- As the rising tide of populism in the West erodes the foundations of the open market, the apparent retreat from globalisation may result in the GCC’s capital markets gaining huge momentum for growth
Steen Jakobsen, the Chief Economist of Saxo Bank, the online multi-asset trading and investment specialist, believes the lack of scientific theory and foresight in the feverish growth of populist ideology in the West could positively impact regional financial markets.
Framed by a romantic notion of reinstalling glories of the past, the current wave of populism in the USA and Western Europe has endured defining moments in the wake of events such as Brexit and the election of President Trump. Further evidence of anti-establishment forces growing to prominence in the West are evident in right-wing front-runner Marine Le Pen being widely tipped to win the first round of the French presidential elections this week (April 23).
Having predicted Trump’s ascension months before his Presidential victory, Jakobsen believes the surge in populist politics is the biggest threat to global financial markets.
“Today, markets are relatively open and fair for everyone to enter. This is one reason why Brexit Britain and Trump’s America are now characterised by divisive social upheaval. The contrasting voices are striking. There are those calling for an economic vision that increases productivity, creates competition and openness, and improves access to education, and there are those favouring more protectionist policies.”
In the UK and across Europe, much of the anguish following the outcome of the British referendum is marked by concerns over the reversal of the open-market and open-border policies that enriched both the UK and its European Union (EU) partners. With Prime Minister Theresa May’s Conservative government triggering the UK’s final divorce agreement with the EU, trepidation over the UK’s vote for autonomy and self-determination draws parallel to global concerns over the impact on markets caused by President Trump’s economic policy, which many argue would have been more suited to the socio-economic climate of the 1950s and 1960s, according to Jakobsen.
As politics shaped by goals of national sovereignty continue to unfold, particularly in France where a Le Pen presidential victory could see the return of the French Franc and a French referendum on EU membership, the notion of the open market in Europe may soon face further challenges.
The tension is not restricted to Europe and the US either. Singapore’s Prime Minister Lee Hsien Loon recently stated in an interview with the BBC that it may become necessary to take sides between the US and China. Meanwhile, for the GCC region, Jakobsen maintains the uncertainty has created new opportunities for prosperity as regional markets wake-up to the worst-case scenario of nations divided by political turmoil, the closing of borders and a fragile open market.
“While nations across the Gulf and wider Middle East would have to strike an uneasy political balance to remain an ally on both sides of the US – China coin, a world polarised along the lines of West versus East would ultimately see capital flowing inside small economic regions, creating a significant opportunity for the GCC debt market to gain huge momentum as the re-selling of capital to the US becomes less urgent,” he said.
“The GCC debt markets have an excess return relative to US treasuries, making it possible to have dollar exposure without any physical money actually being based in the US. With more dollar reserves being placed outside US borders, the GCC debt market could become very lucrative, not only for inter-GCC countries, but also for Asian and European investors.
“The Middle East’s capital market has grown at an impressive rate over the past year and in order for the GCC region to monopolise the potential to create deeper capital markets, there should be a clear and transparent political vision for the region. If capital markets can be made deep enough to absorb all the net excess saving there is in the Middle East, instead of those excess savings going overseas, there should theoretically be a higher deposit base, which would attract higher levels of inward investment.”.
Jakobsen added that this opportunity for economic prosperity comes at a time when moves such as the UAE’s implementation of bankruptcy laws and the Saudi Arabia bond issuance are seen as very strong signals to the rest of the world that the GCC region remains well and truly open for business.
“If GCC countries continue to launch initiatives that bring its financial ecosystem in line with that of international players, together with its huge geographical advantage, the region will become increasingly influential in a world that is becoming more and more polarised,” comments Jakobsen.