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Friday, 30 January 2009

Jupiter's Shaftan sees Russian tide turning

Government stimulus, a more stable rouble and an oil price which surely cannot fall much further are all factors which lead Jupiter's Elena Shaftan to believe Russia is once again becoming an attractive market.

Shaftan, who runs the Jupiter Emerging European Opportunities, New Europe and Emerging Euro Select funds, thinks the 'greater part' of the adjustments in the oil price and the rouble have now been played out and genuine value can be found in the Russian market.

'It was important and necessary for the rouble to devalue in order to relieve pressure on exporters and to ensure the economy remains competitive against other countries that have also devalued their currencies, such as Poland, Ukraine, Romania, and many of Russia's other trading partners including the UK,' Shaftan says. 'This is particularly important given the extent of the fall in the price of oil - Russia's main export commodity.'

Following a 21% decline in the rouble's value versus a basket of commodities, the Moscow government has said it is at the end of its devaluation process for now.

'A more stable rouble will remove the incentive for companies to hoard foreign currency in the expectation of profiting from the devaluation, which has been a contributing factor to the recent slowdown in economic activity. It will also enable the government’s proposed liquidity injection of over $200bn to flow into the Russian economy rather than be diverted into foreign currency speculation,' she says.

Considering the price of oil has plummeted in the last seven months from $147 a barrel to $47a barrel, Shaftan believes it can not decline much further in the medium term. However, Shaftan warns that Russia is braced for a raft of disappointing economic figures to be released shortly.

'Volatility may continue in the short term as macro data and corporate results for Q4 2008 and Q1 2009 are likely to be poor,' she says. 'Russian industrial production, for example, fell 10.3% year on year in December, and the global economic outlook for the next few quarters remains bleak.

'However, in the medium term, the beneficial effects of government stimulus and a more competitively priced currency will start to be felt. In the meantime, we believe much of the short term bad news is discounted through extremely low valuations, with the Russian market trading on just 3x 2009 price to earnings (p/e) even after significant earnings downgrades.'

One of her favourite countries in eastern Europe is currently Poland, which has proved to be resilient despite the eurozone's woes.

'Poland continues to grow despite a sharp slowdown in the eurozone, belying the argument that all the growth in region over the past decade has been linked purely to western European growth,' she says. 'We expect that domestic consumption, driven by wage growth and cuts in income taxes, will help Poland to maintain positive growth rates in 2009. Meanwhile, current account and fiscal deficits are manageable and public debt is relatively low.'

Despite the dramatic market falls seen in the past year in Eastern Europe, Shaftan's long term performance remains positive. In Citywire's pan-European fund manager rankings for the emerging Europe sector, she is ranked 8/29 over five years having returned 26.77%, compared to the average manager return of 13.66%.

Approach Russia with great caution

Vladimir Putin, the Russian prime minister, does not make it easy to grasp the barbed olive branch that he may be trying to offer.

Speaking at the Davos gathering of world leaders, he called for global co-operation in response to the global economic crisis. And he made the not unhelpful, though hardly original, suggestion that “excessive dependence” on the US dollar as the single reserve currency was “dangerous for the global economy”.

But the message came loaded with so much anti-US bile, with Mr Putin crowing over the US’s role in causing the crisis, that he did nothing to contribute to the trust on which the co-operation that he says he seeks must be built.

Where the Financial Gurus Are Putting Their Own Money

In times of market strife, financial gurus often tell investors to think long-term and stay the course. Some of them even put their own money where their mouth is.

A sampling of high-profile industry veterans, academics and brokerage-firm chiefs reveals that many are hanging on to holdings battered by last year's market slide and busily hunting down new opportunities, particularly among bonds and beaten-down value stocks. Some are snapping up municipal bonds, inflation-indexed securities and steady-Eddie dividend-paying stocks.

And they're generally upbeat about the prospects for long-term retirement savers.

"I think this is a marvelous time to be investing," says Rob Arnott, the 54-year-old chairman of Research Affiliates LLC, an investment-management firm in Newport Beach, Calif. "There are more interesting opportunities out there now than any of today's investors have ever seen."

NBK sets example on Madoff reimbursements

Banks and money managers across Europe and the US are coming under increasing pressure to compensate clients who lost money in the alleged fraud by Bernard Madoff, the US broker.

The National Bank of Kuwait has returned $50m to clients, while Spain’s Santander has offered to swap preference shares in the bank for the principal its private clients invested in funds that sent money to Mr Madoff. The 70-year-old allegedly confessed to running a $50bn Ponzi scheme and at least 20 lawsuits have been filed around the world in connection with the case.

Sources familiar with Union Bancaire PrivĂ©e said the Swiss bank was analysing the legal and financial implications of offering compensation for the €700m ($907m) of client money it put into Madoff feeder funds, including one it ran itself. The investors include institutional and private clients.

Emirate on the ebb

At the height of Dubai’s recent boom, thousands of foreigners were arriving every day to seek their fortunes in this Gulf city of boundless ambition. Now, vehicles in the car park outside the airport gather dust as redundant expatriates abandon their wheels, fleeing home before they default on automotive loans and risk imprisonment.

Officials in the emirate were until the last few months unruffled by the credit crisis and a dramatic fall in oil prices, arguing that the services-led economy had not been affected. Indeed, they maintained, it would provide a safe haven for bankers and western companies suffering from the global downturn.

Dubai’s six-year boom, which rode the regional petrodollar wave, was fuelled by the city’s infrastructure and quality of life rather than by oil itself, of which the emirate has little. But the very openness of an economy built on finance and property investment now leaves it ill-placed to weather the storms raging elsewhere.

UAE regulator demands greater transparency

The market regulator of the United Arab Emirates called on Thursday for increased disclosure ahead of the companies reporting season, asking for extra information on companies’ real estate and financial positions.

The call for greater transparency comes as some regional companies have defaulted on debts and as ratings agencies downgrade some of the Gulf’s most respected companies on fears that the declining trading environment will hit profitability.

Markets across the Arab world crashed last year amid the global financial turmoil and have continued their downward spiral this year, with the MSCI Arabian market index declining a further 9.7 per cent in the year to date.

Etisalat profits rise 18%

Etisalat remained both profitable and growing in the last quarter of last year, largely weathering the global economic storm that reached the region in the same period.
But in a rare occurrence, the company yesterday reported full-year results that fell far below the expectations of analysts.

The national telecommunications company announced a full-year profit of Dh8.67 billion (US$2.36bn) yesterday, up 18 per cent on the previous year but well under the Dh9.46bn consensus estimate of telecoms analysts.

In 2007, Etisalat grew its yearly profit by 33 per cent. Analysts attributed the lower-than-expected yearly result to an unspecified downward adjustment made in the fourth quarter.

Abu Dhabi developers feel the heat

The two biggest property developers in Abu Dhabi, Sorouh Real Estate and Aldar Properties, have seen profits decline notably in the fourth quarter, underscoring that the effects of the global credit crisis have begun to impact on real estate in the emirate.
Since the end of summer, layoffs and delays have become the industry standard in the Dubai property sector, but Abu Dhabi was seen as largely protected from the turmoil. Now, with sales slowing to a near standstill and property prices declining, developers are taking a closer look at their plans and focusing on construction.

“Both developers now see that the important thing is to have the resources to execute in today’s environment,” said Sana Kapadia, an analyst at EFG-Hermes. “You probably won’t hear about them selling much in 2009, but they will continue to recognise revenue as they deliver units.”

Sorouh, the second-largest property developer in Abu Dhabi, yesterday said its quarterly profits fell 94 per cent to Dh46 million (US$12.5m) in the final three months of last year. The announcement came a day after Aldar, the largest developer in the emirate, said its fourth-quarter profits had dropped 89 per cent to Dh84m, after taking a strategic decision to move its focus away from selling.

DFM hits its lowest level since June 2004

Jittery retail investors are causing heightened volatility on Gulf exchanges, say analysts, as sentiments remain low and focused on short-term prospects. The Dubai Financial Market (DFM), the world’s third worst-performing market last year, fell 1.05 per cent to 1,520.24, its lowest close since June 2004. The Abu Dhabi Securities Exchange (ADX) declined 0.2 per cent to a value of 2,255.85.

“Volatility is in effect being created by the retail investors. Institutional participation has shrunk in the past six months, so the market is now mainly driven by [retail investors] who typically have short-term plans,” said Amro Diab, the head of GCC institutional sales at EFG Hermes. “They hold shares for short periods, an hour or a week, and when the stock rebounds they quickly offload.”

Property stocks led declines as analysts maintained forecasts that property prices in the UAE this year would continue to soften. A report by HSBC Holdings this week stated that Dubai property prices had dropped 23 per cent from a September peak.

Derivatives trading boost on NASDAQ Dubai

NASDAQ Dubai is moving to boost liquidity on its derivatives trading market in a follow-up to its introduction of the UAE’s first exchange-traded futures in November.

The exchange is looking to introduce its first options in the first quarter, on the FTSE NASDAQ Dubai UAE 20 Index, and on single stocks later on. In addition, it is putting in place a trading desk to assist members in making orders where they lack the resources, expertise or time to trade the derivatives themselves.

Besides increasing liquidity, the exchange, which has suffered from thin trading from even before the financial crisis battered markets, is eager to profit from the worldwide flight to safety. Investors and derivative houses are reducing over-the-counter (OTC) activities and leaving it to stock exchanges to trade such products.

Where have all the dollars gone?

Ten years ago, just before the birth of our first child, my wife decided to set up a school-fee fund for the little brute. Every month, £100 (Dh524) went out of our joint account. As we watched stock markets around the world soar and property prices double just about everywhere, we were reassured that even the most stupid financial adviser would have been able to do something impressive with our savings.

This week the policy matured. We threw aside the brochures from Marlborough and Roedean, and scanned the letter with some anticipation.

Even a personal finance editor could work out how much we had paid into the fund: 12 months x £100 equals £1,200. Multiply £1,200 x 10 and you get £12,000 (Dh62,290). That surely would be the minimum we could expect: we would have earned that by putting it under the mattress.

Fewer developers left standing

The number of property developers registered in Dubai has fallen by about 40 per cent in two months, according to the Real Estate Regulatory Agency (RERA).

Some firms were weeded out as part of a “clean-up” by the agency because they were unlikely to start their projects, while others fell victim to the economic crisis.

Marwan bin Ghalita, the chief executive of RERA, said there were now about 500 developers registered in Dubai, compared with more than 800 in November.

Tamweel restructuring

Dubai: Mortgage lender, Tamweel PJSC - a company which is currently under merger process with Amlak - is restructuring its business plans and organisational structure that involves a reduction of 57 staff members from its workforce, the company said in a statement.

The reason given was to enable the company to be in a stronger position to meet its objectives in the challenging environment that financial institutions are facing at present.

Wasim Saifi, group chief executive of Tamweel, said the job cuts were necessary in order for the company to function more efficiently.