Qatar Stock Slide Echoes History of Pain Stopping Short of Panic
(Bloomberg) -- Investors schooled in the diplomatic ups and downs between Qatar and other Arab nations say there’s no reason for panic.
The Gulf nation’s equities plummeted the most since 2009 as four Arab nations push to isolate Qatar for its ties to Iran. If history is any guide, the tensions won’t have a lasting impact on the country’s financial assets.
“It’s not the first time there have been diplomatic problems,” said Viktor Szabo, a London-based money manager at Aberdeen Asset Management Plc, which oversees $11 billion of emerging-market assets. “While this is bad for the economy, it’s not tragic. It’s not so much a prime tourist destination, it’s more a financial center.”
The last instance of tension among the Arab nations came in March 2014, when Saudi Arabia and two Arab allies recalled their envoys from Qatar, accusing the state of undermining regional security. While that sparked the biggest drop in equities in more than six months, the QE Index recouped all of the drop the next day. The diplomatic row was resolved seven weeks later.
Tension between Qatar and other Arab states can be traced to the mid-1990s, when Al Jazeera television was launched from Doha, providing a platform for Arab dissidents to criticize autocratic governments in the region -- except Qatar’s.
On Tuesday, stocks were little changed, following a 7.3 percent drop yesterday after Saudi Arabia, Bahrain, the United Arab Emirates and Egypt said they will halt air, sea and land travel to and from the GCC member as they seek to punish it for its support of Islamist groups. The rout helped pull down the index’s price-to-earnings ratio from the highest level since 2014.
While the dispute initially sent the price of crude surging, oil traded lower Monday as investors speculated the tension wouldn’t lead to any meaningful disruption of supply. Global shares showed little reaction, with major indexes unchanged and haven assets not in demand.
Other Qatari assets reflected investor angst at the shock move. The cost of insuring the nation’s debt against default rose for a third day to the highest since February on Tuesday. Forward contracts on the currency jumped 148 basis points to 350 basis points yesterday.
Dollar bonds belonging to Qatar, the world’s largest exporter of liquefied natural gas, dropped by the most since November on Monday, raising the yield on debt due in June 2026 by 22 basis points to 3.36 percent. The yield rose a further seven basis points on Tuesday, taking it 49 basis points higher than Abu Dhabi’s similar maturity dollar debt.
The political row comes less than two weeks after Moody’s Investors Service lowered Qatar’s credit score by one level to Aa3, the fourth-highest investment grade. It’s still among the highest rated emerging-market nations.
“The current crisis sounds a lot more serious as it involves transport and trade-type sanctions and it is likely to last much longer than the previous incidents,” Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai. “The fact that Qatar has in the past been isolated by some of its neighbors gives promise that ultimately this crisis will be contained.”