BNY Mellon custody data showed portfolio outflows from Middle East and North Africa markets. The outflows raise the risk premium needed to bring in portfolio inflows and may widen external funding gaps.
Oil-exporting economies face weaker export earnings for key products and lower services spending in the region. Many of these economies also have inflexible exchange rates, limiting adjustment.
Portfolio Outflows And Rising Risk Premiums
Non-oil economies are dealing with higher import costs. There is also concern that a shift towards more downstream products could add to structural current account deficits.
The situation is not being compared with 2022–2023 at this stage. Domestic demand, including fiscal demand, has been retrenching for several quarters, which may ease financial stress as funding falls.
In Egypt, reforms such as changes to exchange-rate formation have helped to stabilise expectations. On a 12-month rolling basis, local asset markets have provided a buffer that helps limit balance-of-payments risks for now.
Funding gaps are expected to stay large in the near term. They are viewed as manageable if fiscal and monetary policy are executed effectively.
Trading Implications For Mena Assets
We are seeing significant portfolio outflows from MENA markets, which is increasing the risk premium required to attract new capital. These cashflow concerns have contributed to the MSCI Arabian Markets Index falling over 6% so far this year. Traders should anticipate higher volatility in regional assets.
For oil economies like Saudi Arabia and the UAE, weaker export earnings are a key concern, especially with Brent crude averaging just over $75 in the first quarter of 2026. While their dollar pegs are unlikely to break, the cost to hedge against this risk in forward markets is rising. This environment suggests considering bearish positions on regional equity futures.
In Egypt, the situation is more complex, as reforms are creating a buffer against higher import costs. With the central bank holding rates at 28.25% against 25% inflation, the positive real yield is stabilizing the currency after the major devaluations we saw in prior years. This tension could lead to sharp moves, making options strategies that benefit from volatility, rather than direction, attractive.
We would avoid drawing direct parallels to the funding stresses of 2023, a period defined by aggressive global monetary tightening that hit emerging markets hard. Many regional governments have been reducing fiscal spending for several quarters, which helps cushion the blow from reduced foreign investment. Still, with funding gaps expected to widen, traders should remain cautious and prepared for instability.
