04/01/2011

The year 2011 promises to be just as lively and full of surprises for the financial market as 2010 was, and which went down as the year that saw the continuation of the global financial crisis, and words such as Quantitative Easing (QE), European Financial Stability Facility (EFSF) - set up to assist the growing list of distressed euro zone countries - entering everyday finance language. The year 2011 might see more QE3s and QEF4, or even expanded EFSE II, as governments are not exactly sure when market confidence will take root, as there are some potential stress and risk factors which could continue to destabilize global markets.

Key risk and stress points will be mainly driven by geo-politics and the policies of governments as they move forward in 2011 with their exit strategies from the financial crisis. Other issues that could destabilize the markets will center on the decisions made by the US concerning its fiscal stimulus policy, as well as resolving some of its foreign exchange and trade disputes with China. Other contributing destabilizing factors will be the fallout over euro zone sovereign debt issues, as well as possible cracks in the coalition government in the UK over their austerity programs. The Korean situation will continue to play hot and cold, but outright war is not expected, given that both Koreas have made their point through belligerent mutual destruction threats. For the GCC region, stock markets will continue to trade within narrow ranges, with the exception of Qatar, where World Cup investment euphoria will propel another round of investment flows and a rise in Qatar inflation.

The Saudi stock market will still see bouts of short term euphoric rallies, followed by sharp retail selling to close 2011 at around the 7400 levels, a situation that will continue until more long-term institutional investors dominate the market and foreign investor participation. Saudi Arabia will also try to contain domestic inflationary tendencies driven by food prices. Oil prices will still trade within the preferred Saudi band of $75-85 per barrel, despite the current $90 plus levels spurred by the unusual winter conditions in Europe and the US. The recent rise in Chinese interest rates to stem Chinese inflation is putting a question mark on further Chinese growth, and oil producers will not wish to be a contributing factor in slowing down any signs of economic recovery in struggling western economies.

For more on this Click Here

Mohamed A. Ramady - Arab News