Debt concerns about Dubai remain after a credit rating agency cut its ratings on six state-connected companies in the country. Dubai asked the government if it could defer payments on $60 billion in debt owned by Dubai World for at least six months. Dubai World is the city-state’s primary investment arm. (Will it blow over?)

But just because Dubai is mired in a potential crisis, it doesn’t mean investors should shy away from ETFs that focus on the Middle East. For one, Middle East ETFs can mitigate your exposure to risk by being allocated across a number of countries instead of focused on just one.

The Middle East is a large area of the world. North Africa can sometimes be lumped in with the region, which explains the acronym MENA: Middle East and North Africa.

Ron Rowland for Money and Markets says other regions include the area between the Red Sea and Africa. (Is the Middle East the next big thing?)

A variety of funds to choose from are available:

• SPDR S&P Emerging Middle East and Africa (NYSEArca: GAF): 62.6% in South Africa; 25% in Israel; 6% in Morocco
• WisdomTree Middle East Dividend Fund (NYSEArca: GULF): 34% in Qatar; 17.7% in Egypt; 15.9% in United Arab Emirates; 15.5% in Kuwait
• Market Vectors Gulf States ETF (NYSEArca:MES): 47.7% in Kuwait; 25.5% in United Arab Emirates; 18% in Qatar
• PowerShares MENA Frontier Markets (NYSEArca: PMNA): 23.7% in United Arab Emirates; 20.3% in Egypt; 19.1% in Kuwait; 13.8% in Jordan

One of the biggest risks of investing in the region is that it depends heavily on oil prices being high in order to generate income. There are also geopolitical risks, thanks to ethnic and political clashes. This can often lead to volatility, but you can protect yourself with an exit strategy if it gets to be too high. (Consider frontier markets).

For more stories about the Middle Mast, visit our Middle East category.

Middle East ETFs, such as the SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF), Market Vectors Gulf States (NYSEArca: MES) and WisdomTree Middle East Dividend ETF (NASDAQ: GULF), are a subset of a relatively new class of ETFs called frontier ETFs, remarks Bill Luby for Seeking Alpha. (Dubai worries agitate Middle East).

However, Luby believes that Claymore/BNY Mellon Frontier Markets (NYSEArca: FRN) and PowerShares MENA Frontier Markets (NYSEArca: PMNA) stand out as real diversified frontier plays. (Why frontier markets may be the next big thing).

PMNA is a regional ETF based on the NASDAQ OMX Middle East North Africa Index, with a strong emphasis on the Persian Gulf. Top country allocations include United Arab Emirates (22.6%), Egypt (20.2%) and Kuwait (16.9%). (Four reasons Africa looks appealing).

FRN is a more geographically diversified ETF based on the Bank of New York Mellon New Frontier DR Index. Top country allocations include Chile (28.6%), Poland (15.9%) and Egypt (15.4%).

Additionally, there is the regional frontier ETF Market Vectors Africa (NYSEArca: AFK) and the recently launched single-country ETF Market Vectors Poland (NYSEArca: PLND). (Poland’s growing economy targeted with new ETF). Van Eck is also planning new country-specific ETFs for Egypt and Kuwait.

For frontier markets, the same principles of investing in emerging markets apply: the broader your fund is, the lower your risk. Potential investors should note that frontier markets are considered riskier than developed markets and the multi-country and single-country funds can suffer from low liquidity and high volatility.

Have a strategy for entry and exit in place before you invest to best protect yourself. More information on trend following can be found in The ETF Trend Following Playbook.

For more information on frontier markets, visit our frontier markets category.

Max Chen contributed to this article.

Global markets were taken aback by news that Dubai World, the city’s largest corporation, asked creditors for a six-month stay on$60 billion in repayment, reports Geoffrey Rogow for The Wall Street Journal. This uncharacteristic turn led to a swift drop in worldwide stock markets, including a 3% drop in SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF) and a 9% drop in Market Vectors Gulf States (NYSEArca: MES). (Dubai worries weigh on stocks).

The WisdomTree Middle East Dividend ETF (NASDAQ: GULF) has 31.8% allocated to Qatar and 18.9% allocated to UAE. The ETF has dropped more than 13% during the last two trading days.

If a helping hand comes to aid Dubai World, a rally may shortly follow. Though, investors should be cautious  and ready to employ an exit strategy, since there is still too much uncertainty. Note that both GAF and MES are currently trading at a rather low level of shares per day on average, which could impede investment liquidity.

Overall, this is just a bump in the road. This debt is about a third of what the United States gave to AIG in bailout money, so Dubai is “too big to fail.” The ramifications would be huge, which is why many believe the United Arab Emirates will step in with some loans to smooth things over.

Dubai World and MGM Mirage (NYSE: MGM) are planning to increase borrowings for the new CityCenter Resort to retrieve cash by mid-2010, writes Beth Jinks for Bloomberg. CityCenter is protected against defaults by its owners, and future borrowings would be based on the project’s credit rating and projected cash flow, says MGM Chairman and Chief Executive Jim Murren.

If Dubai World were to sell its interest in the $8.5 billion CityCenter project, MGM Mirage has the right of refusal to buy out its partner.

For more information on the Middle East, visit our Middle East category.

Max Chen contributed to this article.

In Dubai, United Arab Emirates, fighter jets will be the focus at an upcoming airshow as Arab countries update their military might, reports Stefania Bianchi for The Wall Street Journal. According to consultancy Frost & Sullivan, defense spending in the Middle East could go above $100 billion by 2010, or 11% of global arms deals. Many leading arms companies believe the region is the up-and-coming place for defense spending.

Saudi Arabia and the U.A.E. are both using defense deals to offset unemployment and diversify away from their predominantly oil-related economies.

The long-term goals of the Arabian Gulf region will be brought on by robust local economic fundamentals, strong political will, a resourceful business tourism profile, continued healthy regional demand and expanding air access, writes Mohamed Tamer for Global Arab Network.

Tourism is seen as a rising key industry in the region and groups like ADTA, which manages the tourism industry in the Arabian Gulf emirate, are trying to entice travelers to consider the Middle East a must-see locale.

Marriott International (NYSE: MAR) announced the signing of five hotels to the Middle East & Africa Region, according to CNNMoney. Ed Fuller, president & managing director international lodging for Marriott, sees that “the Middle East appears to have weathered the global economic storm” and they “look forward to rising occupancies through the end of this year and into the next.” (Frontier markets the next big thing?)

For more information on the Middle East, visit our Middle East category.

• WisdomTree Middle East Dividend  (NYSEArca: GULF): up 6.1% year-to-date; Qatar is 31.8%, U.A.E. is 18.9%, Egypt is 17.4%, Kuwait is 15.5%, Morocco is 9.7%, Oman is 3.9%, Jordan is 2.9%

• Market Vectors Gulf States (NYSEArca: MES): up 8.9% year-to-date; Kuwait is 47.7%, U.A.E. is 25.5%, Qatar is 18.0%, Oman is 4.0%, Germany is 2.4%, Bahrain is 1.3%, Norway is 1.1%

Max Chen contributed to this article.

In the last couple of years, Turkey economy has been augmented by increased exports to its Middle East and north African neighbors, extending pipelines for transferring energy, more air traffic and a number of infrastructure projects, according to The Economist. (Does Turkey need more support?)

Turkey is starting to utilize the soft power of trade and historical links to stabilize the country’s position in the Middle East. Reform needed to meet EU membership has prodded the government to look inward and what resulted was a greater stability in the region.

The realignment of interests has allowed Turkey to gain greater ties with its Muslim neighbors, and the country help bridge the Western countries with the Middle East.

The European Commission estimated Turkey’s GDP will contract 5.8% this year, followed by a 2.8% growth for 2010 and a 3.6% growth for 2011, as stated in Hurriyet Daily News and Economic Review. The commission also expected public debt-to-GDP ratio to rise above 51% of GDP in 2011

The Turkish economy was constrained by exports and investments, which dropped 8.5% and 17.6% respectively, as well as a 5.3% decline in private consumption. The banking sector is well-capitalized but loan growth is decelerating, which could slow the recovery of private consumption and investment. High requirements for public sector borrowing may further limit credit for the private sector.

For more information on Turkey, visit our Turkey category.

• iShares MSCI Turkey Invest Mkt Index (NYSEArca: TUR): up 83% year-to-date

• Market Vectors Gulf States ETF (NYSEArca: MES): up 11.9% year-to-date

Max Chen contributed to this article.

Over the next three-to-nine months, frontier markets are anticipated to outperform the emerging and developed markets, reports Allen Wan for Bloomberg. The Middle East is in a position to lead the way, since the region has not yet recovered from the global market meltdown, making valuations cheap. The region’s equities are expected to catch up as corporate earnings improve. (Read about five risks to the Middle East economy).

A frontier market is generally a country that is fairly poor. An example is most of Africa. (Four reasons Africa is appealing).

The markets are usually locked up with little or no liquidity, but they can be a good diversification tool for investors. They can be long-term uncorrelated investments and they have enormous potential for growth. There are currently 28 countries listed as frontier markets, reports IS for Intelligent Speculator. (Read about MSCI’s latest review of these markets).

For more stories about frontier markets, visit our frontier market category.

• Claymore/BNY Mellon Frontier Markets (NYSEArca: FRN): up 57.2% year-to-date

• PowerShares MENA Frontier Markets (NYSEArca: PMNA): up 24% year-to-date

• Market Vectors Gulf States (NYSEArca: MES): up 24.9% year-to-date

• WisdomTree Middle East Dividend (NYSEArca: GULF): up 17.4% year-to-date

• SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF): up 49.8% year-to-date

• Market Vectors Africa (NYSEArca: AFK): up 43.5% year-to-date

Frontier markets are not stable enough to be named “emerging,” but these markets do have more potential to deliver higher returns to compensate for the greater risk, remarks Will McClatchy ETFZone. Frontier markets are defined as suffering from extreme volatility, poor trading, corruption, dismal accounting and a tendency to expropriate foreign capital.

What’s so appealing about frontier investments? First, the fastest-growing countries are currently the ones that are “economically delayed.” Second, risk in frontier markets is greatly reduced when added in small amounts to a portfolio.

Some frontier market regions to consider include:

• Africa is a prime example of a frontier market. During the financial debacle, Africa did not suffer as much from the credit crunch since it was lightly leveraged. The continent also has a great amount of natural resources.
• States of the Persian Gulf and Middle East hare developing into emerging status. The oil-rich states are raking in the benefits of increasing wealth, transparency and infrastructure development.
• Eastern Europe, former Soviet satellite states and Asian countries do have some ready supply of natural resources, but some regions are corrupt and home to organized crime.
• Smaller Latin American countries like Bolivia, Ecuador and Peru are sometimes categorized as “frontier.” However, most Latin American ETFs are more weighted toward advanced economies, and single-country ETFs don’t cover all the nations.

A few of the frontier market ETFs out there include:

• Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN): up 42.7% year-to-date; expense ratio is 0.65%; country samplings include: Egypt, Colombia, Kazakhstan, Chile and Poland

• Market Vectors Gulf States ETF (NYSEArca: MES): up 18.2% year-to-date; expense ratio is 0.98%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 58.3% year-to-date; expense ratio is 0.6%; note that GUR has a high allocation to Russia

• Market Vectors Africa ETF (NYSEArca: AFK): up 32.2% year-to-date; expense ratio is 0.83%; country samplings include: South Africa, Nigeria, Morocco and Egypt

Fore more information on frontier markets, visit our frontier markets category.

Max Chen contributed to this article.

Although the Middle East has been viewed as a fertile region for investors, there are still risks that go along with investing in these emerging markets. Alistair Lyon for Reuters has five points of caution for investors seeking exposure to this area:

• Iran’s political turmoil/ nuclear experiments: Western leaders, who suspect the world’s fifth-biggest oil exporter of trying to make an atom bomb, have set a September deadline for Tehran to enter nuclear talks. President Mahoud Ahmadinejad is back in power, which has made big rifts in the ruling elite evident.
• Iraq instability as troops withdraw. The government wants foreign investors to help revamp Iraq’s economy, oil industry and infrastructure, but some have concerns over corruption as well as security, legal and regulatory risks. Security has improved, however. The remaining 130,000 U.S troops will withdraw by the end of 2011.
• Obama’s peace efforts with Israel and Palestine. The issue has opened the widest rift in U.S.-Israeli relations in a decade and Palestinian President Mahmoud Abbas has said peace negotiations with Israel, suspended since December, cannot resume until settlement activity ceases.
• Saudi debt crisis. Several Saudi family firms are struggling with a debt crisis that has exposed a lack of transparency in the financial sector and hit the kingdom’s reputation as an investment destination. The country’s king and prince are in their 80s and the future remains uncertain.
• Hard recovery in Gulf States. As oil rises to $70 per barrel and beyond, public infrastructure spending should stimulate growth. On the other hand, a lack of transparency makes it hard to assess how exposed Gulf firms and sovereign wealth funds are to overseas markets.

Watch the trend lines to see whether any of these events impact your ETFs.

• WisdomTree Middle East Dividend  (GULF): up 7.8% year-to-date

• Market Vectors Gulf States (MES): up 13.4% year-to-date

For more stories about the Middle East, visit our emerging markets category.

Since 2000, the Middle East has seen growth above 5% and has become the second richest part of the emerging world, according to ETF Grind. But Mideast economies were slower to recover in the beginning of 2009 and there were concerns over the ability of the region to pay down debt accumulated in the good years.

Over the long-term period, there are several ETFs that an interested investor could keep an eye on:

• iShares MSCI Turkey Invest Mkt Index (TUR): up 30.9% year-to-date. Turkey’s economy isn’t tied too heavily to oil. It remains dependent on exports to the EU. The country’s industrial sector can profit from its close proximity to oil producers.
• Market Vectors Agribusiness ETF (MOO): up 36.6% year-to-date. Economic develpment and population growth would make the Middle East would effect global food demand more than elsewhere since the region has little arable land. Middle Eastern countries are already securing land for a steady food supply and will need the necessary equipment and supplies.
• PowerShares Global Water (PIO): up 10.8% year-to-date. Needless to say, the region has a scarcity of freshwater. The Middle East has the biggest market for desalinization plants and expensive water engineering projects. PIO holds 29 global water resource firms.
• Market Vectors Gulf States ETF (MES): up 15.4% year-to-date. MES covers Middle Eastern countries that border the Persian Gulf. It is weighted toward finance, real estate and services. Its expense ratio is 1.00, but it is a pure play on oil related economies.
• iShares MSCI Israel Cap Invest Mkt Index (EIS): up 33.5% year-to-date. Israel has reputable pharmaceutical and tech sectors.
• Claymore/Robb Report Global Luxury (ROB): up 13.3% year-to-date. When crude oil rises again, Middle Eastern royals will be swiping their super platinum cards in purchasing luxury goods.
• PowerShares MENA Frontier Countries (PMNA): up 15.9% year-to-date. PMNA is similar to GULF but excludes gulf nations of Qatar, Bahrain, and Oman. It also has a higher expense ratio. It is broadly diversified with Morocco and Egyptian firms. The fund mainly invests in large and mid caps.
• Claymore/Delta Global Shipping (SEA): up 31.8% year-to-date. Recovery in oil prices and Middle East production could translate into strong earnings for global shippers. Crude oil makes up aruond 1/6 of global trade.
• WisdomTree Middle East Dividend (GULF): up 8.4% year-to-date. GULF has a broad market Middle East and North Africa exposure. It has a wider selection of holdings than PMNA or MES, a lower expense ratio, and is dividend weighted rather than capitalization weighted. But the funds competition, GULF is a little low on volume.
• iShares Dow Jones U.S. Oil Equipment Index (IEZ): up 39.7% year-to-date. Major equipment and service companies included in this fund have business in the Middle East. IEZ has outperformed crude oil ETFs and indexes of major integrated oil companies year-to-date.

As always, watch the trend lines to see what actually materializes.

For more stories on the Middle East, visit our Middle East category.

For full disclosure, Tom Lydon’s clients own shares of MOO.

Max Chen contributed to this article.

The Middle East is being transformed by the retail industry, according to Reportlinker. Large shopping malls, hypermarkets, supermarkets and other organized chains are proliferating in the region as a result of  a larger expatriate population, rising purchasing power and copious amount of oil money attracting premium and luxury brands.

The 2008 financial crisis may only marginally affect the retail market in the region, experts say, and there could still be growth of around 14% during 2009-2013. Middle Eastern countries showed strong fundamentals and a well-shielded banking system, but there are some short-term concerns over oil prices.

Only four of six Gulf Arab States signed the monetary union agreement, a Gulf equivalent of the European Union, reports Tarek El-Tablawy for BusinessWeek. Foreign Ministers from Saudi Arabia, Kuwait, Bahrain and Qatar signed on Sunday to set up a Central Bank and a unified currency.

The currency union would lower cross-border transaction costs and decrease some uncertainty. If the single currency were part of a broader regional economic integration, then it could help Gulf companies be more competitive on a global scale. The agreement would also strive to keep deficits to 3% of GDP and reign in inflation.

• WisdomTree Middle East Dividend (GULF): up 7.1% year-to-date

• Market Vectors Gulf States ETF (MES): up 14.6% year-to-date

For more stories about the Middle East, visit our Middle East category.

Max Chen contributed to this article.