Dubai - Mubasher: – The Gulf Cooperation Council (GCC) region’s bond market is expected to continue experiencing an increase in the volume of issuances, according to an analyst from Indosuez Wealth Management.
As the GCC bond market saw record sales in the first half of 2016, KSA and Kuwait inaugural bonds issuance are expected to generate significant interest from a broad range of international investors, similar to what was experienced with recently issued bonds from Abu Dhabi and Qatar.
Indosuez Wealth Management added that in the current environment of lower interest rates, the hunt for higher yields and longer bond duration is driving the demand for US dollar bonds higher.
In this overall context, the GCC region will increasingly gain more momentum as an attractive and more secure bond market for international institutional investors.
Attraction towards GCC bonds will become even more compelling due to general spread compression and market conditions elsewhere, with a large proportion of Eurozone bonds currently trading at negative rates, Asian bonds being stable but with tight spreads and Latin America continuing to be highly volatile despite yielding high returns.”
“The large supply of GCC bonds have provided investors with a stable option during this high-risk period caused by liquidity shortfalls perpetuated by the prolonged period of low oil prices,” said Christiane Nasr, director and senior investment advisor at Indosuez Wealth Management.
For this reason, bond issuances in the region were able to attract a large number of international investors at the end of Q2 2016.
“However, while we believe that GCC bonds should remain resilient, we do not expect a significant outperformance of major corporates or sovereign bonds where new issuance’ premium will likely re-price the relatively tight spreads among the outstanding local bonds,” indicated the report.
“Our preferred investment area consists of GCC corporates that have remained fairly resilient despite the challenging macro outlook,” it added.
Investors should resist the trend of chasing higher yields and should not fall in the trap of going outside their comfort zone, by going down the rating spectrum and adding meaningful risk to their portfolios.
“With the stabilisation of oil prices over the past quarter, GCC bonds should witness better performance as long as crude prices do not fall significantly below current levels.
As the GCC countries gradually begin to implement structural reforms, it will bring about wide ranging economic benefits which would ultimately result in better credit ratings and possibly translate into tighter spreads for investors in the future.”
