Not many would have predicted that the MENA markets would finish the year largely flat, knowing that the price of oil would stay below USD 40 a barrel for most of the year. Markets were supported by the currency pegs with the USD which have reduced funding rates and led to a low yield environment, moving cash holdings into the equity markets. In addition to that UAE announced a big push for social reform and there was significant progress made on the geo-political arena. The embargo against Qatar was lifted a three-year blockade by Saudi Arabia, UAE, Bahrain and Egypt and several GCC countries have initiated diplomatic ties with Israel. The countries have agreed to establish full diplomatic ties in a bid to normalize relationships.

The Kuwaiti market was an underperformer in the fourth quarter as MSCI upgraded it into its Emerging Market index. It was a classical “buy on the rumor, sell on the news”. The market saw around USD 3.2 billion worth of value traded on inclusion day.  The Egyptian market was also weak in the fourth quarter and it was also the worst performing market in the region in 2020. Egypt’s has been hit hard due to the country’s heavy reliance on tourism FX receipts. The UAE was the first country to open fully to foreign visitors and hotel occupancy rates in Dubai jumped to 71% in December from a 20% low in April. The UAE market rallied 11% during the quarter.

We think that continued improvement in sentiments from the re-opening of MENA economies, decent valuations and positive geo-political news should support the regional markets. On the other side, weaker oil outlook due to a demand-supply mismatch could lead to a risk-off environment.

Domicile: Malta
Sources: Bloomberg LP, MSCI