While Egypt's crash and the woes of the Saudi exchange have been getting their fair share of coverage, it is worth noting that every stock index in the Arab world bar Morocco is down in 2011. From a weekly market wrap send out by Kuwait's Global Investment House:
Source: Global Investment House
Saudi Arabia has dropped by about as much as Egypt and Tunisia, both markets that were closed last week as post-revolution transition governments got their house in order. Qatar has also taken a serious hit. Qatar!
As Credit Agricole outlined recently:
Markets have a tendency to differentiate less during crises and, as we saw during the Dubai debt crisis in 2009, risk premiums spiked for all. Differentiation took time, however.
The strength of events in Tunisia, Egypt, Bahrain, Libya as well as Yemen has led most to expect the worst to come for the rest. Differentiation and re-classification of risk is warranted, but it takes time for the dust to settle. Regional stock markets will continue to reflect the higher perceived risks.
We think that markets will continue to price additional risk premiums despite the arguments put forward about Saudi Arabia's fiscal and political capacity to weather the regional crisis.
As was the case during the Dubai debt crisis, being a step ahead of that differentiation curve can be a profitable exercise. Just ask Pimco, which snapped up sovereign debt from Abu Dhabi and Qatar at the height of the panic over Dubai.
But, as charted by Credit Agricole below, definitively picking the Middle Eastern country that is safer than the market is pricing, is no easy feat. When mapping emerging markets on two axes - one measuring a country's political and personal freedoms and the other showing average GDP per capita growth in the last decade, almost the entire Arab world sits in the dangerous corner of the graph. This is not pretty:
Source: Credit Agricole
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