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Tuesday, 21 June 2011

For Whom The Bells: MSCI Market Reclassification Expected Today (Possible impact)

MSCI (NYSE: MSCI), the index provider that lends its name to scores of ETFs, particularly in the emerging markets arena, is expected to announce its widely anticipated market reclassification this evening at around 5 PM Eastern time, news that could mean big things for the iShares MSCI Emerging Markets Index Fund (NYSE: EEM [FREE Stock Trend Analysis]) and its larger rival, the Vanguard MSCI Emerging Markets ETF (NYSE: VWO).

As we recently noted, South Korea and Taiwan are two prime candidates to make the leap to developed market, while Qatar and the United Arab Emirates could jump to emerging markets status from frontier market, according to Tim Seymour.

If both South Korea and Taiwan get a promotion, EEM and VWO will have some sizable gaps to fill as those two countries account for over 26% of both ETFs' country weights. Not only that, since South Korea and Taiwan are cash markets, a taxable distribution would be created to EEM and VWO shareholders since the ETFs would have to sell Korean and Taiwanese stocks and replace them with other fare.

Kuwait’s NBK Ratings Lowered at Moody’s on Unrest, Credit

National Bank of Kuwait (NBK) SAK, the country’s biggest lender, had its ratings lowered at Moody’s Investors Services because of concerns about pressure on asset quality and weaker credit conditions at home.

The bank’s standalone bank financial strength rating was cut to C from C+, while the long-term global local currency and long-term foreign currency deposit ratings were reduced to Aa3 from Aa2, Moody’s said in a report today.

“The action was driven by Moody’s expectations that in 2011, NBK will experience asset quality pressure arising from its operations in countries experiencing political unrest, mainly in Egypt,” where NBK’s Al-Watany Bank of Egypt accounts for 6.1 percent of group assets, Moody’s said.

MENA stock markets close - June 21, 2011

 ExchangeStatus IndexChange  
 TASI (Saudi Stock Market)
 DFM (Dubai Financial Market)
 ADX (Abudhabi Securities Exchange)
 KSE (Kuwait Stock Exchange)
 BSE (Bahrain Stock Exchange)
 MSM (Muscat Securities Market)
 QE (Qatar Exchange)
 LSE (Beirut Stock Exchange)
 EGX 30 (Egypt Exchange)
 ASE (Amman Stock Exchange)
 TUNINDEX (Tunisia Stock Exchange)
 CB (Casablanca Stock Exchange)
 PSE (Palestine Securities Exchange)

Experts split on talk of Dubai real estate recovery

Dubai’s embattled real estate market is showing signs of stability amid a global stall in the growth of house prices, real estate consultancy Knight Frank said.

The Gulf’s worst-performing property market in the last three years has seen house prices rise 2.1 percent since October, with a modest 0.6 percent increase in the first quarter.

By comparison, global house prices rose just 1.8 percent in the year to March, the lowest annual rate of growth recorded since the last quarter of 2009, the consultancy said.

Abu Dhabi shares drop most since March as EFG-Hermes cuts ADCB

Abu Dhabi shares fell the most since March, led by banks, after Abu Dhabi Commercial Bank was lowered to "neutral" at EFG-Hermes Holding.

ADCB, the UAE’s third-largest bank by assets, slumped the most in four months, trimming the gain for the year to 47 percent. EFG-Hermes’ cut followed a reduction at Goldman Sachs Group Inc. yesterday. Emirates Telecommunications Corp., also known as Etisalat, dropped 1.4 percent. Abu Dhabi’s ADX General Index declined 1 percent, the most since March 31, to 2,730.54 at 12:58 pm in the emirate. The Bloomberg GCC 200 Index increased 0.7 percent.

“ADCB Investors decided to book profits after its big run up this year,” said Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities. Earnings may stabilize the stock “as it is expected to book around AED1.5bn ($408m) in profits - mainly from the one-time sale of RHB bank.”

Dubai's Nakheel to delay bond issue until July - sources

Dubai World's property arm Nakheel has delayed offering an Islamic bond, or sukuk, until July as part of its $10.9 billion debt restructuring plan, two sources familiar with the matter said.

The developer, which overstretched itself with projects such as islands in the shape of palm trees, has said it expected its debt restructuring process, including the sukuk issue, to be completed by the end of the first half of 2011.

"The end of June was always an ambitious goal," one of the sources told Reuters, speaking on the condition of anonymity.

Mubadala gets Indonesian approval for Ruby Gas field - Maktoob News

Abu Dhabi's Mubadala said on Tuesday its energy unit plans to develop a gas field in Indonesia with its partners, investing $500 million, its first project in the south Asian country.

The Ruby gas field won approval from Indonesia's upstream oil and gas agency, Mubadala said in a statement.

The field partners are Pearl Oil, a wholly-owned subsidiary of Mubadala's Pearl Energy, which will have 70 percent stake in Ruby, Total E P Sebuku and INPEX South Makassar Ltd, with both 15 percent each.

Kuwait National Airlines Fails to Reach Settlement With Alafco

Kuwait National Airlines Co. (KNA) K.S.C. failed to reach a settlement with Aviation Lease & Finance Co. on the payment of $70 million for an aircraft leasing deal, Kuwait National said in a statement to the Kuwait Stock Exchange today.

Aviation Lease, known as Alafco, hasn’t yet received any response to a final settlement proposal sent to Kuwait National on June 14, Alafco also said in a statement to the Kuwait bourse today.

Shareholders in Kuwait National Airlines, the holding company that owns Wataniya Airways, in May postponed a vote on raising the company’s capital to 65 million dinars ($237 million), pending agreement by the company on Alafco’s demands. Kuwaiti carrier Wataniya Airways halted operations in March, two years after starting up.

Dubai’s Majid Al Futtaim May Sell Five-Year Bonds to Fund Expansion

Majid Al Futtaim Holding LLC, the Dubai-based owner of the City Center shopping malls, may sell five-year bonds to help refinance borrowings, fund expansion and extend debt maturities.

“The bond market offers the right maturity profile for us,” said Daniele Vecchi, group treasurer for the company. Banks prefer to lend for two to four years while it takes longer than that to build a shopping mall and for it to begin generating cash, he said.

Majid Al Futtaim announced a $2 billion medium term note program June 14, filing a prospectus with the London Stock Exchange. Barclays Capital, Emirates NBD PJSC (EMIRATES) and Standard Chartered Plc (STAN) will arrange the transaction.

The gas revolution is here - but which approach is best?

It used enough steel to build an Eiffel Tower every 12 days, 52,000 people worked on it, and it cost almost US$20 billion (Dh73.46bn).

Royal Dutch Shell's Pearl gas-to-liquids plant at Ras Laffan in Qatar delivered its first cargo of synthetic fuels on June 13, and at full capacity, it will yield a quarter of Qatar's entire oil output.

Halfway around the world another enormous project is taking shape, Shell has just committed to building a floating liquefied natural gas (LNG) plant at its Prelude field off Western Australia. The plant, which will super-cool gas so it can be delivered worldwide by tanker, will be the largest floating structure ever built, six times as large as a Nimitz-class aircraft carrier.

Opinions divided over rally by UAE lenders

The jury is out on whether the UAE's banks can sustain their recent rally as significant uncertainty clouds the sector, but Union National Bank (UNB) seems better positioned than some rivals.

Goldman Sachs and Global Investment House yesterday issued research notes with opposing views of the UAE's banking system. Global gave a thumbs up, Goldman a thumbs down, citing the impact on profits because of Central Bank rules on personal loans. Among the top five UAE banks, UNBderives the lowest proportion of fees from retail loans, according to Global. That limits the extent of a dip in profitability from the Central Bank's recent broadside on retail lending.

Analysts set a lower price target of Dh4.70 per share but maintained their"strong buy" recommendation, saying the stock had plenty of room to grow.

MENA stock markets close - June 20, 2011 (Delayed from yesterday)

 ExchangeStatus IndexChange  
 TASI (Saudi Stock Market)
 DFM (Dubai Financial Market)
 ADX (Abudhabi Securities Exchange)
 KSE (Kuwait Stock Exchange)
 BSE (Bahrain Stock Exchange)
 MSM (Muscat Securities Market)
 QE (Qatar Exchange)
 LSE (Beirut Stock Exchange)
 EGX 30 (Egypt Exchange)
 ASE (Amman Stock Exchange)
 TUNINDEX (Tunisia Stock Exchange)
 CB (Casablanca Stock Exchange)
 PSE (Palestine Securities Exchange)

$210bn Islamic finance industry comes to Oman

The Islamic finance industry is currently valued at $1 trillion worldwide, of which $210 billion is invested in the Middle East.

Following the Royal Decree by His Majesty the Sultan authorising Sharia-compliant financial products in Oman, International Turnkey Solutions (ITS), a global leader in Islamic banking technology solutions successfully concluded its first 'Oman Islamic Banking Conference 2011,' attended by over 80 banking decision makers, Islamic banking experts and financial organisations.

“Worldwide, some of the most renowned international banks use Islamic finance instruments such as sukuk (Islamic bonds) to raise funds for Sharia minded ethical investors,” said Mohamed Roushdy, Chief Information Officer, Siraj Finance, who presented an overview on migrating conventional banking structure to Sharia-compliancy.

“We believe that Islamic banking principals are ever more relevant today, given the chaos created by the financial crisis. Conducting business guided by Islamic principles, provides investors with confidence and peace of mind in today's turbulent global marketplace.”

U.A.E. May Win MSCI Emerging-Market Status Amid Limits on Stock Ownership

The United Arab Emirates’ improved securities settlement system may help MSCI Inc. (MSCI) overlook foreign-ownership limits and boost the nation to emerging-market status, Franklin Templeton Investment Management Ltd. said.

Introduction of the so-called delivery-versus-payment, a program for completing stock transactions, may spur MSCI to lift the U.A.E. from its frontier market ranking, said Joe Kawkabani, Franklin Templeton Investments (ME) Ltd.’s chief investment officer of equities in Dubai. Three other countries eligible for upgrades -- Qatar, South Korea and Taiwan -- probably will stay in their respective categories, analysts and investors said. MSCI is due to announce the decisions at 10 p.m. London time.

The U.A.E. has “solved most of the issues mentioned by MSCI,” Kawkabani of Templeton, which oversees about $54 billion in emerging markets, said in a June 19 phone interview. “If the U.A.E. becomes part of the MSCI emerging-markets index, it would have a very small weighting because of the foreign ownership limits. It’s still a big positive as it puts the U.A.E. on additional radar screens for investors.”

Taqa sees power prospects amid unrest

Taqa, the Abu Dhabi-owned energy company, wants to develop its Middle East business as regional unrest accelerates demand for power and the company’s Emirati links give it scope to venture in places that other investors fear.

After years of buying assets around the world, Taqa aims to focus on its work in countries from the western reaches of north Africa to the tip of the Gulf peninsula, as political change brings potential commercial dividends.

The strategy shows how companies that are comfortable working in the region see the upheaval as a long-term boon for business, even as this year has seen economic growth and foreign investment plummet in countries hit by unrest.

Qatar & UAE: upgrade prospects dim

It’s one day until MSCI decides whether Qatar and the UAE qualify for upgrades from frontier to emerging market status, and even once optimistic investors are now rather unconvinced that it’ll happen.

“If you saw betting on the market [upgrades] you’d have seen it outperform the other markets,” said Yazan Abdeen, head of Middle East equities for ING in Dubai.

But the two countries’ markets to date this year have not, in general, outperformed any markets except those that have been hit directly by political unrest.

Azerbaijan: Islamic Banking Knocking on the Door

In a sign that Islam’s role in Azerbaijan may be slowly evolving, the country’s largest and only state-owned bank, the International Bank of Azerbaijan, plans this autumn to open a specialized branch offering limited Islamic banking services.

A prohibition on charging interest for loans is the major distinction between Islamic and Western-style banking. Instead of interest, Islamic banks take a stake in businesses to which they loan money, and share both the profit and loss with the client.

Several Azerbaijani banks already offer such loans, but Azerbaijani law does not authorize a full range of Islamic banking services. By setting up an Islamic banking services branch, the International Bank of Azerbaijan (IBA), as a state-owned financial institution, is sending signals that that situation could start to change.

Changes to the Kuwait Stock Exchange

It has been announced that there is some changes that are going to occur at the Kuwait Stock Exchange. The KSE will change the categories to which stocks belong to. The new categories (or Sectors) include: Oil and Gas, Basic Materials, Consumer Goods, Healthcare, Consumer Services, Telecom, Banks, Insurance, Real Estate, Financial Services, and Technology.  The move seems reasonable as the new categories will be more specialized rather than having a generic “Services” category. However, I think it will be difficult to fill some of these categories, such as Technology, Healthcare, and Basic Materials.
Also, a new index will be added, named “Kuwait 15″, which includes 15 of the biggest companies listed on the KSE, based on both market value and volumes. The index is to be adjusted semi-annually. I think the new index would be a better indicator of the overall market as many companies in the current benchmark are not traded frequently, distorting the returns of the benchmark.
Below is the what companies the Kuwait 15 will probably include:

National Industries and Gulf Cable are ranked 16th and 17th in terms of size, but are very close to Agility (15th).