Asian investors flock to Gulf debt in hunt for yield and growth

• Gulf-Asia trade was $516bn last year
• Gulf to grow 3.9% this year, IMF says
• Gulf bonds offer higher yields than Asian debt

Asian investors are piling into Gulf bonds and loans this year, reflecting both deepening trade and finance ties with the fast-growing region and an uncertain outlook elsewhere, including the world’s top two economies, the United States and China.

Bond issuance in the Middle East and North Africa region jumped 20 percent year-on-year to $126 billion in the first nine months of this year, according to LSEG data, with full-year records in sight both for the region and broader emerging market debt sales outside China.

That growth, driven largely by the six-member Gulf Cooperation Council, represents both rising financing needs linked to oil and gas-producing economies’ efforts to diversify, and growing demand from Asian investors reshuffling their portfolios.

“Clearly there has been a shift with Chinese investors actively diversifying away from US-based investments,” said Nour Safa, head of debt capital markets for the Middle East and North Africa at HSBC in Dubai.

Chinese investors have become more comfortable with the region and were now doubling down on investments in both bonds and loans, which have seen particularly strong demand from Asia, Safa said.

Middle East loans syndicated in Asia-Pacific more than tripled to over $16 billion in the year to date from less than $5 billion last year, LSEG data showed.

With China’s economy slowing and Washington’s tariff-centred policies making investors rethink their exposure to the vast pool of US assets, the Gulf appeals with its stability and solid growth prospects.

The IMF projects the region will grow 3.9 percent this year and growth will accelerate to 4.3 percent in 2026. In contrast, global growth, projected at 3.2 percent in 2025, is predicted to slow to 3.1 percent next year.

“Investors are being more cautious about US Treasuries and are diversifying into several alternate markets,” said Oliver Holt, Nomura’s head of debt syndication in Singapore, with high-rated government-backed Middle East issuers often catching investor attention.

Deepening economic ties are also helping with Gulf-Asia trade rising 15 percent to a record $516 billion last year, around double the value of the region’s trade with the West, according to London-based Asia House.

Asia takes bigger bond allocations

Ritesh Agarwal, Emirates NBD Capital’s head of debt capital markets, said Asian institutions – hedge funds, asset managers and private banks – have driven a rise in the region’s debt allocations over the past 12 to 18 months.

According to Agarwal, average Asian allocation in Gulf debt issues now ranged between 15 to 20 percent, up from 5 to 7 percent in early 2024. He said that while the majority of investors were not from mainland China, Chinese capital was flowing through Asian accounts in Hong Kong, Singapore and, for Islamic bonds, Malaysia.

A combination of high demand and strong credit fundamentals has allowed Gulf issuers to price bonds at near historic low spreads over US government debt.

Asian investors bought 40 percent of AA-rated Qatar’s $1 billion 3-year bond last month which priced at just 15 basis points over US Treasuries.

Gulf bonds typically can give Asian investors higher yields compared to similarly rated credits in Asia, said Chong Jiun Yeh, group chief investment officer at Singapore-based UOB Asset Management.

Further reading:

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• Europe needs to revisit Gulf relations or lose out to Asia
• Southeast Asian investors flocking to Gulf to deploy capital

Typically, a BBB-rated US dollar bond from the Gulf can add 10 to 20 basis points in total yield compared with similar Asian credits, he said.

Chinese interest rates have generally been below those in the US.

Several Gulf borrowers were also planning to issue bonds in yuan on China’s domestic fixed-income market – so-called “Panda bonds” – said Clifford Lee, global head of investment banking at Singapore’s DBS Group, who has organised meetings for Gulf banks with Chinese onshore investors.

“We predict that once regular issuance flow begins, it can unlock access to an over $20 trillion market,” Lee said.

In some early deals, Saudi National Bank issued the first Singapore dollar bond in late November, while the UAE emirate Sharjah raised 2 billion yuan ($280 million) in October.