Custody data show portfolio outflows from Middle East and North Africa (MENA) markets, which can raise the risk premium needed to bring in portfolio inflows. External funding gaps are expected to widen as balance-of-payments pressures build.
Oil-exporting economies face weaker export earnings and lower regional services spending. Many also lack flexible exchange rates to help adjust to shocks.
Outflows And Widening Funding Gaps
Non-oil economies are dealing with higher import costs and structural current account deficits. There is concern that more downstream products could add to these deficits.
A direct comparison with 2022–2023 is not made, as domestic demand, including fiscal spending, has been retrenching for several quarters. This may reduce financial stress when funding falls.
In Egypt, reforms including changes to exchange rate formation have helped stabilise expectations and support a high starting point for real rates. Over a 12-month rolling basis, local asset markets have created a buffer that limits balance-of-payments risks for now.
Funding gaps are expected to stay large in the near term, but may be manageable with effective fiscal and monetary policy execution.
Trading Implications For Mena Markets
We are seeing significant money leaving Middle East and North African markets, which is making it more expensive to attract new investment. Our own data showed this trend accelerated through the first quarter of 2026, with March showing a net portfolio exit of over $15 billion from the region’s main exchanges. This is a direct response to lower energy revenues and a persistently strong US dollar.
For the big oil exporters, the drop in Brent crude prices to an average of $68 a barrel this year is squeezing their earnings, a problem made worse by their currencies being pegged to the dollar. We see this pressure building in the 12-month forward markets for currencies like the Saudi Riyal, where the cost to bet against the peg has widened to levels not seen since the brief oil price slump in 2025. This situation suggests traders could look at options strategies that benefit from increased hedging costs.
In contrast, the non-oil economies are struggling with higher costs for imports, which is making their existing trade deficits even larger. We are concerned that as these countries import more finished goods, these structural problems will only get worse. Traders might consider buying puts on regional ETFs that are heavily exposed to consumer sectors reliant on imported goods.
However, we would avoid comparing this situation to the severe stress seen in 2022 and 2023. A key difference is that governments in the region have been cutting back on spending for several quarters, which creates a buffer against the drop in foreign funding. This fiscal discipline means traders should be careful not to be overly bearish on the entire region.
Egypt is a notable exception, where policy reforms have helped stabilize the economy and attract capital. With real interest rates holding above 5% according to the latest central bank data, the Egyptian Pound has been one of the strongest regional currencies this year. This sets up a potential pair trade, going long on the Egyptian Pound while taking a short position against a basket of other regional currencies.
Overall, we expect the gaps in funding to remain large in the coming weeks, but they are manageable if governments make the right policy moves. This uncertainty means implied volatility on regional assets will likely stay high. This makes strategies that depend on collecting premium, like selling uncovered options, particularly risky right now.
