Within Emerging Markets, the Middle East fixed Income proves its mettle as safest heaven

Emerging Markets are always unpredictable as well as rarely an uninteresting one that passes through distinctive risks, thus asking to be put on constant high alert and vigilance. This plethora of uneventful programs leads to the investor thinking process, which leads to dropping out broader opportunities offered by the asset class.

However, the good news is that there are parts of the complex Emerging Market world that can reduce this friction and does balancing act by bringing both stability and diversification benefits, thus acting as a safest heaven for the investors.

The Middle East is one such region that gets more merits than the attention it generally acquires, that also includes higher portfolio allocation.

The previous year there were many a challenge in emerging markets’ fixed income asset class, due to the impending storm created by rising interest rates in US and Canada that were wide open between countries like Argentina and Turkey. During this crisis-torn period, Middle East fixed income viz, especially GCC countries provided a unique soothing point.

During 2018, corporate bonds returned 0.2 percent from the Middle East as compared to -1.2 percent for emerging market benchmarks as well as -1.0 percent for the Bloomberg Barclays Global Aggregate Corporates Index.

During 2019, due to the US-China trade relations and with current uncertainties of economics and policies around the world, the global fixed income will continue to be in turbulent times. Until that period for most bond investors, the only saving grace comes from GCC markets, although it is still seen as a part of the uncertainty.

However, the decisive point is that the GCC governments continue to take bold policy steps on both fiscal reforms and the well diversification of the economies away from the energy sector.

With the active support from the technical aspect of the countries’ inclusion in the leading JP Morgan ‘EMBI’ indexes, during 2019, there is a high level of expectations that can lead to significant increase in investor interest and demand for their bonds.

The Fisch agency and its officials arranged for meetings with companies, sovereign debt management offices and local contacts in the Middle East with a motive to continually refine and improve our understanding of investments, and type of investments in, the emerging markets.

What were the key takeaways this time around?

There were three critical takeaways during this time around. They are as follows:

·   Among the issues in corporate bonds in the region, there are plenty of opportunities for investments as few of the sectors perform much stronger than other sectors.

·   The regions government and its related entities have become more open as well practiced in their dealings with the investor community.

·    The depth and diversity of investors and their interest in the region have led to the dramatic expansion of investment firms, bonds, and debenture instruments.

The government and related entities will be as big as Saudi Arabia, and Qatar come to the market this year with multi-billion dollar debt issuances, and Saudi oil champion Aramco will also follow in the same way. Oman also will join the league sooner or later. Oil prices remain a key driver for regions overall credit status.

In short, there are a host of positive characteristics that make the region attractive and merit an increased portfolio allocation.