Qatar crisis challenges Gulf assets as Middle East’s safe haven

Dubai: Gulf countries and their assets for years have been seen as a safe bet for investors in Middle Eastern emerging markets. Not anymore.

Their reputation as rich, commodity-oriented economies that could maintain high credit ratings has eroded as tension escalated in the region last week after Saudi Arabia and allies severed diplomatic and transport links with Qatar. The move to punish Qatar for its ties to Iran and extremist groups in the region surprised investors.

The average spread paid by governments in the Middle East to borrow in bond markets has since risen seven basis points, compared with a three basis point decline for emerging-market debt, according to JPMorgan Chase & Co. indexes.

“For the region as a whole, my view has deteriorated moderately, because in a part of the world with a lot of inter- and intra-country tensions, a severe diplomatic conflict between Saudi Arabia and Qatar was generally viewed as unlikely,” said Richard Segal, a London-based analyst at Manulife Asset Management. Outside of Qatar, sovereigns such as Bahrain and Oman are seen as most exposed, he added.

Amid the crisis, the cost of protecting against a sovereign default for five years climbed not just for Qatar, but also for Egypt, Saudi Arabia, Dubai, Abu Dhabi and Bahrain.