Middle Eastern markets in the driver’s seat
The Middle East is set to be the next big story in the emerging market space, according to an industry expert.
Schroders global head of emerging markets equities Allan Conway said the Middle East was a region that had yet to appear on investors’ radar, but would soon be too big to ignore.
“While the Middle East may not end up being as big as the BRIC (Brazil, Russia, India and China) economies were 10 years ago, it’s something that we’re expecting will become the next big story,” he said.
According to Conway, there are two key reasons why the Middle East is set to boom.
“Firstly, everyone thinks the Middle East is simply oil, and in the past while true, over the last five years we’ve seen massive investment of oil money into infrastructure, an increase in financial services and a huge diversification of the economy.
“In fact, last year the golf countries got more growth from the non-oil sector than the oil sector, with some of these countries growing at Chinese rates of growth.”
Conway said the second big strength of the Middle Eastern markets is their low correlation with other markets.
“These markets have a zero to negative correlation with not only developed markets, but other emerging markets. If you look at the last five to six times that emerging markets have been off 10 per cent or more, these markets have gone up. So far this year, many Middle Eastern economies are up 20 per cent or more,” he said.
Conway also expressed the view that emerging markets had well and truly decoupled from developed economies.
“Decoupling is a fact. Today, under any scenario in the US, you are going to see emerging market economies growing 4 to 5 per cent faster. That is an extraordinary result,” he said.
According to Conway, as a result of this strong growth, the structure of the global economy has changed.
“In the past, emerging markets piggybacked off the strength of developed economies; [however], last year it accounted for 65 per cent of global growth and will account for 75 per cent of global growth this year,” he said.
“Today it is the emerging markets that are in the driving seat.”
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