GCC macro momentum losing steam, further rating downgrades expected

  • Fisch Asset Management sees softening of Foreign Exchange, Credit Default Swap, Corporate Bond and Equity market pricing across the GCC
  • Qatar shows greatest sign of resilience to continued weak oil prices
  • Growing deficits will see GCC countries lever up and face credit rating downgrades
  • Pipeline for new debt issuances valued at around $50 billion
  • Case study: Abu Dhabi Commercial Bank is influenced by UAE’s economic fortunes

Dubai, United Arab Emirates: Research by Fisch Asset Management, one of the world’s leading credit analysis and convertible bond specialists, has shown a clear slow-down across GCC money markets, with softening prices resulting from continued macro-economic uncertainty. Saudi Arabia, Oman and Bahrain have all suffered ratings downgrades since 2015. Meanwhile, Qatar and Bahrain have shown greater resilience.

Fisch’s market trend indicator for pricing from mid-August to late-September shows decline in performance in Abu Dhabi Equities, Dubai Corporate Bonds and Equities, Kuwait Corporate Bonds and Equities, and Saudi Arabia Equities. Meanwhile, Credit Default Swaps in Qatar showed improvement. Scoring ranges from triple-minus to ‘0’ (neutral) and triple-plus, with the slowdown most apparent in Equity pricing, where Saudi Arabia scored triple minus as at 28th September 2016.  The indicator shows the weighted sum of risk adjusted returns, with recent returns having the biggest impact.


Philipp Good, Head of Portfolio Management at Fisch Asset Management, commented:

“It’s true that the GCC debt market still looks good compared to negative yields in developed markets, but regional credits have had a substantial rally with the huge overhang of new issuances that we’ve been waiting to see before the year-end. We think there will probably be some re-pricing. Global debt markets are uncertain at the moment, in part due to the US election, the Italian referendum and the problems experienced by Deutsche Bank. While bond yields in the GCC still look attractive compared with other markets, investors need to believe in issuers – for example, the reforms scheduled for the Saudi economy. Bonds ultimately need buyers, and that means the market needs to be in the right shape – not just the pricing. In our view, momentum has peaked, so our strategy for the GCC is defensive.”

With oil prices remaining relatively low, GCC deficits are expected to grow, with sovereigns and corporates likely to lever up. This will lead to further rating downgrades. While the pipeline for new issuances for the end of the year is valued at around $50 billion, most global debt investors will continue to take a cautious approach to GCC issuers.


A UAE case study by Fisch’s wholly owned subsidiary, I-CV, focused on Abu Dhabi Commercial Bank (ADCB) as a potential issuer. The review concluded that ADCB had a good market position in the UAE’s relatively stable economic environment, but that slumping oil prices and declining liquidity would result in moderate deterioration of asset quality – as it would for most UAE banks.

Philipp Good concluded:

“We view ADCB as one of the strongest banks in the region with a very strong brand recognition. Our assessment maintained a stand-alone rating of BBB for ADCB in view of the bank’s high equity ratio and reserve coverage. Our A- rating for senior unsecured debt also remained unchanged, based on the bank’s ownership structure and historical support. Our assessment for most of the major UAE banks is broadly similar.”

About Fisch Asset Management:

Independence and growth have been Fisch Asset Management’s hallmarks since its foundation by Kurt Fisch and Dr. Pius Fisch in 1994. The Company’s independence rests on the ownership of all shares in Fisch Asset Management AG lying with the Executive Committee and employees. Since foundation, Fisch Asset Management has grown to 73 colleagues, including one of the world’s largest convertible bond teams. The Company specialises in credit research and analysis, with an exceptional record in convertible, high yield and corporate bond strategies. Assets under management (AuM) total more than USD 9.6 billion, as at 30th June 2016. As a licensed securities dealer, the Company is regulated by the Swiss Financial Market Supervisory Authority (FINMA). Fisch Asset Management is a signatory of the United Nations Principles for Responsible Investment (UN PRI).

The Company’s client base comprises 82% institutional and 18% wholesale investors. Fisch Asset Management has an international outlook, which applies to both its employees and distribution channels. The Company is increasingly targeting investors from beyond its core market of German-speaking countries. Fisch Asset Management offers mandates as well as mutual fund solutions.