The Middle East could benefit from a shift in in Foreign Direct Investment (FDI) and portfolio flows away from China towards Developed Markets (DMs) and other Emerging Markets (EMs).

A recent report by GlobalData highlights that geopolitical and regulatory incentives, along with a significant gap in relative labour costs compared to China, are driving new FDI away from China.

This shift presents an opportunity for the Middle East, which could attract a portion of this redirected investment, particularly in sectors where the region has competitive advantages.

The report also notes that the ongoing tech war between the US and China under the Biden administration, China's stance on geopolitical issues, and the lack of progress on China's Common Prosperity agenda are contributing to the shift in capital flows. These factors could potentially make the Middle East more attractive as an investment destination, given its strategic location, growing tech sector, and efforts to diversify economies away from oil.

The report also suggests that the attractiveness of Developed Markets and certain Emerging Markets like India and Mexico could overshadow potential investment in the Middle East. Therefore, countries in the region will need to continue improving their investment climates to compete effectively for these shifting capital flows.

Although the Middle East could benefit from redirected investment away from China, it will need to compete with other attractive markets to capitalise on these trends.