While a restructuring at Arabtec Holding Co. (ARTC), the United Arab Emirates’ biggest listed construction company, is fueling the worst monthly share selloff since 2008, the yield on the emirate’s $650 million May 2022 sukuk climbed 6 basis points since the end of May to 3.5 percent yesterday, about 10 basis points of a record low. For Franklin Templeton Investments ME, even that yield move is being spurred by a surge in debt sales from the region that’s prompting investors to switch into new issues.
“I wouldn’t expect any fixed-income selloff to be serious,” Richard Segal, a London-based international credit strategist at Jefferies International Ltd., said by e-mail yesterday. “Were prices supported by local factors alone, debt would be more vulnerable. It’s proving resilient” because global forces are supportive, he said.
Emerging-market bond yields have sunk toward records this year amid monetary stimulus from Asia, Europe and the U.S. Sentiment in Dubai is also being boosted by about $8 billion of planned spending as the emirate prepares to host the Expo World Fair in 2020.
The DFM General Index has fallen about 17 percent this month, as Arabtec’s second-biggest shareholder reduced its stake, casting doubt over the real estate-led rally. Until June 24, the gauge was this year’s best-performing in dollar terms among more than 90 tracked by Bloomberg.
Borrowers from the six-nation Gulf Cooperation Council have raised about $10 billion so far in June, making it the busiest month since November 2009. Emirates Telecommunications Corp., or Etisalat, raised more than $4.2 billion in the largest corporate-offering from the region, while DP World Ltd. sold $1 billion of convertible notes.
Yields are rising because of “a flurry of new issues from Etisalat and several others, with different tenors, currencies and structures,” Mohieddine Kronfol, chief investment officer for global sukuk and Middle East and North Africa fixed-income at Franklin, said by phone yesterday from Dubai.
Dubai shares rebounded 6.1 percent yesterday after falling 13 percent in the previous three trading sessions. The index entered a bear market June 23. Bear markets in the emirate have previously lasted on average 139 days and produced a 34 percent decline in stocks. The gauge fell 0.7 percent today.
“There are still some risks,” Segal said. “If the equity correction accelerates, this could cause bonds to sell off.”
Middle East bond yields have tumbled about 10 percent this year, tracking U.S. Treasuries. The yield on debt from the region fell 46 basis points to 4.14 percent in the period through yesterday, according to JPMorgan Chase & Co. indexes, compared with a 47 basis-point drop to 2.56 percent for the U.S. Treasury. (USGG10YR)
Dubai’s economy may grow 4.7 percent this year, Mohamed Lahouel, chief economist for the Dubai Department of Economic Development, said in March. The emirate’s expansion amid a boom in real estate, trade and tourism helped the stock index quadruple in a bull market that lasted from January 2012 until last month.
“Everything suggests a bullish outlook for the Gulf Cooperation Council,” said Kronfol. “All the data, from PMI numbers, to oil prices, to hotel occupancy rates, to infrastructure spend, the main engines of growth, look good.”
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