It was the best of times, it was the worst of times. Charles Dickens’s chronicle about Paris and London at the time of the French Revolution in the 1790’s captures my feelings about the Arab capital markets in 2019. The best of times? Saudi Arabia issued $12 billion in Aramco Eurobonds that were oversubscribed ten times in the global capital markets.
Saudi Aramco’s blowout success with the Saudi Aramco IPO on the Tadawul, up 20% in its first two days as a public company, was history’s largest listing (state sanctioned leveraged IPO), stunned the Middle East and a sceptical Western world. Yet the euphoria in the Tadawul contrasted in real time with a banking, currency and sovereign debt meltdown in Lebanon. Bloody civil wars in Syria, Libya, Yemen and Iraq take their toll in human slaughter as I write.
Dubai home prices fell 10% in the fifth year of a property bear market and property developers profits fell 85 – 90% from their peak, as did their share prices. Algeria and Sudan were paralyzed by anti-regime street protest and palace coups within the ruling Praetorian elite. Geopolitical tensions with Iran escalated after Ayatullah Khamenei’s Revolutionary Guards mined, sabotaged and seized foreign flag oil tankers in a bid to disrupt the maritime chokepoints of the Straits of Hormuz and Gulf of Oman after the Trump White House’s “maximum pressure” sanctions strangled Iran’s crude oil exports. The Qatar embargo continued. Turkish combat troops invaded the Kurdish enclave in northeast Syria. The Kremlin invited the leaders of Turkey and Iran to ink a new Sykes-Picot blueprint for the Arab Levant. Israel continued to enforce its mass prison in Gaza and the US moved its embassy from Tel Aviv to Jerusalem in yet another nail in the coffin for a two state solution in Palestine.
The Arab world’s capital markets endured the best of times and the worst of times in 2019. There were seminal milestones in the evolution of the capital markets. J.P. Morgan included five GCC countries in its bellwether EMBI emerging market bond index – and amplified a blowout performance for the Bloomberg Barclays GCC bond and sukuk index, already sizzling after three successive FOMC rate cuts by the Powell Fed. Saudi Arabia’s Tadawul was added to the MSCI EM equities index and is now the ninth largest index constituent with a 2.64% weight, more than Mexico, Philippines and Malaysia.
Egypt continued to make progress in its $12 billion IMF bailout mandated austerity program and inflation’s dramatic fall enabled 500 basis points in central bank policy rates cuts and an almost 20% rise in the Egyptian pound, as the highest interest rates in MENA attracted a tsunami of offshore and diaspora Misri capital. The Nile water dispute between Egypt and Ethiopia on the Great Renaissance Dam threatened to escalate into war even as Ethiopia Prime Minister Abiy Ahmed won the Nobel Peace Prize, once proudly won by Menachem Begin, wanted Irgun terrorist in 1948 and the later the butcher of West Beirut in 1982.