Several countries, members of the Gulf Cooperation Council (GCC), have been relying on their fiscal strength to drive near-term growth and diversify their economies, writes Mohieddine Kronfol, of The National.

October proved to be a strong month for global risk assets, which benefited from the mid-September announcement by the United States Federal Reserve that it intended to leave its US$85 billion a month asset purchase program intact.

Markets also benefited from the ending of brinksmanship over lifting the US federal debt ceiling last month, as well as gathering signs of a turnaround in Europe, which fueled stocks in developed markets.

Indeed, by late October, the S&P 500 Index (SPX) had reached an all-time high. In the fixed-income markets, the Fed's decision to delay tapering its stimulus program sent prices of short-dated US treasuries and other top-tier government bonds higher and yields lower.

The pressures some emerging financial markets had been under eased somewhat, allowing bonds and equities to perform strongly during the month.

Bond markets in the Middle East and North Africa participated in the general upswing as the Citi MENA Broad Index rose 1.33% (in US dollar terms) in October, helped by a broad narrowing of bond spreads over US treasuries.

The UAE, and Dubai in particular, continued to benefit from a soaring property sector, but regulators moved to cool the market, and stem speculative buying, by raising property registration fees and capping mortgage loan-to-value ratios.

In Saudi Arabia, the September purchasing managers' index rose to its highest level since March, thanks to robust domestic demand.

While economic momentum is strong in the GCC, it is important to note that it is not without challenges, as noted by Kuwait's prime minister, who said the welfare system was unsustainable. He called for a reduction in natural resource consumption amid fears that Kuwait might start to record budgetary deficits.

However, the immediate outlook remains strong, including in Kuwait, where the IMF forecast that non-oil GDP would grow by 3% this year and 4.4% in 2014.

The strength of GCC economies has provided their governments the ability to continue supporting struggling economies in the wider MENA region.

Egypt was granted an additional $2.9bn in aid from the UAE, while Kuwait extended the maturity of a $1bn loan to Egypt from one year to five years.

Egypt's improved financial circumstances meant that foreign reserves continued to rise last month, and the central bank governor announced an easing in capital controls starting in January.

The benign outcome of the Fed's September meeting and resolution of the US government shutdown were catalysts to market performance in what ultimately proved to be an oversold market. But valuations in emerging markets have not fully returned to pre-sell-off levels and credit selection still allows for investments with good longer-term value.

It is important to note that the uncertainty that continues to surround the Fed's tapering is likely to reach a high in the coming months. In addition, the US debt ceiling negotiations have not been resolved, meaning tensions could reappear again.

Despite this uncertainty, markets are less likely to be surprised by those events once they reappear.

Risk assets in general are likely to continue to benefit from strong liquidity, the resultant low benchmark yields, and the probability that interest rates will remain low.

Within the GCC, budget surpluses, well-contained inflation, and low debt-to-GDP ratios mean that markets are well-prepared to weather a renewal of short-term volatility. GCC countries have been using their fiscal strength to drive near-term growth and diversify their economies to reduce their long-term risks.

If Dubai is chosen as the site for Expo 2020 later this month, it would represent a further confidence boost for the region and help to sustain the current surge in infrastructure-linked financial deals.

Mohieddine Kronfol is the chief investment officer, fixed income, and global sukuk at Franklin Templeton Investments (Middle East).

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