In addition to foreign direct investment, the broader Middle East and North Africa region benefited last year from foreigners purchasing equity in private companies listed on stock exchanges.
Although portfolio flows are increasing in several countries, they remain relatively modest and their sources are not easily amenable to geographical classification, the International Monetary Fund's Regional Economic Outlook for the Middle East and Central Asia said yesterday.
"As a result, the role played by increased capital flows from the GCC in the performance of the region's stock markets – particularly the Amman, Cairo, and Casablanca stock exchanges – in the last couple of years is difficult to ascertain," the IMF said.
Equity markets in the GCC countries rebounded after a major correction in 2006. The benchmark Saudi stock market index recorded a gain of 44 per cent from a low at end-2006, but ended 2007 well below the peak of February 2006.
The resurgence in market activity was driven by strong profits in the petrochemical, banking, and construction sectors. The UAE stock exchange index and the Doha Securities Market index performed strongly in 2007, ending the year with gains of 46 and 34 per cent, respectively.
According to the numbers compiled by the IMF, foreign investors account for about one-third of market capitalisation in Egypt and Morocco, and close to half the shares on the Amman stock exchange.
Arab investors are estimated to account for one-half of total foreign holdings in Egypt and three-fourths in Jordan.
"A sustained increase of capital inflows to the region's emerging markets could bring substantial macroeconomic and financial benefits, but also raise significant challenges for the design and conduct of economic policy," the IMF said.
"Recent experience in emerging markets with large capital inflows underscores the need for appropriate co-ordination of monetary and fiscal policies, financial market deepening, and vigilant supervision as key instruments for mitigating these risks."
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