J.P. Morgan EMBI to welcome listing of 4 GCC states' bonds Thursday - Analysis

J.P. Morgan EMBI to welcome listing of 4 GCC states' bonds Thursday - Analysis
4 GCC states to enter J.P. Morgan EMBI Thursday

By: Mahmoud Gamal

Dubai – Mubasher: The UAE, Saudi Arabia, Kuwait, and Bahrain are scheduled to join the J.P. Morgan Emerging Market Bond Index (EMBI) on Thursday, 31 January.

Listing of these countries on the EMBI paves the way for pumping around $30 billion in inflows into these GCC markets, analysts told Mubasher.

 

GCC markets

The approximate weight of Saudi Arabia in the EMBI Global Diversified Index (EMBIGD) stands at 3.3%, followed by the UAE, Bahrain, and Kuwait with 2.6%, 2.3%, and 0.7%, respectively, according to J.P. Morgan.

These figures are subject to change in accordance with bonds sale over the coming two weeks, the New York-based investment bank said, noting that debt held by these four GCC members would account for nearly 11.8% or over $111 billion of the EMBIGD.

 

Historical change

Listing the four GCC countries on the EMBI is a pivotal step that will help them overcome the drop in oil prices, as well as boost the investors’ base there, financial adviser Aaron Leslie told Mubasher.

This will also raise liquidity in these four markets and cut the cost of borrowing, Leslie indicated, adding that international investors would benefit from the entry of these states in J.P. Morgan’s key index.

He noted that the listing provides debt instruments for countries with high credit ratings.

It is worth noting that the debt ratio to gross domestic product (GDP) of the GCC states is the world’s lowest rate.

Leslie further said that GDP per capita for Gulf countries averages between $20,000 and $60,000 a year.

 

Challenges

For his part, economist Ali Al Hamoudi said that joining the EMBI will encourage purchases with thousands of billion dollars of the four GCC members’ bonds, which will reduce the cost of borrowing.

The GCC states have to accept some of the challenges to ease their entry in the index, including the GDP per capita, Al Hamoudi pointed out.

Gulf debts markets are likely to be impacted by the declining economic growth in the US and China, trade wars, political turbulence in Europe, and the drop in oil prices, he highlighted.

 

2018

In 2018, total foreign currency-denominated bonds and sukuk issues in the Middle East and North Africa (MENA) amounted to $84 billion.

 

2019

Since the start of 2019, GCC states have issued $9.1 billion bonds from both sovereigns and companies, including the Saudi Arabia Sovereign Wealth Fund, First Abu Dhabi Bank (FAB), and Dubai Islamic Bank (DIB).

 

Translated by: Mai Ezz El-Din