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Sunday, 30 January 2011

PRAGMATIC CAPITALISM » » THE RISK OF EGYPT: OIL PRICES


Friday’s surge in oil prices due to the turmoil in Egypt and other parts of the Middle East was a wake-up call to the market that the economic ramifications could be wide reaching. The protests in Egypt represent the people’s cries for a more democratic nation. This is obviously a long-term positive and could have a wide ranging impact on the future of Middle Eastern politics and government, however, in the near-term this has the potential to disrupt a very fragile global economy.
The primary risk comes thru the potential for higher oil prices. There is no telling how long the turmoil in Egypt will last and whether or not it will spread to other regions. The risk here is that the uprisings will disrupt oil production and shipment in the Middle East. The WSJ elaborates:
“In the short term, the biggest global economic worry remains oil prices. Egypt itself isn’t a big energy producer. But significant shipments of oil and petroleum products pass through Egypt each day on their way from the Mideast to European and U.S. markets.


Egypt: Mid East markets plunge | beyondbrics – FT.com


The Egyptian crisis continues to reverberate around the financial markets. With global financial centres mostly closed, the action was concentrated on Sunday in the Middle East, where shares suffered their biggest one-day falls in weeks.
Dubai’s index plunged 4.3 percent, in the steepest fall in the region. Egypt’s market was closed after sliding 16 percent last weekend will be shut on Monday.
Paul Herber, co-portfolio manager of the Forward Frontier MarketStrat fund, told Anora Mahmudova of beyondbrics: “The risk of contagion…is quite high.”
Herber said:
The real question is – is the investment flight a short term phenomenon, based upon immediate events or will it continue and expand and turn into a wave of capital pulling out of these assets for longer period. Nobody knows the answer to that.

A month in global macro – emerging markets underperform | gavyn davies – FT.com


In this regular series of weekend blogs on the major events in the world of global macro, the last blog of the month will reflect on the main themes of the whole month, not just the latest week. In January, rising inflation risks in the emerging markets dominated market behaviour and worries about unrest in the Middle East,and the wider impact of higher agricultural prices, replaced the European sovereign debt crisis as the main concern for global markets. Global equities and bonds were little changed during the month, but developed markets out-performed the emerging world. Global and US activity indicators remained encouraging, but the Fed showed no signs of an imminent change in its policy stance. Next week will see the publication of the US ISM and employment data, and the markets will doubtless stay focused on events in Egypt.
This month, I learned that:
1. The emerging markets can go down as well as up. Political risk stemming from events in Egypt is the dominant concern as the month ends, but deeper economic forces are also causing concern in emerging markets. In the past two years, if not for much longer than that, it has been taken for granted that the growth rate in the emerging economies would remain robust, while the performance of the US , Europe and Japan was subject to much greater risk. All of this is still true, over the long term. But, in January, the markets decided that they had become over-confident about the immediate future in the emerging world, mainly because rising agricultural prices led to concerns not only about about political stability but also about the prospects for monetary policy in many emerging countries. This is likely to remain an important issue for markets throughout 2011. If monetary policy in the BRICs and other emerging economies is tightened too much, then emerging equities may have a disappointing year, relative to their developed market counterparts. If, on the other hand, there is insufficient monetary tightening in the EMs, then bubbles could develop in their equity and property markets. In January, the markets leaned towards the former view, so many of the most important equity markets in the emerging bloc, including India and China, fell sharply, even before Egypt took centre stage.


The Wrath of Egypt’s “Friday of Anger” « Alpha Dinar- talking Gulf finance


Egyptians are rioting demanding a change in the country’s political system and the departure of President Hussni Mubarak. The Egyptian stock market reacted negatively to the riots, with the index plummiting more than 16% during Wendesday and Thursday. The markets were closed today, Sunday, from the fears of further losses in the markets.

Egypt is a country with a large weight in the region and the continent, so any disturbance in Egypt will cause shockwaves throughout the world. This is evident in the financial world as stock markets around the world plummeted during Friday to Sunday.


It is worth to note that the Saudi Index fell 6.5% yesterday (saturday) and has recovered aome of its loss today, with the index going up 2.5%. Also, European markets’ decline was helped by bad data in the region.

Egypt Reserves Enough If Investors Want to Transfer Money Out, Okdah Says - Bloomberg

Egyptian Central Bank Governor Farouk El-Okdah said the country has enough foreign currency reserves to accomodate investors should they wish to withdraw funds.

The Cairo-based central bank has $36 billion in reserves, the governor said in a telephone interview today.

Gulf Stocks: Air Arabia, Aldar Properties, DP World, Etisalat - Bloomberg

The DFM General Index dropped 4.3 percent, the most since May 25, to 1,543.96 at 1:15 p.m. in Dubai on concern political unrest in Egypt could spread as protests persisted and the North African country’s president refused to resign. Abu Dhabi’s ADX General Index dropped 3.7 percent. Saudi Arabia’s benchmark stock index gained 2.3 percent after losing 6.4 percent yesterday.

Sawiris Says Suleiman Appointment May `Not Be Enough' to End Egypt Protest - Bloomberg

Egyptian billionaire Naguib Sawiris, the chairman of Orascom Telecom Holding SAE, said the appointment of Omar Suleiman as the nation’s vice president by President Hosni Mubarak may not be enough to satisfy protesters.

“I think it is not enough,” Sawiris said in a telephone interview today from Egypt. “It’s a good step because the gentleman, Mr. Suleiman, has a very good international reputation. He is from the system so he can at least ensure that the current transition to a more democratic regime can happen.”

Suleiman’s appointment yesterday makes him the first vice president since Mubarak’s ascension to power in 1981. The move came as thousands of protesters congregated in central Cairo, defying a military-imposed curfew, and looting erupted in several cities. Mubarak also named Aviation Minister and former air force commander Ahmed Shafik as prime minister to replace Ahmed Nazif, who resigned yesterday at Mubarak’s request.

North Africa now under close scrutiny from investors - The National

Investors from the Gulf and elsewhere are re-examining their strategies as they gauge the economic consequences of the political change sweeping the area.

North Africa's populous countries in recent years positioned themselves as receptive to foreign investment and tourism, even as their political systems stagnated. Outside investors, in turn, put billions of dollars into Egypt, Tunisia, Algeria, Morocco and other parts of a region that has experienced robust economic growth for years. Tourists, too, came by the millions.

But with the ousting of Tunisia's government, along with violent clashes in Egypt, Algeria, Yemen and Lebanon, new questions are being asked about the demographics and economic growth that made those countries ripe for investment. Analysts now say foreign investors are taking a stance more cautious than ever before over the region, which has suffered a sudden flight of capital in bond, equity and currency markets.

UPDATE 1-Dubai Investments Q4 net profit drops 36 percent | Reuters

UAE conglomerate Dubai Investments DINV.DU reported a 36 percent drop in its fourth-quarter profit, as revenues for 2010 fell as the local economy remained weak after the burst of the asset bubble two years ago.

Dubai Investments, which is involved in sectors from real estate to manufacturing, said its profit for 2010 was 804.9 million dirhams ($219.2 million).

Its net profit for the fourth quarter is 89.7 million UAE dirhams ($24.43 million), according to Reuters calculations. The company made a profit of 141 million dirhams during the same period last year.

UPDATE 1-Gulf markets tumble on Egypt turmoil, contagion fears | Reuters

Gulf stock markets tumbled on Sunday as investors, rattled by turmoil in Egypt and concerns the unrest may spread, shed their positions to push indices to multi-week lows.

Egyptian protesters were on the streets again in central Cairo on Sunday, demanding President Hosni Mubarak step down while security forces struggled to contain looters. [ID:nLDE70S0LV]

Egypt's bourse .EGX30 was shut on Sunday after falling 16 percent in two days last week. The Egyptian pound EGP= has fallen to six-year lows.

Qatar Holding snaps up stake in farmland venture Adecoagro - ArabianBusiness.com

Qatar Holding, the investment arm of Gulf state’s sovereign wealth fund, has taken a stake in South American farmland venture Adecoagro following the firm’s US initial public offering.

The Gulf fund agreed to buy stock equal to about 25 percent of proceeds in the IPO, which raised $314m for Adecoagro.

The initial offering comes as commodity prices rally and food prices reach record highs.

Big reason for hope in Iraq: Oil, and lots of it - MiamiHerald.com

On a bleak stretch of desert near the Iraq-Kuwait border - half a world away from the Gulf of Mexico and last year's nightmarish blowout - BP is riding high, rapidly developing one of the world's richest oil fields.

The British energy giant plans to drill 3,000 new wells here over the next 10 years and build a town from scratch to house 4,000 employees. BP and Iraqi officials hope the Rumaila field soon will become the second most productive in the world - after Saudi Arabia's Ghawar - propelling the country into competition with Saudi Arabia and its other powerful oil-producing neighbor, Iran.

Iraq sits on the world's third-largest oil reserves, after Saudi Arabia and Venezuela, with the biggest known fields lying under the windswept sands outside Basra. Despite aging pipelines, spotty electricity, chronic insecurity and a maze of inefficient bureaucracy, the oil sector is pressing an ambitious expansion plan that will determine Iraq's economic future long after the last American soldiers withdraw at the end of the year.

Egyptian Bourse, Banks Will Stay Closed Today After Anti-Mubarak Protests - Bloomberg

The Egyptian bourse will be closed today following clashes yesterday between thousands of protestors and police in central Cairo, the fifth day of unrest. Banks also will be shut, State TV said.

The North African country’s benchmark stock index had tumbled 16 percent in the prior two trading days, and Egypt’s dollar-bonds fell, pushing yields to record highs on Jan. 28. Fitch Ratings said it may cut the nation’s credit rating. The exchange is North Africa’s second-largest market by capitalization after Morocco.

“No one expected this to take place and at such a fast sequence of events,” said Mohamed Radwan, head of international sales at Cairo-based Pharos Holding for Financial Investment. “The critical time frame for the market is from now until the implementation of economic and democratic reforms demanded by the people.”

gulfnews : Kuwait's exceptional budget for 2011-12

Kuwait's budget for fiscal year 2011-12 is exceptional in many respects. On the one hand, projected revenues and expenditures are up by nearly 38 per cent and 10 per cent, respectively, undoubtedly sizable figures in a span of a single year.

On the other hand, the figures confirm ever-growing significance of the state in the local economy. The projected spending of $64 billion amounts to 54 per cent and 44 per cent of the country's gross domestic product (GDP) in nominal and purchasing parity terms, respectively, undoubtedly exceptional.

The figures clearly suggest that Kuwait's economic well-being is too dependent on public sector spending, and in turn on oil income.

Investors shaken by protests in Egypt - The National

Saudi Arabia's main stock index fell 6.4 per cent yesterday following unprecedented protests on the streets of Cairo that have shaken investors around the world.

The Tadawul All-Share Index suffered its biggest daily fall since May, mirroring volatility on Friday in most of the world's major stock markets. Oil rose by 4.3 per cent to US$89.34 per barrel late on Friday on fears that the protests in Egypt could disrupt crude shipments through the region.

Gold, a traditional safe haven for investors, was up 1.7 per cent to $1,341.70 an ounce, its biggest increase since late last year. Prices for US government debt - another safe-haven investment - have also been on the rise.

Arab Leaders in Davos Predict Regime Change in Egypt - NYTimes.com

The unrest engulfing Egypt caught business and political leaders at the World Economic Forum off guard, but it became the hottest topic among the Arab elite here. Most of those leaders tuned in to the dramatic events from iPads and BlackBerrys and huddled to debate how the uprising would affect the rest of the Arab world.

“It’s all anyone’s talking about,” said Sheik Mohammed bin Essa al-Khalifa of Bahrain, who leads the nation’s economic development board and participated in many of the discussions.

For the most part, the consensus was that President Hosni Mubarak of Egypt would not easily relinquish his authoritarian grip, an outcome that became more evident as he named Omar Suleiman, the country’s intelligence chief and a close ally, as his vice president on Saturday.