With US interest rates expected to go up further, it automatically means similar hikes for Gulf economies given the currency peg. This will undoubtedly have a financial impact on them, particularly as pressures mount on the US Fed to raise rates by 1 per cent rather than the anticipated 0.50-0.75 per cent.
Through these rate hikes, Western nations are working to lower inflation and prevent further harm to their economies. Despite factors such as unemployment numbers still being on the lower side, the West’s stock markets recorded big falls over the past two weeks since markets typically react to forecasts before they actually happen.
The markets kept changing their patterns owing to often contradicting data, localised expectations, and frenetic speculation that resulted in big profits for some but equally massive losses for others. Away from the Western stock markets, and even though interest rates in the Gulf rose to the same levels as in the US, the Gulf’s stock markets did so within a much narrower range for a variety of reasons that we shall discuss.
The world’s stock movements run parallel to what’s happening in America. While interest rates in the eurozone and Asia have increased slightly, that was not enough to rein in the dollar’s strength, which increased recently by 20 per cent against the euro.
The Gulf stock markets’ comparatively high level of stability is for obvious reasons. First, oil and gas prices are still high, which will provide local liquidity that sustains and adds to that in the financial markets. Second, the strong dividends paid by listed Gulf firms help keep stocks stable. They will continue to pay out high dividends, while the prevailing interest rates will increase bank profits.
According to available data, the GCC inflation rates are significantly lower than those across developed economies. This means the levels of high-interest rates are roughly proportional to inflation, giving the Gulf economies more stability and enhancing their economic activities, which in turn boosts the profits of publicly traded companies.
Foreign fund inflow
Fourth, significant foreign investments have been made in the Gulf stock markets, particularly in the UAE and Saudi Arabia. The share prices of many Gulf firms are reasonable when compared to the returns investors will receive following yearly dividend distributions. More so, as they are likely to be much higher from the previous year for many, particularly for banks.
The financial markets in the Gulf will be more stable in the near term due to the lower volatility levels, which will draw in more international funds. This is partly due to the GCC nations experiencing some of the highest growth rates anywhere, which will be reflected in further success from diverse economic activities.
This leads us to the conclusion that, despite the fact that Gulf currencies are pegged to the dollar and that Western stock exchanges are impacted by high-interest rates, those in the Gulf will continue to be in a better position. The factors will serve as additional impetus and the financial results of Gulf companies in the third and fourth quarters of this year will mirror those advances. Plus the dividends that will come as a result.
GCC economies can adjust well to the numerous global shifts.