Risk-off sentiment and the sell-off in EM financial markets have hit the Middle East and North Africa hard. Having been the top regional performer earlier in the year, the MSCI Arabian Markets Index has fallen by nearly 20% since mid-April. Sovereign dollar bond spreads have widened across the board, particularly in Egypt and in Tunisia – the latter appears to be hurtling toward a default. With developed market central banks set to deliver more hikes over the rest of this year and next, we suspect that equities in the Middle East and North Africa (and EMs more generally) will continue to struggle. Meanwhile, sovereign dollar bond spreads could widen further, and currencies in North Africa are likely to come under greater pressure.
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