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Tuesday, 26 May 2009

National Bank of Kuwait - Investment Update (PDF)

Merrill: Oil prices could pose risk to economic recovery

The recent rally in crude has been separately characterised as both an instance of irrational exuberance and as a legitimate ‘green shoot’ of economic recovery.
Merrill Lynch, however, firmly sees it as a risk to global recovery, in a research note out Tuesday morning.

Commodity prices have rallied tremendously from their February lows in recent weeks … leading some to argue that rising commodity prices are a sign of the incipient economic recovery. More broadly, risky assets including equities, commodities and high yield bonds have rallied … while the USD has continued to depreciate against both G10 and EM currencies. These sharp, almost violent, market moves have caught many investors by surprise, and there is now a widely held belief that rising commodity prices are a “green shoot” of recovery in the global economy.

However, a very fast increase in oil prices in the coming months could soon put the embryonic economic recovery at risk. In turn, an excessive rally in oil could put an end to the raging bull market in risky assets. Is there a near-term inflexion point in oil prices? Our economists believe that a jump in oil prices to the $70-80/bbl range could start to pose some meaningful risks to economic growth in OECD countries. Meanwhile, our economists see the risks to growth in the $90-100/bbl range for EMs.

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Investor confidence rising as Abu Dhabi stocks seen as most undervalued in the region

SHUAA Capital, the region’s leading financial services institution, today issued its second monthly GCC Investor Sentiment Report, the only report of its kind for the Gulf markets.

The report draws together the submissions from international and regional institutional investors and starts to formulate the GCC Investor Confidence Index.

The Index has been designed to provide the global investment community with a benchmark of investor confidence for GCC countries and track changes in investor behaviour over time.

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UAE needs no mediation on monetary union decision

Minister of State for Foreign Affairs H.E. Dr Anwar Mohammed Gargash has affirmed that the UAE needs no mediation with fellow GCC countries over its decision to withdraw from the Gulf monetary union.

Gargash was quoted today by the Kuwait News Agency (KUNA) as saying the UAE was an active Gulf state that supported the GCC and had open communication channels with other member states.

"Having different views on some issues is a normal matter," he told KUNA.

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Oman – Q1 Oil Revenues

  • Oman posts 56% drop in oil revenues in Q1 2009
  • Sultanate pushing ahead with expansionary public spending plans
  • We expect Oman to grow by 2.5% y/y in 2009

Sovereign Wealth Funds; A Potential Force from Within For Emerging Nations

A lot has been written in recent years about the so-called Sovereign Wealth Funds(SWF’s). Wealth Funds are large pools of money, created by governments or governmental institutions. The Western world is not totally unfamiliar with huge government pools of investments, but normally we associate them with state pension funds. Some wealth funds, like the Norwegian one for instance, do indeed have this form. In other cases the wealth funds resemble long-term investments funds or stabilization funds, used to ensure that one or a few dominant sources of income with volatile prices (e.g. oil and gas) don’t disrupt a country’s national income trends through spectacular ups and downs in GDP caused by large price and / or demand-supply fluctuations.

As so often with new trends, market analysts, journalists and governments have expressed fear that the SWF’s might become too big a force in the market. Are these concentrated portfolios really invested with pure investment motives in mind? Or are strategical and political factors incorporated in the investment philosophy as well? Quite a few pundits have expressed doubts concerning the pure investment activities and skills of SWF’s. They rather stressed the political danger of these institutions.

As if Western goverments do always apply pure investment motives when spending their budgets! SWF’s are extremely large and do invest a substantial percentage of their wealth abroad. Now, if they would have been political entities, investing abroad and going against the rules and regulations of the recipient country is risky. Recipient countries could take nasty countermeasures ranging all the way from court cases and penalties to nationalizations.

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French President Sarkozy to open UAE base

President Nicolas Sarkozy is due to formally open a French military base in the United Arab Emirates, France's first permanent base in the Gulf.

Mr Sarkozy flew to the capital, Abu Dhabi, on Monday with four ministers and a delegation of businessmen.

France is a leading military supplier to the Gulf state, and signed a nuclear cooperation agreement last year.

Its "Peace Camp" will host up to 500 French troops and include a navy base, air base, and training camp.

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Saudi Arabia could see first drop in car imports in 10 years

Saudi Arabia, one of the Middle East's biggest car markets, could see the first drop in car imports in 10 years in 2009 as the financial crisis hits the oil-based economy, said analysts and traders.

The industry, whose 2008 sales accounted for about three per cent of the biggest Arab economy's gross domestic product, is cutting costs by freezing new recruitment, while banks are making access to financing harder, said industry experts.

Global auto manufacturers hope Gulf states will show relative resilience to the global downturn hitting the industry. The Saudi Government has boosted spending to counter the effects of the crisis, but the private sector is widely expected to suffer, mainly from greater caution by banks towards lending.

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KFH halts acquisition talks with Dar

Kuwait Finance House (KFH) has halted talks to acquire Investment Dar's 40 per cent stake in Bahrain Islamic Bank, the lender said yesterday.

"We had an earlier study (about acquiring Dar's stake) from a long time, but it stopped. And this option is not part of KFH-Bahrain's plans these days," Abdul Hakeem Al Khayyat, the Chief Executive of KFH's Bahrain unit, said in a statement.

Investment Dar said in March that it may sell some assets to meet its obligations as it seeks to restructure its debt.

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Analysts divided on UAE mortgage crisis

A sharp decline in the UAE real estate market over the past few months after rapid growth in the previous two years has underscored fears about a possible mortgage crisis in the country.

While some experts believe the situation is still safe, others feel that the decline in property prices has left banks more exposed.

"I think the mortgage loans extended by the UAE banks are still within limits," said economist Mohammed Al Asumi.

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Growth of Islamic funds stalls but investable assets increase

Sharia-sensitive investable assets in 2008 in the GCC and Asia touched $736 billion (Dh2.7 trillion) compared to $267 billion (Dh980 billion) in 2007, said the latest report by Ernst & Young.

"This translates into a potential annual revenue pool of $3.86 billion (Dh14 billion) for the Islamic asset management industry. Fund sizes however remain small, with over 50 per cent having assets under management of $20 million (Dh73.4 million) or less," the report said.

The third annual Ernst & Young Islamic Funds and Investments Report, released yesterday at the World Islamic Funds and Capital Markets Conference, also says 25 Islamic funds were liquidated in 2008 and first quarter 2009 while 18 were liquidated in all of 2006 and 2007.

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NBAD targets Dh3.2b in Islamic disbursals

National Bank of Abu Dhabi (NBAD), the emirate's largest bank by market capitalisation reckons total disbursals through the Islamic Finance channel will reach Dh3.2 billion by the end of 2009.

Disbursals this year alone expected to touch Dh1 billion, a senior executive of the bank's Islamic finance and banking arm said yesterday.

"Our total disbursals through Islamic finance amounted to Dh2.2 billion last year. Lendings were mainly to real estate, energy and industrial sectors," Arif Esmail Al Khouri, general manager of Abu Dhabi National Islamic Finance (ADNIF), told reporters at the official launch of the bank's Islamic finance arm in Abu Dhabi.

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Best for GCC to depeg from dollar: Krugman

The worst of the global economic crisis has "probably" passed, although a quick recovery is unlikely, American Nobel laureate Paul Krugman said at the opening of the Megatrends economic conference in Abu Dhabi on Monday.

Acknowledging his lack of knowledge of nuances of the UAE economy, Krugman stated his view that the UAE, along with its Gulf Cooperation Council (GCC) neighbours stands to benefit from a long-term upward trend in oil prices.

He also opposed regional monetary policies that continue to peg local currencies to the dollar, citing the expected decline in the value of the dollar by the end of the year and larger trading volumes with European and Asian countries.

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Defaults to bring sukuk shake-up

Until the Kuwaiti firm Investment Dar said it had defaulted on a US$100 million (Dh367.2m) Islamic bond, the sukuk market had been largely untested.

The market has had strong growth over the past seven years, with the value of sukuk issued rising from nothing in 2002 to an estimated $90 billion today.

Before the default by Investment Dar, which owns half of Aston Martin Lagonda, no issuer had ever publicly failed to make good on its obligations. But that is changing fast as the financial crisis batters the economies of countries in the Gulf and South East Asia where sukuk have been most popular.

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UAE to stay top FDI destination in Gulf

The UAE expects to remain the main recipient of foreign direct investment in the Gulf Arab region, despite competition from other Gulf states, a senior economy official said on Monday.

“The UAE will continue to be the major player when it comes to foreign direct investment, without any doubt,” Mohammed Ahmed bin Abdul Aziz, director general of the ministry of the economy, told reporters on the sidelines of a seminar in the UAE capital.

“Numbers show where the investment is going -- it’s coming to the UAE,” he said. “The year before last we had 60 percent of FDI in the UAE, last year it was about 50 percent.”

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Capital lowers tourism forecast

The Abu Dhabi Government has lowered its tourism growth forecast in the wake of the global financial crisis, although it still sees the sector as a major driver of the emirate’s economy.

Sheikh Sultan Bin Tahnoon, the chairman of the Abu Dhabi Tourism Authority (ADTA), said the capital’s tourism sector would still experience more than 50 per cent growth on current visitor levels to reach 2.3 million guests by 2012, down from the ADTA’s previous forecast of 2.7 million visitors.

The industry was a key component in the capital’s economic diversification strategy, Sheikh Sultan said.

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Shah field costs plunge by $3bn

Abu Dhabi National Oil Company (ADNOC) will save almost a quarter of the cost of developing the Shah field as it seeks to boost the nation’s oil capacity by tapping toxic “sour” gas reserves.

Costs for developing the field have fallen to US$10 billion (Dh36.72bn) from $13bn, a senior ADNOC official said on Monday.

The chief executive of the company, Yousef Omair bin Yousef, in his opening address to the Gastech conference in the capital, said ADNOC would focus its development efforts on two projects in particular: its joint ventures with the US energy company ConocoPhillips to develop Abu Dhabi’s Shah sour gas deposit and with Germany’s Linde Group to extract nitrogen from air for use in enhanced oil recovery projects.

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Setting for hard times

It cost contractors Dh6,239 (US$1,700) for a tonne of reinforced steel (rebar) and close to Dh400 a tonne for cement when they went shopping this time last year. There was even a black market, as traders were willing to ignore government-imposed price restrictions and contractors were desperate to lay their hands on building materials.

However, with construction projects worth trillions of dollars being scrapped in the once red-hot Gulf construction market, the good times are over for cement manufacturers and steel traders.

Prices have plunged, with steel down almost 70 per cent in a year and cement down roughly 22 per cent. The decline in prices is now stabilising, but a sustained upwards price push in the second half of the year could only happen if the construction sector comes to life again, industry experts say. In the meantime, manufacturers are pinning their hopes on government support to remove price caps and control dumping from foreign firms, giving the market a chance to recover.

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Billion Pound Dubai Property Scandal, Who’s to Blame?

Conservative estimates put the amount of money hanging in the balance in Dubai’s property scandal at around one billion pounds. This is the figure that investors have already allegedly committed to property schemes and ventures that have yet to come to fruition, with one fifth of this sum already having been paid out to potentially less than scrupulous developers.

But in terms of the billion pound Dubai property scandal, who is actually to blame? Was it the greedy speculators who bought and flipped and pushed the value of property through the roof, was it the over ambitious developers, or perhaps we should actually be blaming the government for failing to put adequate controls in place to prevent the boom and subsequent bust?

In this report into the billion pound property scandal we look at who’s to blame in the latest disaster story emerging from Dubai…

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Dubai Leads Global Housing-Market Slump, Knight Frank Reports

Dubai, home to the man-made Palm Jumeirah and World island developments, suffered the biggest reversal among global housing markets following the collapse of an investment bubble, Knight Frank LLP said.

House prices in Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, fell 32 percent in the 12 months ended March 31, according to a report by the London-based property broker published today. A year earlier, homes appreciated at an annual rate of 48 percent.

Dubai “is in a mess,” said Nick Barnes, head of international residential research at Knight Frank. “A lot will depend on developers and how long they can hold on before getting into fire-sale territory.”

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Market cautious ahead of Opec meeting

Saudi oil minister Ali Naimi said yesterday that Opec would "probably stay the course", suggesting the oil cartel would leave its current output levels unchanged.

But the oil market is likely to keep its options open before Thursday's Opec meeting despite the comments by the cartel's de facto leader.

Opec, which produces more than 40 per cent of the world's crude oil, has in the past misled traders and made a U-turn at the very last minute, so many are still prepared for a cut.

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Saudis to ease foreign workers' rules

After working for a year without a day off, Eva, a 37-year-old Filipino housekeeper in Riyadh, wanted a vacation. Her employer thought otherwise, and demanded SR8,000 ($2,139) to obtain her exit visa.

"I just wanted to go home to see my children,'' says Eva, who asked that her surname be withheld. "Madame agreed to sign my exit visa only after I threatened to kill myself."

Saudi Arabia, along with most Arab Gulf states, applies a kafala , or sponsorship, system in which 8m foreign residents, from investment bankers to house maids, work under a sponsor/employer, known as kafeel. The sponsor is responsible for the resident, and must approve exit visas. Without the exit visa, no foreign resident of Saudi Arabia, not even the deceased, may leave.

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Aldar adjusts to property market shift

Throughout the night the rumble of cement mixers and cranes can seem relentless in Abu Dhabi as construction on a stream of multistorey buildings progresses. The contrast with neighbouring Dubai – which has seen its property bubble burst dramatically – is conspicuous.

But even in wealthy Abu Dhabi, where more than $300bn of real estate and infrastructure projects have been announced, the property market has been hit hard. Off-plans sales have all but dried up, prices have declined and workers laid off. Property companies have seen their share prices and revenue plummet, while financing has been squeezed.

The result is a challenging environment for Aldar Properties, the state-backed developer in Abu Dhabi that is behind many of the signature projects that the emirate launched during the boom years.

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Middle East applications to study in UK rise

The number of undergraduates applying to Britain from oil-rich Middle Eastern countries has doubled in only three years, according to Financial Times research.

Increasing numbers of the region’s future elites have been attracted by the international reputation of UK higher education.

Numbers have risen every year since 2001 in spite of big fluctuations in the oil price. Over the past decade, the figure has leapt fivefold.

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G8 move to halt 'farmland grabbing'

Japan will spearhead a drive at the Group of Eight summit to prevent "farmland grabbing" in developing countries and encourage responsible investing in agriculture.

The move shows growing fears among leading nations that rich countries such as Saudi Arabia or South Korea, which are not self-sufficient in food production, are investing in overseas land, particularly in Africa, to boost their food security.

Two United Nations agencies said African countries were giving away vast tracts of farmland to other countries and investors almost free of charge, with the only benefits consisting of vague promises of jobs and infrastructure, the Financial Times revealed yesterday.

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