Emerging market opportunities when trying to bridge the Gulf
Insights

Emerging market opportunities when trying to bridge the Gulf

- The Middle East is too big a part of the emerging market bond investment universe to disregard

- Positive reform momentum and intentions create interesting investment opportunities

- We will continue to be selective in what opportunities we pursue, but the Gulf remains a ‘classic’ EM opportunity

2023 promises to be another busy year for emerging market (EM) debt investors, but it won’t just be the geopolitics keeping us on our toes – rather the change in investable universe. 2022 saw a swathe of high-quality Russian debt exiting indices, which is fast being replaced by a deluge of predominantly investment grade-rated Middle Eastern issuance. This changes the flavour of investing in EM, leaving investors with no choice but to seriously consider investing in the Gulf region.

Cognisant of this shift we decided it was time to visit the Gulf region to meet with the governments and companies behind the issuance. There are without doubt some areas that must be quickly addressed in order to be credible in the global market in the longer term, but we also identified some real areas of opportunity.

Why the increase in issuance now?

 The region benefitted from strong energy prices last year, strengthening government balance sheets and building economic resilience. The region as a whole is cash rich, and companies have very low leverage and decent liquidity buffers, so why issue at all? The reason is simple: oil and gas, which is the foundation of this financial stability, has a shelf life and the region needs to diversify. This will require access to the international capital markets. It makes sense to issue from a position of strength and proactively address the role the region intends to play in the push towards a greener tomorrow. 

Since the phased inclusion of five  of the six Gulf Corporation Council (GCC) countries (excluding Oman) into the JP Morgan EMBI global Diversified Index (EMBIG) from January 2019, they have rapidly grown to become a key component of the index – 24% as of March 20231.

With a slew of new issuance to come, we estimate the region could make up almost a third of the benchmark in the medium term – an opportunity set we don’t want to miss out on.

Where are the opportunities and hidden gems? 

What is apparent is that as the economic landscape evolves and transformation efforts take shape in the region, investment opportunities are starting to emerge.

Firstly, quasi sovereigns now have the remit to take an active role in driving change and are issuing debt to fund ongoing giga projects2. If names like Saudi Arabia’s Public Investment Fund (PIF) are able to properly frame their environmental, social and governance (ESG) credentials and build a decent track record they could increase their appeal to more investors. Secondly, to be a major global supplier of clean energy, companies like Masdar Clean Energy (UAE) and ACWA Power (Saudi Arabia) are key. We expect energy transition names like these to issue soon, providing a more palatable investment option with tangible green ESG focus for more sceptical investors. Thirdly, we expect to see issuance from a more diverse range of sectors like industrials, non-hydrocarbon mining and retail. Many non-oil and gas companies are set to benefit from government diversification plans and there may be opportunities that offer exposure to a rapidly growing region. These companies, which will vary in size, can piggy-back off the momentum of the larger company issuances.

Challenges facing the region

The main challenge facing the Middle East is the weak social and governance track records. Progress in areas including legal, judiciary, labour and social aspects – while still at early stage – has been encouraging but uneven. One notable observation is the rapid rise in female participation in the workforce, which is also evident in the upper echelon management teams in the private sector, as well as ministerial roles in governments. We expect this positive reform momentum to continue, hopefully at greater pace and depth.

Regional financing options, which have been more limited in the past, are set to expand as development of credible sustainability/green financing frameworks gets underway. The recent successful access to green financing by a quasi-sovereign in the region has helped to set the benchmark and should open up a pathway to typically neglected smaller companies in the region. However, we remain highly selective when it comes to these investments as credibility is still lagging versus some of the green aspirations of these entities. The rhetoric we heard had a lot of ”greenwishing” – the hope to be green – but there was still a way to go. We must hope companies don’t get caught up in those aspirations too soon and can avoid a green financing crash diet and ultimately accusations of ”greenwashing”.

Conclusion

Whether you believe the transition story in the Gulf region or not, new issuances are set to come –and fast. Given the growing importance of the Middle East, not only in EMs but on the broader global stage, we see this as the right time to get involved by investing in those hidden gems where real change is starting to emerge. After all, isn’t that what EM investment is all about?

  

19 April 2023
Catherine Joint
EM Corporate Research Analyst
Eng Tat Low
EM Sovereign Analyst
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen

PDF

Emerging market opportunities when trying to bridge the Gulf

1Macrobond and Columbia Threadneedle Investments, as at March 2023

2According to Deloitte, giga projects are infrastructure or capital investment projects of such scale and ambition they can be considered “once in a generation” in terms of what they deliver to the world

 

Risk Disclaimer

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients)

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

In UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland

This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Verwandte Beiträge

19 Februar 2024

Steven Bell

Chief Economist, EMEA

UK recession: what next?

Why an upturn looks likely and what that could mean for markets.
Watch time - 5 min
15 Februar 2024

Joanna Tano

Head of Research, Europe, Real Estate (EMEA)

2024 Global Real Estate Outlook

What's in store for real estate in 2024? Global megatrends and financial conditions will impact returns and sector allocation.
Read time - 4 min
12 Februar 2024

Steven Bell

Chief Economist, EMEA

How far will interest rates fall?

Discussing the extent of cuts and the implications for markets?
Watch time - 5 min
true
true

Risk Disclaimer

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients)

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

In UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland

This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Das könnte Ihnen auch gefallen

Investmentansatz

Teamwork bildet eine wichtige Grundlage unseres Anlageprozesses, der so strukturiert ist, dass er die Ausarbeitung, Bewertung und Umsetzung fundierter und vielversprechender Anlageideen für unsere Portfolios erleichtert.

Fonds

Columbia Threadneedle Investments bietet eine umfangreiche Palette von Investmentfonds an, die eine Vielzahl von Anlagezielen abdeckt.

Anlagekapazitäten

Wir bieten eine breite Palette aktiv verwalteter Anlagestrategien und -lösungen für globale, regionale und inländische Märkte und Anlageklassen.

Bitte bestätigen Sie einige Angaben zu Ihrer Person, um Ihr Präferenzzentrum zu besuchen

*Pflichtfelder

Etwas ist schief gelaufen. Bitte versuche es erneut

Vielen Dank. Sie können jetzt Ihr Präferenzzentrum besuchen, um auszuwählen, welche Einblicke Sie per E-Mail erhalten möchten.

Um zu sehen und zu aktualisieren, welche Erkenntnisse Sie von uns per E-Mail erhalten, besuchen Sie bitte Ihr Preference Center.