MENA Asset Management Survey 2012 - National Bank of Abu Dhabi

Middle East & North Africa
curve and the money that they put into the hands of the holders of US debt also buy the
curve, thus squeezing yields lower and forcing others out of lower yielding assets and
into higher yielding assets. Post the last Fed announcement of QE ‘Infinity’, Treasuries
have actually rallied. The Japanese experience tells us that rates can, and will, stay low
for much longer than people expect.
Credit spreads have different drivers but are, nonetheless, linked by global capital flows
and the search for yield. MENA region bonds have a number of things going for them
today:
1. Abundant global liquidity (see above)
2. Abundant local liquidity driven in the main by conservative fiscal assumptions
as to the oil price in 2012 that are at odds with the far higher actual outcome. This has
left the regional economy in a relatively healthy position.
3. Extensive infrastructure and social spending – as economies in the region
continue to develop their infrastructure and continue to respond to the social needs of
their domestic populations, spending remains robust. The government’s involvement in
the regional economy allows the region to stand out from the competition (Europe and
the US), and allows smart managers to allocate capital to a region that is simply doing
something different.
4. We are still cheap – as I have been saying for a number of years now, market
segmentation and a fundamental misunderstanding of the market by people who do not
live in the region keep our credit on the cheap side. It started with the hangover from the
2008 crisis which took a while to dissipate (and in some credits still hasn’t, providing
opportunities), and continues with the lack of understanding about the strategic nature of
certain credits to the underlying economy and the support that they are likely to receive
in the event of a problem.
In short, there is still much to play for in MENA region bonds, the orchestra tuned up long
ago and we are in the second, or perhaps third movement of the symphony. The market
is still poorly understood, underallocated globally, and inefficiently researched. Put that
together and it shows us that there is still alpha to be captured by managers who are
resourced, on the ground, and know their markets and their craft intimately. The
symphony shows no sign of ending yet.
Mark Watts, CFA is the Head of Fixed Income in Asset Management Group at National
Bank Abu Dhabi. The views expressed are his own and not those of the bank.
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