The Washington DC-based IIF in a research report said that the GCC countries raised US$30.5bn in eurobonds in the first half of 2018. It added that the net-resident capital inflows to the Middle East and North Africa region should rise to US$182bn in 2018, equivalent to six per cent of the region’s gross domestic product.
The IIF expects eurobond issuance across the GCC region to decline in 2019 as high oil prices reduce financing needs. ‘Moving forward, the overall sovereign bond issuance is expected to decrease due to lower financing needs. Nonetheless, the robust performance of GCC primary markets stands out against the broader emerging markets trend, which is lagging behind 2017 levels’, the IIF said.
It said the region’s oil exporters present lower risk than other emerging markets due to their strong fundamentals, while presenting opportunities for regional diversification to bondholders. ‘An expected moderation in portfolio debt inflows will be offset by increased equity inflows on the back of MSCI’s scheduled upgrade of Saudi Arabia.’
The IIF said the GCC countries are showing more resilience to emerging markets turmoil this year than other emerging markets subgroups around the world. ‘Higher oil prices, durable US dollar pegs, relatively low debt levels and ample foreign reserves make GCC countries less risky and less prone to emerging markets contagion.’
The IIF said despite growing concerns about emerging markets, appetite for the GCC debt has been high this year. ‘Oman and Saudi Arabia issued large tranches of sovereign debt earlier this year in anticipation of higher interest rates. After two years, Qatar also returned to international debt markets with a sizable issuance of US$12bn. Bahrain, however, faced challenges raising capital, as investors called into question the kingdom’s ability to meet its growing financing needs.’
The IIF added that MENA oil exporters have witnessed a moderate increase in bond yields this year, but less than other emerging markets. After one year of moving in unison, yields on GCC dollar denominated bonds diverged to a lower trajectory compared to emerging markets.