Qatar assets pile up losses as diplomatic tension swells

Bloomberg

Investors in Qatari stocks, bonds and currency forwards were saddled with losses last week as the country was thrust into the epicenter of an unprecedented spat with its neighbors.
The country’s stock market had shrank by about $11 billion in value, the most since 2010, after Middle Eastern countries including Saudi Arabia and the United Arab Emirates cut ties with the Gulf nation. The country’s most liquid bonds tumbled during the week as its sovereign rating was cut and bets against its currency surged. Contracts to protect against a potential default are now at a higher level than those of Peru and Slovenia.
While tensions between the country and Gulf Cooperation Council members aren’t new, “nobody expected how tactical, decisive, straight forward, sharp and well planned” the isolation of Qatar happened this time, said Nabil Al Rantisi, the managing director of Abu Dhabi-based Mena Corp. Financial Services, one of the biggest brokerages in the UAE. “That, nobody saw coming.”

STOCKS
Qatar’s main benchmark finished the week down 7.1 percent, its worst weekly performance since December 2014. As the tension escalated during the week, the country’s index became the worst performer globally this year. The QE Index rebounded 3 percent later.
Institutional investors from the GCC were net sellers of Qatari shares for about 500 million riyals ($137 million) last week, according to data from the local exchange compiled by Bloomberg.

BONDS
Yields on $3.5 billion of 3.25 percent sovereign notes due in 2026 climbed more than 40 basis points in the five days through Friday, the most since they were issued in May 2016. S&P Global Ratings last week lowered Qatar’s long-term rating by one level to AA- and put it on negative watch on concern the country’s finances will be
impacted.

INTERBANK RATE
A key interest rate in Qatar jumped to the highest level in almost seven years after rising 19 basis points on Thursday to 2.164 percent. The rate compares with 1.734 percent in Saudi Arabia, 1.489 percent in the UAE.
This is a “natural reaction reflecting concerns that Saudi and UAE banks will start to tighten liquidity flows to Qatar and no be longer providing new money,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by phone.

CURRENCY FORWARDS
Twelve-month forward contracts for the riyal jumped to 544 basis points as of 11:40 a.m. in New York on Friday, a record high on a closing basis, indicating increased bets Qatar may devalue its currency. The crisis put the currency, which is pegged at 3.64 per dollar, under “ unprecedented pressure,” according to Chris Turner, the London-based global head of strategy at ING. If officials aren’t able to maintain the riyal’s peg to the dollar, it “may be devalued by at least 20 percent, although such a scenario isn’t expected,” because the government has resources to continue defending the currency, he added.