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.

• The contest for most innovative ETF was not limited to a particular fund, rather, the provider of the most creativity/innovation seemed to be the theme. The 5th Annual Global ETF Awards gave a tie to Invesco PowerShares’ and Van Eck’s Market Vectors ETF families. Lawrence Carrel for Seeking Alpha notes that voters did not have to list a specific ETF for the top prizes, but he suspects that PowerShares won for producing the first line of actively managed ETFs.

• Carrel says Market Vectors likely won for the advent of Africa Index ETF (AFK) and/or Gulf States Index (MES).These were two of the five ones to market from Market Vectors last year.

• State Street won for Most Recognized ETF Brand in the Americas, thanks to a few factors, including the fact that the SPDR (SPY) is the largest and most liquid ETF in the United States.

• State Street also took home the prize for Most Informative Website.

The Global ETF Awards are like the Oscars of the ETF industry, says Carrel. Winning a prize at these awards is a feat in itself because competitors are voting – not just a panel of a few judges.

While consistency and sustainability are the foundation to the Islamic banking system, the proof is in the fact that the current market meltdown did not take the system down with it. A sustainable growth was witnessed in the system and the subject to which, 27 Muslim and 15 non-Muslim nations invited the Islamic banks in hopes of getting sustainability in their financial sector.

The principal basis of this economic system is the Islamic law – Sharia, explains 8000 Credit.org. Muslims are required to follow strict Islamic standards known as Shariah. Generally, these principles state that Muslims are forbidden to participate in any financial practices or do business with any money-lending entity that charges interest, known as riba; invokes gharar, or uncertainty, most commonly in the form of variable interest rates; or uses funds for maysir, or gambling.

Some of the reasons why the Islamic Banking system withstood so much of the turmoil that infected other banking systems include:

• The pragmatic interest policy in the Islamic financial system was one of the major factors attracting the affluent investors of Arab, which gave the system a strong base
• The internal wealth became the platform to the Islamic Finance, and gathered enough interest and support to sustain the current condition found in the world economies today
• The system is transparent, which helps risk-taking and profit-sharing among all, which in turn guides the market in a better direction

On the flip side, though, the banks never have enough liquidity for unforeseen events and the needs for risk protection are always increasing because of increased traffic.

The point of transparency is one that the Western world should strive for, and with the new administration this may come to fruition soon in our own banking system.

• WisdomTree Middle East Dividend fund (GULF): down 8.9% year-to-date

In United Arab Emirates, the Emirates Islamic Bank total assets increased by 56% to $7.1 billion from the end of December 2007 to 2008, reports Suzan Barhoush for Zawya. Customer accounts grew by 60% to $6.5 billion, or a $2.4 billion increase from the end of 2007.

The Bank also announced a record net profit of $109 million for 2008, or a 68% increase compared to the the previous year, and total income grew to $408 million, a growth of 56%. Return on capital reached 43% for 2008.

The new programs initiated by the Bank are what catapulted their growth. One key initiative in 2008 was the launch of “Skywards Emirates Islamic Bank credit cards” that catered to frequent travelers. The Bank, along with other Gulf and Arab financial institutions, created a “First Energy Bank.” They were also able to get the accounts of a number of successful, and lucrative, funds.

• Market Vector Gulf States (MES): up 8.6% in the last month; down 26.9% in the last three months; holdings of 16.3% in United Arab Emirates; sector breakdown of 44.2% in banks