• York Investment & Finance

Global Markets Overview: Middle East

By Anna Webb Analyst at the York IFS Global Market Telegraph

After starting January strongly, some Middle Eastern stocks have fallen in recent weeks as coronavirus cases rise again. Despite this, the Tadawul All-Share Index has eradicated January losses this week, as oil prices rose to the highest level since January 2020. After Democratic leadership began in January, Biden has started to reverse some of the Middle Eastern policy decisions made by the Trump administration.

Gulf markets started strongly in January amongst hopes for a business recovery in 2021 and matched a global rally as Democratic leadership took hold in the US. The speed of vaccine distribution and a normalisation of travel and logistics expected to particularly benefit UAE stocks [1]​ . The Dubai Financial Market General Index has performed relatively strongly in recent months, supported by a booming tourism [2] However, threatened by rising case numbers in the UAE and the threat of further lockdown measures​ [3], the DFMGI has fallen nearly 3.5%​ over the last fortnight since January 27 [4].

Oil prices have reached $60 a barrel, the highest level since January 2020, eradicating coronavirus losses. The rally has been driven primarily by supply cuts agreed by industry, as one of the few destinations remaining open to international travellers. OPEC+ and Saudi Arabia agreeing to cut an additional 1m barrels a day beyond its OPEC+ obligations has caused traders to position for an even tighter market​ [5]. Rising oil prices have boosted the Tadawul All-Share Index (Saudi’s stock exchange), [6​] which has gained an impressive 4.2% in the last week alone. The index has also benefited from better-than-expected earnings performance from a number of its larger stocks​ [7] .

One of the focuses of the Trump presidency over recent years has been its controversial policies in the Middle East. Now, with Biden’s administration firmly at the helm, they are starting to make positive moves in the region. Firstly, it has been announced that the US will re-establish relations with, and resume aid to, the Palestinians. Washington also froze arms sales agreed under Trump, which is likely to have a significant impact on two of Trump’s greatest allies, Saudi Arabia and the UAE​ [8] .

Perhaps most notable of early actions taken by Biden is ending the US’ support for the war in Yemen. For the last six years, the US has offered military support to Saudi-led coalition fighting Iran-linked rebels in the impoverished country. Biden said that he will support a UN-led ceasefire initiative, characterising the war as a “humanitarian and strategic catastrophe”​ . Despite these positive first steps, many remain sceptical about how much the Biden administration will be able to reverse Trump’s policies [9].

. The coronavirus pandemic continues to have a crippling effect on Middle Eastern countries, with some of the vaccine optimism going into 2021 waning due to sustained high case numbers in the region. Lebanon has been particularly struggling to control cases with more than 1,000 people dying as a result of Covid-19 in January, which represents over 40% of total deaths during the pandemic. Lebanon has limited capacity to treat seriously ill patients and as a low-resource country are facing making heart-breaking decisions about who should receive scarce medical resources. With the risk of overwhelming the healthcare service mounting, authorities have launched Lebanon into one of the strictest lockdowns in the world, operating a 24-hour curfew. With limited exemptions, people are forbidden from leaving their homes and rely on supermarket deliveries. Lebanon faces this on top of already severe challenges, as the financial crisis continues. The Lebanese pound has lost 80 per-cent of its value against the official exchange rate and the central bank is quickly burning through hard currency reserves to subsidise medical supplies.[10]

References: [1] https://www.arabianbusiness.com/equities/457054-middle-east-stocks-rise-following- us-democratic-sweep [2]​ ​https://www.reuters.com/article/mideast-stocks-int-idUSKBN2A3134

[3] https://gulfnews.com/business/markets/uae-gulf-stock-markets-slip-as-pandemic-and -growth-worries-boil-over-1.1611820568968

[4] ​https://www.bloomberg.com/quote/DFMGI:IND

[5] ​https://www.ft.com/content/3032d80d-89b0-4020-922e-f4fa15435b5d

​[6] https://www.bloomberg.com/quote/SASEIDX:IND ​[7] https://www.bloomberg.com/news/articles/2021-02-07/saudi-arabian-shares-lead-gul f-gains-on-oil-earnings-inside-em [8​] ​https://www.ft.com/content/98950dbd-edec-41e7-836f-d1622f2dfab3 [10​] ​https://www.ft.com/content/7c6f7c87-8db4-407c-9ef1-1e55b404c023 ​[9]https://www.ft.com/content/b592364d-080e-4e30-a3dd-5910c0a12146

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