Lack of transparency creates uncertainty, hampers investment
It's unclear how exposed Gulf Arab banks are to the collapse of two Saudi Arabian conglomerates, Saad Group and Ahmad Hamad Algosaibi Brothers. And that uncertainty is hampering the region's recovery.
Merrill Lynch emerging markets analyst Turker Hamzaoglu said [...] the 'low visibility on authorities' policy reaction to the unfolding restructuring in the region" made investors loath to hop on the recovery bandwagon for now.
Investors are awaiting more information on several initiatives in the region, including the planned second tranche of a $20bn Dubai government bond as well as news on the extent of the Saad/Algosaibi damage to the banking sector.
Regional banks have hiked provisions against their exposure to the firms, with Standard & Poor's ratings agency estimating that 30 Gulf Arab banks had a combined exposure of $9.6bn.
"The total scale of the problem is unclear and ... the uncertainty this has created in the market is significant," said Reinhard Cluse, senior economist at UBS Investment Bank in London.