UAE, Saudi lead Mena economic rebound

Well-managed lockdowns and aggressive vaccine rollouts in the Middle East and North Africa (Mena) region, in particular the UAE and Saudi Arabia, have paved the way to mobility normalization, which in turn should accelerate an economic rebound, according to experts at a webinar.

“A resilient economy, continuing reforms and an extensive Covid-19 vaccination programme leads us to maintain a favourable outlook on the UAE. A recovery in the residential real estate market coupled with expectations of a rebound in tourism also bodes well for equity prices,” said Bassel Khatoun, senior managing director, Frontier and Mena, Franklin Templeton Emerging Markets.

“Crucial fiscal and economic reforms coupled with timely and ample liquidity support have provided the foundation for Mena GDP growth to rebound to 2.7 per cent in 2021 and strengthen further to 3.8 per cent in 2022,” said Khatoun.

Speaking at a Franklin Templeton webinar titled “Investing beyond the storm: A global and local view on a post-pandemic world”, Khatoun said that higher crude prices and the mobilization of ambitious project spending plans suggest further upside to these projections. “The Mena region’s young population, with high potential for productivity, creates a long demand runway for consumption growth.”

Panellists at the webinar included Zehrid Osmani, head of Global Long-Term Unconstrained Team, Martin Currie; Brian Kloss, portfolio manager, Brandywine Global; and Mohieddine Kronfol, CIO of Global Sukuk and Mena Fixed Income, Franklin Templeton.

"An active base of young and tech-savvy consumers, coupled with strong Internet penetration and high-income per capita, provides a supportive backdrop for e-commerce in Mena. Despite rapid growth, e-commerce penetration in Mena remains low compared to its developed and emerging peers, setting the stage for a multi-year catch-up,” said Khatoun.

Although 2020 was a challenging year for Mena markets, a strong recovery in corporate earnings in 2021 and 2022 is expected to provide support for current valuation levels, he added.

Osmani predicted a significant economic and corporate profits rebound in 2021, with an expected 39 per cent plus YoY earnings growth for the MSCI World Index.

Kronfol said the GCC policy did an admirable job tackling the virus and oil price collapse – both from a public health perspective as well as the costs to engineer a recovery.

“GCC policymakers have reinforced their commitment to fiscal consolidation and a multi-year structural reform journey which underpins our constructive outlook for regional debt. GCC Bonds have more than doubled their market share relative to loans over the past five years and in the process, now command a leadership position in emerging market debt indices,” said Kronfol.

He said that GCC issuers are on pace to issue $125 billion in 2021, in line with last year’s total, but with sovereign issuance at 30 per cent versus 50 per cent in 2020 and 2019.

Kloss said returns from global fixed income will be harder to come by in 2021, but should remain positive. “Economic and market conditions will require investors to continuously evaluate the data, actively manage their portfolios across fixed income sectors and the quality spectrum."