Gulf Traders Need More Than a Thaw With Qatar to Stoke Rally

(Bloomberg) -- Investors want 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 yearslong diplomatic rift.

Still, the market impact of a full restoration of ties may be muted as investors focus on bigger concerns, including U.S. President-Elect Joe Biden’s stance on key allies in the region, and escalating tensions between Washington and Tehran.

Any step toward mending the standoff would be only “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.”

Here’s how investors view a potential easing in the Qatar rift:

Mohammad Ahsan, managing director of rates and fixed income at Mashreq Bank in Dubai

• “It’s a positive move and was being anticipated for over a month. It will benefit the regional economies, with trade and travel resuming”
• “GCC secondary bond prices had already adjusted to the potential resolution and hence I don’t see any major move due to this development”
• “It’s positive for the new-issues market as regional investors will once again get to participate” in bond sales

Abdul Kadir Hussain, Dubai-based head of fixed-income asset management at Arqaam Capital

• “If the Qatar issue does get a resolution it would just increase the feel-good factor. Other than that, I don’t expect much”
• Any agreement toward mending relations may fuel a “slight bounce” in GCC bonds
• “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:

• “Positive news from the summit will definitely support the risk sentiment for GCC issuers and maybe lead to marginal spread tightening, but I do not expect huge spikes” in bond prices
• Saudi Arabia, Qatar, Abu Dhabi will likely also seek to sell more debt in the first quarter of the year

Joice Mathew, head of equity research at United Securities in Muscat:

• “Markets should take it positively,” if Gulf nations ease their dispute
• “We are looking at Saudi consumer companies 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”
• The companies include Saudi Arabia’s Almarai Co., Qatar’s Al Meera Consumer Goods Co. QSC and Milaha
• “It looks like there is some pre-positioning on these lines in the market since the rumors became stronger last month. A no deal could disappoint those investors”

Amjad Ahmad, director of Washington-based Atlantic Council’s empowerME initiative

• “Dialing down conflicts is a crucial building block to attracting investment to drive much-needed economic diversification across the Gulf, especially for Saudi Arabia”
• “In light of the economic decline and mounting debt of GCC countries, this agreement could not have come at a better time”

©2021 Bloomberg L.P.