While the world moves away from globalization, commodities such as food and industrial metals are the asset classes that GCC investors will be looking at in the next few months, said John Hardy, Head of FX Strategy at Saxo Bank.
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The US Federal Reserve’s promise to continue quantitative easing at the current pace indicates that lower US interest rates may continue in the long term but market turbulence in the short- to medium-term could not be ruled out, he said.
“The direction of the US dollar is critical for financial markets across the world, but particularly for oil and for GCC countries with the USD at the center of gravity for the region. A weaker US dollar is needed to support the regional recovery, and we believe that eventually it will weaken, but this could take some time,” said Hardy.
“In the meantime, there could be significant market turbulence until we can firmly state that we are on the other side of the COVID-19 crisis,” he added.
GCC economies have been jointly shocked by the economic impacts of COVID-19 and the plunge in oil prices, and the GCC states are facing one of the largest economic challenges in their histories.
With the Institute of International Finance (IIF) reporting recently that non-oil GDP is set to contract by 3.8 percent in 2020 due to virus-containment measures, the fall in oil prices and lower public spending, a recovery in commodities prices will be a benefit to the region.
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