The Gulf bond market, which is expected to see more than $18bn worth bonds to mature this year, will stay positive and more issues are in the pipeline on “significant” investment appetite, according to Credit Agricole.

The GCC (Gulf Co-operation Council) bond market has more potential to the upside as it is driven by a supportive macroeconomic outlook, ample liquidity and a strong local investor base. This is especially the case with Dubai Inc and government-related entities, Credit Agricole said.

“The GCC region with its strong macro fundamentals can be said to be one of the rising stars in our globalised economy”, Dr Marie Owens Thomsen, chief economist, Crédit Agricole private banking, said.

Finding that the GCC bond market in somewhat of a bipolar investment case, Christiane Nasr, head of Mena (Middle East and North Africa) fixed income & director at the Dubai office, Crédit Agricole private banking, said there is the promising aspect of the region’s strong macro fundamentals which are supported by generous government spending, healthy oil prices and improving credit profiles of local companies that are pushing for tighter credit spreads than current levels.

However, on the other hand, the GCC mandates a higher risk premium due to the element of geopolitical risk and fears of conflict escalation, she said.

The GCC bond market posted an impressive performance last year in comparison to its peers in other emerging markets. Regional bonds in high-yield category returned more than 7% in 2013, outperforming other emerging markets which were in negative territory for the first time since 2008.

“There are various factors which could be attributed to GCC bonds outperforming global emerging markets. The credit profiles of regional corporates are improving with stronger fundamentals as reflected in their sound liquidity and their lowest level of leverage since 2009,” Nasr said.

On the other hand, banks are experiencing a revival in credit and loan growth without compromising their asset quality as reflected in the decreasing ratios for non-performing loans and that sovereigns’ benefit from robust liquidity with ample foreign exchange reserves and low levels of debt. This positive momentum is leading to rating upgrades across the region, she added.

Observing that last year’s positive momentum on GCC corporates continues into 2014 so far, she said the current imbalance between supply and demand is also supportive for GCC bonds.

“There is ample liquidity waiting to be parked in new issues while supply has been lacking. We can expect more issuance going forward in a scenario where investors’ appetite is significant,” Nasr said.

Moreover, favourable macroeconomic trends are fuelling the development of new projects regionally and many companies are looking to expand, she said, adding “the regional corporates are expected to perform well in 2014, with spreads moving tighter as long as the geopolitical risk is contained.”