Geopolitical Risks in the Middle East
Geopolitical risks in the Middle East have always been a cause of concern among the investor community.
Although these risks have been present in the market for a long time now and most investors are aware of this; things are looking serious since the rise of so called Arab spring in early 2011.
There are three key themes that would add a lot of tensions in 2013 - 1) Iran - Israel conflict, 2) Protests in Egypt, and 3) Civil war in Syria.
All these risks have potential to negatively impact investors' sentiments and could result in weak growth, and widening external/fiscal imbalances.
Iran- Israel conflict has been an ongoing risk in the MENA region.
Many believe that Iran would be prepared to launch a nuclear attack on Israel in 2013.
The US, a long time ally of Israel has indicated that it has no intentions to help Israel if a war like scenario emerges in the near future.
Based on this assumption, it is unlikely that Israel would be involved in any fight with Iran on its own.
However, there is a lack of clarity on Iran's part.
The failure to have a proper communication channel between Iran and Israel could create a serious situation wherein both these countries would be seen in the middle of a serious war in future.
Fresh unrest in Egypt has escalated civil unrest post Hosni regime.
The fight between civilians against the newly elected president in relation to misusing his powers to grant himself a superpower could prove to be damaging.
It would set back investor confidence and stall policymaking at a time when strains on the economy are at their extreme.
A political crisis over the new constitution and delays to the long hoped IMF deal has already triggered fresh capital controls, and a drop in the value of the currency.
Syria also features high in investors' worry list for 2013.
A high probability of ongoing unrest and insurgency,even if the regime falls, adds to the severe challenges already faced not only by Syria, but also by neighbouring Jordan, Iraq and Lebanon.
The support to Syrian president from Russia and China is disturbing.
This is one of the most violent conflicts in the region as about 40,000 civilians have lost their lives in this war so far.
If Russia and China get directly involved in this fight in support of the president of Syria, it would worsen the situation further and would have a spill over effect on the neighbouring countries.
That said, we still think there are select investment opportunities in the region.
We think there are two pockets in the Middle East region that investors can look at based on their risk appetite.
One, the GCC region and two, the rest of MENA region.
The GCC is least affected by unrest in the MENA region and considered as safe haven by investor community.
Deep pockets of oil rich countries including Saudi Arabia, Qatar, and Abu Dhabi have proven to be investor friendly in the past.
Except some protests (not violent unlike Syria) in Kuwait and Bahrain, the region appears like a comfortable place to have exposure to MENA region.
Although these risks have been present in the market for a long time now and most investors are aware of this; things are looking serious since the rise of so called Arab spring in early 2011.
There are three key themes that would add a lot of tensions in 2013 - 1) Iran - Israel conflict, 2) Protests in Egypt, and 3) Civil war in Syria.
All these risks have potential to negatively impact investors' sentiments and could result in weak growth, and widening external/fiscal imbalances.
Iran- Israel conflict has been an ongoing risk in the MENA region.
Many believe that Iran would be prepared to launch a nuclear attack on Israel in 2013.
The US, a long time ally of Israel has indicated that it has no intentions to help Israel if a war like scenario emerges in the near future.
Based on this assumption, it is unlikely that Israel would be involved in any fight with Iran on its own.
However, there is a lack of clarity on Iran's part.
The failure to have a proper communication channel between Iran and Israel could create a serious situation wherein both these countries would be seen in the middle of a serious war in future.
Fresh unrest in Egypt has escalated civil unrest post Hosni regime.
The fight between civilians against the newly elected president in relation to misusing his powers to grant himself a superpower could prove to be damaging.
It would set back investor confidence and stall policymaking at a time when strains on the economy are at their extreme.
A political crisis over the new constitution and delays to the long hoped IMF deal has already triggered fresh capital controls, and a drop in the value of the currency.
Syria also features high in investors' worry list for 2013.
A high probability of ongoing unrest and insurgency,even if the regime falls, adds to the severe challenges already faced not only by Syria, but also by neighbouring Jordan, Iraq and Lebanon.
The support to Syrian president from Russia and China is disturbing.
This is one of the most violent conflicts in the region as about 40,000 civilians have lost their lives in this war so far.
If Russia and China get directly involved in this fight in support of the president of Syria, it would worsen the situation further and would have a spill over effect on the neighbouring countries.
That said, we still think there are select investment opportunities in the region.
We think there are two pockets in the Middle East region that investors can look at based on their risk appetite.
One, the GCC region and two, the rest of MENA region.
The GCC is least affected by unrest in the MENA region and considered as safe haven by investor community.
Deep pockets of oil rich countries including Saudi Arabia, Qatar, and Abu Dhabi have proven to be investor friendly in the past.
Except some protests (not violent unlike Syria) in Kuwait and Bahrain, the region appears like a comfortable place to have exposure to MENA region.
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