Saudi Arabia, four other Gulf states to enter key JP Morgan bond indexes

Saudi Arabia, Bahrain, Kuwait, Oman and Qatar have issued a quarter of all new debt sold by emerging market countries in each of the last three years. (AFP)
Updated 26 September 2018
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Saudi Arabia, four other Gulf states to enter key JP Morgan bond indexes

  • The indexes are key performance benchmarks for international investors in emerging market debt
  • Membership in them can help a country sell bonds and reduce its borrowing costs

DUBAI: Saudi Arabia and four other Gulf states will enter JP Morgan’s emerging market government bond indexes next year, a move likely to lure billions of dollars of new foreign investment into their debt, according to a JP Morgan statement sent to investors.
The indexes are key performance benchmarks for international investors in emerging market debt, so membership in them can help a country sell bonds and reduce its borrowing costs.
Sovereign and quasi-sovereign debt issuers from Saudi Arabia, Qatar, the United Arab Emirates, Bahrain and Kuwait will become eligible for the EMBI Global Diversified (EMBIGD), EMBI Global (EMBIG) and EURO-EMBIG indexes, according to the statement, which was seen by Reuters on Wednesday.
Their entry will be phased in between Jan. 31 and Sept. 30. Both conventional bonds and sukuk, or Islamic bonds, will be eligible for inclusion in indexes, but sukuk will need to have a credit rating from at least one of the three major rating agencies to be included.
JP Morgan’s decision follows a surge of debt issuance from the Gulf Arab region in the past few years, as low oil prices force most countries to fund part of their state spending in the international debt markets.
Saudi Arabia, Bahrain, Kuwait, Oman and Qatar have issued a quarter of all new debt sold by emerging market countries in each of the last three years.
The inclusion of Gulf Cooperation Council countries in the indexes will leave them representing around 11.2 percent of JP Morgan’s EMBI Global Diversified and EMBI Global series, the statement said.
“It is estimated that around $360 billion of assets under management are benchmarked against the EMBIG family, with the EMBIG diversified at around $300 billion,” said Zeina Rizk, director of fixed income asset management at Arqaam Capital in Dubai.
Rizk estimated this would translate into about $30 billion of inflows into the five countries’ debt.
“Those inflows are not going to come on day one, but the tailwind resulting from the inclusion headline, coupled with pegged currencies, strong oil prices, a relative immunity from trade wars and high credit quality, leads us to the view that the GCC has better value than the rest of emerging markets.”
The minimum size for inclusion in the indexes is $500 million, and during the inclusion process, instruments will need to have a maturity date beyond March 2022, the statement said.


Oil prices fall as US crude output hits record

Updated 6 min 14 sec ago
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Oil prices fall as US crude output hits record

  • US crude oil production reached 12 million barrels per day for the first time last week
  • As output surges, US oil stocks are also rising

SINGAPORE: Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East-dominated producer club OPEC to withhold supply and tighten global markets.
International Brent crude futures were at $66.87 per barrel at 0326 GMT, down 20 cents, or 0.3 percent, from their last close.
US West Texas Intermediate (WTI) crude oil futures were at $56.84 per barrel, down 12 cents, or 0.2 percent, from their last settlement.
US crude oil production reached 12 million bpd for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.
That means US crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013. America is the only country to ever reach 12 million bpd of production.
As output surges, US oil stocks are also rising.
US commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week ended Feb. 15, the EIA said.
Analysts say US output will rise further and that oil firms will export more oil to sell off surplus stocks.
“We see total US crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” US bank Citi said following the release of the EIA report.
Of that, the bank said, “we could be seeing some weeks with 4.6 million bpd of gross crude exports by end-year, adding to this week’s new record” of 3.6 million bpd.
Friday’s dips at least temporarily halted a rally that pushed crude prices this week to their highest for 2019 so far amid the supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.
Another recent price driver has been US sanctions against oil exporters Iran and Venezuela.