Right, so we’ll be hearing a lot about Qatar over the next 48 hours or so.
Doha has of course delivered its “response” to a laughably absurd list of demands set forth by Saudi Arabia (and its allies) who last month decided the best way to dispel the notion that Riyadh promotes and exports Sunni extremism is to scapegoat tiny Qatar which conveniently has some semblance of a relationship with Tehran.
Basically, the Saudis get to paint Qatar as the worst case scenario: a filthy rich sheikdom gone rogue, responsible for financing both Sunni terror groups and establishing kinda, sorta friendly ties with Iran.
Qatar correctly thinks this is a rather transparent attempt to hijack Doha’s foreign policy and punish it for pursuing its own agenda that may or may not always be consistent with that of its (former) allies.
If you’re interested in the backstory, you can peruse our full coverage here.
There’s been a lot of attention paid to Qatari stocks (which plunged nearly 9% in June) and on the riyal, which has come under tremendous pressure at various times over the past month. Of course Doha’s debt is taking a hit as well.
On Tuesday, Moody’s cut Qatar’s outlook to Negative from Stable. Here are the bullet points from the agency’s rationale:
- Outlook change driven by economic and financial risks arising from the ongoing dispute between Qatar and a group of countries, including its fellow Gulf Cooperation Council (GCC) neighbors Bahrain, Saudi Arabia and the United Arab Emirates
- Likelihood of a prolonged period of uncertainty extending into 2018 has increased and a quick resolution of the dispute is unlikely over the next few months
- Moody’s estimates that total short-term external liabilities amount to more than $115 billion (68% of nominal GDP projected for 2017) of which roughly one third is estimated to be due to creditors in the GCC
That, in turn, has NBAD Securities CEO Mohammed Ali Yasin concerned about Qatar’s bonds.
“I worry about Qatari bonds more than equity. Every major bond fund has Qatari bonds on their portfolios. When you have increase of borrowing and lower rating, we will see pressure on such bonds. Damage could be more on bonds than on equity side,” Yasin told Bloomberg on Wednesday.
“A lot of banks in the region have each others papers, and haven’t started selling off yet. If they do, we could see faster negative mood in the short term,” he continued, adding that “a lot of these decisions are held centrally, many of these banks are owned by the government. For now, everybody has been holding their positions. I worry because the cost of borrowing, the cost of insurance is going up.”
Yes, “the cost of insurance is going up.” In fact, it’s going up a lot:
As Bloomberg writes in a separate piece, “outstanding credit protection on Qatar rose 58 percent over four weeks to cover a net $2 billion of the nation’s debt on June 30.”
But you know, if you’re inclined to go shopping, Sergey Dergachev (of Union Investment Privatfonds GmbH in Frankfurt) thinks Qatar’s debt is the “juiciest” piece of chicken in the bucket:
Fundamentally, it’s still a strong credit. Even if Qatar were cut from an AA rating to A+ or A, it still looks juicy versus other emerging-market sovereigns in this rating bucket.
Trade accordingly.
