It is well known that oil revenues — and by default oil prices — are what drive GCC economies, despite efforts by individual GCC states to diversify their economies. Hydrocarbon GDP continues to dominate the economic structure, and consequently, periods of high oil prices and high economic growth, have fed into the stock market through increased liquidity and petrodollars. However, this relationship seems to be breaking, with oil price no longer driving stock market performance. From 2005 to date, crude oil and the S&P GCC Index have had a correlation of only 12 per cent, a relatively low figure. Since 2008, crude oil price increased by 19 per cent while S&P’s GCC index fell by 46 per cent. So why is this correlation diverging and is it likely to return?
Reason #1: The Oil Price-Economy-Stock Market link broken thanks to Banks
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