Oil price doesn’t actually affect GCC investments, but how nations respond during times of crisis, Franklin Local Asset Management’s Mohieddine Kronfol has said.
‘The oil price doesn’t affect our decisions and this is a little bit counter-intuitive. But if you look at the GCC bond market over the years the correlation to bond markets is negligible, it's zero.
'It’s not really the oil price that concerns us as much as it is the policy response to the oil price,’ he told Citywire Selector.
Citywire + rated Kronfol, who currently holds the UAE (32.91%), Kuwait (18.70%) and Qatar (14.19%) in the top ten allocations of the Franklin GCC Bond fund, said the last 12-18 months has been ‘unambiguously positive’ for the region as a whole.
This, Kronfol said, is despite the fund having taken a hit in 2015 due to the fluctuating oil price.
‘We have seen a pretty impressive reform agenda unfold. Today, when you think of the GCC bond market you have this exciting developing market story with all this new issuance, being complemented with this very impressive structural reform agenda.
‘As a consequence, you are seeing some very strong stable risk-adjusted returns being delivered,' he said.
Kronfol said investors' past aversions to the GCC market need to be dismissed. ‘Historically this is not a market that emerging market investors or global bond managers have invested in. Investors almost need to make a little bit of effort in the short term in order to participate in this story.
‘It’s growing, it's more than $300 billion today. Last year we had $70 billion in international dollar-denominated issuers. Which, when you compare to the $350 billion which was issued by the whole of emerging markets, is a pretty significant portion.’
‘We would like investors to start focusing on making these asset allocation decisions to benefit not just from the yield, but from the diversification benefits they can get when invested in the region,’ he added.