Investors are keen to see more pieces of the Middle East’s geopolitical jigsaw drop into place before they give bonds in the region a fresh lift.
The Gulf Cooperation Council’s annual meeting in Saudi Arabia on Tuesday is raising hopes for a thaw between Qatar on one side, and Saudi Arabia, the United Arab Emirates, Bahrain and Egypt on the other. Saudi Arabia said it will open its land, air and sea borders with Qatar on Monday evening ahead of the meeting, dramatically easing the years-long diplomatic rift.
Any step toward mending the stand-off would be “marginally positive” for the region’s debt markets, said Mohieddine Kronfol, Dubai-based chief investment officer for Middle Eastern and North African fixed income at Franklin Templeton.
“While this is clearly welcome news to see a rapprochement of some sorts between the GCC members, this is arguably one of the less impactful geopolitical pressure points facing the region,” he said in an interview with Bloomberg Television. “This will take time to convince the market that trust has been rebuilt.”
The United Arab Emirates, Bahrain, Saudi Arabia and Egypt have boycotted Doha since 2017.
Qatar’s ruler, Emir Sheikh Tamim bin Hamad, will now attend Tuesday’s summit meeting in the northwestern town of Al Ula, according to statement on the Qatar News Agency, which also reported the easing of the border restrictions with Saudi Arabia.
Still, the market impact of a full restoration of ties may be muted as investors focus on bigger concerns, including US President-Elect Joe Biden’s stance on key allies in the region, and escalating tensions between Washington and Tehran.
Abdul Kadir Hussain, Dubai-based head of fixed-income asset management at Arqaam Capital, said: “If the Qatar issue does get a resolution it would just increase the feel-good factor. Other than that, I don’t expect much.”
He said that any agreement toward mending relations may fuel a “slight bounce” in GCC bonds, although he added: “If you don’t get the rapprochement and you get increased rhetoric against Iran then you might get a small drop in price. My positioning doesn’t give the summit much relevance — it’s dictated more by vaccine and global GDP factors.”
Sergey Dergachev, a money manager at Union Investment Privatfonds GmbH in Frankfurt said the positive news from the summit “will definitely support the risk sentiment for GCC issuers” and maybe lead to marginal spread tightening, although he did not expect huge spikes in bond prices.
Joice Mathew, head of equity research at United Securities in Muscat, said a positive outcome from the meeting would benefit Saudi consumer companies in getting their lost market opened up again; Qatari logistics and transportation companies saving on travel times and fuel costs; and UAE real estate companies likely to benefit from new investments.
She said: “It looks like there is some pre-positioning on these lines in the market since the rumours became stronger last month. A no deal could disappoint those investors.”
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