Moodys Downgrades GCC

The credit reference agency Moodys took the decision to downgrade Saudi Arabia, Bahrain and Oman, and changed it’s outlook for Kuwait, Qatar and the UAE.

Firstly this is a catchup by Moodys to downgrades by other credit references agencies in October last year, which is a result of the oil price slump.

However this should be put into context. Most of the Gulf nations are very wealthy and have small amounts of debt compared to their GDP.

The question is has this scared investors? I would be inclined to say no.

50% of debt issuance is principally taken by the region, by the gulf, and they pay little attention to the credit reference agencies. They have their own ratings system. For instance, Bahrain cut to Junk status by Moodys and S&P are seen to be supported by Saudi Arabia a proxy if you will, so for local and regional banks their investment profile is still very strong.

Abu Dhabi has one of the worlds largest sovereign wealth funds estimated to be in the hundreds of billions of dollars. There was a vicious demand for their debt $5B issued $17B demanded.

Frankly I wouldn’t be surprised if the Market defied the news and rallied with renewed focus on a widely misunderstood economy.