As I was catching up with my Paradigm Press colleagues in Arabia, I read this great investment piece my friend and Daily Reckoning Grand Poobah, Adam Sharp, wrote last Wednesday. I couldn’t agree more with what he had to say, and that’s why I thought it important for you to read, as well.

If you’re new to the Rude, you might not know about my utter obsession with the Middle East… and it’s all Indiana Jones’ fault. I love this part of the world, have traveled a great deal of it, and love to see its ongoing development.

One of my favorite places here is the United Arab Emirates, home to the city-states of Abu Dhabi and Dubai. I’ve met Americans there who came in on cruises, breathless about the beauty and cleanliness of the place. There’s no crime, and they don’t mind if you fancy a beer at a hotel bar. What they experienced was utterly contrary to their expectations.

So, take in what Adam has to say about the place. Its investment worthiness is beyond question… and Adam even gives you a simple way of investing in what’s becoming the fastest growing region on the planet.

Zero Taxes, Zero Excuses

Imagine a place with no income tax. Zero taxes on capital gains or dividends, either.

Imagine not paying any property taxes and only having to worry about a 5% VAT (value-added tax) on most purchases.

This is the appeal of the United Arab Emirates (UAE). Due to the factors listed above, the UAE is becoming a hot destination for entrepreneurs and wealthy individuals worldwide.

The country offers a sharp contrast compared to much of the West, where taxes and the cost of living are soaring.

The UAE has caught my eye as an emerging market investment, and an ETF (the iShares MSCI UAE ETF, ticker: UAE) offers diversified access to the country.

But first, let’s learn more about this small Persian Gulf country.

Introducing the UAE

The United Arab Emirates is home to booming cities such as Dubai and Abu Dhabi. These are flashy modern cities with low crime, expensive real estate, and Michelin-starred restaurants. For Westerners, alcohol is available in the big cities, but the country itself is an Islamic monarchy.

The UAE is rich in oil and natural gas, which account for about 30% of GDP. The country boasts reserves of 111 billion barrels of oil, putting it at #7 among the world’s largest. For a country with only 11 million residents, this is an incredible bounty of energy.

Currently, the country produces about 3.3 million barrels of oil per day. This petroleum wealth provides a solid foundation for the economy.

However, due to its business-friendly policies, the country has become a regional finance and trade hub. Thanks to its world-class beaches, tourism is also a booming industry.

Interestingly, approximately 85% of the UAE’s 11 million residents are expatriates (foreigners). It’s a rather unique place.

Investing in the UAE

Some people think visiting the UAE would be nice one day, but it’s not somewhere they’d want to move a family. Yes, its big cities are ritzy, the streets filled with rare Ferraris and Mercedes G-Wagons adorned with diamond-encrusted hood ornaments. But it’s also increasingly becoming a place families from overtaxed countries like the UK and Australia are moving to. More about that later.

But if moving there is a step too far, the country looks interesting as an investment. As you all know, emerging markets, which are incredibly cheap compared to the U.S., have piqued my interest lately. With the dollar weakening, it could finally be time for emerging markets to outperform U.S. markets.

So I recently bought a small starter position in the iShares MSCI UAE ETF (ticker: UAE). The ETF consists of:

• Real estate companies
• Banks
• Oil and gas firms
• Telecoms
• Hotels and restaurant groups

The ETF is positioned to benefit from the flood of tax refugees moving to the UAE. As wealthy, and increasingly, upper-middle-class, new residents arrive, banks, property companies, and service companies will do well.

The UAE ETF is a vehicle to invest in one of the world’s fastest-growing tax havens. Unfortunately, Americans still have to pay taxes on any gains made and dividends collected.

But still, the story is interesting enough to initiate a small starter position and see how things progress.

Regarding fundamentals, the UAE’s stock market trades at a significant discount to U.S. markets. The average P/E ratio of the UAE ETF is around 9.6, while the S&P 500 trades at a more pricey ratio of 26.

The dividend yield on the UAE fund is respectable at 3%. On the negative side, the fund’s expense ratio is relatively high at 0.6%. But sometimes, we have to pay up to invest in exotic emerging markets.

I’ll watch this one and let you know how it progresses.

Emerging Market Focus

Today’s letter is part of the Daily Reckoning’s ongoing coverage of emerging markets (EM). Select EMs today offer highly favorable risk/reward ratios. For more than a decade, the U.S. has outperformed them by leaps and bounds, but the tables may finally be turning.

In February, we made the case that Brazil was attractive, offering an 8% yield and average P/E ratios of 8. Compared to the S&P 500’s 1.2% yield and P/E ratio of around 26, that’s highly attractive.

Since then, the Brazilian ETF we mentioned, EWZ, has broken out and is up about 10%. Brazil remains dirt cheap and has much more room to run.

We’ll continue to search for attractive emerging market opportunities and will report back as we find them. Compared to expensive American stocks, EMs could (ironically) be a safer and more lucrative option for the next decade.