Qatar, the world’s fastest growing economy, and Abu Dhabi are luring bond investors keen to cut their investment in markets closer to Europe’s debt crisis.
The average yield on Gulf bonds fell three basis points, or 0.003 of a percentage point, this month to 4.719% on Monday, 12 basis points off the lowest ever level reached on August 2, the HSBC/Nasdaq Dubai GCC Conventional US Dollar Bond Index shows.
Yields on Qatar’s sovereign dollar-denominated bonds touched record-lows last week. Sovereign bond yields of Hungary, a European Union member, had their biggest weekly jump since April and Polish debt yields also rose, according to data compiled by JPMorgan Chase & Co.
“I have started in the last three weeks to reduce my exposure to Eastern European countries” and buy into “fundamentally strong countries with solid public finances,” Sergey Dergachev, who oversees $8.5bn in emerging-market debt at Union Investment Privatfonds in Frankfurt, said by e-mail on Monday. Dergachev said he has been buying Qatar and Abu Dhabi bonds.
The yield on Qatar’s 6.55% sovereign bonds due in 2019 dropped three basis points, or 0.03 of a percentage point, last week and touched 3.529% on Thursday, the lowest since the debt was issued in April 2009. The yield rose six basis points on Monday to 3.647%.
The yield on Hungarian bonds jumped 30 basis points, the biggest weekly jump since the five days ended April 29, and Polish debt yields climbed 11 basis points, according to data compiled by JPMorgan Chase & Co. The yield on government bonds of Russia, which counts Europe as its biggest trading partner, rose 14 basis points over the past two days.
Propelled by natural gas exports, the Qatari economy may expand 20% this year after growing 16% in 2010, the International Monetary Fund said in April. Abu Dhabi, the capital of the UAE, holds 7% of the world’s proven oil reserves.
Crude, while down 14% in August on concern a global recession will slash energy demand, will rebound by the end of the year, according to analysts.
Daniel Broby, the London-based chief investment officer at the Silk Invest Ltd, said his firm hasn’t sold any of its Middle East debt holding. Silk Invest has cash that it “will soon put to work,” he said in an e-mailed response to questions yesterday. The global turmoil “makes our markets look more interesting because in aggregate, the GCC and frontier markets in general have greater reserves than outstanding debt.”
Bonds from the region and North Africa are attracting capital from advanced countries, said Rawad Hakme, the Dubai-based co-manager of fixed income at the UAE unit of EFG- Hermes Holding SAE, the biggest publicly-traded Arab investment bank.
“Investors will continue to overweight emerging markets in general, and the Middle East and North Africa in particular, given the weaker fiscal positions in developed markets,” Hakme said by e-mail yesterday. “The safe haven papers are in Abu Dhabi and Qatar.”
The yield on Qatar’s 5.25% dollar notes maturing in January 2020 touched a record low last week at 3.686%, according to data compiled by Bloomberg. The yield rose two basis points on Monday to 3.808%. The yield on Abu Dhabi’s 6.75% bonds maturing in April 2019 gained 13 basis points on Monday to 3.72%, after hitting an all-time low of 3.655% on Thursday, the data show.
The rally may only be sustained should oil prices rebound, said Anthony Simond, who helps manage $7bn in emerging- market debt, including Qatari sovereign bonds, at Aberdeen Asset Management in London.
“The price of oil makes a lot of difference, so if we see another spike there, that’s obviously good news for the likes of Qatar and Abu Dhabi, and they could see further inflows,” he said.
The oil price needed for Gulf countries to fund budget expenditure has more than doubled since 2006 to $77 a barrel, according to Deutsche Bank AG.
Oil tumbled as much as 7.7% on Monday to $80.17 a barrel, the lowest intraday level since November. Prices plunged 9% last week.
Analysts are predicting a recovery, with prices in New York rising to $100 a barrel in the fourth quarter, according to the median of 32 estimates compiled by Bloomberg.
Credit default swaps insuring Qatari government debt against default for five years climbed one basis point on Monday to 97, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.
Abu Dhabi default swaps advanced one basis point on Monday to 96. Eastern Europe suffers most from eurozone jitters, whereas the GCC is both macroeconomically solid and its bonds have strong local sponsorship,” Union Investment’s Dergachev said, referring to the Gulf Cooperation Council. “I have not sold any bonds out of the GCC and I have purchased in Asia and the GCC both conventional bonds and sukuk,” he said.