The MENA region was dragged down with global markets and hardest hit was the UAE (-30%) and Kuwait (-28%) while the less liquid and more isolated markets such as Tunisia (-6%) and Oman (-19%) fared better. The UAE market took the heaviest beating on the back of a higher sensitivity to external shocks. Although the MENA region was hit by double blows, both the coronavirus and the oil price war, its stock markets have shown more resilience than emerging markets. The region has responded to the crises with various economic stimulus and restriction on movement.
In the first quarter, Russia and Saudi failed to reach an agreement on oil production cuts as a response to the demand destruction caused by the coronavirus. Therefore, the three-year alliance broke down and change the dynamics of the oil market instantly. Both countries ramped up oil exports, flooding the market, causing oil prices to swiftly crash. Where prices will settle is unclear, but a lower oil price environment would cause significant cuts in government spending across the GCC and a contraction in GDP. At the current oil price levels, much of the world’s oil production is not profitable, which will reduce the supply side. But as it remains unclear when demand will return, we expect the oil market will remain very volatile coming months. The cash level of the fund has been elevated over the quarter to reflect a more cautious approach.