Business | Markets
Credit markets suffer as US equities falter
: A quiet start to the week proved to be the calm before the storm as the weakness seen over the previous few weeks turned into market capitulation.
- Special to Gulf News
- Published: 00:15 June 29, 2008
Abu Dhabi: A quiet start to the week proved to be the calm before the storm as the weakness seen over the previous few weeks turned into market capitulation.
Sony Ericsson's profit warning, Moody's downgrading Fortis and Royal Bank of Scotland, Fitch withdrawing monoline ratings (MBIA and AMBAC) and revising Chrysler and GM's outlooks to negative plus equity downgrades in financials were only a few of the negative headlines that lead to the widening.
The US Consumer confidence index was reported at its lowest since 1967 and bearish inflation/growth patterns led to a drop in equities.
Equity markets globally weakened significantly, nearing March lows in most countries with the Dow Jones Industrial Average falling below 11,500 for the first time since Sep-tember 2006.
GCC markets weaker
Credit spreads drifted wider in thin trading conditions during the first two days of last week. Some GCC names did outperform, with local banks particularly well supported by institutional buying. However, as the wider market began to sink on Wednesday, so GCC spreads moved wider more aggressively.
The HSBC/DIFX Sukuk Index underperformed the rest of the GCC markets, widening 16.50 basis points versus the previous week's close. The underperformer in this sector was Emirates airline's 2012 Sukuk, which widened 28 basis points on the back of weakness in the airline industry in general and sustained high oil prices.
Overall, the move wider was on extremely thin volumes, as end of quarter is generally a period when most accounts chose to remain sidelined, which further exacerbated the weakness.
Abu Dhabi National Energy (Taqa) and DP World both refinanced large debt facilities on Monday, totalling $8.5 billion. Hedging against these loans from European institutions was one of the drivers behind their underperformance last week.
Local inflation was also brought back into the spotlight when Moody's placed Egypt's rating on negative outlook. According to Moody's, the negative rating action was primarily motivated by the country's soaring consumer-price index.
Dirham bonds
Dirham-denominated paper has underperformed for a month now, as speculation about a dirham revaluation has tapered off. A recent flood of dirham issuance, from names like Aldar, Dewa and Ras Al Khaimah, has left the market feeling heavy and under supported.
All three of these issues are currently offered below their reoffer price and can be bought for around 99.75 per cent.
- HSBC Dubai Fixed Income Trading
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