Most MENA indices ended the quarter in negative territory as the Saudi stock exchange plunged lower. Despite being one of the cheapest places in the world to produce oil, Saudi´s economy is hurting in the low oil price environment. Much has been done to address the issue, but the market sentiment remains sour as government payments are basically at a standstill and spending cuts and removal of subsidies are hurting consumer sentiment.

The Tadawul index is now trading near the January lows, when Brent was trading below $30 per barrel versus the $49 at the end of the quarter. Saudi Arabia is increasingly looking attractive on a valuation basis and our underweight exposure will likely rise over the coming quarters. Many of the reforms pushed forward by the loss of petrodollar income will stimulate the economy over the longer term, and the pace at which the stock market has been opening up to foreign investments is most impressive. With a market capitalization similar to that of South Africa, Thailand and Mexico the Tadawul will see a surge of foreign investments in anticipation of its inclusion in the MSCI indices.

The best performing MENA markets were found in North Africa with Egypt rallying +22% followed by Morocco +8%. Qatar was the best performing market in the GCC gaining +7% as the index provider FTSE upgraded the market to EM status, resulting in inflows from index tracking funds and actively managed funds.

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