Arab stock markets registered value losses of about 25% in the first quarter of 2020,
due to heightened volatility in oil markets and the pandemic, a UN agency said Thursday (May 14).
The new policy brief by the United Nations Economic and Social Commission for Western Asia (ESCWA) and the Union of Arab Banks on the current situation of Arab financial markets and the banking sector in the Arab region, found that the coronavirus pandemic and the collapse in oil prices, have lowered investors’ appetite for risk and decreased trading in stock markets, investment, tourism and remittances inflows, rendering future growth prospects beak.
To respond to these repercussions, ESCWA Executive Secretary Rola Dashti called on Arab sovereign wealth funds to participate in boosting regional economic recovery.
“This would actually be a win-win measure, as shifting part of these funds’ global investments towards Arab economies would ease the pandemic’s repercussions and reduce rampant unemployment, while limiting Arab funds’ exposure to the volatility of international financial markets,” she argued.
Meanwhile, Garbis Iradian, chief Middle East and North Africa economist at the Institute of International Finance (IIF) told Reuters that Gulf sovereign wealth funds could see their assets decline by $296 billion by the end of this year. Around $216 billion of that fall would be from stock market losses and a further $80 billion from drawdowns taken by cash-squeezed governments.
Sovereign funds have become major players on global stock markets, accounting for roughly 5-10% of total holdings.
As for banks in the region, ESCWA and the Union of Arab Banks expect liquidity constraints to adversely affect their deposit growth, funding and overall valuation. They also expect that credit to the private sector will contract by $14.5 billion in Gulf Cooperation Council countries, and by $11.3 billion in non-oil middle-income countries, amounting to a decrease of about $26 billion in 2020.
The health and oil crises also decreased the share price values of the largest GCC banks by 25 per cent in the first quarter of 2020. Default rates may reach 10%, up from 5% in 2019.
Dashti stressed on the need for Arab central banks to continue providing adequate liquidity to the financial system at any cost during the relief period and during recovery.
“This measure would allow banks to stay solvent and facilitate corporate credit, especially to small and medium enterprises, to avoid mass bankruptcies,” she concluded.