Does it Pay to Invest in Middle East and North Africa Markets?

Abstract

This paper examines the evidence underlying the notion that there is increased integration of MENA and developed country financial markets and that MENA market equities do not represent a separate asset class. We analyzed the correlation structures among individual country equity markets and efficient frontiers over two sub periods. We also analyzed the structure of the correlations among political risk indicators for a similar group of countries over similar time periods. The results of the study suggest that capital market integration has accelerated in recent years, both economically and politically but only for three countries in the MENA region. We therefore, conclude that the MENA market countries should continue to be viewed as a separate asset class from developed countries. These markets seem to be highly segmented and provide great diversification potentials to global investors.