Interest in Middle Eastern bonds has ballooned this year allowing the Gulf Arab States to issue almost three times the amount of debt since the beginning of the year when compared to last year. According to Bloomberg around $51bln in bonds and Islamic securities have been issued including the $12bln of issuance for Saudi state run Aramco, which is thought to be the most oversubscribed offering in history, with interest rumoured to be over $100bln in the initial offering.
The inclusion of Saudi Arabia, Qatar, U.A.E., Bahrain and Kuwait in the JP Morgan emerging market index, with 15 eligible issuers to be included with issuance of around $119bln, has certainly brought this segment of the market to investors’ attention. Bonds need to have maturity dates post March 2022 for inclusion in the index and this inclusion has come at a time when over the recent period domestic investors have extended their maturity profile to enhance returns and their average portfolio yield.
On the flip side of all this interest, and very good performance from the regions bonds this year, is the almost total lack of interest in the regions stock markets. Indeed according to Bloomberg just $716mln of new equities has been sold on the GCC bourses thus far this year. Even the mighty Saudi Aramco delayed their impending IPO until at least 2021. One factor behind this could be that many companies in the region have limits as to foreign ownership and so it is difficult for international investors to build sizeable interest. Another reason is of course transparency and the past steps to slash subsidies and capital spending after the fall in the oil price and the rise in government deficits. However, some think the interest is starting to turn for the regions equities, with non-oil economic growth on a sounder footing and according to the IMF, rising 2.9% in 2019 and 3.3% in 2020, interest in the regions stock markets as well as the highly rated bond markets could receive investor’s further attention.