Faris Abdulrazzaq (pictured), Senior portfolio manager for Menasa Capital Management, examines the impact of regime change across the Arab world.
Reverberations from the recent revolutions in Tunisia and Egypt have been felt across the Arab World, far beyond the geographic boundaries of the countries involved. Protests in Libya and Bahrain have added to regional uncertainty and volatility in the markets.
The Egyptian market remained closed for the entire month of February whilst the hardest hit markets were Oman and Qatar, down 10.2% and 9.3% respectively for the month of February, while Dubai lost 8.1% and Saudi 6.6%.
Investors seeking to reduce risk were forced to sell out of other Middle Eastern markets, including Qatar and Saudi Arabia.
All countries within the Region are different from one another with respect to their social, economic and political challenges. However, we may witness further pockets of unrest across the Middle East.
The “Shoe-Thrower’s Index” published by The Economist illustrates the Arab countries in the order of potential unrest. Looking at the chart it is interesting to note that countries in the top half of the list, including Yemen, Libya and Syria, have all witnessed either mass protests, days of rage, or violence and in some cases a combination of all three. Bahrain, sitting in the lower half, is an exception.
While the chart and regional political experts point to the fact that some countries are much more stable and thus safer than others, capital markets tell a different story. The indiscriminate sell-off that hit Arab markets mid February proves how inter-connected the region really is.
Japan’s disaster adds a new dynamic to the mix impacting global GDP outlook and demand.
The UAE is a beneficiary of the current wave of events in the Middle East. On the back of a very high standard of living, political stability, advanced infrastructure and safety, the UAE offers every Arab an alternative home close to home, an option that many might be willing to consider.
The Dubai stock market is currently trading below the levels of the financial crisis, which may translate into significant upside on select names.