DUBAI The Middle East faces its biggest challenge in years, with the worst financial crisis since the 1930s threatening oil exporters, but investor appetite is returning after state intervention and recovering crude prices.
"The Gulf not only looks to have braved the downturn but also to have been well placed to catch early the tail wind of recovery," said Simon Williams, chief economist at HSBC Middle East.
But the impact of the crisis continues to be felt.
Interbank lending across the Gulf Arab region continues to stutter, despite a pick-up in government and quasi-government bond issuance as overseas investors look for high-rated emerging market paper.
The property sector crash in the commercial hub Dubai, which saw prices tumble 50 percent and an exodus of expatriates, still sends jitters among investors eagerly awaiting government plans to repay about $6 billion of debt this year.
The credit crisis and following liquidity crunch has also shaken the very core of Gulf Arab region's trading dominated by family businesses, bringing to surface questions of transparency and corporate governance.
"We are still struggling with the legacy of over-lending to some extent and financial institutions have not taken care, there are imbalances in the financial system and that is having an impact in terms of the access to credit by companies," said Timothy Fox, chief economist at Emirates NBD.
"It is taking a while for these imbalances to correct, it may take a little bit longer."
A survey this week from HSBC showed that while business confidence in the Gulf Arab region has risen to its highest level since October 2008, the optimism in the United Arab Emirates remains the lowest.
With oil near $80 a barrel, the Gulf is still positioned to outperform the rest of the world amid the global recession, given its status as the largest energy exporting region.
"There are positive impacts from the oil price in terms of regional and government fiscal positions and current accounts," said Fox. "If oil prices stabilize around today's levels it won't be long before we start to see economies and governments start to save again and restore fiscal balances."
Regional state budgets are based on crude prices ranging from $40 to $50 a barrel, and with excess cash the region's largest sovereign wealth funds are ready, if prices are right, to seek overseas acquisitions in sectors ranging from financial, commodities to real estate.
Investments in British bank Barclays (BARC.L) by Qatar and Abu Dhabi highlighted that, for the right price, Middle East investors would step in.
Top executives will address these and other aspects of the Middle East financial climate in light of the ongoing financial crisis at the Reuters Middle East Investment Summit in Dubai, Riyadh, Cairo and Doha on Oct 26-28.
(For summit blog: summitnotebook.reuters.com/)
(Editing by Firouz Sedarat and Hans Peters)