UN agency says Arab markets’ value falls by a quarter this year

Arab Stock market data on LED display concept. G

In the first three months of 2020, Arab stock markets lost almost a quarter of this value due to the double assault from the coronavirus pandemic and crash in oil prices, according to the UN agency, Economic and Social Commission for Western Asia.

“The drop in oil prices and the COVID-19 pandemic resulted in a 23-per cent coverage loss for major Arab stock markets by the end of the first quarter of 2020,” the ESCWA said, adding that these external conditions “have lowered investors’ appetite for risk and decreased trading in stock markets, investment, tourism and remittances inflows, rendering future growth prospects bleak”.

The twin crises have “shattered the stock market in Arab countries, putting the performance of financial markets below the 2008-2009 collapse” the report said while pointing out the largest banks in the Arab states, even the oil-rich ones in the Gulf, have witnessed a 25-per cent crash in the share price value in the first quarter.

One way forward for economic revival was support from Arab sovereign wealth funds which instead of continuing to invest in foreign lands could direct some of this capital inwards. “Shifting part of these funds’ global investments towards investing in Arab economies may ease the pandemic’s repercussions and reduce rampant unemployment in the Arab region,” the report said.

This has the two-fold benefit of reducing the exposure of these funds to the volatility of international markets while supporting development within their own borders.

The Union of Arab Banks and the ESCWA said that in the six Gulf Cooperation Council states, credit to the private sector is to reduce by $14.5 billion and by $11.3 billion in non-oil, middle-income countries, bringing the total decline up to $26 billion in 2020. The ESCWA’s advice to banks was to continue providing liquidity to the financial system at any cost during the relief and recovery period. Loan structuring was essential to head off default risks for small and medium-sized businesses.

“The drop in oil prices and the COVID-19 pandemic resulted in a 23-per cent coverage loss for major Arab stock markets by the end of the first quarter of 2020,” the ESCWA said, adding that these external conditions “have lowered investors’ appetite for risk and decreased trading in stock markets, investment, tourism and remittances inflows, rendering future growth prospects bleak”.

The twin crises have “shattered the stock market in Arab countries, putting the performance of financial markets below the 2008-2009 collapse” the report said while pointing out the largest banks in the Arab states, even the oil-rich ones in the Gulf, have witnessed a 25-per cent crash in the share price value in the first quarter.

One way forward for economic revival was support from Arab sovereign wealth funds which instead of continuing to invest in foreign lands could direct some of this capital inwards. “Shifting part of these funds’ global investments towards investing in Arab economies may ease the pandemic’s repercussions and reduce rampant unemployment in the Arab region,” the report said.

This has the two-fold benefit of reducing the exposure of these funds to the volatility of international markets while supporting development within their own borders.

The Union of Arab Banks and the ESCWA said that in the six Gulf Cooperation Council states, credit to the private sector is to reduce by $14.5 billion and by $11.3 billion in non-oil, middle-income countries, bringing the total decline up to $26 billion in 2020. The ESCWA’s advice to banks was to continue providing liquidity to the financial system at any cost during the relief and recovery period. Loan structuring was essential to head off default risks for small and medium-sized businesses.

The Economic and Social Commission for Western Asia attributes this to the twin effects of the coronavirus pandemic and collapse of oil prices.

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