No Winners in Gulf as Saudi, Qatari Assets Converge

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  • Stocks, bonds, CDS trading at similar levels 7 weeks into spat
  • Analysts say focus back on oil with Gulf crisis in stalemate

Sheikh Tamim Says Qatar Is Open to Dialogue

Investors aren’t taking sides in the biggest political crisis in the Gulf in decades because their focus has already returned to oil.

Seven weeks after Saudi Arabia led a coalition of Arab states in cutting ties with Qatar over allegations that it supports terrorism, holders of both countries’ stocks and bonds are paying almost identical risk premiums. Their five-year credit default swaps converged for the first time in two years, stocks are valued at about 13.7 times’ projected earnings over the next 12 months, and their international bonds were almost level on Monday.

The Gulf dispute remains in stalemate after Qatar denied the charges and rejected the Saudi bloc’s demands, which include rolling back ties with Iran and shutting the Al Jazeera news channel. Meanwhile, the feud is taking a back seat to oil for investors, said analysts including Saad Siddiqui at JPMorgan Chase & Co. The price of crude is languishing under $50 a barrel, far below the level many Gulf producers need to balance their budgets.

Tide of Oil

Oil is “still the biggest macro-driver, it’s the tide which lifts or sinks all boats,” said Siddiqui, JPMorgan’s London-based director of emerging-market local markets strategy. As long as the Qatar situation remains frozen and without additional measures from the Saudi-led alliance, “attention goes back to market fundamentals,” he said.

The crisis has come at a time of economic headwinds in the region. Saudi Arabia reported its first quarterly economic contraction in at least six years and a sixth month of deflation, while the United Arab Emirates -- a member of the Saudi-led bloc -- is dealing with slowing growth amid lower oil revenue.

In Qatar, the disruption has weighed on stocks and driven consumer inflation higher, though it is also relatively well-placed to weather the diplomatic crisis. The world’s largest exporter of natural gas does most of its trade with Asia -- transactions unaffected by the Saudi-led action.

“Given the high correlation of the Gulf macro story to energy prices, one always has to look at the region from a top-down point of view,” said Simon Quijano-Evans, an emerging-market strategist at London-based Legal & General Investment Management Ltd., which oversees about $1.2 trillion of assets. Even so, local investors will be key to how asset prices develop because they tend to decrease exposure when the geopolitical situation deteriorates, he said.

Saudi Arabian and Qatari government bonds due in 2026 yielded 3.38 percent and 3.34 percent, respectively. Qatar is rated Aa3 by Moody’s Investors Service, the fourth-highest investment grade. That’s one notch higher than Saudi Arabia’s rating.

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