors who have long enough time lines may want to think about adding the region to their emerging-market portfolios as the months unfold. Both GULF and PMNA provide broad coverage to the region through a variety of firms. The PowerShares Global Water ETF and the Claymore Luxury ETF provide a back door into the region's future spending. (To learn more, check out Re-Evaluating Emerging Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  2. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  3. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  4. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  5. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  6. Stock Analysis

    6 Risks International Stocks Face in 2016

    Learn about risk factors that can influence your investment in foreign stocks and funds, and what regions are more at-risk than others.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center