GCC bond market to continue gaining momentum

Muscat: Gulf Cooperation Council (GCC) region’s bond market, which saw record sales in the first half of 2016, is expected to continue experiencing an increase in the volume of issuances, according to an analyst’s note from Indosuez Wealth Management.
The study observed that Saudi Arabia 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 explained that in the current environment of lower interest rates, the hunt for higher yields and longer bond duration is driving the demand for United States dollar bonds higher. This situation is making bonds in ‘high growth markets’ a top performing asset class, with a growth of 11.5 per cent on a year-to-date basis, it added.
With the ‘emerging markets bonds compendium’ at a 12-month high, this rally is being further lifted in recent times by the positive sentiment from US economic data and the recovery of oil prices, the note added.
“Despite the strong year-to-date performance, more spread compression in ‘high growth markets’ could be still achievable by the end of 2016 without ruling out a degree of volatility along the way. In this overall context, the GCC region will increasingly gain more momentum as an attractive and more secure bond market for international institutional investors,” said Christiane Nasr, director and senior investment advisor, Indosuez Wealth Management.
“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,” he added.
Technical aspects should remain supportive with the upcoming GCC bond supply expected to be well absorbed by a broad range of international investors, with notable large-scale sovereign debt issuance by Saudi Arabia and Kuwait, along with corporate/quasi-sovereign/GRE debt issuance by Oman Oil, Saudi Electricity, Investment Corporation of Dubai and Ooredoo.
“The large supply of GCC sovereign and quasi-sovereign 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. For this reason, bond issuances in the region were able to attract a large number of international investors at the end of Q2 2016.” Christiane said.