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Monday, 19 January 2009

Saudi, UAE seek to ward off slowdown with rate cuts

RIYADH/DUBAI, Jan 19 (Reuters) - Saudi Arabia and the United Arab Emirates slashed interest rates on Monday in the Gulf region's latest move to ward off a sharp slowdown in economic growth as it becomes more entangled in global financial turmoil. Most states in the oil-exporting Gulf Arab region peg their currencies to the U.S. dollar, but have kept interest rates above Federal Reserve rates, which were cut to near-zero last month.

In moves that bridge this gap, the Saudi Arabian Monetary Agency (SAMA) on Monday reduced its benchmark repurchase rate for the fifth time since October to 2 percent, while cutting a rate that guides deposits by half to 0.75 percent.

The UAE central bank -- which refrained from matching the last two Fed cuts -- reduced its benchmark by 50 basis points to 1 percent.

British Government announcement

Today’s announcements aim to address the current barriers to lending by:

* extending the drawdown window for new debt under the Government’s Credit Guarantee Scheme (CGS) which is designed to reduce the risks on lending between banks;

* establishing a new facility for asset backed securities;

* extending the maturity date for the Bank of England’s Discount Window Facility which provides liquidity to the banking sector by allowing them to swap less liquid assets;

* establishing a new Bank of England facility for purchasing high quality assets;

* offering capital and asset protection scheme for banks, with proposals for this to be co-ordinated internationally; and

* clarifying the regulatory approach to capital requirements, through an announcement by the Financial Services Authority (FSA).

The Government intends to negotiate with the banks participating in certain facilities lending responsibility agreements that will have specific and quantified lending commitments and that will be binding and externally audited

The likely impact of today’s announcements on the public finances will be mostly temporary, as investments will be held for no longer than is necessary to ensure stability and protect taxpayer interests; liabilities will be backed by assets; and fees will be charged for relevant schemes.

New class for Islamic finance

It is a far cry from the glass skyscrapers, oil wealth and searing heat of Dubai. But the University of Reading, on a campus complete with rugby pitches and redbrick buildings in southern England, is hoping to establish itself as a teaching centre for Islamic finance.

Last year the university launched a master’s degree in investment banking and Islamic finance, making it one of a growing number of universities in the west to offer a postgraduate course in a sector that has boomed in the Muslim world in recent years. One of the sector’s greatest challenges is finding enough specialist bankers to meet that growth.

“We think Islamic finance is enormously short of people and is now prominent enough to be considered a semi-permanent part of the banking scene. So we need to address it,” says John Board, director of Reading’s International Capital Markets Association centre, which offers the programme.

Europe heads east

The Middle East is fertile ground for business education. With strong employment, a number of booming sectors and robust economic growth, European and US business schools alike are clamouring to get a foothold in the region.

“Historically, MBA programmes go where the money is,” says Peter Rodriguez, dean for international affairs at the Darden School of Business at the University of Virginia. “It’s apparent that the Middle East is the site of tomorrow’s economy and will be a strong financial centre in the years to come. People are trying to get ahead of the curve.”

Establishing overseas programmes and partnerships in the Middle East can help schools raise their international profile, build relationships, recruit top teachers and attract new students.

Samurai bond market revives

Japan’s samurai bond market is poised to revive after a virtual shut-down since the September collapse of Lehman Brothers, as credit markets show signs of stabilising thanks partly to government guarantees on bond issues. The first bonds to be issued since September are likely to be from Australian banks Westpac and ANZ, bankers said. Although the timing is unclear, at least one issue could happen as soon as the end of January. The government-guaranteed format under which the bonds are issued make them attractive to investors searching for higher yields than Japanese government bonds with minimum risk.

European companies in record bond sales

European companies have sold record volumes of bonds so far this year, capitalising on renewed investor demand as corporations seek to refinance debt. Non-financial European companies sold $15.2bn of bonds last week, one of the largest weeks ever for bond issuance, according to data provider Dealogic. Companies have been turning to the bond markets to refinance debt as bank lending has become constrained. Capital-intensive sectors such as utilities, telecoms and carmakers have been the most active issuers in early 2009, with Gaz de France, Daimler and Deutsche Telekom among the largest European issuers. US groups such as Staples, the stationery retailer, and printing company RR Donnelley have also been selling bonds.

Deripaska returns as Rusal CEO

Oleg Deripaska, the Russian billionaire, is to return as chief executive of Rusal, one of the world’s biggest aluminium producers, after being re-elected by the board, the company said Sunday. Deripaska, Rusal’s majority shareholder, returns to the more direct hands-on role comes as the company battles to survive the global credit crisis and plummeting revenues due to the drop in commodity prices. It is seeking to restructure $14bn of debt it owes to foreign and Russian banks. The move also comes amid talk of reviving plans for a three-way merger between Rusal, Norilsk Nickel, the world’s biggest nickel miner, and Metalloinvest, the steel and iron ore group, to create a metals and mining giant on a par with BHP Billiton.

Global begins operations in Saudi Arabia

Global Investment House (Global) announced today that Global Investment House Saudi Arabia (Global-Saudi) received permission from the Saudi Financial Authority to launch its operations in private placements, M&As, privatizations, advisory services and IPOs to name a few. Global-Saudi has a capital of 50 million Saudi Riyals.

Global-Saudi is a full-fledged investment bank with a capital of 50 million Saudi riyals. It carries out various financial services such as the establishment and management of investment funds, portfolio management, international brokerage, private and public placement, underwriting, advisory, dealings as a principal and as an agent as well as custody.

Mrs. Maha Al-Ghunaim, Chairperson and Managing Director at Global stated that Global-Saudi aims to play an effective role in the Saudi capital market by introducing new products and services in the Saudi market.

Dubai house prices to fall 60% from peaks - Shuaa

Real estate values in Dubai could plummet by 60 percent by the end of 2009, according to UAE investment bank Shuaa Capital.

Property prices in the emirate have already dived by 40 percent and rents could fall by 20 percent over the next two years, Shuaa analyst Roy Cherry told Arabian Business on Sunday.

"Prices in Dubai could lose 50-60 percent by the end 2009 from their peak last summer.

Bond spreads lure investors

Institutional investors are starting to pour money into both investment grade and high-yield corporate bonds to take advantage of historically high spreads over US Treasuries, according to Payden & Rygel Global, a London-based asset manager.

However, investors are still wary of the debt of financial companies such as banks, as well as newer style bonds typically issued in the past three years that are secured on the balance sheet of a subsidiary or assets such as mortgages, rather than on the parent company.

“This is not a blind headlong rush back into corporate credit, this is people who have been frightened off, haven’t got all their confidence back but can see targeted opportunities,” said Robin Creswell, managing principal of Payden & Rygel Global. “The people we are talking to explicitly do not want exposure to financials, or, if they do, they want to limit it to those with government backing.”

UAE markets likely to rise 21% in 2009

Dubai: Stock markets in the UAE, which fell as much as 72 per cent last year, are likely to rise 21 per cent in 2009 as confidence begins to recover in the second half of the year, Shuaa Capital said on Sunday.

"Negative economic and corporate news flow will present a headwind for stocks throughout 2009, setting a grim mood, especially during the first half of the year," the investment bank said in a note.

"But a sluggish economic recovery towards the second half of the year will allow the UAE markets to record gains of around 21 per cent in 2009."

Hard lesson for US universities

At the beginning of last year, sovereign wealth funds were treated with suspicion by many countries. Who are these foreigners buying our assets, and for what purpose, they asked? The mood changed abruptly in September, when authorities in many parts of the world, particularly the US, made it clear that they did not mind where the money came from, just as long as it arrived.

America’s Ivy League universities did not have to deal with the same suspicion, but in many cases they are a model of how sovereign wealth funds (SWFs) might develop, for they share similar features and goals.

Both are behemoth institutional investors: Harvard and Yale manage investment funds in excess of US$20 billion (Dh73.47bn), which they use to preserve and multiply their wealth for future generations.

Passive fund sector ticks all the boxes for growth

Investors fleeing bruising global markets are scooping up exchange traded funds and moving from active to passive funds in search of lower cost, more transparent products. (PDF)

In the past year ETF providers have seen substantial inflows into a range of funds. Exchange traded funds attracted global inflows of about $200bn (£136bn, €152bn) in 2008, up from $178bn at the end of the previous year, according to Financial Research Corp.

“ETFs have proved to be the right tool at the right time. We have seen an increase of traditional active managers using ETFs in the past year as they provide beta at low cost for the portfolio core,” says Manooj Mistry, UK head of db x-trackers at Deutsche Bank.

Change on the cards for hedge funds

Large investors are reassessing their hedge fund investments in the wake of the industry’s worst year on record, with some questioning the role of middlemen in the wake of the Madoff debacle and others investing in black box replication strategies. (PDF)

However, the industry is fighting back, with a wave of new launches in the pipeline, most of which appear to have already attracted seed funding.

David Butler, partner at Kinetic Partners, a London-based hedge fund consultant, said: “We have got 30 new managers launching at the moment, which is more than I have ever had in the last 12 years. Virtually all have seeding from large family offices or institutions,” added Mr Butler, who said traders were leaving large hedge funds and investment banks to set up long/short equity, distressed credit and macro funds.

Outflows soaring as liquidity evaporates

This time last year, Africa’s relatively untapped equity markets were being tipped as one of the best investment opportunities on the planet.

Amid a raft of fund launches, a steady stream of investors scrambled for their piece of the pie. The buying continued even after equity markets in the rest of the world turned sour; African regional equity funds attracted net inflows of $247m (£170m, €187m) in the first seven months of 2008, according to EPFR Global, a data provider, with a further $1.3bn flowing into Middle East and North Africa funds. Outflows from more established emerging markets hit $22bn over the same period.

That African equity markets should have fallen since those heady days, and net inflows turned to net outflows, should come as no surprise. With far more developed markets facing financial hurricanes, the winds of change were bound to reach Africa.