More Asian investors buying Middle East bonds

The proportion of Middle East bond issues going to Asian investors has roughly doubled to 30 percent in the past six to nine months, say Standard Chartered executives, evidence of growing investment links between the two regions.

“We are seeing on everything from public bond issues to bank placements, up to 30 percent of the issuance is going into Asia, the majority of which would be Chinese. Normally, it would be 15 to 20 percent,” said Stephen Priestley, regional head, corporate and institutional banking for Africa, Middle East and Pakistan, at Standard Chartered, adding that the rise had been over the past six to nine months.

“It’s driven by increased awareness of Chinese investors around the Middle East and given that there’s a surplus of capital seeking to get a return, coming into the Middle East is something they [Chinese investors] are increasingly comfortable doing.”

Bank of China was among lenders helping arrange Saudi Arabia’s recent $17.5 billion bond issue, while in Asia Qatar National Bank and National Bank of Abu Dhabi, among two of the largest banks in the Middle East, have both sold Formosa bonds this year. Such bonds are sold in Taiwan by foreign issuers and denominated in currencies other than the Taiwan dollar.

In another sign of growing ties, more Middle East banks are setting up Chinese yuan-denominated accounts with international lenders like Standard Chartered in anticipation of greater settlements taking place in the Chinese currency, said Akhil Mahesh, the bank’s regional head of financial institutions, Middle East, North Africa and Pakistan.

Sources with knowledge of the matter said in August that Agricultural Bank of China would be allowed to clear yuan transactions in Dubai for the United Arab Emirates, making the bank the first Chinese lender in the UAE to do so.

China is the UAE’s second-largest trading partner, with the latter acting as a transhipment hub for goods traded between China, the rest of the Gulf and beyond.

Mahesh said there was an increasing trend of Middle Eastern companies paying for Chinese goods in the yuan, but it was too early to assess the impact of the lender’s recent launch of direct trading between the yuan, Saudi Arabia’s riyal and the UAE’s dirham. That move made the bank one of the first market-makers to trade those currency pairs in China’s interbank market.

In 2015, the currency was used for 74 percent of payments by value made from the UAE to China and Hong Kong on the SWIFT international transactions network.

But the U.S. dollar is still used for most trade between the Gulf and China, with China’s payments for its oil imports from the region denominated in dollars, the currency used in the global oil trade. (Editing by Greg Mahlich)

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