Fiscal consolidation over the past few years has weighed on economic growth in the Middle East. However, with Saudi Arabia and the UAE having announced significant fiscal expenditure plans, an improvement in broad growth conditions is expected, notes Credit Suisse in its latest Middle East outlook for 2019.
“The most important financial market event for 2019 will be the inclusion of (a) Saudi Arabia into the EM equity benchmark, and (a) the GCC into the EM fixed income benchmark,” the report added.
Also Read: Better growth outlook for Saudi Arabia in 2019: Credit Suisse
Noting that Saudi Arabia is the key beneficiary on the equities side, Credit Suisse report said “Foreign investor appetite for Saudi exposure has likely been dampened by the perception that the commitment to the Transformation Plan has fallen, which we believe needs to be addressed ahead of Saudi Arabia’s inclusion into the index in 2019.”
Credit Suisse report maintained the inclusion into the FTSE and MSCI EM benchmarks in 2019 (March and June, respectively) are milestone events that should trigger significant foreign investor inflows in Saudi Arabia.
However, it added, valuations are no longer cheap, with the Saudi market trading at a significant premium to EM and the rest of the Middle East.
As regards the banking sector, Credit Suisse said “Encouragingly, lending growth is showing early signs of picking up in Saudi Arabia and the UAE, and continues to recover in Egypt.”
Noting that debt-to-GDP levels remain manageable overall, the report added that Saudi Arabia and the UAE are expected to keep debt well below 40 percent of GDP (the IMF’s recommended long-term cap) through to 2023.
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