Bond markets across the Gulf Cooperation Council (GCC) are undergoing rapid development, in terms of both sovereign and corporate issuance.
The emergence of a stronger regional fixed income market provides a concrete example of how the lower price, which halved from above $100 during the second half 2014 and has remained low and volatile since, has spurred market reform.
Following Saudi Arabia's launch of a $17.5bn sovereign bond, Ashish Marwah, senior director – lead investment manager at ADS Securities in the UAE, said that Gulf countries are now looking to build yield curves to provide a basis for corporates to start pricing from.
“Look at how strong the demand is for Saudi bonds among both primary and secondary investors,” he said. “This is increasing liquidity in the market and increasing the participation of foreign investors, which creates a two-way market that is beneficial for all investors.”
One factor that is making MENA bond markets attractive is the contrast with developed markets where many have negative yields, said Saleem Khokhar, executive director and head of fund management at NBAD in the UAE.
Beyond the relative yields, Khokhar points out that in absolute terms the region has favourable fundamentals. “When you look at the GCC region, you see good reserves, low debt-to-GDP ratios, and strong government backing for a number of the GREs (government-related entities) and corporates.
“So, thinking beyond government bond issues, when have got our companies going to the market and raising debt – as they will in the near future – you have quite a strong case for a solid issue, plus decent yield coming to the market. That is all positive.”
However, the boost to the bond markets didn’t mean an imminent pickup in moribund initial public offering (IPO) activity was also likely, according to Khokhar.
“There won’t be a general pickup in listings, but specific assets will come through from the public sector, such as the Saudi Aramco IPO, and there are plenty of assets that could come through on the UAE side of the equation as well,” he added.