Institutional investors and wealth managers may be overlooking the benefits of investing in the Gulf Cooperation Council (GCC) sovereign bond market.

 

This is according to leading independent European ETF provider, Tabula Investment Management Limited (Tabula), which highlights that this market, with a credit rating of A, a yield of 5% and a duration of ~8 years, presents an opportunity for exposure to a stand-out region within the emerging markets.

 

The GCC sovereign bond market has historically outperformed broad corporate bond benchmarks. This can be attributed to the region’s rapid economic development and growth, as well as its successful navigation of the Covid crisis, especially when compared to other emerging market regions. 

 

Energy prices

It has also been a beneficiary of higher energy prices; a third of the world’s oil is produced in the Middle East and the energy sector represents approximately 40% of current GCC’s GDP. 

 

The GCC countries also benefit for having some of the strongest government balance sheets. The current account balance of countries across the region is extremely robust, with a surplus of 15% of GDP, compared to -4% for the United States and -1% for the G7 countries. 

 

Earlier this year, Tabula created the first GCC government bond ETF with the launch of the Tabula GCC Sovereign USD Bonds UCITS ETF (TGCC). The ETF offers 100% exposure to the six GCC countries. It currently provides access to approximately 100 high quality GCC sovereign bonds. The asset class has proven resilient to negative external pressures including inflation and credit contraction, and is well positioned to navigate a global recession.

 

Overlooked market

“The GCC government bond market is one of the more overlooked sovereign markets in the fixed income sector and, for those not used to trading the market, can be daunting and time consuming to tackle through granular bond positions,” says Tabula CEO Michael John Lytle. 

 

“Before we launched our fund, ETF investors could only access the Middle East sovereign bond market via broader emerging market or global ETFs. However, our research suggests professional investors are increasingly waking up to the distinctive features of the GCC’s sovereign bond market.”

 

A study commissioned earlier this year by Tabula with European pension funds, fund managers and wealth managers, who collectively manage over $250 billion of assets, found 97% agree that the economic and fiscal reforms implemented by the GCC countries have increased the region’s creditworthiness. 

 

Stable growth

More than one in three surveyed strongly agree that the region’s large foreign currency reserves will help it maintain stable economic growth and lower bond risks when compared to other emerging markets. A further two thirds also generally agree with this view.

 

These findings support why 90% of European professional investors expect wealth managers to increase their allocation to the GCC fixed income market over the next five years, with 30% of respondents believing there will be a dramatic increase.-- TradeArabia News Service