MNI EM Credit - Clearing the Fog

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We look at the events in the Middle East over the last week and analyse what this means for the broader EM Credit asset class.

• The Iran conflict has negatively impacted EM, also striking at the centre of GCC, and upending some of our long held believes regarding relative stability in the region
• Notably, in GCC sustained pressure could impact fiscal buffers. In the energy space, vulnerable exporters include those in Qatar, Kuwait and Bahrain. Less so for Saudi Arabia and UAE where there is room for alternative routes. We focus on real estate in the UAE, with valuations across developers impacted by contagion fears. Infrastructure names have been in the headlines throughout the week, valuations remain resilient, but exposure risk should not be overlooked
• Across the broader Middle East region, we see differing levels of ramifications; we look at Iraq, Israel, Pakistan and Türkiye
• In Asia, more vulnerable sovereign, including Indonesia, are also at risk of breaching deficit targets
• In LatAm oil exporters are major beneficiaries, though medium term airlines will be at risk of higher aviation fuel