One of the biggest movers this year has been in oil, where both WTI and Brent have fallen 20% in the past quarter and are trading just above $80. On the other hand, some of the best performers in the market have been equity markets in the Middle East, with Saudi Arabia, Dubai, and Qatar rushing out to 30% gains early in the year.
Equities Hit Hard
With Middle Eastern economies so tied to the price of oil, something had to give and as expected, Middle Eastern equity indices have suffered over the past month. Compared to the S&P’s 4% fall over the same time frame, the 7 Middle Eastern stock markets fell 8.35% on average in the past month:
Currencies Hit Hard
The carnage in Middle Eastern markets can also be seen in local currency markets, most notably in Saudi Arabia. The Saudi Riyal (SAR) has been pegged at roughly 3.75 SAR to 1 USD since 2003. A quick glance at the chart shows that the currency moves rarely, and implied currency vols trade below 1% as a result. However, USDSAR has jumped to 3.7536, the highest level since the financial crisis of 2008, and USD selling onshore has disappeared. This move is particularly striking since the USD has actually lost ground this week after hitting four and a half year highs earlier this month.
But A Silver Lining..
While Middle Eastern markets have suffered over the past month, they remain some of the strongest in the world, behind only South Asia this year. Since investors have been sitting on such large gains, profit taking would also be larger than normal, contributing to the larger falls last month. Markets have also proven resilient, particularly in Dubai where the market crashed in June only to rebound back. Oil looks to be heavy for the foreseeable future, but further losses in Middle Eastern markets will still leave them safely positive on the year.
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