The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

"If Moses had taken a right instead of a left, we'd have the oil and they'd have the sand." -- Old Jewish proverb

NEW YORK ( TheStreet ) -- Four words define investing in the Middle East: Israel, oil, and hazardous and opportunity. Israel defines such investing in two ways. First, Israel is a principal in one of the two major conflicts in the region, specifically, the Israeli-Palestinian conflict (the other being the conflict in Iraq). Second, whereas Silicon Valley used to be the international center of innovation, Israel has begun to displace the Valley as that center.

As for oil, while not omnipresent in the Middle East, it is present in sufficient amounts that it's difficult to discuss Middle East investments without considering the impact of oil. Hazardous and opportunity go hat in hand when one considers investment in the developing world.

Having organized and run many Israeli investment clubs on the East Coast during the 1990s, I developed a lot of interest not only in companies in Israel but also those elsewhere in the Middle East. This series of articles will explore investing in one of the more volatile parts of the world. Is the potential reward worth the risk? That's something every investor has to assess for themselves.

Many might view investments in the developing world from the perspective of the stability of a given country's government. Israel ranks as the region's long-standing stable democratic government, but what about in countries in which a western-style democracy isn't present? There are, after all, a number of such countries in the Middle East. ( Egypt, anyone? )

In the past, one might have looked at Middle Eastern countries by their affiliation with the West, either Europe or the United States, with the mantra of avoiding those countries lacking such affiliation. During the past half century, that view has been frequently tested and found to be wanting. How, then, can one assess the "investability" of a given Middle Eastern country. One approach may be found in the work of economist Hernando de Soto Polar.

Based on his observations, de Soto suggested that the key to growing an economy, particularly those in the developing world, is in the ability and willingness of the legal system to enforce property rights. Countries with that legal system will see economic growth boom, and those without it will be hobbled economically.


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De Soto is controversial. However, using his observations is one way we can differentiate countries in the Middle East which are investable from those which are not. Also, because of religious limits on payments of interest, we won't go into debentures (read: bonds) in this article. Among the investment opportunities in the Middle East are real estate, commodities, and equities; the focus of this series of articles is strictly on equities.

Debentures do exist in the Middle East, though they don't look like anything investors in the developed world would recognize. In a sukuk --- the "bond," a certificate is sold by the company to an investor . These certificates can't be issued for the the company overall; the certificate must be for a specific piece of property, whether it is, say, real estate or production machines. Once issued, the certificate is rented back to the issuer. The key, though, is that the investor sells the certificate back to the issuer for a defined amount of money, all specified in the sukuk at the time of its issuance .

For this reason, sukuks aren't considered to be loans but a contract-specified form of rent. Basically, then, the certificates operate like bonds, but in a manner allowed under Islamic law. What about convertible sukuks? They exist -- trading on the London Stock Exchange, for instance, as well as Middle Eastern capital markets, like the Kuwait Stock Exchange. For a convertible sukuk, the terms of the contract are modified specifying the terms of the repurchase of the sukuk by the issuer.

I like to think of the sukuk as a modified annuity rather than as a debenture. Regardless of how one conceptualizes sukuks, the reality is that they make it possible to have a debenture-like instrument within the boundaries specified by Islamic religious law. According to Wikipedia, the market value of outstanding sukuks, stands at $1.2 trillion , about the same size suggested by others.

Let's start with Qatar, one of the more stable governments in the region.

Qatar is one of the other nations bordering on the Persian Gulf with petroleum wealth. It is to natural gas what Saudi Arabia is to oil. (At least one company, the Qatar Fertilizer Company, was founded principally to make use of at least some of that natural gas.) The surprising thing, though, is that Qatar is also an emerging scientific research powerhouse -- perhaps the only one in the region which might rival Israel. It's not there yet, however, and the lack of diverse types of investment opportunities is but one consequence.

Not to fear, though, there's every indication Qatar will emerge as one of the region's financial heavyweights: Singapore in 1970 with natural gas wealth. With GDP growth in 2010 of about 14 percent and estimates of 2011 growth north of 17 percent, Qatar holds much potential for the investor ready to do her homework.

For those not willing to directly invest in Qatar, one closed-end fund to consider is the Epicure Qatar Equity Opportunities Plc (traded on the London Stock Exchange), which has returned almost 50 percent in the past 18 months, and almost 24 percent during the past year. This fund counts among its top five holdings: the Qatar National Bank, Industries Qatar, the Commercial Bank of Qatar, the Qatar Islamic Bank and the Rayan Bank, some of the largest public companies in Qatar.

There are three ETFs of note: PowerShares MENA Frontier Countries ( PMNA) (at least 13% exposure to Qatari securities), WisdomTree Middle East Dividend Fund ETF ( GULF)(with one-sixth of the fund in Qatari securities), and Market Vectors Gulf States ( MES) (about 15% of assets are in Qatari securities). None of these funds offer pure plays on Qatar. There are also the usual caveats about ETFs one needs to consider, including volatility of the markets in which the ETFs are invested.

To find investment opportunities in Qatar itself (as opposed to a closed-end fund), one goes to the Qatar Exchange . Located in the Qatari capital of Doha and announced in 1995 as the Doha Securities Market, the Qatar Exchange (QE) began operations in 1997. Barely five years later, all QE trading was electronic. Most recently, in 2009, NYSE Euronext bought a 20% interest in the QE.

With more than 45 companies' stocks trading, the QE offers those seeking to buy into Qatar's economic growth some opportunities to profit. Be aware, though, that QE has been moving sideways since 2004; economic growth doesn't always equal portfolio growth. Also, by Qatari law, non-Qataris may own equity in Qatari companies, with a limit of 25% of the outstanding shares. One other aspect of the QE is that it isn't regulated by the government. Rather, a private entity, the Qatar Financial Markets Authority (QFMA), provides such supervision.

How effective the QFMA is in providing oversight a la the Securities and Exchange Commission isn't yet clear. It's something investors will have to experience. There are indices by which one can assess the QE. Dow Jones, for example, publishes the Dow Jones Qatar Total Stock Market Index, and the Financial Times, the FTSE NASDAQ Dubai Qatar 10 Shares Index.

To purchase shares on the QE, one need establish a trading account with a local stockbroker. There are seven brokers authorized to trade on the QE . Individuals need a National Identification Number (think Social Security Number); they also must register with the QE itself to trade securities .

Given that one has the requisite trading account, what might be the best stocks to buy? The 40-something companies with listed shares may be divided into four industries: banking/finance, insurance, industrials, and services. One member of the services sector is Qtel (or Qatari Telecom ). At one time, like AT&T ( T), it enjoyed a virtual monopoly on providing telecommunications services in Qatar, with the resulting A rating from S&P and A2 from Moody's. That monopoly was eliminated in 2006.

Since then, however, there hasn't been any emergence of major competitors to Qtel. The company, meanwhile, realized that its fortunes lay outside Qatar, and so began growing its wireless business both in Qatar and, more importantly, in other venues in Asia. The latter was undertaken in a series of joint ventures, most of which have been pretty successful. It's those other investments Qatar that drove Qtel's profits to explode over the past three years, effectively doubling while debt was reduced. What about the future? As the great sage Yogi Berra observed, "Predicting is hard, especially when it's about the future."

Industries Qatar is one of the industrial conglomerates often found in developing/emerging companies. Among its subsidiaries are Qatar Fertilizer Company, Qatar Petrochemical Company, and Qatar Steel Company, and its major shareholder (at 70%) is Qatar Petroleum. Still, there are some share, albeit a small proportion (under 1%), held by individuals.

The company has had its ups and downs the past three years, and its shares reflect that turbulence. The stock price peaked during the summer of 2008, and then halved during the ensuing crash. During the past year, shares have increased by 24%; the dividend provides a yield just north of 3.7%. The shares aren't cheap, selling at more than 3.7x book and north of 6.7x revenues, with a PE approximating its growth rate of about 14%. As the Qatari economy grows, so will Industries Qatar. It's about as close to an index fund as one is likely to find for the QE. And it has the added benefit that Qatar is unlikely to devalue its currency any time soon.

There are a number of other Qatari stocks worth some investigation: banks, for instance; if Qatar is to emerge as the region's financial center, its banks will grow considerably, enriching shareholders in the process. The well-published writer-investor Jim Rogers is fond of advising those investing in emerging markets to identify the developing economies and then invest in the leading banks, brewers, insurers, etc in those marketplaces. That adage fits Qatar well.

One needs to identify those leading Qatari companies and first research them. Researching those companies on the internet is more straightforward than for companies elsewhere in the emerging nations' world. Then allocate your investments among those leading companies and follow those investments and Qatar in general closely. There are lots of investment opportunities in Qatar. Space doesn't allow us to go through them all, but if Qatar's your cup of tea, you have some interesting homework about which investment opportunities to pursue. And you'll be investing in a country with outstanding economic growth and a reasonable sense of property rights.
David Lilienfeld, who trained as a physician, is an individual investor who works as a consultant in the biotechnology and pharmaceutical industries.

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