EMTA Forum in Dubai - March 14

EMTA FORUM IN DUBAI
Tuesday, March 14, 2017 

Sponsored by

 

The Capital Club Dubai
Gate Village, Building 3,
Dubai International Finance Centre (DIFC)
Dubai, UAE 
 
Topics will include:
Are reforms in MENA countries sufficient, and can credit downgrades be avoided?
What will be the new US administration’s effect on oil pricing? 
Will recent OPEC-deal gains be maintained?
Will Gulf country issuance continue, and how should investors approach new supply?
How do speakers see reform momentum in Saudi Arabia?
And much more   

3:00 p.m. Registration 

3:15 p.m. Panel One 

Prospects for the Emerging Markets
Alia Moubayed (International Institute for Strategic Studies) – Moderator
Ashish Marwah (ADS Securities)
Doug Bitcon (Rasmala) 
Stuart Anderson (S&P Global Ratings)
Mohamed El Jamal (Waha Capital)

4:15 p.m. Panel Two 

Current Trends in Emerging Markets 
Zeina Rizk (Arqaam Capital) – Moderator
Angad Rajpal (Emirates NBD Asset Management)
Jamil Koudim (LF Funds - BLF Group)
Saeb Elzein (Spinnaker Capital)

Additional speakers to be announced.

5:15 p.m. Reception 

Additional support provided by S&P Global Ratings.   

Attendance is complimentary for EMTA Members / US$695 for non-members. 

Registration for this event is closed. We look forward to seeing you at a future EMTA Event. 

If you wish to attend please contact Jonathan Murno jmurno@emta.org 

Oil Pricing, New Issuance Discussed at EMTA Forum in Dubai

EMTA’s Annual Forum in Dubai was held on March 14, 2017, and addressed a wide variety of topics, including oil pricing, massive new issuance, and global geopolitics. The event was sponsored by ADS Securities, and attracted a crowd of over 100 EM market participants. Additional support for the event was provided by MarketAxess and S&P Global Ratings.

”The MENA region is facing new headwinds, given global and regional developments, and with increased uncertainty regarding the Trump Administration plan towards the Middle East,” noted moderator Alia Moubayed (International Institute for Strategic Studies) in her opening comments. She added that, “expectations of lower growth following OPEC production cuts, continued fiscal tightening, pressures on oil prices, strengthening USD and Fed policy all pose important challenges,” before inviting her panel speakers to discuss their expectations for global financial conditions.

Mohamed El Jamal (Waha Capital) predicted global growth of between 3.5 and 4.5% in 2017, and didn’t foresee huge upside in the price of oil. He offered the event’s most hawkish forecast of “five to eight” US rate hikes in the next “twenty four months.” Rasmala’s Doug Bitcon forecast “at least 3 rate hikes” in 2017, but wasn’t clear if hikes would continue for the longer term. Political events, in the US, MENA, Europe and Turkey should be monitored, as they could potentially derail global growth, in his view.

Stuart Anderson (S&P Global Ratings) noted his firm’s expectation of 2% GCC growth. He underscored that, while six months earlier, his firm had no GCC credits on negative outlook, the ratings for both Oman and Qatar had recently been adjusted to negative outlook “We maintain an oil forecast of $50 per barrel in 2017 and would expect sovereigns not to use a number greater than that,” he observed, while cautioning that “we may need record high demand this year for oil just to stay in the $50-$55 range, as US shale has been to boot camp!”

The most optimistic view on oil came from ADS Securities’ Ashish Marwah, albeit while admitting that, even with $60 oil, “the GCC region will remain challenged.” Marwah based his relative optimism on his expected demand growth from India and China.

Moubayed asked panelists for their assessments of the regional reform process. For Anderson, the silver lining in low oil pricing was the market development that had been prompted, such as the potential Aramco issuance, the move by Saudi corporates to obtaining debt financing rather than traditional commercial bank loans, and the opening of the Tadawul (Saudi stock market) to foreigners. El Jamal noted that the market clearly remained most concerned about reform progress in Bahrain and Oman, while countries such as the UAE, Kuwait and Qatar appeared to have made greater progress.

“The GCC governments have a challenge because of the social contract they maintain,” commented Bitcon, and spending cuts in Oman and Bahrain have not matched the fall in energy prices. He highlighted that cutting salaries was not a viable option politically.

The panel discussed Kuwait’s recent entrance into the international bond markets, joining its neighbors. Marwah believed there remained value in Kuwaiti bonds, while moderator Moubayed offered praise for increased transparency (“there are very clear rules on how the sovereign wealth fund is used in Kuwait; money can’t just be moved around”). El Jamal opined that Kuwait could deliver on its reform plans and was gaining momentum.

The massive issuance by GCC sovereigns in 2016 was not likely to be repeated in 2017, with Anderson anticipating a 20% decrease in new MENA bonds. Marwah noted that, before 2014, most GCC bond owners were locals; however, the recent mega-issuances had attracted more foreign entrants. Bitcon noted the inflow of Asian creditors into the GCC marketplace. Speakers voiced concern, however, at a perceived lack of natural buyers of long-dated paper who could step in during a general sell-off.

Despite speculation last year that Iran could be moving towards applying for a rating, no progress had occurred. Anderson noted that it, “seems very premature at this point,” especially in light of continued issues with commercial banking arrangements such as SWIFT and position taken by the Trump Administration.

Arqaam Capital’s Zeina Rizk moderated the event’s second panel. In her opening commentary, she observed that none of the main worries market participants had expressed last year had materialized; yet two of the most unlikely risks (Brexit and the election of President Trump) did. She opened the session by asking for views on the greatest risks panelists currently foresaw.

Saeb El Zein (Spinnaker Capital) argued that the number of US rate hikes was not the market’s main concern; rather, it was how the US economy was progressing and how the market will react to Fed hawkishness. Jamil Koudim (LF Funds) concurred, “the biggest macro risk is a Fed policy mistake, if the Fed does more hiking than is needed.” In his view, lackluster US growth was not sufficient to justify an aggressive rate hiking campaign. He saw the UST 10 year as being capped at 3% in 2017.

Angad Rajpal (Emirates NBD Asset Management) believed that the Fed has prepared the market well for three rate hikes in 2017, although 2H economic data would need to be analyzed to determine if more hikes were justified. Geopolitical issues remained his main concern; as for supply, he argued large issuances have thus far been well digested.

El Zein eschewed concerns of a supply glut. “New issuances have led to greater awareness for our market, and has led to new global investors entering the GCC, such as new Asian investors,” he commented. Rajpal estimated that as much of ten percent of sovereign GCC allocations in recent months have gone to Asian investors, and he would be monitoring the level of interest by Asian accounts in GCC corporates.

Rizk asked panelists for their thoughts on the relative value of GCC sovereigns. Koudim informed the audience that his firm had recently increased its MENA allocation to 30% from 20%, although he didn’t believe that investment-grade GCC paper offered value at current levels. “Spreads are too tight when you factor in oil pricing, bigger deficits and lower growth,” he stated. He found greater value in frontier markets. Koudim also argued that Asian inflows into GCC debt were based on both diversification and high ratings, and could be reversed if better value was offered elsewhere. Rajpal believed a case could be made for GCC debt on a relative value basis; however, in some sectors, such as in airlines, counterparts in Latin America and Asia were more attractive.

The panel disagreed on their assessments of other MENA states. Koudim saw more potential for Lebanon, with a strong local bid and decreased political uncertainty. El Zein preferred Egypt, expecting a ratings upgrade, although he had reduced his holdings after strong performance in local bills year-to-date. He also would buy Iraq on oil-related weakness. Rajpal was also constructive on Egypt, predicting that IMF targets would be met and the next loan tranche disbursed, and viewed Pakistan conventional bonds as expensive.