Markets Outlook
Markets Outlook Middle East & Africa markets bulletin: May 2016
About Invest AD
Inside: Foreign direct investment to bring diversity to GCC economies
Invest AD is a unique financial services company offering institutional investors access to high-growth opportunities in frontier and emerging markets, specialising in Africa and the Middle East. Owned by the Abu Dhabi government, the company benefits from an extensive international network, established over three decades and spanning governments, business leaders, and regulators. With a history as a long-term investor, the company is highly respected in emerging and frontier markets, allowing us to offer exceptional investment opportunities to our global partners. We implement international best practice in governance throughout all our operations, while offering flexibility in investment – whether through funds, tailor-made products, or long-term partnerships. Contact For investor inquiries contact 800-Invest AD or 800-4683 7823 For international callers: +971 2 692 6101 For other enquiries call: +971 2 665 8100 Email: [email protected] This material has been prepared by the Abu Dhabi Investment Company, which operates under the trading name of Invest AD, located at PO Box 46309, Abu Dhabi UAE and by Invest AD Asset Management PJSC, a UAE-based investment company licensed and regulated by the Central Bank of the United Arab Emirates, and the UAE Securities and Commodities Authority , located at PO Box 46309, Abu Dhabi UAE. This material is provided for information purposes only to Professional and Institutional Investors. The provision of this material and/or references to securities, sectors or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or sell any security, or an offer of investment services. The analysis and opinions expressed in this material represent the subjective views of the author as of the date indicated, may no longer be current, and may change as a result of market developments. There can be no assurances that developments will transpire as forecasted in this material. Invest AD and its subsidiaries or affiliates may (1) engage in securities transactions in a manner inconsistent with this material and (2) with respect to securities referenced in this material, sell to or buy from customers on a principal basis. Investors should consider carefully the investment objectives, risks and expenses of any investment before investing. This material may not be distributed, published or reproduced, in whole or part, without the prior consent of Invest AD and Invest AD Asset Management PJSC
Focus Four consistent factors that will influence the timing and magnitude of foreign direct investment into the GCC More information: Page 2
Equities GCC sentiment is positive on the back of the oil price rally, with markets closely watching Saudi Arabia’s National Transformation Plan. Q1 results for the Kingdom’s petrochemical and bank sectors were generally positive, although consumer discretionary suffered due to a slowdown in spending. In Africa, recent investment and support for Egypt from the UAE and Saudi Arabia buoys the country’s fragile economy, while Nigeria records its first current account deficit in almost two decades. More information: Page 3
Fixed income New issuances continued to be the focus of regional credit markets, with Abu Dhabi planning to return to the bond markets after a gap of almost seven years. More information: Page 4
1
Focus FDI to bring diversity to region’s economies, but investment managers need to play long game The diversification of GCC economies in the medium and long terms, in light of the prolonged low oil price, is expected to increase foreign investment into GCC markets. While such structural macroeconomic changes open up investment opportunities, there are additional factors that foreign investors consider before allocating money to regional markets.
detailed qualitative and quantitative analysis and valuation of the economies and markets, including corporate governance. Liquidity levels are equally important. Foreign investors want to have the opportunity to shift their allocations from one region to another and will look to invest their capital into markets that do not have high barriers to exit.
accounts for more than 80 per cent of all international investment into the GCC. This is not surprising, given that the two markets have well-developed and large asset management and pensions industries, with asset allocation mandates that include emerging and frontier markets. The remaining 20 per cent is mostly accounted for by capital from Europe.
Capital in GCC markets predominantly comes from wealthy regional retail investors who base their decisions on prevailing market sentiment. It is very rare for individual foreign investors to directly seek access themselves, as they typically choose to do so through professionally managed and well-regulated investment funds.
The inclusion of a market in a recognised index or benchmark affects active and index-tracking foreign investment managers. The performance of the portfolios and funds they manage is normally judged against equity index benchmarks, which tends to define their investable universe.
Interest in the region among international investors has been steadily increasing over the past few years. While conditions in the short to medium term may cause foreign investors to shift capital to other regions, the long-term trend is likely to stay intact.
Foreign participation in GCC markets is also driven by institutional foreign investors, such as pension funds and investment arms of insurance companies, which directly allocate to GCC markets through managed portfolios. Periods of significant market rises or declines are often partly or wholly blamed on somewhat erratic increasing inflows or outflows of capital from this investor base. The reality is that the majority of institutional foreign investors follow a very systematic approach.
The weight of a market in an index determines the extent to which they may allocate to these markets. The UAE makes up 0.92 per cent of the widely followed MSCI Emerging Markets Index, while Qatar makes up 0.97 per cent. This may seem like a small percentage, but the inclusion of these two markets ensures that they will at least be researched by investors who track or allocate capital in reference to this index.
We have found that there are four consistent factors that have an overriding influence on the timing and magnitude of foreign investor allocations: fundamentals, liquidity, index inclusion and access. Fundamentals are important because foreign investors’ decisions to invest in GCC markets are usually made by investment managers. This means that a high level of emphasis is placed on
Mohammed Al Hashemi is the executive director of asset management at Invest AD. The article was originally published in the UAE’s The National newspaper on April 21, 2016.
A final important consideration is ease of access to the markets, including ownership restrictions. GCC markets have made steady progress in this area, including the opening up of the Saudi equity market last year to foreign investors who meet certain criteria and the gradual increase in foreign ownership limits across many UAE companies over the past few years, with Etisalat a prime example. Research has shown that capital originating from the United States and the United Kingdom
2
Equities GCC
Sentiment in GCC markets has been positive in recent weeks on the back of the rally in oil prices and overall emerging market momentum. Oil prices, along with earnings announcements by regional companies and progress with economic reforms, will continue to drive sentiment in the weeks ahead. Saudi Arabia’s Vision 2030 document announced recently emphasizes the Kingdom’s resolve to reposition its economy sognifcantly and put in on a path of sustainable growth. Implementation of the various measures highlighted in the document through the National Transformation Plan, which aims to reduce dependence on hydrocarbon-driven income and implement significant structural reforms, will be watched closely in the coming months and will be a key determinant of equity market direction over the medium to long term. Companies have continued to post results over the last few weeks, with most from the UAE and Qatar in line with consensus estimates. In Saudi Arabia, results for the petrochemical sector were generally positive, with sector leader Sabic beating consensus estimates by a healthy margin. Bank earnings were also in general better than expected, and did not reveal any significant deterioration in asset quality. Earnings from many consumer companies, on the other hand, were impacted by the slowdown in discretionary consumer spending. Going forward we expect headwinds to near-term earnings to remain strong, and remain concerned about asset quality trends at banks on the back of tightening liquidity, rising operating costs and slowing macroeconomic growth. Long-term equity market multiples will be determined by the pace and structure of further economic reforms.
Africa
Overall investors remain cautious on the Egyptian and Nigerian markets while Morocco and Kenya continue to be viewed as relative safe havens. Corporate results in Egypt over the next few weeks are likely to further emphasize the divide between the macro and micro pictures, with real estate, banking and even consumer-related names expected to show revenue and profit growth. However the economy remains on fragile footing as the excitement over the currency’s biggest devaluation in over a decade fades. Recent announcements on investment and support for Egypt from the UAE and Saudi Arabia, as well as the passing of a policy agenda that clears the way for some US 1 billion in World Bank funding, are positive signs. Nigeria has recorded its first current account deficit in almost two decades, reflecting the protracted low oil price environment. Nonetheless some blue-chip stocks have remained in demand as foreign investors elect to re-invest dividends paid out rather than get stuck in the repatriation queue. Despite many banks meeting analyst estimates, corporate results failed to act as a significant market catalyst; with the economic environment not improving investors are more concerned about numbers for the subsequent quarter. Morocco meanwhile is a relative bright spot, with the government announcing a major investment in the country by automaker Renault and officials continuing to discuss a shift to a more flexible exchange rate system.
Market data as of April 22, 2016 Country/Region S&P GCC S&P Frontier BMI S&P Pan Arab MSCI Emerging Markets MSCI World Total Return MSCI EFM Africa Ex S.A.
Closing price
MTD
YTD
3M
1Y
3Y
152.96
4.95%
1.49%
23.60%
-21.47%
5.69%
88.63 144.26 845.21 4,599.43 468.02
1.21% 4.69% 4.21% 4.08% 1.24%
-1.39% 1.61% 6.89% 2.09% -0.64%
8.01% 22.09% 19.42% 10.40% 12.69%
-16.58% -19.90% -17.55% -4.06% -18.13%
-7.49% 5.86% -9.05% 23.88% -14.65%
141.58 1,756.57 1,391.85 809.25 1,699.45 185.78
8.92% 5.38% 1.96% 1.65% 7.80% 1.38%
13.93% -2.89% -2.22% 3.93% 5.88% -1.49%
41.65% 22.83% 17.20% 25.75% 22.99% 8.24%
-10.87% -29.28% -18.14% -14.70% -6.55% -29.23%
61.31% 1.59% -20.22% 17.03% 2.97% -51.52%
191.88 428,060.68 236.74 0.44 28.91 89.60 500.83 19.36 25.84 2.33 783.30 93.08 112.29
7.81% 7.83% -3.37% 4.37% 1.06% 7.93% -13.94% 0.46% 1.31% -2.53% -1.24% 9.13% 7.30%
3.67% 25.12% -6.89% 1.87% 11.78% -2.33% -13.89% 7.26% 3.26% -13.37% 16.55% 16.35% 1.27%
30.63% 31.30% -2.03% 4.01% 11.96% 1.88% -11.89% 13.44% 6.44% 4.10% 9.57% 33.92% 8.78%
-19.89% 1.87% -0.20% 2.59% 5.38% -5.36% -25.99% -17.57% 4.62% -29.58% 0.66% -19.37% -34.78%
23.61% -29.87% -20.51% -3.01% -5.61% -11.14% -53.98% 23.61% -5.13% -41.75% 4.45% -1.51% -35.15%
Total return in local currency (MSCI) MSCI UAE Saudi Arabia MSCI Kuwait MSCI Qatar MSCI Oman MSCI Bahrain Total return in USD (MSCI) MSCI Egypt MSCI Turkey MSCI Jordan MSCI Lebanon MSCI Morocco MSCI Botswana MSCI Ghana MSCI Kenya MSCI Mauritius MSCI Nigeria MSCI Tunisia MSCI South Africa S&P Zambia Source: Bloomberg
-
3
Fixed income New issuances continued to be the focus of regional credit markets as the macro environment remained stable and oil prices extending their recent rally. A much-awaited new issuance pipeline has started to roll in, with Abu Dhabi planning to return to the bond markets after a gap of almost seven years. In the financial space, Bank Muscat – the largest bank in Oman – has started meeting investors ahead of a potential issuance, and it was recently announced that Oman had hired five banks for an international bond issuance. The secondary market continued to take new issuance in its stride towards the end of the month, with demand seen in the long-end and the financial space from international accounts. Some regional investors have been using this opportunity to reduce risk ahead of a heavy new issuance pipeline, which is anticipated in the next four to five weeks. Following anticipation of a huge bond issuance from Saudi Arabia this year, the Kingdom last week raised US$ 10 billion in the form of a five-year loan. This reduces the prospect of imminent bond issuance from the sovereign, with the market
now expecting a bond issuance only after the summer lull. Even though a Saudi issuance is unlikely to hit the market immediately, the new issuance pipeline remains strong, with issuances expected from Abu Dhabi, Oman, Qatar and from other regional banks and corporates. International spreads are expected to be under some pressure in the near future, with international accounts remaining very selective about the regional names and local accounts looking to create space for upcoming new issuances. A supportive macro environment has improved risk sentiment in regional markets over the last few weeks, thanks to less volatile rates, foreign exchange, and commodity markets. However, any increase in global market volatility combined with increased issuance from regional names could quickly change market sentiment and result in bond prices moving lower and spreads widening very quickly. In the secondary markets, April witnessed good volumes trading with market being supported by the accounts. However, towards the end of the month, a combination of lower oil prices and issuance announcements
Sovereign CDS spreads
led to some profit-taking in the tighter spread names, as well as the high duration names. The shorter end of the curve continues to be supported by Asian accounts, while the long end witnessed selling from international real money accounts at the end of the month Secondary market activity will be driven by new issuances and the associated spreads. With Abu Dhabi expected to come in multiple tranches, the spreads on the Abu Dhabi quasi-sovereigns/ financials/corporates could see a re-rating based on final issuance spread levels of the sovereign.
GCC CDS spreads Sov CDS
1000
Level
Wk (bps)
86
2
-7
Dubai Qatar Saudi
215 87 150
6 1 5
-19 -6 -6
FI & Corp CDS NBAD ADCB Emirates Bank Samba
106 120 256 191
--6 -13 -12 -1
-4 -8 57 -1
171
-8
795
-9
56 11
900
Abu Dhabi
800
Abu Dhabi Saudi
700 600 500
Dubai Bahrain
400 300
Qatar Turkey
200 100 0 Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16 Abu Dhabi
Dubai
Qatar
Saudi
Bahrain
TAQA DP World
Turkey
Source: Bloomberg
YTD (bps)
Source: Bloomberg
Market data as of April 25, 2016 Financials – senior
Maturity
Cpn
Bid
Ask
Bid sprd
Ask sprd
S&P
CCY
Type
ADCB
16-Sep-19
2.75%
100.00
100.75
163
140
A
USD
C
ADCB
6-Mar-23
4.50%
103.50
104.00
USD
C
29-Oct-49
6.38%
104.38
104.75
N.A.
USD
S
8-Oct-18
3.27%
102.00
102.50
N.A.
USD
S
26-Mar-18
2.50%
99.50
100.25
BBB-
USD
C
COMQAT
24-Jun-19
2.88%
101.00
101.75
C
NOORBK
28-Apr-20
2.79%
99.00
99.75
First Gulf Bk
14-Jan-19
3.25%
102.00
102.75
KIPCO
5-Feb-19
4.80%
105.00
105.50
NBAD
13-Aug-19
3.00%
102.25
103.00
7-Oct-19
3.13%
100.75
101.50
QNB
14-Feb-18
2.13%
100.25
101.00
CBDUH
17-Nov-20
4.00%
102.00
102.75
BATELCO
1-May-20
4.25%
97.13
98.13
DEWA
21-Oct-20
7.38%
118.13
Dolphin Energy
15-Dec-21
5.50%
112.25
118.63 113.00
DP World
2-Jul-17
6.25%
104.63
105.00
236 332 120 139 120 166 116 168 94 154 55 210 358 168 162 77
A-
ADIB
DP World
2-Jul-37
6.85%
103.50
104.50
245 347 141 180 145 186 144 186 118 177 97 227 386 179 176 108 455
ALHILA Bank Muscat
Natl Bk of Oman
Source: Bloomberg
446
A-
USD
N.A.
USD
S
N.A.
USD
C
BBB-
USD
C
AA-
USD
C
N.A.
USD
C
A+
USD
S
N.A.
USD
C
BB
USD
C
N.A.
USD
C
N.A.
USD
C
NR
USD
S
NR
USD
C
4
About Invest AD
Inside: Foreign direct investment to bring diversity to GCC economies
Invest AD is a unique financial services company offering institutional investors access to high-growth opportunities in frontier and emerging markets, specialising in Africa and the Middle East. Owned by the Abu Dhabi government, the company benefits from an extensive international network, established over three decades and spanning governments, business leaders, and regulators. With a history as a long-term investor, the company is highly respected in emerging and frontier markets, allowing us to offer exceptional investment opportunities to our global partners. We implement international best practice in governance throughout all our operations, while offering flexibility in investment – whether through funds, tailor-made products, or long-term partnerships. Contact For investor inquiries contact 800-Invest AD or 800-4683 7823 For international callers: +971 2 692 6101 For other enquiries call: +971 2 665 8100 Email: [email protected] This material has been prepared by the Abu Dhabi Investment Company, which operates under the trading name of Invest AD, located at PO Box 46309, Abu Dhabi UAE and by Invest AD Asset Management PJSC, a UAE-based investment company licensed and regulated by the Central Bank of the United Arab Emirates, and the UAE Securities and Commodities Authority , located at PO Box 46309, Abu Dhabi UAE. This material is provided for information purposes only to Professional and Institutional Investors. The provision of this material and/or references to securities, sectors or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or sell any security, or an offer of investment services. The analysis and opinions expressed in this material represent the subjective views of the author as of the date indicated, may no longer be current, and may change as a result of market developments. There can be no assurances that developments will transpire as forecasted in this material. Invest AD and its subsidiaries or affiliates may (1) engage in securities transactions in a manner inconsistent with this material and (2) with respect to securities referenced in this material, sell to or buy from customers on a principal basis. Investors should consider carefully the investment objectives, risks and expenses of any investment before investing. This material may not be distributed, published or reproduced, in whole or part, without the prior consent of Invest AD and Invest AD Asset Management PJSC
Focus Four consistent factors that will influence the timing and magnitude of foreign direct investment into the GCC More information: Page 2
Equities GCC sentiment is positive on the back of the oil price rally, with markets closely watching Saudi Arabia’s National Transformation Plan. Q1 results for the Kingdom’s petrochemical and bank sectors were generally positive, although consumer discretionary suffered due to a slowdown in spending. In Africa, recent investment and support for Egypt from the UAE and Saudi Arabia buoys the country’s fragile economy, while Nigeria records its first current account deficit in almost two decades. More information: Page 3
Fixed income New issuances continued to be the focus of regional credit markets, with Abu Dhabi planning to return to the bond markets after a gap of almost seven years. More information: Page 4
1
Focus FDI to bring diversity to region’s economies, but investment managers need to play long game The diversification of GCC economies in the medium and long terms, in light of the prolonged low oil price, is expected to increase foreign investment into GCC markets. While such structural macroeconomic changes open up investment opportunities, there are additional factors that foreign investors consider before allocating money to regional markets.
detailed qualitative and quantitative analysis and valuation of the economies and markets, including corporate governance. Liquidity levels are equally important. Foreign investors want to have the opportunity to shift their allocations from one region to another and will look to invest their capital into markets that do not have high barriers to exit.
accounts for more than 80 per cent of all international investment into the GCC. This is not surprising, given that the two markets have well-developed and large asset management and pensions industries, with asset allocation mandates that include emerging and frontier markets. The remaining 20 per cent is mostly accounted for by capital from Europe.
Capital in GCC markets predominantly comes from wealthy regional retail investors who base their decisions on prevailing market sentiment. It is very rare for individual foreign investors to directly seek access themselves, as they typically choose to do so through professionally managed and well-regulated investment funds.
The inclusion of a market in a recognised index or benchmark affects active and index-tracking foreign investment managers. The performance of the portfolios and funds they manage is normally judged against equity index benchmarks, which tends to define their investable universe.
Interest in the region among international investors has been steadily increasing over the past few years. While conditions in the short to medium term may cause foreign investors to shift capital to other regions, the long-term trend is likely to stay intact.
Foreign participation in GCC markets is also driven by institutional foreign investors, such as pension funds and investment arms of insurance companies, which directly allocate to GCC markets through managed portfolios. Periods of significant market rises or declines are often partly or wholly blamed on somewhat erratic increasing inflows or outflows of capital from this investor base. The reality is that the majority of institutional foreign investors follow a very systematic approach.
The weight of a market in an index determines the extent to which they may allocate to these markets. The UAE makes up 0.92 per cent of the widely followed MSCI Emerging Markets Index, while Qatar makes up 0.97 per cent. This may seem like a small percentage, but the inclusion of these two markets ensures that they will at least be researched by investors who track or allocate capital in reference to this index.
We have found that there are four consistent factors that have an overriding influence on the timing and magnitude of foreign investor allocations: fundamentals, liquidity, index inclusion and access. Fundamentals are important because foreign investors’ decisions to invest in GCC markets are usually made by investment managers. This means that a high level of emphasis is placed on
Mohammed Al Hashemi is the executive director of asset management at Invest AD. The article was originally published in the UAE’s The National newspaper on April 21, 2016.
A final important consideration is ease of access to the markets, including ownership restrictions. GCC markets have made steady progress in this area, including the opening up of the Saudi equity market last year to foreign investors who meet certain criteria and the gradual increase in foreign ownership limits across many UAE companies over the past few years, with Etisalat a prime example. Research has shown that capital originating from the United States and the United Kingdom
2
Equities GCC
Sentiment in GCC markets has been positive in recent weeks on the back of the rally in oil prices and overall emerging market momentum. Oil prices, along with earnings announcements by regional companies and progress with economic reforms, will continue to drive sentiment in the weeks ahead. Saudi Arabia’s Vision 2030 document announced recently emphasizes the Kingdom’s resolve to reposition its economy sognifcantly and put in on a path of sustainable growth. Implementation of the various measures highlighted in the document through the National Transformation Plan, which aims to reduce dependence on hydrocarbon-driven income and implement significant structural reforms, will be watched closely in the coming months and will be a key determinant of equity market direction over the medium to long term. Companies have continued to post results over the last few weeks, with most from the UAE and Qatar in line with consensus estimates. In Saudi Arabia, results for the petrochemical sector were generally positive, with sector leader Sabic beating consensus estimates by a healthy margin. Bank earnings were also in general better than expected, and did not reveal any significant deterioration in asset quality. Earnings from many consumer companies, on the other hand, were impacted by the slowdown in discretionary consumer spending. Going forward we expect headwinds to near-term earnings to remain strong, and remain concerned about asset quality trends at banks on the back of tightening liquidity, rising operating costs and slowing macroeconomic growth. Long-term equity market multiples will be determined by the pace and structure of further economic reforms.
Africa
Overall investors remain cautious on the Egyptian and Nigerian markets while Morocco and Kenya continue to be viewed as relative safe havens. Corporate results in Egypt over the next few weeks are likely to further emphasize the divide between the macro and micro pictures, with real estate, banking and even consumer-related names expected to show revenue and profit growth. However the economy remains on fragile footing as the excitement over the currency’s biggest devaluation in over a decade fades. Recent announcements on investment and support for Egypt from the UAE and Saudi Arabia, as well as the passing of a policy agenda that clears the way for some US 1 billion in World Bank funding, are positive signs. Nigeria has recorded its first current account deficit in almost two decades, reflecting the protracted low oil price environment. Nonetheless some blue-chip stocks have remained in demand as foreign investors elect to re-invest dividends paid out rather than get stuck in the repatriation queue. Despite many banks meeting analyst estimates, corporate results failed to act as a significant market catalyst; with the economic environment not improving investors are more concerned about numbers for the subsequent quarter. Morocco meanwhile is a relative bright spot, with the government announcing a major investment in the country by automaker Renault and officials continuing to discuss a shift to a more flexible exchange rate system.
Market data as of April 22, 2016 Country/Region S&P GCC S&P Frontier BMI S&P Pan Arab MSCI Emerging Markets MSCI World Total Return MSCI EFM Africa Ex S.A.
Closing price
MTD
YTD
3M
1Y
3Y
152.96
4.95%
1.49%
23.60%
-21.47%
5.69%
88.63 144.26 845.21 4,599.43 468.02
1.21% 4.69% 4.21% 4.08% 1.24%
-1.39% 1.61% 6.89% 2.09% -0.64%
8.01% 22.09% 19.42% 10.40% 12.69%
-16.58% -19.90% -17.55% -4.06% -18.13%
-7.49% 5.86% -9.05% 23.88% -14.65%
141.58 1,756.57 1,391.85 809.25 1,699.45 185.78
8.92% 5.38% 1.96% 1.65% 7.80% 1.38%
13.93% -2.89% -2.22% 3.93% 5.88% -1.49%
41.65% 22.83% 17.20% 25.75% 22.99% 8.24%
-10.87% -29.28% -18.14% -14.70% -6.55% -29.23%
61.31% 1.59% -20.22% 17.03% 2.97% -51.52%
191.88 428,060.68 236.74 0.44 28.91 89.60 500.83 19.36 25.84 2.33 783.30 93.08 112.29
7.81% 7.83% -3.37% 4.37% 1.06% 7.93% -13.94% 0.46% 1.31% -2.53% -1.24% 9.13% 7.30%
3.67% 25.12% -6.89% 1.87% 11.78% -2.33% -13.89% 7.26% 3.26% -13.37% 16.55% 16.35% 1.27%
30.63% 31.30% -2.03% 4.01% 11.96% 1.88% -11.89% 13.44% 6.44% 4.10% 9.57% 33.92% 8.78%
-19.89% 1.87% -0.20% 2.59% 5.38% -5.36% -25.99% -17.57% 4.62% -29.58% 0.66% -19.37% -34.78%
23.61% -29.87% -20.51% -3.01% -5.61% -11.14% -53.98% 23.61% -5.13% -41.75% 4.45% -1.51% -35.15%
Total return in local currency (MSCI) MSCI UAE Saudi Arabia MSCI Kuwait MSCI Qatar MSCI Oman MSCI Bahrain Total return in USD (MSCI) MSCI Egypt MSCI Turkey MSCI Jordan MSCI Lebanon MSCI Morocco MSCI Botswana MSCI Ghana MSCI Kenya MSCI Mauritius MSCI Nigeria MSCI Tunisia MSCI South Africa S&P Zambia Source: Bloomberg
-
3
Fixed income New issuances continued to be the focus of regional credit markets as the macro environment remained stable and oil prices extending their recent rally. A much-awaited new issuance pipeline has started to roll in, with Abu Dhabi planning to return to the bond markets after a gap of almost seven years. In the financial space, Bank Muscat – the largest bank in Oman – has started meeting investors ahead of a potential issuance, and it was recently announced that Oman had hired five banks for an international bond issuance. The secondary market continued to take new issuance in its stride towards the end of the month, with demand seen in the long-end and the financial space from international accounts. Some regional investors have been using this opportunity to reduce risk ahead of a heavy new issuance pipeline, which is anticipated in the next four to five weeks. Following anticipation of a huge bond issuance from Saudi Arabia this year, the Kingdom last week raised US$ 10 billion in the form of a five-year loan. This reduces the prospect of imminent bond issuance from the sovereign, with the market
now expecting a bond issuance only after the summer lull. Even though a Saudi issuance is unlikely to hit the market immediately, the new issuance pipeline remains strong, with issuances expected from Abu Dhabi, Oman, Qatar and from other regional banks and corporates. International spreads are expected to be under some pressure in the near future, with international accounts remaining very selective about the regional names and local accounts looking to create space for upcoming new issuances. A supportive macro environment has improved risk sentiment in regional markets over the last few weeks, thanks to less volatile rates, foreign exchange, and commodity markets. However, any increase in global market volatility combined with increased issuance from regional names could quickly change market sentiment and result in bond prices moving lower and spreads widening very quickly. In the secondary markets, April witnessed good volumes trading with market being supported by the accounts. However, towards the end of the month, a combination of lower oil prices and issuance announcements
Sovereign CDS spreads
led to some profit-taking in the tighter spread names, as well as the high duration names. The shorter end of the curve continues to be supported by Asian accounts, while the long end witnessed selling from international real money accounts at the end of the month Secondary market activity will be driven by new issuances and the associated spreads. With Abu Dhabi expected to come in multiple tranches, the spreads on the Abu Dhabi quasi-sovereigns/ financials/corporates could see a re-rating based on final issuance spread levels of the sovereign.
GCC CDS spreads Sov CDS
1000
Level
Wk (bps)
86
2
-7
Dubai Qatar Saudi
215 87 150
6 1 5
-19 -6 -6
FI & Corp CDS NBAD ADCB Emirates Bank Samba
106 120 256 191
--6 -13 -12 -1
-4 -8 57 -1
171
-8
795
-9
56 11
900
Abu Dhabi
800
Abu Dhabi Saudi
700 600 500
Dubai Bahrain
400 300
Qatar Turkey
200 100 0 Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16 Abu Dhabi
Dubai
Qatar
Saudi
Bahrain
TAQA DP World
Turkey
Source: Bloomberg
YTD (bps)
Source: Bloomberg
Market data as of April 25, 2016 Financials – senior
Maturity
Cpn
Bid
Ask
Bid sprd
Ask sprd
S&P
CCY
Type
ADCB
16-Sep-19
2.75%
100.00
100.75
163
140
A
USD
C
ADCB
6-Mar-23
4.50%
103.50
104.00
USD
C
29-Oct-49
6.38%
104.38
104.75
N.A.
USD
S
8-Oct-18
3.27%
102.00
102.50
N.A.
USD
S
26-Mar-18
2.50%
99.50
100.25
BBB-
USD
C
COMQAT
24-Jun-19
2.88%
101.00
101.75
C
NOORBK
28-Apr-20
2.79%
99.00
99.75
First Gulf Bk
14-Jan-19
3.25%
102.00
102.75
KIPCO
5-Feb-19
4.80%
105.00
105.50
NBAD
13-Aug-19
3.00%
102.25
103.00
7-Oct-19
3.13%
100.75
101.50
QNB
14-Feb-18
2.13%
100.25
101.00
CBDUH
17-Nov-20
4.00%
102.00
102.75
BATELCO
1-May-20
4.25%
97.13
98.13
DEWA
21-Oct-20
7.38%
118.13
Dolphin Energy
15-Dec-21
5.50%
112.25
118.63 113.00
DP World
2-Jul-17
6.25%
104.63
105.00
236 332 120 139 120 166 116 168 94 154 55 210 358 168 162 77
A-
ADIB
DP World
2-Jul-37
6.85%
103.50
104.50
245 347 141 180 145 186 144 186 118 177 97 227 386 179 176 108 455
ALHILA Bank Muscat
Natl Bk of Oman
Source: Bloomberg
446
A-
USD
N.A.
USD
S
N.A.
USD
C
BBB-
USD
C
AA-
USD
C
N.A.
USD
C
A+
USD
S
N.A.
USD
C
BB
USD
C
N.A.
USD
C
N.A.
USD
C
NR
USD
S
NR
USD
C
4
