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Saudi fixed income outlook positive, but geopolitical anxiety is big concern

Dino Kronfol, Middle East founding partner and chief investment officer at Franklin Templeton Investments, discusses fixed income markets in the Gulf, Saudi Arabia reforms and bond issuances. He speaks on “Bloomberg Markets: Middle East.”

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Political anxiety is bringing a lot of noise to fixed income conversations, so could we be looking at more downgrades and uncertainty?

Watch: Saudi Arabia returns to Dollar-bond market

“We need to differentiate between what’s happening locally and geopolitical issues. In my mind, whether we are talking about a corruption purge or structural reform agenda, or Aramco IPO, these are all positive events,” said Kronfol.

He said these are clearly long-term positives with short term risks because while doing all of the reforms, Saudi needs to shore up domestic demand so people will be looking for due process, and the rule of law.

Watch: New Saudi bond issue to cover debt

“For Sukuks and bonds, it’s really the story in the GCC and if power is consolidated in Saudi, then credibility to fiscal sustainability will be a long term plus, especially that Saudi is the largest regional issuer, in fact 50 per cent of all issues,” said Kronfol.

“Geopolitical is where the anxiety really is, but it’s too early to judge.”