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Discount on Dubai assets seen turning to premium

Euphoria on DFM floor as index already up 50%

|By TAP Staff|Investors are paying a premium to buy highly rated MENA sovereign assets, indicating tighter spreads on them, Citibank said in a report.

In the case of the mid-rated sovereigns of Bahrain and Dubai, spreads are still marginally higher than the BBB average, implying these sovereigns trade at a discount. But the report suggests that the recent rally in Bahraini and Dubai sovereign debt has meant that the discount has shrunk considerably in recent weeks, and is likely to reverse to a premium in the near future at current trends.

There is evidence that the tightening of spreads has resulted in MENA sovereign assets being priced more highly than equivalently rated sovereign non-regional assets.

MENA assets also appear expensive relative to their historical averages.  The report found that most MENA sovereign spreads are significantly tighter than 2010 levels. Exceptions include Lebanon and Egypt, both of which have some way to go (especially Egypt) before spreads return to 2010 levels.