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Saturday, 7 March 2009

First Persia Equity Fund March 2009 report


The First Persia Equity Fund is a Cayman Islands domiciled closed end investment company investing in public equities listed in the Tehran Stock Exchange. It is the World’s only investment fund licensed for foreign investors by the government of the Islamic Republic for investment in the Iranian stock market."

What Role Could Bonds Have in the Quest for New Sources of Finance in the GCC? (Registration required)

On February 22, the government of Dubai announced that it was issuing $20 billion in five year bonds to meet its financing needs and maintain spending The central bank of the UAE subscribed in full to the entire first tranche of $10 billion and is likely the buyer of first (and perhaps only) resort for the rest given the capital needs of the Dubai property sector. Despite the fact that this may be a bailout - particularly as it includes a relatively low (4%) fixed interest rate over the four years- there is a possibility that it could point to another long-term goal, increasing the role of the bond markets in financial development, not only in the UAE, but also in the GCC. On February 26, Bahrain announced that it will it will sell nearly $800m worth of bonds to finance house building projects. Developing a deep bond market may still be a long way off, given global and local trends, but this source of capital in the region could provide a way to strengthen economic insitutions and reduce distortions in domestic markets.

The shortage of liquidity in the GCC and lack of credit for the massive pipeline of projects, many of which have now been deferred, was the first and sharpest been the most significant spillover from the global financial crisis. The effect of job losses on consumption, slowing construction and reduced oil production has subsequently amplified the effect of liquidity shortages. GCC banks and corporations, which less than a year ago were fending off ample credit are now being forced to look for new sources. As the difficult capital raising of Borse Dubai makes clear, there is limited credit available for Dubai-based corporates, particularly in global capital markets. Borse Dubai was only able to raise about half of the $3.4 billion credit facility from foreign banks, with its parent, the Investment corporation of Dubai (ICD) making up most of the remainder of the debt financing and throwing in a capital injection. Although Dubai’s capital raising should be sufficient to meet most upcoming refinancing, there will be further calls on liquidity even as the reserves of the central bank of the UAE may need to be replenished, they fell to $35 billion at the end of November ( the most recent data). Yet, the more concerted efforts of the UAE as a federation will likely lower the default risk As we indicated in the past, governments will have to take on a larger role in meeting the region’s financing needs.

Despite investment in non-hydrocarbon sectors, capital inflows and investment returns of GCC government funds were quite correlated to the oil price, as were the domestic property and equity markets, furthering the need for capital to enhance investments which would buoy the region’s economic growth.

The rapid emergence of Emirati art

Any visitor could be forgiven for thinking that Dubai is a city without a soul, a place of no culture and little visible past. It is, after all, a city that prides itself on bling and artifice, a fantastical skyline of blinking towers springing out of the flat desert and islands confected in the form of palm trees and maps of the world. Almost everything is imported, including its predominantly immigrant population.

Until now, one would have been tempted to have listed fine art among the commodities brought to the city rather than created within it. But Emirati art and Dubai, it seems, is coming of age.

In the past, the number of artists working in the United Arab Emirates was relatively small, not least because art was considered more of a hobby than a viable profession. Teaching was run on a mentoring system, and the work that was produced had little public exposure. All that is changing fast. The past few years have seen an extraordinary growth in a wide range of contemporary art practices. This comes as a result of changing educational possibilities – the return of artists who studied overseas plus new courses on offer by the likes of the American University of Sharjah and Dubai’s Zayed University – and to the Gulf’s sudden, dramatic exposure to international modern and contemporary art.

According to Hassan Sharif, the British-trained “father” of conceptual art in the Emirates, it was the 2003 Sharjah Biennial that “changed the artistic landscape of the UAE”. That year the directorship of the show was taken over by Sheikha Hoor Al-Qasimi, the daughter of the Ruler of Sharjah, who had studied at London’s Royal College of Art. With the help of curator Peter Lewis, she set a new agenda, not only by bringing in artists from all over the world but new media too – video, installation, digital and performance art – and organised a symposium focusing on globalisation and these new practices.

Gaudí would have gawped Dubai wakes up to harsh realty

Months into this financial crisis, we are by now used to government rescues of banking and insurance behemoths, but to see a city-state that needed a bail-out you have to travel to Dubai. I arrived there on holiday just days after Abu Dhabi had ended months of speculation about Dubai's grim financial health by throwing a $10bn lifeline, buying half of the five-year bonds issued by the city's government.

America's subprime real estate loans might have started this mess, but where else would you find what could be called a submarine real estate crisis - the steep drop in prices of villas and apartments in the Palm, a series of man-made islands built by a government-owned developer. Just three years ago, Dubai was constructing the world's largest building, preparing to open a giant indoor ski slope with chalets, and selling islands shaped like places to the world's rich and foolish. Much of the world's press was enthralled. "Given the scale of its ambition, could [Dubai] become the most important place on earth?" asked the Guardian in February 2006.

While being taken on a tour of "The World" by speedboat just a week after that article appeared, I asked to see a house - but there was a snag. "Greenland", which had been the site of the show villa, had just been sold, and the new one, if I remember correctly, on "California" had not yet been built. I may have the names wrong; it was all a blur.

DIFC seeks to expand India business ties

The Dubai International Financial Centre (DIFC) wants to be a key facilitator in developing business and investment links between the UAE and India.

The Indian Business and Professional Council (IBPC), an umbrella organisation bringing together Indian commercial interests in the UAE, was invited to a presentation conducted by the DIFC.

At the session Nasser Al Sha'ali, CEO of the DIFC Authority, explained the importance of the financial centre as a facilitator for new links.

Global financial crisis hampers bid by New Delhi to lure Gulf funds

There could be some hiccups in the flow of large investments from the Gulf to India as Arab investors adjust their priorities in light of the global financial crisis, an Indian minister said.

However, this will be a "temporary phenomenon" because Gulf investors will continue to remain interested in India due to "the strong fundamentals of the Indian economy," Minister of State for Industries Ashwini Kumar told Gulf News.

Before the world econ-omic crisis, the Indian government made serious efforts to persuade Gulf businessmen to invest in India, particularly in big infrastructure projects worth $500 billion (Dh1.84 trillion).

Dubai oil exchange in push for liquidity

The Dubai Mercantile Exchange (DME) is preparing a final push to bring the world’s oil trade back to the Gulf, 20 years after the region surrendered the power of setting prices to markets in London and New York.

The two-year-old exchange, a joint venture between the Dubai developer Tatweer, CME Group, which owns New York’s top commodities exchange, and the Oman Investment Fund, has built up a daily trade of more than two million barrels a day in its benchmark Oman crude oil contract.

It has incorporated the latest electronic trading technology and brought in new floor members including oil companies, trading firms and Wall Street banks.

The West’s bankers may learn from their Islamic brothers

If the former chief executive of the Royal Bank of Scotland had been a Muslim and had run his bank on Sharia-compliant principles, would it have prevented the disaster that has befallen RBS?

It sounds hypothetical in the extreme. Sir Fred is a Scots Presbyterian, and RBS was the epitome of gung-ho western capitalism before it came crashing down.

But the question came to me as I sat at a dinner in Dubai’s Grand Hyatt hotel this week, where 300 or so bankers and financiers had gathered to slap each other on the back at the Islamic Finance News Awards ceremony. If the financial world was run on Sharia lines, the backslappers concurred, we would not be in the middle of economic meltdown.

Quantitative easing explained

As the world suffers its worst recession since the second world war, policy makers are searching for the best tools to limit the downturn. Central banks have rapidly lowered interest rates in order to reduce the cost of borrowing. The hope is to stimulate spending in the economy now.

So far, it has been to no avail. Confidence disappeared from banks, companies and households in the autumn of 2008 and unemployment is rising fast in 2009. Without an obvious source of fresh demand, central banks are moving to open the way to more unorthodox approaches to address the crisis.

One of those is quantitative easing. Our interactive feature explains how quantitative easing works and how this policy may stimulate the economy.

Global financial centres

One of the less dignified features of the era of easy credit and the ensuing boom in financial wizardry was the fight for bragging-rights between London and New York over which was the world’s leading financial centre. A resurgent London gloated for a time, pointing to heavy-handed US regulation, typified by Sarbanes-Oxley. New York professed to be unconcerned and dubbed certain London markets “casinos”, while having a quiet identity crisis. The debate that pitted New York’s reluctance to embrace a regulatory “race to the bottom” against London’s love of “light touch” oversight now seems laughable. Both systems failed, and on multiple counts. It is strange, then, that this week’s Global Financial Centres Index, which showed London leading New York narrowly, was hailed as reassuring. Expressing faith in the cities as places to do business is rather like China continuing to buy US Treasuries faced with a deluge of issuance.

Even though the survey showed a widening gulf between the pair and third-placed Singapore, respondents fear knee-jerk regulatory reaction will threaten the global leaders’ positions.