London- Analysts are closely monitoring the effects of the profound changes in the world economy on the financial markets in the Middle East and emerging markets this period, which could leave further setbacks for the rest of this year.
In a new indication of this, most Gulf stock markets fell on Wednesday, watching the impact of oil prices along with concerns related to inflation and the possibility of a recession, although the International Holding Company Abu Dhabi helped counter the tendency to go and trade openly. at a height.
Overall, the MSCI Golf Index fell 13% this quarter, its worst performance in three months since March 2020.
Regional benchmarks, including those in Saudi Arabia and the UAE, have given up most of their annual profits and the scale has been set to pick up a list to give investors positive returns every three months since the pandemic began.
“There could be more pain for the Gulf markets than current levels,” said Bloomberg agency Noaman Khaled, co-director of indices, macroeconomics and strategy at Arqaam Capital. “The lack of positive catalysts will make equities in the region vulnerable to global vulnerabilities,” he added.
Nouman Khaled: Lack of stimulus will leave markets exposed to global vulnerabilities
Investors have viewed the Gulf states as a safe haven over the past year with high oil prices and rising interest rates, benefiting from benchmarks that generally carry heavy in bank and energy stocks.
But regional stocks have given up most of their annual gains in recent weeks as the prospect of a recession in U.S. sentiment soured and crude oil prices began to retreat from recent peaks.
Saudi equities, which earlier this year had the highest foreign inflows since 2019 and became one of the world’s top five markets by value, are heading for their weakest quarter in two years and have seen net outflows over the past three weeks.
Aramco, which has the heaviest weight on the Tadawul all-year benchmark, once again overtook Apple this year as the world’s most valuable company. The oil giant’s value has risen 19 percent this year to about $ 2.3 trillion.
Simon Kitchen, head of strategy at EFG Hermes, feels that Middle Eastern equities are more likely to fall in the second half of this year. “Valuations are still well above historical averages and we have not yet seen many cuts in earnings expectations,” he said in a written comment.
The MSCI Gulf Composite Index is trading at 15.2 times forward earnings, which is higher than the average of 13.5 over the past decade.
According to Stephane Meunier, chief investment officer at Lombard Bank, emerging market Golf preference shares are “justified for at least the next two or three years”. He predicted that regional equities would continue to perform well in the event of a slight recession in the US, although they would suffer in the event of a dark economic scenario.
In light of investors’ concerns about what is happening in the world, emerging market equities are expected to record the worst performance in 24 years in the first half of this year.
Simon Kombuis: The region’s shares have more room to fall in the second half of 2022
The Morgan Stanley Emerging Markets Index has fallen nearly 17% since the beginning of this year to last Monday, the second largest drop for this period in data dating back to 1993.
The index fell by more than 20 percent during the first six months of 1998 when the Asian financial crisis overturned markets and a few months later Russia defaulted on its domestic debt.
There is concern about the assets of developing countries, as the sharp rises in interest rates by the Federal Reserve (the central bank) to curb inflation in the US market have pushed the world’s largest economy into a recession. Experts believe it will sow gloom in emerging markets.
Moody’s reported earlier this week that, for the first time in a century, Russia has defaulted on its foreign exchange-denominated sovereign debt, although Moscow has denied it, and China is still withdrawing its strict restrictions on COVID-19.
Hasnain Malik, a strategist at Tellimer in Dubai, says higher US interest rates, a stronger dollar and higher fuel and food prices were a “toxic mix for the poorer and debt-laden parts of emerging markets”. “However, most of this risk has already been reflected in the prices of the affected markets,” he added.
The Morgan Stanley Emerging Markets Index has fallen over the past four quarters in the longest loss range since 2008, now trading at nearly 11.9 times estimated earnings, moving around its lowest valuation since March 2020 when the pandemic broke out.
“Despite the cheaper valuations, the unfavorable winds continue,” says Marija Wittmann, chief strategist at State Street Global Markets.
She explained that global financial conditions are intensifying, which “withdraws liquidity from financial markets and reduces the possibility of investors trying to find transactions in risky emerging markets.”
The MSCI GCC Composite Index is trading at 15.2 times forward earnings, above the average of 13.5 over the past decade.
State Street is deeply concerned about corporate earnings prospects in developing countries given the risk of a recession caused by central banks raising interest rates.
Leonardo Bellandini, equities strategist at Julius Baer Bank, expects the challenging environment for emerging market equities to continue into the second half of 2022. He noted that it is important to focus on a higher degree of selectivity when investing in these markets.
JPMorgan Chase & Co. was more optimistic, and its strategists, led by Marko Kolanovic, expect emerging market shares to outperform their advanced counterparts in the second half.
They predict that the MSCI Emerging Markets Index will rise by twenty percent from current levels by the end of the year.