Perspectives June Publication

Welcome to the sixteenth edition of Perspectives.

As we progress towards the summer, global investors have to climb a new “wall of worry”: a populist government in Italy, European banks under pressure, a potential “domino” effect in Emerging markets (Argentina, Turkey, Brazil, etc.) and the Tariff debate. Meanwhile, the U.S stays unscathed as strong economic and earnings momentum continue to propel the Nasdaq index to new highs. In this publication, we review these recent developments and explain why they should not be treated in isolation. Indeed, we live in a world of financial interconnectedness; a European crisis will further strengthen the dollar, which itself will spur more stress in Emerging markets and so on. Both will affect investors’ sentiment and weigh on global credit spreads and equity valuations. As such, it is difficult to envisage even the U.S staying fully insulated.

Moving to the MENA region, our regional equity markets have been the most resilient within emerging markets so far this year. There are some idiosyncratic stories (e.g. economic reforms, index inclusions, etc.) which continue to support foreign inflows into the region. But the peg to the dollar for most GCC currencies and the continued strength of the oil price have also been supporting relative performance of MENA equities versus global emerging markets. In the “special focus” of the month, we share our view that Oil price risk is skewed on the upside. The “hot topic” is on Jordan, a country in crisis where a new government is taking control. We end this edition on a thematic note highlighting how the Middle East can benefit from China’s new Silk Road.

We hope you will find this issue insightful. It could indeed be a long, hot summer.

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