Fixed income fund taps investor interest in relative value in Middle East and Africa
Yield and CDS spreads do not reflect credit quality and relatively low default rates
Region's hard currency bond markets have tripled in size to $180 billion since 2008
Abu Dhabi, November 19, 2012 - Abu Dhabi-based asset manager Invest AD has launched a UCITS-compliant fixed income fund to tap growing investor interest in the relative value offered by Middle East and Africa debt markets.
Invest AD portfolio manager Dilawer Farazi said Middle East and Africa bond markets have tracked the global rally in fixed income, but are still undervalued relative to the underlying credit quality of issuers.
For example, CDS spreads on the AA rated Abu Dhabi sovereign is at around 86 basis points, compared with 66 basis points for similarly rated South Korea. Bond spreads for BBB rated corporates in the Arabian Gulf range from 350-500 basis points compared to on average 200 basis points for similarly rated corporates in Europe and the United States.
"There's a general opportunity in relative yield and in repricing in the Middle East and Africa region, where economic growth is robust, credit fundamentals are improving and actual default rates have been lower with higher recoveries than in other emerging markets," Farazi said.
"Furthermore, being on the ground and close to credit stories, we can add value through deep credit analysis to pursue strategies such as event-driven situations, short-dated carry positions and relative value ideas that exist from a misunderstanding of risk," he added.
This year, the actual default rate on bonds in the Middle East and Africa region has been under 1 percent, compared with around 2 percent for Asia and Latin America, and 4 percent in emerging Europe.
Investors in the region have been particularly encouraged by the successful refinancing of Dubai bonds maturing this year, including by Dubai Holdings, Dubai International Finance Centre, and Jebel Ali Free Zone Authority.
The Invest AD fund has a remit to invest in predominantly U.S. dollar-denominated debt across the whole of the Middle East and Africa, a market that has tripled in size to US$180 billion since 2008.
"We're seeing increased liquidity in Middle East and Africa markets as a result of a larger opportunity set," Farazi said. "And international investor participation is also growing as perceptions of credit risk improve. Some 60 to 70 percent of new issuance has been going to U.S., European, and Far East investors, who are drawn by the relative value and lower correlation to international markets."
The Invest AD SICAV Middle East and Africa Bond Fund is registered in Luxembourg, and managed by Invest AD Asset Management, which is registered in the Dubai International Finance Centre. Invest AD also manages UCITS-compliant funds that invest in Middle East and Africa equities, and private equity funds.
About Invest AD
Established in 1977, Invest A.D. is a leading Abu Dhabi-based financial services company, focused on tapping the growth markets of the Middle East and Africa. Invest AD offers investors access to private equity, listed equity and fixed income opportunities in these regions, blending international best practice with intimate knowledge of the markets, networks and dynamics of each country. Any of Invest AD MEA Limited, its associates and/or their employees may have a position in any security mentioned in this article. (www.investad.com)
For media enquiries:
Dominic Whiting
Brunswick Group
+971 2 2344603
InvestAD@brunswickgroup.com
© Press Release 2012
