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Thursday, 7 May 2009

Overseas funds hunt Saudi swap deals (Update 1)

International investors more than trebled their purchases of Saudi Arabian stock swaps last month, as a global equity rally sparked appetite for shares in the world’s largest oil exporter.

The kingdom allowed international investors to buy exposure to local equities for the first time last August through “total return swaps”, which give overseas investors the economic rights of a stock but no voting rights.

At the time, bankers hailed it as a significant step towards opening up the country’s equity market, the largest in the Arab world.

But the deepening of the financial crisis last autumn meant that demand was initially low as the Saudi stock market tumbled along with global bourses.

As the swaps can only be bought and held through brokers authorised by the Saudi Capital Market Authority, they entailed taking significant third-party risk at a time when previously imperious investment houses were failing and the global financial system buckled.

But the global equity rally has spurred institutional investors to enter the Saudi bourse. According to the Tadawul, the country’s stock exchange, overseas-based investors bought SR1.23bn ($328m) of swaps last month, up more than three-fold from March, when only SR269m of swaps were sold.

“There has been a noticeable improvement in sentiment, and April was a very good month, the best since the swaps were introduced,” Jamal Al Kishi, chief executive of Deutsche Securities Saudi Arabia, told the Financial Times. “If things continue to go as they have, May will be another good month.”

While only a tiny part of trading on the Saudi stock exchange, this inflow of international capital helped the Saudi stock exchange gain nearly 20 per cent last month, and pared its 12-month loss to 44.8 per cent.

“We’ve seen a lot more interest from institutional investors that want to get exposure to this market recently, mostly from emerging market fund managers and hedge funds,” said Habib Achkar, chief executive of Morgan Stanley Saudi Arabia.

Bankers say investors have bought swaps in companies across all industries in Saudi Arabia, but hydrocarbon-related industries have proved particularly popular with overseas funds.

“We have seen particular interest in areas where Saudi Arabia has a comparative advantage, such as petrochemicals,” says Osama Shaker, managing director and head of investments at HSBC Saudi Arabia, the largest swaps dealer. END

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Dollar peg 'serving us well,' says Saudi central bank governor

Saudi Arabia's central bank governor said on Thursday that the US dollar is still the dominant global reserve currency and it was serving Saudi Arabia well as a currency peg.

"Until a major competitor comes to the fore and provides an alternative, I do not expect the dollar to lose its role in the global financial system," he said. "As long as it is serving us well, if it ain't broken why fix it?" Muhammed al-Jasser told reporters at an Islamic Financial Services Board conference held in Singapore.

The central bank governor said its monetary policy was at the appropriate level given the country's economic conditions.

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'Egypt's Madoff' jailed for multi-mln dlr star swindle

A businessman known as "the Egyptian Madoff" was jailed in absentia for 15 years on Wednesday for swindling actresses, football stars and politicians out of more than 60 million dollars.

A Cairo court handed down the sentence to Nabil al-Bushi, held in Dubai since February pending trial on other fraud charges, for "swindling 350 million pounds (62 million dollars) from Egyptian citizens via his Optima Security Brokerage firm," a judicial official told AFP.

Bushi managed to con a star-studded list of more than 85 people.

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Citi, BofA have biggest shortfalls

Citigroup and Bank of America emerged from the governments ‘stress tests’ as the banks with the biggest capital shortfalls, with Citi requiring more than $50bn in fresh equity and BofA requiring about $34bn. BofA’s capital deficit is more pressing because Citi has already agreed to bolster its balance sheet by converting up to $6bn of preferred shares owned by the government and other investors and selling non-core businesses.

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Abu Dhabi, KSA, Kuwait have room to manoeuvre

Abu Dhabi, Saudi Arabia and Kuwait have the greatest amount of fiscal space which could help each state to sustain 10 per cent deficit without resorting to debt finance for at least 25 years, an analyst at Standard and Poor's said yesterday.

Farouk Soussa, credit analyst at S&P's, said: "We believe that GCC governments have exceptional fiscal space to implement their counter-cyclical expansionary policies, despite experiencing significant losses on their foreign asset holdings over the past 18 months.

"In our view, Saudi Arabia, Abu Dhabi, and Kuwait have the greatest amount of fiscal space to pursue such policies, and we forecast that each could sustain a 10 per cent deficit without resorting to debt finance for at least 25 years. Bahrain and Oman are in the least comfortable positions, as their oil resources are more limited than other GCC states and they have therefore benefited relatively less from the windfall in high oil prices in terms of accumulation of assets."

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GCC bank lending poised for sharp slowdown in 2009

A sharp slowdown in the economies of Gulf oil producers will ally with lower asset prices to stifle lending activity by their banks in 2009 and this will adversely affect their performance, according to a key Kuwaiti financial centre.

Markaz said an overheating in the economies of the six-nation Gulf Co-operation Council (GCC) in 2007-'08 because of the surge in crude prices sharply pushed up credits by regional banks and the UAE emerged on top of the list.

The UAE and Qatar could be the only GCC countries to record negative growth in credit activity this year on the grounds they suffered more from a real estate downturn than other GCC nations, Markaz said in 35-page a study. It said the 2004-2006 period witnessed what it called a reasonable level of asset intermediation, which is the ratio between banks' claims on the private sector to the gross domestic product. It noted the proportion between such claims and the GDP indicates the extent of heating in the local economy.

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Majid Al Futtaim sets up asset management unit

The Majid Al Futtaim Group yesterday said it had set up asset management unit to offer financial management services to institutional and professional investors.

The new entity enables external investors to benefit from the collective experience of a fund management team with years of investment performance through the Majid Al Futtaim family office. "For the first time, professional and institutional investors looking for new investment opportunities in both challenging and favourable climates will be able to capitalise on the expertise of Majid Al Futtaim Asset Management's team of fund managers, who have been tried and tested by one of the region's most demanding family business groups," said Iyad Malas, the Chief Executive of Majid Al Futtaim Asset Management.

"This new financial management organisation builds upon the reputation of one of the region's preeminent family offices, whose fund managers have delivered a strong relative performance," he added.

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Panel to identify unviable projects for cancellation

The Dubai Land Department and the Real Estate Regulatory Agency (Rera) have set up a committee that will decide on cancellation of "unviable" projects, senior department officials said yesterday.

Addressing an investors' meeting, officials said a committee has been formed to study and analyse non-feasible projects.

"It is a tedious task and requires a lot of paper work. But the committee has been created to address the issue," a senior official said.

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Porsche, VW agree merger

Volkswagen and Porsche announced plans to merge on Wednesday, ending the 3½-year takeover saga surrounding Europe’s largest carmaker. After a meeting of the Porsche family owners and VW and Porsche executives in Salzburg, the family clan agreed to create an “integrated car-manufacturing group” with 10 marques under one roof. The move in effect sets Porsche aside from the nine existing brands of the VW group, dashing its hopes of dominating the group.

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TrimTabs Investment Research Estimates US Economy Shed 745,000 Jobs in April

TrimTabs Investment Research estimated today that the U.S. economy shed 745,000 jobs in April as wages and salaries plunged an adjusted 5.7% year-over-year. TrimTabs estimated that the economy shed a record 5 million jobs in the past 12 months.

"If job losses continue at the present rate, the unemployment rate could top 10% by summer," said TrimTabs CEO Charles Biderman.

In a research note, TrimTabs reported that income tax refunds are up 16.5% year-over-year this year, providing a short-term boost to consumption. Unfortunately for the economy, however, the support from refunds is winding down.

Moreover, TrimTabs explained that President Obama’s "Making Work Pay" tax credit is too small to help the economy over the longer term. "The Obama tax credit will distribute $20 billion to consumers from May through July," said Biderman. "This amount is less than one-quarter of the $90 billion the Bush tax credit pumped into consumers’ pocketbooks in the same period last year."

Finally, TrimTabs reported that real-time income tax data indicates that the personal savings rate was 1.6% in March, well below the 4.2% estimated by the Bureau of Economic Analysis.

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More drama likely before the tragedy comes to an end

Fair is foul and foul is fair, hover through the fog and filthy air. So did the three witches in Macbeth warn that deceit and betrayal are part of any professional relationship, as Banquo later learnt the hard way when Macbeth hired hitmen to rub out his loyal pal. Career, Shakespeare knew even in the early 17th century, comes before camaraderie.

Investors and businesspeople here in the UAE generally have little to fear from knavery or murder, unless they happen to be of the Chechen persuasion. But there is plenty of potential treachery in the glee-mongering that has accompanied the recent rally in local markets.

The backslapping taking place appears to be the mirror image of the deep denial this nation and many others indulged in before the spreading global crisis struck them last autumn. “It couldn’t affect us,” they said in every city from Sydney to Riyadh and Dubai to Singapore. “Our monetary and fiscal houses are in order, our current accounts are high, our foreign currency reserves swollen.”

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When the crisis is over, we must understand a ‘new normal’

Markets are bubbling in response to signs of “green shoots” in the global economy. An increasing number of investors see a strong rebound coming, first in China, then in the United States, and then in Europe and the rest of the world. Even the horrible growth numbers of the last couple quarters don’t seem to discourage this optimistic thinking. The deeper the plunge, the stronger the rebound, some analysts say.

Perhaps these optimists are right. But how strong an expansion can one reasonably expect when the worst is finally over? Is the “new normal” going to be the same as the “old normal” of the boom years from 2002 to 2007?

I have trouble seeing how the US and China, the main engines of global growth for two decades, can avoid settling on a notably lower average growth rate than they enjoyed before the crisis.

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Worker sponsorship - other states set to follow Bahrain lead

Other GCC states are set to follow Bahrain’s lead by scrapping the sponsorship system under which expatriate workers are hired in the region, according to media reports., cited by Emirates Business, said sources connected with the GCC labour market indicated that after Bahrain's announcement, other GCC countries are now considering their own positions.

Bahrain said on Tuesday it would scrap its existing sponsorship system for foreign workers in the hope of reducing its need for foreign labour.

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Saudi Stock Market Weekly Report - 6-May-2009

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Foreigners snap up Saudi swaps

After a difficult start, international demand for swaps in Saudi Arabian stocks, first authorised by the country’s Capital Markets Authority last August, is finally starting to pick up – and fast.

According to the Tadawul, the country’s stock exchange, overseas-based investors bought SR1.23bn ($328m) worth of swaps last month, up more than three-fold from March, while only SR269m of them were sold.

Although only a minuscule part of trading on the Saudi stock exchange, this helped it gain nearly 20 per cent last month. Bankers and fund managers expect demand for swaps in Saudi Arabia to continue to grow, boosted by the positive earnings outlook for many Saudi companies.

“There has been a noticeable improvement in sentiment, and April was a very good month, the best since the swaps were introduced,” says Jamal Al Kishi, chief executive of Deutsche Securities Saudi Arabia. “If things continue to go as they have, May will be another good month.”

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Gulf currency union faces more hurdles

Even bigger hurdles in the quest for a Gulf Arab single currency lie ahead after Tuesday's decision to base a planned regional central bank in Saudi Arabia cleared one obstacle to monetary union, analysts said.

To avoid new snags that may further delay the union, initially planned for 2010, Saudi Arabia may have to counter any perceptions it is overly dominant in the region by leaving the central bank's governor job to another bloc member.

'It's not going to be a smooth ride,' said John Sfakianakis, chief economist for HSBC ( HBC - news - people )'s Saudi affiliate.

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Syria takes cold comfort from crisis

In one of the swanky luxury goods stores that have sprung up in Damascus, otherwise-idle shop assistants pass their days arranging and re-arranging $500 pairs of shoes and $600 handbags.

Even economic isolation is not shielding “rogue states” such as Syria from fear of the global financial crisis.

“I worry about it [the crisis],” says one of the shop girls, although she adds that it is not unusual for the store to be almost empty even during normal times, given that its goods are out of the price range of almost all Syrians. “Maybe our sales will go down and maybe some of us will lose our jobs,” she shrugs.

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Carpet maker’s cuts floor rivals

With its high ceilings, enormous crystal chandeliers and marble-covered expanses, the three-floor showroom at the Cairo headquarters of Oriental Weavers has the feel of a temple to carpet making.

Under the gaze of an outsize golden mask of the boy pharaoh Tutankhamen – the company’s emblem – customers can inspect hundreds of examples of every type of woven and printed rug produced by the company.

There are choices in both wool and synthetic fibres and designs ranging from machine-woven copies of traditional Persian styles to shaggy, modern pieces in psychedelic pinks and greens.

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Oil groups to end 40-year exile from Iraq

International oil companies are preparing to go back into Iraq by the end of the year, in spite of Baghdad’s failure to pass an oil law and continuing concerns over security.

BP and Royal Dutch Shell are among companies expected to bid for oil service contracts in June, with the long-term objective of being allowed to develop the world’s third-largest oil reserves.

Executives from many of the world’s biggest oil companies – expelled almost 40 years ago – have assured Iraqi officials they plan to commit to working in the country.

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Heritage soars 25% on Kurdistan find

Heritage Oil has uncovered an oilfield in Iraq’s Kurdistan region that it said could yield more than 4bn barrels of oil. The news sent its shares up 25 per cent.

The announcement by the independent explorer, which comes after a year of large oil strikes in Uganda, increases the oil prospectivity of Iraq’s northern autonomous region of Kurdistan. The region has attracted many other smaller oil companies including OMV, Addax and DNO. However, the discovery also draws attention to the political uncertainty surrounding oil licences in Kurdistan.

Iraq’s central government in Baghdad remains at loggerheads with the Kurdistan regional government in Erbil over the validity of oil licences granted by Erbil. Baghdad has declared many licences invalid, thus holding up full-scale oil exportation for Addax and DNO, the two juniors ready to start exporting through a pipeline controlled by Baghdad.

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