Google+ Followers

Monday, 13 September 2010

UAE banks fit enough to give worries over Basel brush-off - The National Newspaper

Higher capital levels among UAE banks mean they are unlikely to be significantly concerned by tougher global rules requiring them to bolster the amount of cash they keep in reserve.

Local lenders already have to hold larger capital buffers to guard against financial risks than are stipulated by the new Basel III regulations.

“With UAE banks being amongst the best capitalised on a global scale, they are on the safe side compared to their European or US counterparts,” said Sofia el Boury, a banking analyst at Shuaa Capital."

Dubai World Deal No Panacea For Emirate’s Woes - The Source - WSJ

The Dubai World debt saga is finally about to end. At least so the troubled conglomerate would have us believe, after claiming support from a majority of creditors for restructuring the billions of dollars it owes them. Read our coverage here.

Admittedly the claim came a day after the deadline late last week for Dubai World’s senior creditors to accept a lock-up agreement. But, still, Dubai’s powers that be clearly reckon the development warrants celebration and they may be right, at least in the near term.

The local stock market rallied 2.4% Monday. But it’s still down more than 22% since the end of November when Dubai World initially shocked global markets by announcing the freezing of its debts. Dubai’s government has said creditor support for Dubai World’s restructuring plan would be a key step towards putting the company on a sound and stable financial footing. But neither the emirate itself nor its other big companies can be said to be there yet.

U.A.E. Banks Prefer Higher Interest on Dubai World Debt, Mashreq CEO Says - Bloomberg

United Arab Emirates’ banks will prefer higher interest rates to a government guarantee under Dubai World’s $24.9 billion debt restructuring plan, Mashreqbank PSC Chief Executive Officer Abdul Aziz al-Ghurair said.

Foreign lenders to state-owned Dubai World will prefer the option that includes the government guarantee and lower interest rates, al-Ghurair said in an interview to Al-Arabiya TV.

Dubai World announced Sept. 10 that creditors representing more than 99 percent of the value of its loans accepted the debt plan. The loans include $14.4 billion of bank debt, of which $4.4 billion will be repaid in five years and $10 billion in eight years. The remainder is owed to the government and will be converted into equity.

Dubai Shares Climb to 3-Month High on $24.9 Billion Dubai World Debt Deal - Bloomberg

Dubai’s benchmark stock index rose to the highest in more than three months after Dubai World received approval from creditors to change the terms on $24.9 billion of debt payments.

Emirates NBD PJSC, the United Arab Emirates’ biggest bank and one of Dubai World’s main lenders, jumped the most in more than two years. Emaar Properties PJSC, the developer of the world’s tallest skyscraper, gained for a sixth day. The DFM General Index advanced 2.4 percent to 1,630.85, the highest close since May 24. The measure has gained 9.9 percent in September. Credit-default swaps tied to Dubai narrowed.

“Investors like the certainty that the deal brings,” said Dubai-based Tariq Qaqish who helps manage around $100 million at Al Mal Capital PSC. “Now they will be able to better predict issues with provisioning levels or earnings going forward.”

GCC Market Analytics: Weekly Market Breadth Analysis (Week 38)

Apart from Bahrain, all GCC markets are displaying positive market breadth this week. To understand what this might mean for future price action please see here and here.

For an explanation of how to interpret the charts below please see here.

Enjoy.







Dubai World Debt Accord Is `Credit Positive' for U.A.E Banks, Moody's Says - Bloomberg

Dubai World’s approval from creditors to alter the terms on $24.9 billion of debt is “credit positive” for banks in the United Arab Emirates, according to Moody’s Investors Service.

The debt restructuring accord “puts an end to the uncertainty that the threat of a liquidation had created,” Dubai-based analyst John Tofarides wrote in an e-mailed report today. “Had an agreement not been achieved, the potential liquidation of Dubai World could have seriously increased the impairment costs that banks would have incurred, throwing confidence in the U.A.E. banking system into havoc.”

The state-owned holding company is “well positioned to close the restructuring in the coming weeks” after agreeing with about 99 percent of creditors, Dubai World said on Sept. 10. The agreement also “marks the support of the creditors to the separation,” of real-estate developer Nakheel PJSC from Dubai World, said Sheikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee.

Invest AD, SBI Holdings of Japan to Create Joint $100 Million Africa Fund - Bloomberg

SBI Holdings Inc. of Japan and a unit of Abu Dhabi Investment Council will create a $100 million fund to invest in African companies in Nigeria, Ghana, Kenya, Egypt, Tunisia and Morocco. SBI Holdings and the unit, Invest AD, will each contribute 50 percent. The Japanese venture capital fund manager made the announcement in a release to the Tokyo Stock Exchange.

Dubai Shares Climb to 3-Month High on $24.9 Billion Dubai World Debt Deal - Bloomberg

Dubai’s benchmark stock index rose to the highest in more than three months after Dubai World received approval from creditors to change the terms on $24.9 billion of debt payments.

Emirates NBD PJSC, the United Arab Emirates’ biggest bank and one of Dubai World’s main lenders, jumped the most in a year. Emaar Properties PJSC, the developer of the world’s tallest skyscraper, gained for a sixth day. The DFM General Index advanced 2.6 percent to 1,633.17, the highest intraday level since May 25, at 1.02 p.m. in Dubai. The measure, down 9.5 percent this year, has gained 10 percent in September. Abu Dhabi’s gauge increased 1.4 percent.

“Investors like the certainty that the deal brings,” said Dubai-based Tariq Qaqish who helps manage around $100 million at Al Mal Capital PSC. “Now they will be able to better predict issues with provisioning levels or earnings going forward.”

OPEC in Comfortable Middle Age, Turns 50 Years Old Tomorrow: Timeline - Bloomberg

The Organization of Petroleum Exporting Countries turns 50 years old tomorrow, having survived a tumultuous history of wars, embargoes and in-fighting. The world’s oldest and largest energy producer group is now enjoying prices close to the $75 a barrel level that its largest member Saudi Arabia considers “ideal.”

OPEC’s Timeline:

Sept. 14, 1960: The organization was born in Baghdad. The five founding members -- Iran, Iraq, Kuwait, Saudi Arabia and Venezuela -- created the group during a five-day meeting in the Iraqi capital, dedicated to “the coordination and unification of the petroleum policies of Member Countries and the determination of the best means of safeguarding their interests.”

Sept. 1, 1965: The group moved its headquarters from Geneva to Vienna, where its secretariat is now based. Between 1961 and 1971 the following six countries join: Qatar, Indonesia, Libya, the United Arab Emirates, Algeria and Nigeria.

September a time for hit and myth on markets - The National Newspaper

"Among market watchers, the annual “post-Ramadan bounce” in share prices is almost a given – even though history suggests that such a rally is more myth than reality.

The new regulations announced by the Emirates Securities and Commodities Authority yesterday were a response to depressed volumes and prices in recent months, but many investors were already expecting a jolt once markets re-opened after Eid.

“Usually you get a slight pop after Ramadan. People go in, feel good and volumes increase,” said Muneef Tarmoom, an Abu Dhabi investor, echoing the comments of many market players last week."

New rules for ailing brokerages - The National Newspaper

"The federal stock market regulator is to overhaul the country’s brokerage rules to try to bolster the health of companies operating in the flagging sector.

The Emirates Securities and Commodities Authority (SCA) yesterday announced draft regulations that would make it easier for brokerages to merge and reduce the minimum number of brokers in a company to two from four. The SCA also cancelled the licences of two brokerages.

“The board recognises the revenues coming in now are not exactly what they used to be,” said Hassan el Salah, the head of institutional trading at AlRamz Securities in Abu Dhabi."

Dubai. The Week Ahead.

So, we have our post hoc explanation for last week's market rise in Dubai: Dubai World Debt Plan Wins Support.

Is this good or bad news for the market? I don't know and, to be honest, I'm not a big fan of trying to interpret how large groups of people will react to news stories such as these.

If the market zooms up next week we'll be told that the debt plan agreement has restored confidence in Dubai. Should the market do very little next week this will be because the news of the debt plan agreement had already been "priced in." And if there is any sizable fall in the market that will be due to "profit taking."

By the end of next week the appropriate explanation will be obvious. Retrodicting is easy. Prediction is a little harder.

So, whilst acknowledging the potential importance of the Dubai debt plan agreement I'm going to revert to my regular analysis approach: determine the current state of the market and analyse what has happened in the past under similar conditions.

With this in mind, below are a couple of interesting things I noticed about the Dubai market last week and what they might mean for the upcoming trading week.

1. Volume

On an absolute basis the volume increase that accompanied last week's market rise was nothing spectacular. Below is a chart of the volume for the DFM General Index. As you can see, the recent volume has so far not even matched the volume levels seen previously this year in June/July.




However, looking at absolute volume levels doesn't take into consideration the overall volume environment of the market. A daily volume increase of one million shares can be significant in a low volume environment but but less so in a high volume environment. Normalising the volume data makes it easier to compare relative volume changes over time. Below is a chart showing the normalsed volume for the DFM General Index going back to the beginning of 2006.



There are many ways to normalize volume data but I've chosen a simple method that calculates how far current volume levels are from their 20-day average. For example, on Monday last week the volume in Dubai was over two hundred million shares which was about 270% greater than the average over the previous 20 days.

As you can see, the level of normalised volume seen last week (highlighted on the chart above) is fairly rare and has only been exceeded twice since the beginning of 2006.

So, in absolute terms the current volume levels aren't very significant. However, when we take into account the current low volume environment of the Dubai market the actual volume increases seen last week were very unusual. The question is does this tell us anything useful regarding future price action.

Below is the performance of the DFM General Index during and after high normalised volume periods. The red line is the performance of the DFM General Index for the five days following a daily volume level which is 150% greater than the average volume of the last 20-days. The green line is the same but for volume levels that are 200% greater than the average volume of the last 20-days.




From the chart above, it looks like the five days following high normalised volume days have tended to be bullish for the Dubai market. When volume has been greater than 150% of the 20-day average the market has been higher five days later 75% of the time (21 out of 28 instances) for an average gain of 6.55%. When volume has been greater than 200% of the 20-day average the market has been higher five days later 83% of the time (15 out of 18 instances) for an average gain of 5.83%.

Whilst the sample size isn't massive there is a definite tendency for a sizable market increase in the week following high normalised volume periods.


2. Price Activity

I noticed on Monday that the Dubai market had closed on it's high for the second day running. Exactly on its high, that is. I looked to see how often this had happened in the past. The answer? Never.

Then on Tuesday the same thing. Another close on the high. Three days is a row.


What to make of this? An oddity to be ignored? A manifestation of the strength of the market and an indication of further strength to come? Or a sign of "irrational exuberance" and that the market has gone too far too quickly?

Because there are no prior instances of the market closing on it's high three days in a row (or even two days in a row) I decided to test what had happened when the market had closed very near its high. The chart below shows the five day performance of the DFM General Index when it closed in the top 90% of it's daily trading range for two days in a row (blue line) and three days in a row (red line).


When the Index closed in the top 90% of it's daily trading range for two days in a row the following five day performance was positive 78% of the time (25 out of 32 instances) with an average gain of 4.90%. In the 22% of instances where the Index didn't close higher five trading days later the average loss was -2.97%.

For three days in a row the following five day performance was positive 98% of the time (11 out of 12 instances) with an average gain of 3.34%. The only instance where the Index didn't close higher five trading days later resulted in a loss of -0.66%.

So, the fact that the market has closed at its highs three days in a row has historically been a sign of strength and that higher levels are to come, for the next five trading days at least.


Conclusion

So, two studies pointing to higher levels for the Dubai market this week. Did I miss all the studies that point to a market crash this week? Probably.

Dubai Shares May Rally as Dubai World Creditors Approve $24.9 Billion Deal - Bloomberg

Dubai shares may extend their September rally after Dubai World received approval from creditors to change the terms on $24.9 billion of debt, according to Credit Suisse Group AG and Al Fajer Securities LLC.

“I expect another 5 percent increase at the open, but not much more than that because the market has already climbed” in anticipation of a deal, Mohamed Dwaikat, senior broker at Al Fajer Securities in Abu Dhabi, said yesterday. “We’re sensing a lot of optimism among investors we have been in touch with” since the announcement.

The Dubai Financial Market General Index has surged 7.3 percent to 1,592.24 this month, paring the decline for the year to 12 percent. That compares with a 2010 gain of 2.4 percent for the MSCI Emerging Markets Index. U.A.E. markets open today for the first time since the state-owned holding company said Sept. 10 it agreed with about 99 percent of creditors on its debt restructuring.

CTV News | Saudi Aramco eyes developing markets

Saudi Aramco expects global demand for crude to climb steadily on the strength of booming emerging markets, and is ready to boost production as soon the market warrants.

In an interview Sunday, Khalid al-Falih said the world’s largest oil producer is increasing its focus on the rising markets of China and India, but not at the expense of North America, where it expects to remain a secure and valued supplier.

The Texas-educated engineer has been at the helm of Saudi Aramco, the Kingdom of Saudi Arabia’s state-owned oil company, for nearly two years. He was in Montreal for the World Energy Congress, a meeting of global energy executives and politicians.

FT.com - US creditor snubs deal on Dubai World debt

Aurelius Capital Management, a US distressed debt fund, is the only creditor of Dubai World not to have approved a restructuring agreement on the troubled conglomerate’s $25bn of liabilities, according to people close to the talks.

Dubai World said on Friday that it had reached a formal agreement to restructure a total of $24.9bn, which includes $10bn owed to the government, with more than 99.9 per cent of its creditors.

The deal involves Dubai World repaying its loans over five to eight years, at sub-commercial interest rates.