In December, markets in the Mena (Middle East and North Africa) region performed better than developed and emerging markets. The S&P Pan Arab Large Mid Cap Index (with Saudi Arabia capped at 30 per cent) was down only 0.29 per cent for the month. Performance among the Mena markets varied widely, with Saudi Arabia seeing the largest fall and Egypt recording the strongest gain.

The overriding focus for investors was the budget announcements of GCC members, which generally indicated a balanced approach between reform and reducing deficits on the one hand, and ensuring a minimal impact on low- to middle-income consumers on the other, with the aim to preserve economic growth though a GCC-wide value added tax is set to come into effect over the next few years.

The 5 per cent fall in Saudi Arabia’s market was largely influenced by a slide in oil prices, precipitated by a decision by Opec to keep production levels unchanged, contrary to expectations of a return to their production ceiling. On the positive side, Saudi Arabia’s much-awaited budget proposal showed a commitment to serious reform.

The planned reduction in spending from 2015 to 2016 is budgeted to be around 2 per cent, but in reality, the spending cut is likely to be greater, around 15 per cent, since many one-off items increased spending in 2015.

Kuwait and Oman were other notable markets that fell over the month. Kuwait’s central bank moved in line with the Fed to increase the benchmark rate by 25 basis points. Like its regional peers, Kuwait’s budget reform measures were focused largely on corporations and exempted low- and middle-income individuals.

Oman decided not to raise rates subsequent to the Fed announcement. However, its budget also proposed better ways to increase revenues and rationalise expenditures, including deregulating the prices of petroleum products, amending electricity and water taxes, enhancing tax collection, increasing the corporate tax rate from 12 per cent to 15 and ending corporate tax exemptions.

The strongest performing market in the region was Egypt, which rose nearly 10 per cent over the month, supported by concrete efforts to improve the country’s foreign exchange shortage and a flurry of global support through grants and loans. The central bank injected $1 billion into the banking system to cover about 30 per cent of outstanding import requests, which had been held up due to a shortage of foreign currency.

In terms of external financial support, Saudi Arabia and the World Bank led contributions with commitments of $8 billion each, but other notable supporters included Kuwait, the Arab Fund, the European Union and China. Qatar’s market also performed well, up 4.4 per cent for the month. The country issued its 2016 budget with a 7 per cent cut in total spending, but it did not raise interest rates due to concerns about liquidity in the banking sector. Qatar also announced a significant reform of its labour laws that will come into effect in 2016, allowing labourers to leave the country under more flexible conditions.

Meanwhile, the football authority FIFA said it was happy with Qatar’s preparations for the 2022 World Cup.

The UAE recorded a moderate gain. Dubai approved its 2016 budget with a 12 per cent increase in spending, but this isn’t of too much concern as Dubai is not directly reliant on oil prices as many of its GCC counterparts, with spending likely supported by a corresponding increase in revenues through higher fees.

The UAE’s central bank raised rates in line with the Fed, while Moody’s maintained its stable outlook on the banking system, citing resilient capital and liquidity buffers, although simultaneously warning that a softening economy could weaken operating conditions and may result in slower credit growth.

We continue to remain somewhat cautious about the outlook for the global economy. The Fed’s rate increase has resolved some uncertainty in the market, but we now wait to see the impact of the significant reform measures announced in the budgets of many GCC countries, especially the impact on the costs and earnings of corporations.

Overall, however, we are reassured by the serious commitment and proactive approach taken by these countries in recognising the need to reform, reduce deficits and accommodate for low oil prices. The reform measures for most GCC countries include higher fees, higher taxes, better tax collection, and reduced subsidies.

While these measures are considerable enough to ensure that reserves will not be substantially depleted if oil prices stay under pressure, governments have been careful that the measures are also reasonable enough to not have a dramatically negative impact on economic growth or consumer demand.

The writer is Head of Investment — Mena Equity at Franklin Templeton.