This from Taipan Publising’s emerging market blog:

Last Tuesday, I told Taipan Publishing Group subscribers in Taipan Insider that one Middle Eastern country was injecting massive amounts of cash into international markets.

That’s not really news nowadays, though, is it? Everyone’s heard of the $7.5 billion Citigroup (NYSE:C) bailout by Abu Dhabi back in November 2007.

But things have noticably been slowing down. When billions of dollars worth of investments get halved in value in less than a year, it makes you think.

Yet for some regions, this credit crunch is an opportunity of a lifetime.

Think about it. You’re an oil-rich nation with foreign currency reserves well into the hundreds of billions. Major global institutions are searching desparately for cash. Their fellow financial institutions are equally cash-strapped.

Suddenly, your country has a lot of power.

Now, who knows how long global financial systems are going to be in crisis… who knows how long major markets are going to wallow at lows not seen in decades. You need to act, and act now to secure your new position as a “Global Player.”

That’s just what some countries, like Abu Dhabi and Qatar, are doing.

Instead of accepting a government bailout, UK bank Barclays (NYSE:BCS) is selling stakes to sovereign wealth funds in Abu Dhabi and Qatar.

These stakes are worth about $12 billion and they will up Qatar’s BCS holdings to 12.7% and Abu Dhabi’s holdings to 16.3%. And while this injection might keep BCS independent from its own government, it sure gives these Middle Eastern countries a big boost in global power standings.

(By the way, another UK bank HSBC (NYSE:HBC) opted not to take UK cash for a bailout. It says it remains one of the most capitalized and liquid banks in the world. But if it does become cash-strapped, I’ve a feeling it’ll tap China’s sovereign wealth fund, CIC for funds.)

So what does a move like this mean for those oil sheikhs with wads of cash burning a whole in the country’s collective pocket?

It means diversification away from oil (and the dollar).  The BBC reported last Sunday, “Shares in the oil-rich Gulf region have fallen back as investors worried about the impact of the global economic downturn on the region.” Meaning falling oil consumption.

But it also means power.

TAQA is one of Abu Dhabi’s smaller sovereign wealth funds with about $28 billion in assets. Peter Barker-Homek is the chief executive. He told the BBC’s Christian Fraser, “Abu Dhabi’s sheikhs are looking beyond the simple financial return: they want to become true global players… Part of our role is really to close the divide between east and west. The end state will be a company that we hope will be one of the top 50 global employers.”

That’s partially why Barclays has chosen to align itself with governments outside the UK. CEO John Varley told Business Intelligence Middle East, “There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes.

That includes, of course, the Middle East, whose sovereign wealth funds will own about 32% of Barclays once this funding deal goes through. (China and Singapore have stakes in the UK bank, as well.)

This could be the year of “Follow the Money” as sovereign wealth funds begin to snap up deals all over the world.

The price certainly looks right…

Source: Middle East Money Funds Busted Barclays

Now India and Japan appear poised to take up the aggressive pursuit for high returns with SWFs of their own.

India is considering a fund that would seek a higher return on $300 billion in foreign reserves that is currently tied up in U.S. Treasuries and government bonds, the Financial Times reported.

“It may be possible to argue that a part of the reserves, which may be considered in excess of usual requirements, be managed with the primary objective of earning higher returns,” Palaniappan Chidambaram, India’s finance minister, said in a written reply to Parliament.

According to Chidambaram, the Council on Trade and Industry recommended to Prime Minister Manmohan Singh in a Dec. 18 meeting that the government “create a sovereign wealth fund of $5 billion to begin with, for financing acquisition of companies abroad.”

India’s foreign exchange reserves, the third-largest holdings in Asia, stood at a record $311.89 billion as of April 4, compared with China’s record $1.68 trillion, Japan’s $987.7 billion and Russia’s $508 billion.

However, analysts say that while the formation of an Indian SWF is likely, it will be significantly smaller than other funds of the same nature. As one of the world’s leading oil importers, India has not enjoyed the large trade surpluses delivered to other developing economies on the back of a commodities boom. India also maintains sizeable account and fiscal deficits.

The richest sovereign funds include the Abu Dhabi Investment Authority, or AIDA ($875 billion), the Government of Singapore Investment Corp. ($330 billion), and Norway’s Government Pension Fund Global, or GPFG ($322 billion), although several others may be larger.

Meanwhile, Japan may establish a sovereign wealth fund to boost returns on some of its state assets as early as 2009, according to UBS Securities Japan Ltd.

“As cases of inefficient use of the road-specific budget have been disclosed in Diet discussions, the argument that public funds should not be managed by bureaucrats has become convincing,” Takashi Omori, chief Japan economist at UBS AG (UBS) in Tokyo, told Bloomberg News.

A relatively small state fund of between $98 billion (10 trillion yen) and $196 billion (20 trillion yen) may be created, he said.

Sovereign wealth funds currently control an estimated $3 trillion. That’s already believed to be more than the $1.5 trillion to $2 trillion held by worldwide hedge funds [though some sources put the hedge-fund estimate as high as $5 trillion].