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Oman is shielded from currency market volatility, but diversification is key to mitigating risks

Wael Makarem, market strategist at Exness, a trading platform
Wael Makarem, market strategist at Exness, a trading platform

As the GCC economies are advanced and globalized they are interconnected with other parts of the world commercially and in terms of logistics, they are exposed to the tensions and disruptions occurring throughout the world, a market analyst told the Observer.

"Over the past few months, the GCC region has benefitted from high energy prices in particular as tensions in Eastern Europe flared up. However, the war has increased uncertainty and strongly impacted economic growth all over the world. This in turn could have a decelerating effect on the energy products demand which are the main exports of GCC countries, said Wael Makarem, market strategist at Exness, a trading platform.

He added that a global recession is increasingly expected in 2023 as central banks continue to tighten their respective monetary policies in a bid to fight inflation and as the war in Eastern Europe drags on.

"As for oil prices, their direction remains uncertain as supply and demand rapidly changing conditions continue to create volatility in the market. While the slowing global economy is expected to push demand for oil down, producing countries could continue to take steps to ensure that crude prices do not decline further as we have seen lately with OPEC’s decision to cut production. In this regard, all countries in the region remain dependent on relatively high oil prices to maintain their fiscal balance.

The dollar peg makes for reduced currency risk as energy products, which are the main Omani exports, are priced in dollars. In that sense, the country is shielded from potential volatility that the absence of a peg could have created in currency markets at a time when risk aversion is rife.

"Over the longer term and to minimize exposure to future economic shocks, Oman could work on gradually reducing its dependence on oil and natural gas exports to limit risks that could derive from slowing demand and diversify toward other industries and opportunities."

He said, Like other global stock markets, the Muscat Securities Exchange (MSX) is exposed to the changing expectations of local and international investors while central banks continue to tighten monetary policy, affecting the appetite for risk.

The market is also exposed to volatility and uncertainty in energy markets. To counterbalance such risks, innovation and cooperation could play a key role. In this regard, the agreement signed between MSX and ADX could help further the intentions of enhancing financial integration between the countries in the region. It could also benefit both markets as cooperation and mutual experience benefit both. The creation of connections with other exchanges could help highlight the Omani stock market as an investment venue and help bolster liquidity.

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