Publication: Diversification Prospects in Middle East and North Africa (MENA) Equity Markets: A Synthesis and an Update
No Thumbnail Available
Date
2008
ISSN
09603107
Published
2008
Author(s)
Editor(s)
Abstract
This study investigates the extent to which Eurozone and Middle East and North Africa (MENA) equity markets are integrated, to assess any potential diversification benefits across the two sets of markets. In addition to cointegration analysis, we analyse time-varying conditional correlations, which are then modelled as a smooth transition logistic trend model to permit the determination of the speed at which the two sets of markets are becoming more or less integrated. Optimal portfolios based on a combination of equity assets in both sets of markets are constructed to assess possible gains from diversification. We compare the performances of these portfolios using a variety of performance measures, taking into account the implications of higher moments of return distribution unlike several studies. Whilst our findings do not indicate Eurozone-MENA integration, there is mixed evidence on the correlation trends between the sets of markets. Moreover, the changes in correlations occur at a very slow pace. Overall, our analysis indicates the existence of diversification benefits in MENA equity markets.
Link to Data Set
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Citations
Collections
Related items
Showing items related by metadata.
Publication Middle East and North Africa Economic Update, April 2010(World Bank, Washington, DC, 2010-04-01)This edition of the Middle East and North Africa (MENA) regional economic update concerns the region recovering from the financial crisis along with the global economy. Growth in 2010 is expected to be 4.4 percent region-wide, driven by domestic absorption as well as a positive contribution from external demand. The recovery from the crisis differs by country depending on initial conditions and the intensity of the impact via the three principal channels through which the global financial crisis affected MENA economies-the financial sector, the price of oil, and the balance of payments, reflecting the impact on trade, remittances and Foreign Direct Investment (FDI) flows. The Gulf Cooperation Council (GCC) countries are leading the regional recovery as oil prices have rebounded and the GCC financial sector is stabilizing. Developing oil exporters felt the impact of the crisis, and now the recovery, largely through the oil price channel, due to the limited integration of their banking sectors into global financial markets and the importance of oil in their exports. The oil importers were affected by the crisis through the secondary effects on trade, remittances, and FDI flows, so their recovery will depend crucially on the recovery in key markets, especially the EU and the GCC countries. High unemployment has been a problem in MENA for years, and the crisis has dimmed prospects for improvements in the near term. Ample oil and gas resources, a youthful and growing workforce, and a growing momentum to look for ways to diversify their economies imply that the growth potential of the region is high, but MENA countries continue to face formidable longer term challenges. Ensuring access to finance without compromising financial stability will be a major challenge in MENA, although issues related to weak regulatory systems, corporate governance and overdependence on the banking system also loom large. Key problems of the business environment in MENA include policy and regulatory uncertainty and discretion in implementing reforms which prevent a level playing field for all firms and encourage the pursuit of privileged access. These problems, coupled with barriers to entry and exit, have created an environment of stagnation. Addressing these issues will require applying rules and regulations consistently and without discrimination among firms and introducing reforms that promote business dynamism, private investment, and innovation.Publication Middle East and North Africa Economic Developments and Prospects 2006(Washington, DC: World Bank, 2006)This edtion of the Middle East and North Africa (MENA) economic developments and prospects reports highlights the recent key economic developments as well as the forces underlying the region's economic outcomes. It analyzes the region's medium term growth prospects given global forecasts, and charts the region?s progress with implementing comprehensive structural reforms needed for longer-term growth. For the third year in a row, MENA enjoyed a spectacular year of growth, buoyed by record high growth rates among the region's oil exporters. As oil prices continued their upward climb, the MENA region grew by an average of 6.0 percent over 2005, up from 5.6 percent over 2004, and compared with average growth of only 3.5 percent over the late 1990s. On an annual basis, MENA's average economic growth over the last three years, at 6.2 percent per year, has been the highest three-year growth period for the region since the late 1970s. MENA's regional growth upturn has not been universally shared, however, and resource poor economies are increasingly feeling the adverse impact of higher oil prices. Growth patterns among oil producers, on the other hand, have been increasingly harmonized, reflecting a trend toward common development strategies. Over the medium term, general conditions for maintaining a solid pace for growth appear promising. The oil shock MENA is experiencing has had important financial spillovers. Over the last few years, MENA has seen an upsurge in financial activity, as abundant liquidity has fed a rapid rise in credit growth, surging stock markets, and a booming real estate sector. A troubling aspect about MENA's financial markets is the seeming disconnect between the financial sector and the real private economy, despite the appearance of a relatively deep financial sector by macroeconomic indicators. Along with across the board policy reform, MENA economies continue to look to selective industrial policies designed to enhance specific sector competitiveness and growth to complement more broad-based structural reform. Although the views on industrial policy are changing, and a variety of economic justifications can be made for their use, MENA's own unsuccessful history with industrial policies (and the difficulty in transitioning out of them) should serve as a cautious reminder that the most effective policies for promoting growth rely on strategies to create a neutral and internationally competitive business environment.Publication The Insurance Sector in the Middle East and North Africa : Challenges and Development Agenda(2011-03-01)This paper studies the causes of the low development of the insurance sector in the Middle East and North African (MENA) region, particularly for long term insurance. The paper shows that life and non-life premiums, as well as assets, are very low relative to expected levels given per capita income and demographic characteristics, and examines the causes of such poor performance. There is a wide range of factors constraining the development of the industry, including the absence of mandatory insurance in key areas, the predominant presence of the state in some countries, gaps in regulation and supervision, unsupportive tax regimes, fragmented market structures, a chronic lack of suitably skilled people, as well as the absence of products that conform with cultural/religious preferences, especially in the case of life insurance. The lack of development of the insurance sector is a matter of concern, as research shows that the sector can contribute to both financial and economic development. Key recommendations to accelerate the development of the sector include wider introduction of mandatory insurance lines that have clear positive externalities, continuing the privatization process for government owned insurers, employing non capital techniques to force rationalization of insurance sectors with too many small and inefficient players, removing tax distortions, taking steps to stabilize motor third party liability markets (typically the largest line of business), strengthening reporting and disclosure, regulating banc-assurance, improving consumer protection, further developing Takaful long term insurance ('Family Insurance'), and establishing regional centers of excellence for skills development.Publication The Status of Bank Lending to SMEs in the Middle East and North Africa Region : Results of a Joint Survey of the Union of Arab Bank and the World Bank(2011-03-01)Among the principal constraints for SME lending is the lack of SME transparency, poor credit information from credit registries and bureaus, and weak creditor rights. If constraints can be addressed, lending can potentially reach bank targets of 21 percent. State banks still play an important role in financing SMEs in the MENA region, but they use less sophisticated risk management systems than private banks. On another hand, credit guarantee schemes are a popular form of support to SME finance in the region, and are associated with higher levels of SME lending. The paper concludes that MENA policy makers should prioritize improvements in financial infrastructure, including greater coverage and depth of credit bureaus, improvements in the collateral regime (especially for movable assets), and increased competition between banks and also non-banks. Weaknesses in insolvency regimes and credit reporting systems should also be alleviated. Direct policy interventions through public banks, guarantee schemes, lower reserve requirements and subsidized lending and other measures have played a role in compensating for MENA's weak financial infrastructure, but more sustainable structural solutions are needed.Publication From Privilege to Competition : Unlocking Private-Led Growth in the Middle East and North Africa(Washington, DC, 2009)The report starts with an introductory chapter that sets the stage for the issues and provides a short historical background on the development of the private sector in Middle East and North Africa (MENA), drawing on anecdotes and stories heard from many entrepreneurs and public officials consulted throughout the region during the preparation of this report. The core of the analysis is then presented in three parts. Part one assesses the performance of private sector development in the region from a macroeconomic and microeconomic standpoint (chapter two). It then presents the framework that is used to explain the identified performance gap (chapter three) and uses this framework in (chapter four) to claim that the lack of private sector dynamism in MENA is not necessarily due to insufficient reforms, but rather to the discretionary way in which rules and policies are implemented, and the lack of credibility of governments to really level the playing field when applying their policies and reforms. Part two then illustrates how this issue of poor implementation of the policies translates in three key policy areas in the business environment of the region: access to finance (chapter five), access to land (chapter six), and the conduct of industrial policies (chapter seven). The aim is to show how the role of the state and its institutions, when diverted from their regulatory and administrative missions by special interests and when subject to discretionary influence, can distort policies that may otherwise be well designed and well intended. Part three analyzes the political economy of reforms in MENA (chapter eight) and uses this analysis to offer a set of strategic recommendations and concrete policy actions that take into account the region's diversity and political economy (chapter nine).
Users also downloaded
Showing related downloaded files
No results found.