MENA equities markets – an overview
Stock markets in the Middle East and North Africa are generally seen as either “frontier” or “emerging” markets because they are relatively new and small. But the markets are attracting more interest from outside the region, as investors pursue diversification strategies, and because listed companies are benefitting from strong regional trends: young, growing populations; economic diversification, and huge infrastructure spending.
The MENA region accounts for 40 percent of the world’s proven oil reserves and many governments are pressing ahead with ambitious development projects, partially funded by oil revenues accumulated during a price surge in the mid-2000s. At least $410 billion of infrastructure investments are planned for the next decade, and ongoing real estate development mounts up to over $1 trillion in value.
The region can be viewed as two groups, the oil or gas “haves” and “have-nots”. Saudi Arabia, United Arab Emirates, Qatar and Kuwait dominate the former group and are trying to diversify away from hydrocarbons. In the latter group, Egypt’s large size, young population and relatively developed economy provide investors with a more traditional pure-play emerging market investment than the countries of the Arabian Gulf. Within the region, there are often large dispersions of equities market performance.
MENA equity market capitalization (in billions of U.S. dollars and as of Feb. 15 2009)
- Total MENA listed company market cap of over $650 billion is just over 2% of global market capitalization total ($29.9 trillion)
- Saudi Arabia is the largest individual country at about 37% of the total of the MENA market
Financial companies make up the largest economic segment listed on the region’s stock markets, representing nearly half of the MSCI Arabian Markets Index. The real estate and building materials sector makes up about a fifth of the index, closely followed by the telecommunications sector.
Energy companies are conspicuously absent, making up only 3 percent of the index, because most of the industry is purely in state ownership.
The MENA markets can be a useful diversification play in a global equities portfolio because of their relatively low correlations to equities in other regions. Historically, the MSCI Arabian markets index has a correlation of less than 0.5 to the MSCI World index, as illustrated by the following snapshot of rolling one-year correlations to April 2, 2009.
MENA region markets offer low correlation to other equity markets.
Source: Bloomberg Data, rolling 1-year average daily correlations as at 2 April 2009
| | MSCI EFM AFRICA ex ZA | MSCI WORLD | S&P 500 INDEX | MSCI Emerging Markets Index | MSCI ARABIAN MARKETS | NIKKEI 225 | MSCI ASIA PAC EX JAPN | US 10YR GOV |
| MSCI EFM AFRICA ex ZA | 1.00 | | | | | | | |
| MSCI WORLD | 0.30 | 1.00 | | | | | | |
| S&P 500 INDEX | 0.11 | 0.89 | 1.00 | | | | | |
| MSCI Emerging Markets Index | 0.45 | 0.79 | 0.52 | 1.00 | | | | |
| MSCI ARABIAN MARKETS | 0.48 | 0.28 | 0.09 | 0.42 | 1.00 | | | |
| NIKKEI 225 | 0.47 | 0.52 | 0.20 | 0.73 | 0.40 | 1.00 | | |
| MSCI AC ASIA PAC EX JAPN | 0.48 | 0.62 | 0.31 | 0.92 | 0.43 | 0.84 | 1.00 | |
| US Generic Gov’t 10 Year Yield | 0.04 | 0.38 | 0.41 | 0.29 | 0.03 | 0.10 | 0.18 | 1.00 |