GCC states could face further credit downgrades, says Fisch report

Gulf countries may face further credit rating downgrades as deficits continue to widen because of low oil prices, Switzerland-based Fisch Asset Management said in a research note.

Saudi Arabia, Oman, and Bahrain have all been downgraded since 2015, although Qatar and Bahrain have shown greater resilience, the report added.

“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,” said Philipp Good, head of Portfolio Management at Fisch Asset Management.

“In our view, momentum has peaked, so our strategy for the GCC is defensive,” he said.

Fisch’s market trend indicator for pricing from mid-August to late-September showed decline in performance in Abu Dhabi equities, Dubai corporate bonds and equities, Kuwait corporate bonds and equities and Saudi Arabian equities.

However, credit default swaps in Qatar showed improvement.

“We think there will probably be some re-pricing,” Good said. “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.”