Conference Paper
MENA Stock Markets Decoupling: Winners and Losers from the Wars in Ukraine and Middle East
No.
ERF_31_FN239
Publisher
ERF
Date
March, 2025
Topic
G. Financial Economics
The recent wars in Ukraine and the Middle East created opportunities for change and reevaluation of the traditional integration argument. To protect their economies from outside shocks magnified by integration, policymakers are seeking strategic realignments with new trading blocks to diversify their economies and maintain a footing in an unstable world. The impact of these wars on the region has been vastly asymmetric, with some countries directly or indirectly harmed by the wars, while others, primarily Turkey, seizing the opportunity to quietly expand trade to both sides of the conflicts. This strategy is not opportunistic but is grounded in the desire to decouple from traditional trading partners and chart an independent course. As US sanctions become more frequent and severe, we detect a growing evidence of decoupling in the trend of foreign trade, and in the central banks diversification away from the US Dollar. Using a Garch-based vector autoregression model, we note a clear decoupling from historical correlations in the region’s equity markets, with leading countries of that region either completely or partially decoupled. The results indicate that countries in the region are rejecting pressures to take sides, and seeking a new direction by strengthening ties with emerging markets.
Research Fellows
Simon Neaime
Professor of Economics and Director Institute of...