Foreign investors pulled a record amount of money from US equity funds tracking Saudi Arabia in October due to increased violence in the region. The iShares MSCI Saudi Arabia ETF saw record net outflows of more than $200 million, cutting 20% from what it held at the beginning of the month. Other ETFs providing exposure to stocks in Qatar, the UAE, and Israel also suffered outflows due to investor concern about instability. This money flight points to cracks in investor confidence in otherwise resilient markets. Israel has recouped losses in the shekel and its bonds have rebounded, and bonds in most Gulf countries showed little impact from the conflict. However, the equity investor cash flight highlights the still-serious risk to these economies and their efforts to diversify as the region falls back into conflict. Continued war could undermine Saudi Arabia’s efforts to curb its reliance on oil, and the length of the conflict could wreak further havoc on Israel’s economy. Israeli markets have faced turmoil this year from not only the conflict with Hamas but also from the government’s judicial reforms. The FDI story and Israel as a destination for tech investment have taken a hit. ETFs tracking the region have mostly bounced back from losses incurred after Hamas launched its attack into Israel on Oct. 7.
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