The Middle East’s Ensnared Evanescent Evolution
Egyptian shares kept their 15 percent advance as general recently turned civilian al-Sisi took the presidency with 97 percent of the vote despite under 50 percent turnout after an additional balloting day. He will wield all government powers until parliamentary elections scheduled for October, and has engaged international management consultants and investment banks to advise on economic and debt strategy. The current budget stipulates a 12 percent of GDP budget deficit with half of spending for subsidies and repayments. The currency stabilized around 7.15 to the dollar in the aftermath, as Gulf allies called for a donor conference to bolster their $15 billion in existing pledges reversing reserve drain. Saudi Arabia, where the market advance mirrors Cairo’s on the MSCI, spearheaded the effort amid signs the $550 billion exchange would finally allow direct foreign investment. The outlet could take funding pressure off banks with a 100 percent loan-to-deposit ratio as public sector project backing increases at a 35 percent annual clip. Both growth and inflation should be about 4 percent as the Kingdom also tries to staunch the MERS virus outbreak already claiming hundreds of lives. The UAE is another big supporter as it moved to full emerging equity market status in June on the back of a 35 percent climb. Oil exports have firmed with the loss of Iranian and Libyan shipments and manufacturing and real estate are solid with Dubai property prices reverting to immediate post-crisis levels. The large-ticket construction cycle may have peaked for the main emirate, leaving ample scope to rollover the Dubai World legacy injections. Qatar, which also enjoyed a core index graduation surge, cut its gain to 25 percent by mid-June on allegations it won the 2022 World Cup through corruption using a representative since banned by the ruling FIFA body. An investigation will be conducted after Brazil’s hosting and a re-vote is possible as the award continues to encounter cost and operating obstacles, including the need to enclose and air-condition the stadiums for summer play. The soccer competition is the main infrastructure thrust, but road-building for other purposes as well will itself amount to $5 billion early through 2020 to maintain non-energy double-digit GDP growth.
The hydrocarbon equation could be further roiled by the insurgent march toward Iraq’s resource-rich Kurdish enclave after capturing Mosul and other key cities. The US-trained military forces abandoned their defense and equipment as Prime Minister Malaki and his Shia coalition negotiated with other parliamentary factions for a third term after highly-disputed polls. Illiquid external bond prices dropped on the al-Qaeda offshoots’ penetration which may mix with spillover from the Syria fighting to raise the geopolitical stakes and dent decent stock market performance in smaller neighbors like Lebanon, which is again without a president as the GDP growth forecast fell to 1 percent as foreign currency bank deposits at a new low proved fleeting.
