The MENA region showed strong resilience in the 4th quarter when most asset classes fell in tandem. Not even a 37% drop in the price of crude managed to put a dent in the performance. The regions heavyweight, Saudi, held up well supported by strength in the banking sector on the back of US rate hikes and positive corporate news flow. If we take a look at the year as a whole, MENA was a top performing region lead by Qatar (+29%) and Saudi Arabia (+16%). However, the global volatility caused a challenging environment for the region and over half of the markets closed in negative territory.

One of the key components for the MENA markets in 2018 was the flow of foreign funds. A select number of markets have through capital market progress increased investor interest and these were the markets that showed the strongest performance for the year. Markets with an already high degree of foreign ownership underperformed in the risk off environment seen at the end of 2018. The Qatari market was supported by an increase in foreign ownership limits, while both Kuwait and Saudi were buoyed by the upgrading to emerging market status by the main index providers. A market the size of Saudi once included in the MSCI EM index should receive around $15bn of passive (index tracker) inflows and active inflows of around $40bn. As the Saudi market could be perceived as less attractive than peers valuation wise and due to the global media coverage of the incidents in Turkey, one can expect that the interest from active investors will be dampened, but if even half of that amount would materialize it would make a huge impact as the daily market turnover is around $800m.

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