Foreign investors have poured hundreds of millions of dollars in bonds the region despite tensions Iraq

June 18, 2014 8:36


   World Currencies continue to rise thanks to the «Iraq»

For years has been the oil-rich Gulf states are struggling to protect themselves from the political turmoil that beset other parts in the troubled region that came to the recent events in Iraq to reveal through the market's reaction to this struggle perhaps finally achieved fruition. Saudi Arabia and Kuwait are facing the risk of disintegration of the country is located on the border. Iraqi unrest and expand - at the very least - Sunni-Shiite divide that has poisoned the political atmosphere in the region.

But in contrast to the unrest that has rocked the region earlier, is the reaction of the GCC financial markets calm for the most part. Still, foreign investors poured hundreds of millions of dollars in bonds region.

What signs indicate the presence of pressure on the issue of linking GCC currencies U.S. dollar.

Decline in indicators

Stock market indices fell, but most dealers see it as a natural rose after the huge gains that have been made this year, do not panic political events.

According to - (Reuters) - Economists and fund managers that this calm reflects the success of the Gulf in building its financial resources after the rise in oil prices and used as a defense in the face of regional unrest, as well as its success in containing the effects of the Arab Spring uprisings on the domestic political arena over the past three years.

Said Jason died economic specialist on the Middle East at Capital Economics consultancy in London: «I think that people now see that the Gulf well protected from political events around him».

He added that it is difficult for one to touch any direct impact of the events in Iraq, the Gulf states probably represent the single exception in the eastern region of Saudi Arabia, which has seen limited disorders among the Shiite minority. If there is any impact - according to him - the governments in the region have the cash and security resources that allow them to deal with it.

Political events in the region

The region endured a series of political shocks since early 2011 when provoked revolts in Egypt and other Arab countries the possibility of similar unrest in the Gulf. The cost of insuring Saudi debt for five years from the default - the cost of insuring against the risk of default on sovereign debt and therefore the Saudi index of the extent of foreign investors' concern about the Gulf - has jumped to a peak of 140 basis points in February 2011.

The cost jumped back to that level in early 2012 amid international tensions over Iran's nuclear program. There has been a jump if less in August 2013 when the United States threatened to bomb Damascus because of the use of chemical weapons. However, the cost of insuring the debt remained low this month fell to 37 basis points last week, registered its lowest level since early 2013.

There has been little change on the futures market of the Saudi riyal, which jumped during the Arab Spring on the detection of expectations about the value of the riyal cut. In another sign of confidence in the Gulf, UAE's Etisalat has sold bonds worth 4.3 billion dollars last Wednesday in the largest version of the company put the region at all.

Bankers said that the sale, which came a day after one of the control of the fighters of the Islamic State in Iraq and the Levant on the connector attracted significant demand from European fund managers, in particular, and set a record price for any bonds as less Gulf for the cost of securing medium-term debt.

Said Shakeel Sarwar, director of asset management at Securities & Investment Company (SICO) in Bahrain that the markets realized that the economies of the six Gulf Cooperation Council can go smoothly despite the troubled neighboring Iraq.


He added: «unless the infection spreads to the entire region becomes a serious struggle - a prospect that is very weak at the moment - I do not think that the conflict is limited to minor, Iraq would negatively affect the economies of the Gulf Cooperation Council».

Spending

Of the causes of the growing confidence in the Gulf that the rise in world oil prices over the next three years has enabled most of the governments of the formation of a financial reserve, making it in a better position to cope with any political or economic shocks. The net reserves of Saudi Arabia's foreign exchange, for example, increased by more than a third since 2011 to reach 730 billion dollars, enough to cover state spending at current levels for several years, even though decreased oil revenues suffered a severe decline tomorrow.

The GCC governments have shown during the past three years - in contrast to Iraq - that it can efficiently spend the oil money that will keep the social peace. Saudi Arabia sent tens of billions of dollars to social benefits and the new housing and provide new business opportunities to avoid any disturbances to demand democracy.

Said Raza Agha, senior economist for the Middle East and Africa (VTB Capital) in London, said governments are more willing than it was three years ago «to face the danger of sectarian. Valahtiattiyat Finance that allows it to that bigger and better macroeconomic conditions ».

He pointed out that the GCC countries also established since the Arab Spring has pledged joint support mechanism where each government richest - Saudi Arabia, UAE, Kuwait and Qatar - ten billion dollars to the governments of less affluent to finance economic and social projects.

Although the event and attracted sectarian confrontation in Iraq to Iran on the Shiite side, the Sunni ruling families in the Gulf could theoretically be drifting toward conflict threatens to hurt its economy and security. This would leave a strong impact on the financial markets. Even in this case could become the financial situation of the Gulf stronger one way or another, as higher oil prices will boost their income.

He died that Iraq produces about 3.5 million barrels of oil per day, this amount is lost due to the fighting Vstawwad probably excess capacity in Saudi Arabia, amounting to three million barrels per day, almost lost most of the oil, which would increase consequently of their income.


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