Bahrain’s shorter-term debt is still performing relatively well since it is supported by Gulf investors, many of whom tend to hold until maturity, according to Invest AD Markets Outlook Middle East and Africa markets bulletin: January 2015.
“But longer-dated Bahraini bonds are being hit particularly hard because they depend on support from international investors,” it added.
“Due to the extent of the bond sell-off in other emerging markets, on a relative value basis, the GCC now looks expensive compared to its peers, and this is pressuring regional bonds as international accounts rotate money out of the region.
“However, there appears to be no panic in the market, with CDS spreads well below levels hit during the global financial crisis in 2008 and during the Arab Spring in 2011. Foreign exchange forwards have edged up but are not near the 2008 highs that would imply pressure on Gulf currency pegs to the dollar. The region’s rare sovereign/quasi-sovereign bonds are still sticky, with most locked away in held to maturity accounts. Appetite for quality names such as MAF, Aldar, IPIC and Etisalat is expected to persist as pressure increases on the financial space, where spreads are relatively tight.
“GCC markets have been dominated in recent weeks by movements in oil prices and other international developments, a trend that is set to persist in the short term. Statements from OPEC and other oil producing nations indicate they are focused on preserving market share and not yet willing to cut production, indicating further volatility ahead. Sentiment will also be influenced by the strength of the US dollar relative to emerging market currencies, growth indicators in Europe and Japan, and statements from the US Federal Reserve.
“Regional markets experienced a sharp correction in early December on the back of sliding oil prices that was exacerbated by leverage-driven margin calls. In the weeks ahead any announcements relating to GCC government budgets for 2015 will be watched closely by investors. The absolute levels and composition of capital spending in the New Year, as well growth targets will provide some visibility on the prospects of a number of listed GCC firms. The annual results of listed companies and any statements on their earnings guidance for 2015 will also be key determinants of medium-term market direction.