Why GCC bonds offer ‘excellent value’

dubai — Investors’ appetite for risk is back, but most of the issues that soured the mood across emerging markets last week are a tweet away from flaring up again. When that happens, the Gulf ’s bonds will offer refuge.

Sovereign bonds in the six-nation GCC are now attractive compared with similarly-rated peers.

“Although Middle East sovereign issuers remain vulnerable to headline risk, there is already a considerable geopolitical risk premium baked into their asset prices,” said Brett Rowley, the Los Angelesbased managing director for emerging markets at TCW, which manages about $200 billion.

While crude prices are nowhere near 2014 levels, they have risen, which has improved sentiment toward debt in the GCC, especially given the economic reforms countries such as Saudi Arabia have implemented, according to TCW Group and Franklin Templeton Investments.

Gulf bonds offer “excellent value” compared with other similarly rated emerging-market debt, according to Arqaam Capital.

The risk premium on Saudi

Currently our biggest concern is uncertainty surrounding US foreign policy Brett Rowley, managing director for emerging markets at TCW

Arabia and Qatar is too high, said Abdul Kadir Hussain, the head of fixed income at the Dubai-based firm.

Bahrain and Oman face “specific negative credit trends”, but they’re still cheap compared with their peers, Hussain said. Yields on Bahrain’s debt are similar to those issued by lower-rated countries such as Ghana, Ethiopia and Gabon. Oman trades at similar levels to Turkey, which is vulnerable to foreign-exchange volatility and political uncertainty, he said. “In times of excessive volatility, the Middle East would probably be a better place to hide.”

The region’s debt market is dominated by buy-and-hold investors so it tends to be slightly less volatile during any major selloff, despite recent bond offerings and liquidity now lower than it was when oil was at $100 a barrel, he said. — Bloomberg