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RBC BlueBay - Persian Gulf: a moment under the sun

Have you ever been caught in muddy rain? It is not a pleasant experience. I recently came across this natural phenomenon as I landed at Abu Dhabi airport. Not only was everything covered in mud, but the city became paralysed for a few hours, as the rainstorm stopped cars on the highways and flooded many buildings and roads that were not designed with this weather in mind.

Some believe that the downpour was caused by global warming, as months of hotter-than-average sea surface temperatures added moisture to the atmosphere, making a heavy rainfall more likely. Thankfully the city was quick to issue a weather warning and revert to working from home, and the weather normalised over the next 24 hours.

In the ensuing days, however, what surprised me even more than the aftermath of the deluge was witnessing the pace of change across Abu Dhabi and other countries in the GCC over the last couple of years. Indeed, the scenes of chaos and disruption brought by flooding and mud storms should not be confused with the strong momentum behind entrenching financial and economic security amongst this group of countries. In particular, the UAE’s richest emirate, Abu Dhabi, has transformed from a conservative, rich neighbour of Dubai to a global business hub.

We are overweight the Middle East region in our portfolios, with countries like the UAE and Oman being amongst our preferred picks. Despite the regional spread compression, we believe the fundamental improvements in select sovereign balance sheets warrants further positive rerating. We would expect new issuance to maintain its current pace and are mindful of weaker technicals, based on the size of the supply.

Moreover, we believe this region has a much bigger role to play, going forward, in shaping investors’ global risk asset positioning. Whilst recognising that there remain a number of important ESG considerations within each country that need to be addressed – including political and social freedom, further transparency and governance of institutional decision making, as well as the reliance on fossil fuels, to name a few – we nevertheless also have to acknowledge the extent of transformation that is currently underway on the ground and the potential for positive outcomes this could eventually represent, both within and outside the realm of E, S and G.

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