Tuesday, May 3, 2016

Middle East forex: an evolution

Strategic growth

While forex inflows and outflows did not account for much five years ago, today, traders across the GCC trade the same products as their counterparts in London or New York. The sector has experienced trade volume growth of more than 50 per cent year on year since 2011.

"The Middle East's importance is rapidly growing in the global forex market, especially with its retail segment, compared to a relative slowdown and decline in other global markets," says Anthony Hobeika, chief executive officer at MENA Research Partners.

This growth is largely driven by increased investor awareness of the opportunities available in forex as well as the region's strategic location between Asia and Europe. The local time zone enables it to capture market opening hours in the Far East as well as US closing hours in the same working day, giving it better access to the wider global market, particularly the G7 currencies.

"The GCC is a major corridor for global FX flows and we have seen an ever-increasing number of players in the market, as well as consistent growth in the number of people transacting in FX," says Gifford Nakajima, head of wealth development for Middle East and North Africa at HSBC.

Dubai essentially led the way in establishing a burgeoning forex market, investing in the necessary infrastructure and creating a financial sector that has come to serve as a regional hub for many international institutions. The creation of the Dubai Gold and Commodities Exchange (DGCX) helped cement the emirate as the regional centre for financial trade and has attracted many international investors and firms.

"Given the strong growth of the UAE economy and the increasing number of expats coming to live and work here, we have seen FX transactional flows rising, both in and out of the country," says Nakajima. "Even in terms of the broader region, Saudi Arabia and the UAE are among the top three remittance markets globally."

DGCX is now the biggest pool of the Indian rupees (INR) offshore futures market, with the value of the INR traded on the exchange exceeding $1.5 billion per day in 2015.

Compared to other markets, the region's low-yield environment combined with low risk appetite has attracted more investors towards forex, mainly safe-haven currencies such as JPY and XAU (gold). The most popular currency pairings in the region are EURUSD, GBPUSD, XAUUSD, EURJPY and XAGUSD.


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