How to Trade Dubai Credits in 2013
Dubai bond market outperformed other GCC countries in terms of returns. Dubai did an excellent job in addressing investors’ skepticism about several debt obligations that were due in 2012. As of 13 Dec 2012, CDS spreads on Dubai fell by IOSH managing safely in dubai 51% YTD to ~217 basis points indicating improved investor confidence about Dubai’s credit risk.
Dubai economy does not rely on oil revenues unlike its neighboring country – Abu Dhabi. Dubai primarily generates its revenues from tourism, trades, transportation, and financial services industry. All these industries have performed exceedingly well in 2012 and we expect this trend to continue going into 2013 as well. The tourism industry largely benefited from unrest in many other regional countries. In addition, many individuals from protest affected countries like Syria, Egypt are buying residential properties in Dubai. This is largely supporting real estate prices in Dubai.
Dubai is viewed as a safe-haven while Syrian civil war and heightened tension related to Israel – Iran nuclear war continue to exert a lot of uncertainty in the MENA region.
We understand that yields have significantly fallen in 2012 for many Dubai based corporate issuers. However, we still find value in select pockets. We believe some of the Dubai based high yield issuers are well positioned to offer attractive returns in 2013. We continue to like bonds issued by Nakheel and Dubai holdings in light of attractive yields and companies’ improving operating performance.
We expect s even more attractive.
Trading strategy for Dubai banks
Moody’s recently downgraded four Dubai based banks. Bond prices of these banks have declined slightly post this announcement. Although we understand that Moody’s rating action is reasona