View / The Gulf is still dealmaking, for now

As conflict hits the Gulf, investors into and out of the region are adapting to a new reality of dealmaking.

Right now, the appetite to show that life carries on as usual by continuing to do outbound deals is high. On Tuesday, even as Qatar was stopping gas production after Iranian strikes, Qatar Investment Authority backed a $10.7 billion buyout of AES Corp, and Aluminium Bahrain, controlled by the kingdom’s sovereign fund, agreed to acquire the EU’s biggest aluminum smelter even as a missile hit the Mina Salman port. Saudi Arabia’s Future Investment Initiative has reiterated its commitment to holding an event in Miami this month.

Wall Street will take comfort from the fact that Gulf sovereign funds, which together control around $5 trillion, are still interested in writing checks.

It will be more difficult to press the case that it’s business as usual for attracting money into the region. Chinese banks are already limiting their exposure to Middle East debt. Asian investors have been playing an increasingly prominent role in buying Gulf bonds. If they start to get nervous about the region, it could significantly affect borrowing costs at a time when the Gulf will already be facing a serious economic hit.

Investment bankers are starting to talk about putting deals on hold, or slowing down work. The UAE’s decision to close the stock markets for several days, and then limit declines to 5% when they reopened, also irked many international investors. And while the Saudi market has quickly recovered from earlier losses, a hoped-for pick up in IPO activity is probably some way off. Takeovers within the region are also likely to slow as growth projections are scrambled by the war: Who wants to buy an asset that could be hit by a drone next week?

Much will depend on how long the conflict drags on, but for now, there’s likely to be more outbound deals from the region than inbound.