London Daily

Focus on the big picture.
Saturday, Feb 22, 2025

Myriad risks for Middle East markets could wrongfoot investors

Myriad risks for Middle East markets could wrongfoot investors

Lebanon’s debt crisis, a debt test in Oman, low oil prices, and giddy Saudi stock valuations among risks.

From parliamentary gridlock in Kuwait to paralyzed debt talks in Lebanon and giddy valuations for Saudi Arabian stocks, investors in the Middle East face a raft of risks in the fourth quarter.

Ever-present is the fact that current crude prices can’t balance the budgets of most of the region’s energy exporters.

Here are six risks to watch in the last three months of the year:

Oil Blow


While derivative traders have pared bets that Gulf states will be forced to devalue their currency pegs in the next 12 months, bouts of volatility may return.

Countries that have been financing deficits through debt sales “may be in trouble if oil prices persist at current levels,” said Peter Kisler, a London-based portfolio manager at hedge fund North Asset Management. “2020 is an exceptional year, and they can get away with it now, but I am not sure they have a viable long-term plan if oil prices don’t return to pre-2020 levels.”

Debt sales from the region hit a record in the past quarter as governments rushed to place bonds after the coronavirus shock.

Looking Dear


In equity markets, most Gulf Arab nations have outperformed their emerging peers in the last three months. What’s shaping up to be their worst recession on record could leave them exposed.

“Stock-market valuations, for example in Saudi Arabia, remain elevated and somewhat detached from the underlying economic prospects,” said Tarek Fadlallah, the Dubai-based chief executive officer of the Middle East unit of Nomura Asset Management.

Debt Test


Oman is planning its first Eurobond sale in more than a year, despite the threat its credit ratings could slide deeper into junk.

“The biggest concern in Oman is that it fails to deliver convincing fiscal reform, which would undermine its debt-market access at a time of exceptionally large funding needs,” said Jan Friederich, a Hong Kong-based senior director with Fitch.

Oman also lacks a backstop credit line from its regional allies. Spreads on some of the sultanate’s securities have stabilized after briefly surpassing 1,000 basis points versus U.S. Treasuries, a threshold for debt to be considered “distressed,” in the first half of the year.

Other countries in the region that have a negative outlook on their ratings include Iraq, Jordan and Morocco.

Gloomy Debut


Kuwait joins the MSCI Emerging Markets Index in November under a cloud of uncertainty.

Parliamentary opposition to a law that would allow the government to borrow has prevented it from raising debt, even as it faces the highest budget deficit in its history. Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, 83, was sworn in Wednesday as the ruling emir, following the death of his half brother. The nation also holds parliamentary elections later this year.

“Kuwait will have to contend with uncertainty around its election, succession concerns, expensive valuations and the inevitable hangover once the index inflows related to the emerging-market upgrade recede,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer.

On Hold


Lebanon’s inability to form a new government has pushed back the prospect of a deal to restructure the country’s debt after the nation defaulted on about $30 billion of Eurobonds in March. Its debt was the worst-performer in emerging markets in the third quarter.

“Progress with debt restructuring will require greater unity among political and economic elites, the prospects for which remain very uncertain despite the severe deterioration in economic conditions and the conditional help on offer from international institutions,” said Friederich at Fitch.

Biden, Iran


Since taking office, U.S. President Donald Trump has sought to build a unified coalition in the region against Iran. Accords establishing diplomatic relations with Israel and the United Arab Emirates and Bahrain have done little to boost markets, but the potential geopolitical impact could unnerve investors.

“The outcome of the election will matter with regards to policy towards Iran and a potential weakening of the Trump administration’s strong support for the region in light of a Biden victory,” said Mohammed Elmi, a London-based emerging-market portfolio manager at Federated Hermes, which manages almost $630 billion.

Newsletter

Related Articles

0:00
0:00
Close
UK Prison Officer Sentenced for Inappropriate Conduct with Inmate
Good News: Senate Confirms Kash Patel as FBI Director
Officials from the U.S. and Hungary Engage in Talks on Economic Collaboration and Sanctions Strategy
James Bond Franchise Transitions to Amazon MGM Studios
Technology Giants Ramp Up Lobbying Initiatives Against Strict EU Regulations
Alibaba Exceeds Quarterly Projections Fueled by Growth in Cloud and AI
Tequila Sector Faces Surplus Crisis as Agave Prices Dive Sharply
Residents of Flintshire Mobile Home Park Grapple with Maintenance Issues and Uncertain Future
Ronan Keating Criticizes Irish Justice System Following Fatal Crash Involving His Brother
Gordon Ramsay's Lucky Cat Restaurant Faces Unprecedented Theft
Israeli Family Mourns Loss of Peace Advocate Oded Lifschitz as Body Returned from Gaza
Former UK Defense Chief Calls for Enhanced European Support for Ukraine
Pope Francis Admitted to Hospital in Rome Amid Rising Succession Speculation
Senate Republican Leader Mitch McConnell, at the age of 83, Declares His Retirement.
Whistleblower Reveals Whitehall’s Focus on Kabul Animal Airlift Amid Crisis
Politicians Who Deliberately Lie Could Face Removal from Office in Wales
Scottish Labour Faces Challenges Ahead of 2026 Holyrood Elections
Leftwing Activists Less Likely to Work with Political Rivals, Study Finds
Boris Johnson to Host 'An Evening with Boris Johnson' at Edinburgh's Usher Hall
Planned Change in British Citizenship Rules Faces First Legal Challenge
Northumberland Postal Worker Sentenced for Sexual Assaults During Deliveries
British Journalist Missing in Brazil for 11 Days
Tesco Fixes Website Glitch That Disrupted Online Grocery Orders
Amnesty International Critiques UK's Predictive Policing Practices
Burglar Jailed After Falling into Home-Made Trap in Blyth
Sellafield Nuclear Site Exits Special Measures for Physical Security Amid Ongoing Cybersecurity Concerns
Avian Influenza Impact on Seals in Norfolk: Four Deaths Confirmed
First Arrest Under Scotland's Abortion Clinic Buffer Zone Law Amidst International Controversy
Meghan Markle Rebrands Lifestyle Venture as 'As Ever' Ahead of Netflix Series Launch
Inter-Island Ferry Services Between Guernsey and Jersey Set to Expand
Significant Proportion of Cancer Patients in England and Wales Not Receiving Recommended Treatments
Final Consultation Launched for Vyrnwy Frankton Power Line Project
Drug Misuse Deaths in Scotland Rise by 12% in 2023
Failed £100 Million Cocaine Smuggling Operation in the Scottish Highlands
Central Cee Equals MOBO Awards Record; Bashy and Ayra Starr Among Top Honorees
EastEnders: Four Decades of Challenging Social Norms
Jonathan Bailey Channels 'Succession' in Bold Richard II Performance
Northern Ireland's First Astronaut Engages in Rigorous Spacewalk Training
Former Postman Sentenced for Series of Sexual Offences in Northumberland
Record Surge in Anti-Muslim Hate Crimes Across the UK in 2024
Omagh Bombing Inquiry Concludes Commemorative Hearings with Survivor Testimonies
UK Government Introduces 'Ronan's Law' to Combat Online Knife Sales to Minors
Metal Detectorists Unearth 15th-Century Coin Hoard in Scottish Borders
Woman Charged in 1978 Death of Five-Year-Old Girl in South London
Expanding Sinkhole in Godstone, Surrey, Forces Evacuations and Road Closures
Bangor University Announces Plans to Cut 200 Jobs Amid £15 Million Savings Target
British Journalist Charlotte Peet Reported Missing in Brazil
UK Inflation Rises to 3% in January Amid Higher Food Prices and School Fees
Starmer Defends Zelensky Amidst Trump's 'Dictator' Allegation
Zelensky Calls on World Leaders to Back Peace Efforts in Light of Strains with Trump
×