Guaranteeing the Benefits of Cash Flows in the Middle East

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Alicia Harmony
Alicia Harmony
Alicia Harmony is a technology writer who has been covering the latest trends in the industry for over 5 years. He has a degree in computer science from Stanford University and is passionate about exploring the ways technology is changing the world. In his spare time, David enjoys tinkering with gadgets and playing video games.

Dating back to the global financial crisis of 2002, emerging marketing economies have experienced a surge in capital flows in response to significant monetary easing by major central banks. Gross capital inflows to the Middle East and North Africa (MENA) have remained high compared to other emerging market.

However, they composition has transformed significantly, with a surge in portfolio flows and a decline in foreign direct investment. That’s not to say you should skimp on your Middle East investing voyage since good things are destined to follow when done right.

With global economic risks on an upward trajectory, MENA countries would be particularly vulnerable if global risk sentiment shifts. No wonder the region’s economies should be ready to do more work to guarantee the benefits of portfolio inflows while securing more stable and growth-friendly foreign direct investment.

You might already be wondering why portfolio flows to the region increased so sharply. In a nutshell, about two-thirds of the increase can be attributed to a more favorable global risk sentiment is that notably below its historical average. Remember, portfolio inflows are mostly driven by global ‘push’ factors, such as financial market risk sentiment.

Overall, the Middle East regions has greatly benefitted from a generally favorable environment for such inflows. But with global economic risks on the rise, MENA countries would be particularly vulnerable if global risk sentiment shifts. This is especially the case among countries with large fiscal deficits, limited buffers, and high debt burdens.

Portfolio inflows in the region are nearly twice as sensitive to changes in global risk sentiment as compared to other emerging economies. This could lead to capital flight in high-risk periods. The sensitivity most likely emanates from the higher perceived overall risk of the region, reflecting geopolitical uncertainties, exposure to global trade tensions, and reliance on volatile oil prices.

Undertaking your Middle East investing expedition is a decision you should never rush over. The catch lies in examining the different investment opportunities available in the Middle East before settling on the ideal option for your needs.


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