2023-11-12T19:07:35+00:00
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/ Foreign investors withdrew a record amount from US stock funds that follow Saudi Arabia in October, as the worst violence witnessed in the Middle East in decades shook the situation supportive of business in the region.
LSEG data showed that the iShare MSCI Saudi Fund witnessed record net cash outflows in October exceeding $200 million, which is equivalent to 20 percent of what it was at the beginning of the month. .
Stock exchange-traded funds exposed to stocks in Qatar, the UAE, and Israel suffered from a displacement of flows as investors worried about instability, and flows also declined this month.
“Capital flight can be completely random,” said Torbjörn Solvet, principal analyst for the Middle East and North Africa at Verisk Maplecroft.
He added, “It does not have to be 100 percent based on country-specific foundations. It is currently clear that there is a perception that risks are increasing across the region. We are seeing a negative impact as a result.”
The iShare MSCI Qatar Fund lost inflows of $7.7 million in October, while the losses of the iShare MSCI UAE Fund amounted to $2.75 million.
ETFs that track Israel, such as iShare MSCI Israel, Ark Israel Innovative Technology, and Blue Star Israel Technology, have seen net outflows of between $2.5 million and $9.3 million since the attack. The Palestinian Islamic Resistance Movement (Hamas) on October 7th.
Outflows from ETFs tracking Gulf countries exceeded those out of most emerging markets in the same period, while the proportion of outflows from Israel is also above average.
This is the second time that the Israeli markets have faced turmoil this year, after the repercussions resulting earlier from the judicial reforms introduced by the government, which led to increased pressure on the markets.
Natalia Goroshina, chief emerging markets economist at Van Eck, said the recent unrest had exacerbated the displacement of flows.
She added, “The issue of foreign direct investment – Israel as a destination for technological investment – received another major blow… With an analytical view of the structure of the economy, the fact that Israel is a safe and attractive place for this type of flows is one of the reasons that prompted (rating agencies) to consider lowering the rating before.” “.
She noted that these concerns “will not improve any time soon.”
However, ETFs that track the region mostly rebound from losses incurred immediately after Hamas launched its attack on Israel.
Flexibility…but
The flight of cash from exchange-traded funds indicates shaking investor confidence in markets that were surprisingly resilient, according to what Reuters reported.
Israel compensated for the shekel losses and its bonds rebounded. Bonds in most Gulf countries were not affected at all by the conflict.
Sergey Dergachev, a portfolio manager at Union Investment, said that the turmoil did not slow down new issuance in the Gulf region, pointing to sukuks issued by the Saudi Public Investment Fund.
He added, “It is interesting to note that we do not see any major fear of infection risks,” noting that no sales of corporate debt have been observed in Israel since the beginning of the war.
Investors say almost all of the region’s major economies are strong enough to withstand some disruption. Israel has reserves amounting to approximately $200 billion, while high oil and gas prices support the Gulf states.
But the flight of equity investor funds highlights the risks that remain severe for these economies and their efforts to diversify if the region descends into conflict again.
Maplecroft’s Solvet said the continuation of the war undermined Saudi Arabia’s efforts to reduce its dependence on oil, while Dergachev and other investors noted that the longevity of the conflict — and the extent of the damage it has inflicted on Israeli businesses and investments — could do more damage to its economy.
Dergachev continued, saying, “For Israel, the big question is what will happen next? This is not really a consideration.”