After the Arab Spring, a Summer of Potential
Anchor, CNBC (EMEA)
It’s going to be a sizzling summer for the Middle East. You stand a lot to gain, or say a lot less to lose, if you’ve done the prep work. Here are a few anchors to give you a head start:
The uprisings and upheavals of the Arab Spring have not concluded, and the ambiguity of how it will all evolve, or devolve for that matter, is still there.
As US President Barack Obama said in his speech on the Middle East and North Africa, "Of course, change of this magnitude does not come easily. In our day and age - a time of 24-hour news cycles and constant communication - people expect the transformation of the region to be resolved in a matter of weeks.
"But it will be years before this story reaches its end. Along the way, there will be good days and there will be bad days."
The ongoing clashes in Syria and Yemen, as well as the war in Libya, may drag on through the summer. Countries like Morocco, Algeria, Jordan, Saudi Arabia, Oman and Bahrain have been able to their suppress the various forces of change with mixed success. But their stability is not guaranteed, and the perceived risks, especially for the first trio, remain elevated.
Omani security forces have seen renewed protests as of late. The GCC country is not an OPEC member, but still exports an estimated 800,000 barrels per day. It also has partial control of the Strait of Hormuz, a passageway chokepoint that waves through some 40 percent of the world’s seaborne traded oil.
Trade volumes in stock indices tend to ease in the summer, but that never translated into an absence of rewarding opportunities. The Saudis passed a massive $136 billion social spending bill earlier this year, and will now be watching carefully where crude prices consolidate.
Earnings of petrochemical companies, such as Saudi Basic Industries (SABIC), mostly surprised to the upside in the first quarter granting the Tadawul the title of the largest and best performing stock exchange in the region so far this year. Trade sources argue that Saudi Arabia will keep crude oil supplies in June unchanged from May.
OPEC members will meet up in June to review current supply policy, while further inflation data over the summer will provide key clues about domestic price pressures that some suspect may be building.
Meanwhile, across the causeway in Bahrain, the state of emergency will be lifted on June 1, just two days before Formula 1 organizers make a decision about a possible rescheduling of the Grand Prix that should have taken place earlier this year.
The presence of GCC troops, the recent expulsion of a Reuters journalist, and ongoing reports of human rights violations, will only add to the scorching heat of Bahrain’s summer this year. With the stock market already one of the smallest in the MENA area, there’s a lot of work ahead if the “business-friendly” image is to be restored.
But there’s more action heading your way. If you’re bored with the current selection of cliché emerging markets, then this is for you. For the third consecutive year,Qatar and the United Arab Emirates will be considered for reclassification from Frontier Market (FM) to Emerging Market (EM) as part of the MSCI annual market review.
Large-cap stocks are the ones likely to make big moves off an MSCI upgrade. Most see the chances for an upgrade better than ever, but nothing is certain. Expect an announcement in June.
From the Gulf to Egypt, where summers are usually more bearable, the Supreme Council of the Armed Forces will have to up the ante in terms of revamping the country’s security forces.
A crime wave has taken hold of the nation, and the latest sectarian violence is cause for a considerable degree of concern. Investors will also be meticulously watching political developments for any indication as to who will emerge on top in parliamentary elections in September, and presidential elections thereafter.
Tourism and foreign direct investment (FDI) continue to be crucial sources of revenue for the country and are not seen returning to their pre-revolution levels until there is stability on the political front. The IMF said that Egyptian authorities expect a financing need of some $10-12 billion through June 2012 from the international community. Most analysts maintain that the medium- to long-term prospects of this emerging market are very attractive.
If Egypt is not your cup of tea, then Turkey might be worth a closer look. Its Prime Minister Recep Tayyip Erdogan will run again with the ruling Justice and Development Party (AKP) in the June 12 parliamentary elections. The future government will have a lot on its plate, namely coming up with a new constitution, clarifying the path to EU membership and the country’s role in the wider Arab World.
Preliminary surveys suggest the AKP will win for a third time since 2002. Whether a legislative majority will be reached is the fundamental question. The IMF sees the economy growing by 4.6 percent this year, close to the $1 trillion mark, but the current account deficit is causing pain, reaching a record $9.8 billion in March. The central bank will have to calm skittish investors worried about an overheating economy and skeptical of an unorthodox monetary policy.
The pulse of political change extends to Tunisia, where elections for an assembly to draft a new constitution are slated for July 24. A postponement is not being ruled out and could bring with it a substantial degree of renewed wave of unrest. Finally, the impact and long-term ramifications of the recent reconciliation agreement between the Palestinian factions of Hamas and Fatah have yet to be fully understood.
And so when leaders gather once again at the World Economic Forum (WEF) for the Middle East, this time in Jordan in late October, there will, no doubt, be a lot more to talk about.