Saudi Stock Market Weekly Report - 8-July-2009 (PDF)

Guest post: Mohamed El-Erian - “The crisis is morphing again” (Complete article)

Pimco’s chief executive comments on the suggestion from US presidential adviser Laura Tyson that America should consider drafting a second stimulus package, since the $787bn plan agreed in February is proving “a bit too small.“

Dr. Laura D’Andrea Tyson’s comments at the Nomura Equity Forum in Singapore were attracting considerable market attention on Wednesday, and rightly so. They come at a time when policy indications—actual, expected and perceived—have already become important drivers of relative and absolute valuations in a number of markets.

Tyson echoed Vice President Biden’s weekend remark, observing that the US economic situation has turned out worse than what was forecast just six months ago. Interestingly, she also went further and suggested that, with hindsight, the government’s fiscal stimulus package was too small and a new one should be considered.

Tyson’s comments are sure to fuel a debate that will place policymakers in an even more challenging situation; and this becomes even more intriguing if you agree with the view I expressed in an FT comment piece last Friday that “consensus” currently underestimates how high the US unemployment rate will go AND how long it will persist at unusually high levels.

The Tyson remarks are a vivid illustration of the extent to which the emphasis of the policy debate is shifting from the normalization of the financial markets to countering a worse-than-expected deterioration in jobs and wages. Indeed, while 2008 was about the serial unthinkables in the financial markets, this year is all about the lagged economic, political and institutional effects.

All this should make us feel even greater sympathy for policymakers. The nature, severity and continuous morphing of the global crisis have already put them on the defensive. Inevitably, “first best” policy solutions are elusive; and even in the world of second and third best, what is economically desirable is increasingly becoming politically infeasible; and what is politically feasible may well turn out to be economically undesirable.

As an example, consider the complex tug of war that faces policymakers keen to counter the poor and deteriorating employment picture. The attractiveness of another stimulus package is tempered by the realization that the country’s fiscal and debt dynamics have weakened considerably; and the possibility of maintaining loose monetary policy for a very long time (as a way to stimulate aggregate demand while, simultaneously, starting to restore fiscal sustainability) could eventually contaminate both inflationary expectations, as well as the global status and value of the US dollar.

The bottom line is a simple yet powerful one. The global crisis is morphing again. Having already contaminated (in a sequential and cumulative manner) housing, finance and the consumer, it is now threatening the potency and credibility of the economic policy making apparatus. As far as I can see, there are no first best policy responses that are readily available and easy to implement. Instead, the economy will continue to struggle, navigating both the adverse implications of last year’s financial crisis and the unintended consequences of the experimental policy responses. Given the inevitable socio-political dimensions, this story will play out well beyond the realm of the economy, policymaking and markets.

Mohamed A. El-Erian is chief executive and co-chief investment officer of PIMCO. His book ‘When Markets Collide’ won the 2008 FT/Goldman Sachs Business Book of the Year.

Emaar merger value destroying, 'distressing'

A merger between Dubai's Emaar Properties and three local firms is likely to be more distressing than supportive due to strategy uncertainty and exposure to the suffering property sector, EFG-Hermes said.

Dubai Holding, owned by the ruler of Dubai, and Emaar said last month the builder of the world's tallest tower would merge with Dubai Properties, Sama Dubai and leisure developer Tatweer.

"While the merger might result in the creation of a stronger operational/financial entity with better access to funding and ultimately greater control over supply, there is no visibility regarding the strategy of the combined entity," EFG-Hermes said in a report.

Standard and Poors downgrades Dubai banks (PDF)

•S&P downgraded by one notch the ratings of the Dubai banks. The outlook remains negative

•The agency’s action is not a surprise and long overdue

•We are changing our credit view on Mashreqbank to negative from stable

Bank Mellat to handle Iran gas field bonds

An Iranian state bank has been picked as lead manager for a planned bond issue to help finance the development of the country's largest natural gas field, the Oil Ministry website SHANA said on Tuesday.

Mohammad Hassan Mousavizadeh, a senior adviser of Iran's Pars Oil and Gas Co, said Bank Mellat would handle the issue of the foreign currency-denominated bonds but that it could also cooperate with foreign banks.

The bonds for the development of the offshore South Pars field would be offered to Iranians living abroad as well as to foreign investors, SHANA added, without giving details on size and timing of the issue.

Concerns grow over Gulf banks

Dozens of banks throughout the Gulf are in the process of renegotiating and restructuring debt for privately owned businesses that are facing difficulties as a result of the economic crisis, according to Moody's.

Mardig Haladjian, general manager at Moody's, told the Financial Times that almost every Gulf bank the rating agency had met with recently as part of an ongoing review "has engaged in at least two or three restructurings of customer loan relationships".

His comments highlight the scale of the impact of the economic crisis on the oil-rich Gulf, which had been going through a petrodollar-fuelled boom during which credit growth soared to record levels. Moody's rates around 55 banks in the Gulf.

The Green Brief #21 (July 07)

Protests

1. There have been reports of atrocities committed against villages in Iran. According to partially confirmed reports, a village near Kamyaran in the Kordestan Province was set on fire by security forces because of protests there last week. Several villagers have also been arrested and are currently in custody.

2. In anticipation of Mahmoud Ahmadinejad’s speech on Tuesday night, people across Iran came up with a unique plan to disrupt the transmission of the broadcast. The plan was to turn on as many electronic devices as possible, thus disrupting the flow of electricity across the country. Reports confirm that during his speech parts of Karaj, Ghazvin, Sari, Tabriz, Isfahan, Rodehen, Saghez, Lavasan, Ahvaz, Khoramshahr, Dezful, Jahrom, Khomeini Shahr, Shahin Shahr, Folad Shahr, Kashan and Rasht experienced massive black-outs.

3. Black-outs were also reported in Eastern Tehran, as well as the areas of Baharestan, Sarcheshme and Amir Kabir in Central Tehran. There were unconfirmed reports of gunshots in Eastern Tehran as well as Basijis attacking people who climbed to their rooftops to chant ‘Allah o Akbar’ and ‘Death to the Dictator’.

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• Ahmadinejad says Iran election was world's 'freest' (nationalpost.com)

Taqa to spend $1.5bn on M&As

Abu Dhabi National Energy Company (Taqa) plans to spend $1.5 billion (Dh5.5bn) on acquisitions in the next six to nine months, and investment targets include Iraq's power sector, said chief executive yesterday.

Taqa is 75 per cent owned by the government of Abu Dhabi and is one of the vehicles the emirate uses to invest oil money.

The company would make a small initial investment of under $250 million in Iraq in the next few months, and would spend more later as security improved, said Taqa Chief Executive Peter Barker-Homek.

Deyaar's defence seeks more time

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The Dubai Criminal Court has postponed hearings to July 28 in a case related to financial irregularities at Deyaar Real Estate Company, after the defence counsel requested that he be allowed to produce more witnesses before the court.

The lawyer, representing one of the accused, SA, who is a former Deyaar board member and former Dubai Islamic Bank chief executive officer, made the request before the court yesterday to allow the defence more time to produce the witnesses.

Only SA was produced in court, while two other accused, IA, a businessman, and AA, whose profession was not disclosed, remain in custody.

Distressed funds circle Dubai realty

A number of distressed funds are standing on the sidelines waiting to jump into Dubai's real estate pool and invest in some of the attractively valued assets, industry experts said on Tuesday.

While no significant distressed funds are yet active, the few in the pipeline are likely to increase confidence in the market and rescue defaulted assets.

"There are direct investments but they are taking much longer, people are spending more time doing due diligence. And we are seeing a number of distressed funds preparing to enter the market," explained Heather Wipperman, chief executive officer of Investment Boutique.

Saudi exposure may be $7bn

Saudi banks could have lent as much as US$7 billion (Dh25.71bn) to the Saad and Al Gosaibi conglomerates, raising fears that their exposure to the family groups is even larger than previously thought.

According to HSBC, Europe’s largest bank, bankers in the kingdom may have lent between $4bn and $7bn to the two groups.

It estimates the two borrowed at least $15.7bn from more than 100 lenders worldwide, evenly split between Middle-Eastern and international banks.

Tadawul and Dow Jones in agreement to create Saudi indices

The Saudi Stock Exchange, Tadawul, signed an agreement that allows Dow Jones Indexes to use real-time prices and data to create Saudi indices, the bourse said in a statement on its Web site today.

Under the Agreement, Dow Jones Indexes is authorised to use real-time Tadawul price and other data to create indices, which may measure the performance of the Saudi stock market and may serve as the underlying for third-party investment products such as mutual funds, ETFs and other financial products that enable investors to participate in the performance of the Saudi stock market.

The Tadawu accounts for nearly half of the entire market capitalisation and nearly three quarters of the entire value traded of all GCC stock exchanges.

Dubai Comml Bank says not exposed to Saad, Gosaibi

Commercial Bank of Dubai CBD.DU, the emirate's third-largest lender by market value, has no exposure to troubled Saudi firms Saad Group [SAADG.UL] and Ahmad Hamad Algosaibi & Bros, a senior executive said on Tuesday.

"We do not have any exposure to either," John Tuke, deputy general manager for treasury and asset management, told Reuters.

At least five banks in the United Arab Emirates, including Mashreqbank MASB.DU, National Bank of Abu Dhabi NBAD.AD and Abu Dhabi Commercial Bank ADCB.AD, have exposure to the Saudi firms, according to banking sources or the banks themselves.

UAE stock markets July 7th (Re-post)

No fireworks today. Various stocks (EMAAR, ARTC, DFM, AABAR, and others) bounced. The ADX index closes lower, giving creedence to the concept of the ADX DFM index ratio discussed in the previous blog post. The ratio was rejected by 1.53 and closed at 1.48 today.

The markets have a couple of days to turn in a good performance. We’re talking to you, AABAR, ARTC, and DFM.

ARMX is not sitting pretty below its recent highs, and can surprise on the downside any minute, if you know this stock’s history.

S&P cuts ratings on four Dubai banks amid slump

Standard & Poor's on Tuesday cut its ratings on four Dubai-based banks, saying a sharp correction in real estate has increased risks to the Dubai's economy and raised hurdles for the banks.

S&P cut the counterparty credit ratings on Emirates Bank International PJSC, National Bank of Dubai, and Mashreqbank MASB.DU by one notch to A-minus from A. It also cut the counterparty rating on Dubai Islamic Bank by one notch to BBB-plus from A-minus.

"The economic slowdown, stock market decline, and dropping real estate prices are raising significant hurdles for these Dubai-based banks," S&P said in a statement. "Looking forward, we expect these factors to significantly slow business growth and lead to a deterioration in asset quality and profitability."

Libya invested at least $500m with Stanford

The Libyan government invested at least $500m with Sir Allen Stanford, the Texas businessman accused by the US government of operating a $7bn Ponzi scheme, court documents filed on Tuesday show.

Sir Allen, accompanied by his girlfriend Andrea Stoelker, flew to Tripoli in a private jet on January 25 this year to meet government officials, including Mohamed Layas, identified in the documents as the chief executive of the Libyan Investment Authority.

At the time the Libyan government had invested $500m with Sir Allen and his companies, the documents showed, although they did not say in what form or when.