Once we see that happen – and I’m convinced we will – you can kiss goodbye to the dollar.

Right now, business from the Middle East is about the only thing keeping the greenback above water.

But it’s already starting to drown!

You see, oil – the Gulf’s greatest export – is priced in dollars. It’s traded in dollars. Therefore a huge part of their foreign currency reserves are invested in dollars.

Trouble is… the dollar’s plunging. And the only thing propping it up is this Middle East investment.

But they’re losing patience by the day!

And no wonder…

As the Fed slashed interest rates in a desperate attempt to stave off recession, they’ve unwittingly landed their unlikely saviours up the proverbial creek!

Thanks to their peg to the dollar Gulf States have seen record rises in inflation – between 7% and 10% by Dec 2007, up from just 1.4% in 2005.

Why don’t they just go ahead and dump the dollar now?

The fact is they are SO heavily invested in dollar-denominated assets it would be domestic political and economic suicide if they were to instantly pull the rug. Dollars accounted for 67% of Gulf Corporation Council state assets in 2007.

So it’d be bad for business to do it now, but they are working very hard on diversifying their investments.

Already the Qatar Investment Authority, the emirate’s sovereign wealth fund, is looking at investment opportunities in countries like China, Japan, Korea and Vietnam to diversify currency risk, says head of strategic and private equity, Kenneth Shen.

So here is my prediction…

Doom for the dollar… boom for Vietnam

Economic necessity will see the Gulf de-peg from the dollar and establish a single currency.

Backed by the region’s massive energy reserves, the new Gulf currency will emerge as one of the world’s major currencies alongside the dollar, euro, sterling and the yen.

It’ll result in falling inflation in the Gulf and lay the basis for a sustained economic boom in the region. Gulf investment houses will then become major players on the global stage.

Gulf merchant banks should be a big beneficiary of this. But another market with their coffers open, ready for filling – and which you won’t expect – is Vietnam.

You see, as Gulf investors begin looking for new opportunities to invest their petrodollars, many of them are waking-up to the potential of Vietnam.

Just listen to Bader Al-Sa’ad, CEO of Kuwait’s sovereign wealth fund, the Kuwait Investment Authority:

“The government has a will to change the economy; there is a huge jump in direct foreign investment year over year,” he says. “They are learning from the Chinese experience and it is easier to enter Vietnam than other emerging economies . . . We are interested in buying a stake in a financial institution but these stakes are not cheap.”

With Vietnam’s market now some 50% below its peak last November, Mr. Al-Saad may soon get his chance.

I’m predicting it’s going to be a big winner as the tide of petrodollars hits this gloriously undervalued Southeast Asian state.

For clever way to ride this trend, click here.

Regards,
Manraaj Singh
Editor Profit Hunter