The investment corridor between the Middle East and Asia has been heating up, as bond investors in both regions look to each other for attractive options in a volatile world. 

The dynamic between is not necessarily new, but it has become more apparent in the last year or so, especially with regard to China.

“The story is becoming a bit more visible and a bit more meaningful,” said Alan Roch, head of Asia Pacific credit markets at Credit Agricole. “This is not a fact that is lost on these [Middle Eastern] issuers. They are definitely noticing a lot more of their order books are going to Asia.”

Roch said about 25% of allocations for US dollar bonds from the Middle East go to Asian investors now, up from 10% before.

Faisal Ali, senior portfolio manager at asset manager Italian asset manager Azimut, said the increasing number of Chinese banks acting as lead managers for Middle Eastern bonds has been noticeable as well.

“Given that Chinese banks predominantly serve Chinese institutional and corporate clients, their growing involvement suggests that a portion of these Middle Eastern bond issuances is being distributed to Chinese investors,” he said, calling this a “rising channel of indirect Chinese participation”.

There are a couple of reasons behind the growth. For one, US dollar bond volume in Asia’s primary market has been modest in recent years, falling short of the highs seen in 2021 and before. That has left investors hungry for options, something the growing Middle East can offer with high-quality issuers and attractive spreads.

“[Asia] is a continent where there is more demand than there is supply,” said Roch. “The local Asian investors have a lot of comfort on the credit risk [in the Middle East] … and offer them very competitive terms in the bond market.”

Banks in the Middle East offer capital deals with investment-grade ratings at much more generous spreads than are seen in Asia, and longer duration bonds from the region have steeper curves, said Zerlina Zeng, head of Asia strategy at research firm CreditSights.

Asian investors may also be less sensitive to some of the risks that could keep western investors out of Middle East credit.

“Asian folks in general are less sensitive to geopolitical noise than global investors,” said Roch. “They’ve done their work as far as what tensions in the Middle East mean in terms of risk/reward.”

Political ties

The Middle East is geographically closer to home for Chinese investors than Europe or the US, as they search for ex-Asia investments.

“When they look at the universe outside of China, they look at what they are familiar with,” said Zeng. “They need somewhere to have this political and strategic investment angle.”

The political relationship between China and the Middle East has grown closer recently, building on years of investment through China’s Belt and Road Initiative. When China made its return to the US dollar bond market in 2024 after three years' absence, it coordinated the sale out of Saudi Arabia and added Abu Dhabi to its roadshow for the first time.

More recently, Chinese foreign minister Wang Yi visited the United Arab Emirates, Saudi Arabia and Jordan in December. Hong Kong chief executive John Lee visited Qatar and Kuwait in 2025 as well in an effort to make Hong Kong a “super connector” between the mainland and Middle Eastern countries.

Chinese banks have deepened their lending in the region too, growing from financing BRI-related infrastructure projects to taking an increased presence in commercially driven deals for Middle Eastern borrowers.

Diversification benefit

Issuers from the Middle East have become active borrowers in the Formosa market, with three banks pricing US dollar deals in Taiwan so far this year. More are expected to come after the Lunar New Year holiday.

For Middle Eastern issuers, Asia offers diversification and liquid funding pools. Asian investors will buy US dollars, which remain dominant for the Middle East, but the region also has attractive local options, such as renminbi and Australian dollars. Roch said issuers are increasingly exploring these markets, and euros, and will be seen in these currencies this year.

“The next stage now is for them to do Asia, but in non-dollar currencies," he said.

While it makes more sense for Middle Eastern issuers to keep their liabilities in dollars, they will find attractive pricing in renminbi, about 220bp cheaper than dollar bonds, said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis.

“There’s clearly interest from the China side to have Middle East issuers in the CNH market,” said Garcia-Herrero, adding that onshore Panda bonds will also be a popular route. In January, the Arab Energy Fund (Apicorp) received approval to sell a debut Panda, making it the first multilateral financial institution in the Middle East and North Africa to do so.

With the oil price languishing below US$70 per barrel, Gulf countries are in need of financing.

“Anything below US$90 a barrel requires financing,” said Garcia-Herrero. “They need platforms to issue debt and Hong Kong is particularly suited, but also the Panda bond market.”

At the same time, the growth of investment funds in the Middle East has led to the deployment of more money into Asia bonds. CreditSights' Zeng said Gulf money has been active in Dim Sum bonds, although this is in line with greater investment activity from the region in general.

“These investors are buying Asia risks. They understand Asia quite well,” said Credit Agricole's Roch. “As they’ve developed greater firepower … they’re looking to deploy more than they have in the past.”

Source: IFR