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Investors may shift Gulf exposure on political unrest

Investors may shift Gulf exposure on political unrest

Gulf to see capital outflows; UAE, Qatar could benefit; Libyan turmoil, Iranian naval vessels to add pressure.

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February 22, 2011 1:01 by



FLOWS SHIFT

Even for Qatar, which enjoys one of the world’s highest economic output per capita at nearly $75,000 and saw no anti-government protests, five-year credit default swaps rose to a new one-year high of 113 points on Monday.

“Although their (investor) concerns will be focused on states that have seen unrest, I suspect that some will have put their plans for much of the region on review,” saidSimon Williams, chief economist at HSBC Bank in Dubai.

Gulf Arab stocks have been edgy, heading back towards January lows, as popular unrest spread to Bahrain and Libya, while currency forward markets have been on a roller-coaster ride.

Traders expected pressure on currencies to increase if bloody turmoil in Libya continues and with a planned passage of Iranian naval vessels through Egypt’s Suez Canal.

But high political risks in some parts of the Arab world and solid oil prices around $90 a barrel, could also make some investors shift their exposure to more stable Gulf states.

“Our view here is that obviously a premium for political risk has gone up throughout the region. But we do differentiate quite strongly between places like the UAE, where the political system is broadly much more stable, and Qatar as well,” said a London-based fixed income investor.

“If you want to stay in the Middle East, you switch from Bahrain into the UAE or into Qatar but I am not sure you want to switch altogether,” he said.

Benchmark bond yields have climbed for both Qatar and the UAE’s emirate of Abu Dhabi despite staying insulated from unrest as their small local populations are pampered by petrodollars.

“We are certainly getting some inquiries about shifting money outside to other parts of the Gulf, mainly from expat investors,” said a top banking executive in Bahrain.

(By Martin Dokoupil. Additional reporting by Martina Fuchs and Dinesh Nair; writing by Martin Dokoupil; editing by Stephen Nisbet)



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