As investors ponder the prospects for the Middle East and North Africa (MENA) region, Franklin Templeton Emerging Markets Equity’s Bassel Khatoun and Salah Shamma take stock of the investment landscape. They highlight some of the market developments in Saudi Arabia, Kuwait, Egypt and the United Arab Emirates (UAE) that have caught their attention.

It was a climactic year for the Middle East and North Africa (MENA). Saudi Arabia was officially included in MSCI’s Emerging Markets Index (MSCI EM) and Saudi Aramco, the state-owned oil company, announced its intention to float on the local stock exchange, the Tadawul, in December 2019. The MSCI is also likely to announce Kuwait’s inclusion in the MSCI EM Index in December 2019.

While we did see geopolitical tensions escalate this year, including an attack on Saudi Aramco’s oil facilities and a reinvigorated standoff between the US and Iran, our sentiment towards the region’s stock markets remains constructive.

Following years of fiscal consolidation, regional governments have finally turned inwards to promote private consumption and stimulate growth. Meaningful social and economic reforms have been implemented with far-reaching ramifications. In fact, we see encouraging signs of an early recovery. And though we can’t look at the region in isolation, we see distinct opportunities across MENA markets as we close out 2019.

Saudi Arabia

The results of Saudi Arabia’s far-reaching economic and social reform agenda are beginning to show. With its budget deficit significantly reduced, and a record budget expenditure in 2019, Saudi Arabia’s overall economic fundamentals have improved. Overall confidence and consumption are trending higher. This is reflected in improving corporate earnings, while valuations also remain attractive in specific areas of the market.