Weekly Asset Heatmap

Weekly Asset Heatmap: Lebanon, Bahrain

With Saudi Crown Prince Mohammed bin Salman ramping up the regional power struggle with Iran, the Lebanese economy is walking a tightrope. And recent anomalies in Predata signals suggest traders are keeping a close eye on the possibility of a currency devaluation in Bahrain.

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Lebanon

The escalating Saudi-Iran cold war weakens the smaller economies caught in-between.

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Lebanon is a developing economy. And yet for each of the last four years, its GDP has grown by less than 2%. Though desperate to alleviate one of the world's worst debt-to-GDP ratios, the country has yet to begin exploiting offshore oil fields discovered in 2009. These economic woes stem in part from the political deadlock and sectarian strife fanned by its neighbors, especially regional antagonists Saudi Arabia and Iran. The current escalation in the Riyadh-Tehran rivalry, as reflected in our volatility signals above, is bad news for Lebanon. Tellingly, Lebanese 5-yr CDS tends to rise in the days following spikes in the Saudi signal (in red).

The Kingdom's recent meddling stoked volatility, ire in Lebanon.

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The bizarre, temporary resignation of Prime Minister Saad Hariri under apparent Saudi coercion drove several of our volatility signals for Lebanon to their highest levels in more than a year. Riyadh's meddling was an apparent play by Saudi Crown Prince Mohammed bin Salman to confront Iranian influence in Lebanon. But the move angered even the country's Sunni population and could generate friction in the two countries' commercial ties. Moreover, Saudi Arabia and its Gulf allies (including Bahrain) ordered their populations to leave Lebanon.

The Hariri political crisis drove concerns over Banque du Liban's stability.

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On the day of Prime Minister Hariri’s resignation, increased attention to online Arabic-language sources related to the Lebanese central bank, the Banque du Liban, and its governor, Riad Salameh, drove a major spike in our volatility signal for Lebanon's economy. The spike suggests that regional observers are privy to the bank's vulnerability in the face of regional crisis. According to the Washington Institute for Near East Policy, a think tank, 2% of the Banque du Liban's foreign exchange reserves are Saudi deposits. Though a relatively small share, their sudden withdrawal could erode confidence in the bank and put pressure on the dollar-Lebanese pound peg.

Bahrain

Recent Arab browsing patterns suggest perceived weakness in currency peg.

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On November 2, Bloomberg reported that Bahrain, facing a dire fiscal situation due to low oil prices, asked its Gulf neighbors for help in replenishing its foreign exchange reserves to preserve the dollar-dinar peg. Arab online browsing habits suggest that risk remains. In recent days, we noticed increased interest in Arabic-language Wikipedia pages related to both various economic indicators and the “economy of Bahrain”, the page for which had 4,475 views on November 21 compared to a daily average of 600. On that same day, views of the page for “fixed exchange-rate system” also hit a recent high. This activity demonstrates that Arabic online audiences are paying close attention to Bahrain’s shaky finances and the possibility of a devaluation.

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