(MENAFN- The Peninsula) The Peninsula
DOHA: As bond investors across the globe are left high and dry over the past few years driven by ultra-low interest rates, GCC debt market is offering a good place for international investors to hunt for yields.
The desperation to invest in better yielding quality papers has wooed investors towards the emerging bond markets of the GCC, Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre ‘Markaz', noted in its GCC market outlook, yesterday.
After a long hiatus the Fed has decided to increase rates very gradually in the US starting second half of 2016, however other important markets such as the UK, Eurozone and Japan continue to have abysmally low levels of bond yields. This has created a dearth of investment opportunities for bond investors. Only recently has there been a talk of Eurozone economies ending their QE programme in the second half of 2018.
Looking ahead, GCC countries' ambitious spending plans ensure a continued need for bond issuance. The GCC faces high infrastructure project spending requirements at $120-150bn annually, including transport-related projects, over the next two years. Saudi Arabia's ‘Vision 2030' programme has huge infrastructure needs, but there are also sizeable infrastructure projects taking place in Qatar in relation to the 2022 football World Cup, as well as those relating to the Dubai Expo 2020, whilst other GCC countries such as Bahrain are looking to promote infrastructure as a way to boost economic growth, the report noted.
The GCC governments took great institutional steps to set up Debt Management Offices (DMO). This helped better understand and service their debt obligations. Hitherto, the role of issuing debt, servicing them and repaying them were all taken care of by the respective central banks.
While that might have worked when the debt were minimal, a specialist DMO is required in order to manage them by establishing a separate, independent entity that is in charge of the debt management to avoid the burden on the central banks.
On Qatar, the ‘Markaz' report noted: 'In 2018, the construction sector is expected to drive the growth in the non-hydrocarbon sector, offering large opportunities for investment in projects related to the 2022 FIFA World Cup. Qatar has managed to avert severe economic repercussions by dipping into its financial reserves and expanding its dealings with Iran and Turkey.
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