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Saturday 12 December 2009
Nothing in life is free – including cheaper valuations on stocks
Investors who are new to emerging stock markets, along with many professionals who specialise in them, often wonder why they trade most of the time at a valuation discount to markets in mature economies whose long-term growth prospects are far less impressive.
The reason was made stunningly clear last month when Dubai sought a moratorium on debt repayments, raising the spectre of default on about US$60 billion (Dh220.4bn) of loans that financed the emirate’s building boom. The future belongs to the developing world – if only it can make it through the present in one piece.
The possibility that tomorrow will never come, or that conditions will be fundamentally less profitable when it arrives, compels investors to demand compensation for taking on that risk. The compensation comes in the form of cheaper valuations.
The reason was made stunningly clear last month when Dubai sought a moratorium on debt repayments, raising the spectre of default on about US$60 billion (Dh220.4bn) of loans that financed the emirate’s building boom. The future belongs to the developing world – if only it can make it through the present in one piece.
The possibility that tomorrow will never come, or that conditions will be fundamentally less profitable when it arrives, compels investors to demand compensation for taking on that risk. The compensation comes in the form of cheaper valuations.
Turkmenistan's 'Dubai on the Caspian'
Sometimes, a lifetime can be too short for a ruler's ambitions. Turkmenistan's first president, the megalomaniac Saparmurat Niyazov, fulfilled his dream of turning Ashgabat, once a dusty town on the southernmost rib of the Soviet Union, into a fairy-tale landscape strewn with white marble facades to show his power. The stunning architecture of the capital city, Niyazov thought, should serve to herald the energy-rich country's rising economic prosperity.
Deeply impressed by the Turkish model of mass tourism while on a visit to Antalya a few years ago, Niyazov began plans to apply it to his own country's seashore.
On Niyazov's sudden death in December 2006 his successor, Gurbanguly Berdymukhammedov, came to power pledging to steer Turkmenistan closer to the mainstream of the global economy. A few signs of change appeared under his administration, but he willingly took over Niyazov's ambitions of building a massive tourism zone on the country's Caspian Sea coast, calling it the symbol of Turkmenistan's opening up to the outside world and a major stride on the way toward a so-called "new era of revival." The Avaza complex is located on the Caspian about 20 kilometers west of Turkmenbashi (formerly Krasnovodsk), a port renamed after Niyazov's adopted title, meaning "Head of the Turkmen."
Deeply impressed by the Turkish model of mass tourism while on a visit to Antalya a few years ago, Niyazov began plans to apply it to his own country's seashore.
On Niyazov's sudden death in December 2006 his successor, Gurbanguly Berdymukhammedov, came to power pledging to steer Turkmenistan closer to the mainstream of the global economy. A few signs of change appeared under his administration, but he willingly took over Niyazov's ambitions of building a massive tourism zone on the country's Caspian Sea coast, calling it the symbol of Turkmenistan's opening up to the outside world and a major stride on the way toward a so-called "new era of revival." The Avaza complex is located on the Caspian about 20 kilometers west of Turkmenbashi (formerly Krasnovodsk), a port renamed after Niyazov's adopted title, meaning "Head of the Turkmen."
Dragon Oil Shareholders Reject Acquisition by ENOC
Dragon Oil Plc shareholders rejected a bid by Emirates National Oil Co. to buy the 48.5 percent of stock it doesn’t own, ending an attempt by the Dubai state-owned refiner to strengthen control over assets in Turkmenistan.
ENOC pressed ahead last month with its 1.1 billion-pound ($1.8 billion) takeover of Dragon Oil, even as the emirate struggled to contain a debt crisis. The refiner, which already owns 51.5 percent, will drop the purchase and Dragon will remain a majority-owned subsidiary of ENOC.
Oil producers have targeted acquisitions after a drop in crude prices from last year’s record made assets more affordable. ENOC sought full control over Dubai-based Dragon, which operates mainly in Turkmenistan, as it expands into oil and gas production abroad to meet rising domestic energy demand.
ENOC pressed ahead last month with its 1.1 billion-pound ($1.8 billion) takeover of Dragon Oil, even as the emirate struggled to contain a debt crisis. The refiner, which already owns 51.5 percent, will drop the purchase and Dragon will remain a majority-owned subsidiary of ENOC.
Oil producers have targeted acquisitions after a drop in crude prices from last year’s record made assets more affordable. ENOC sought full control over Dubai-based Dragon, which operates mainly in Turkmenistan, as it expands into oil and gas production abroad to meet rising domestic energy demand.
Iraq's Oil Power Could Upset Iran More Than Saudi Arabia
The balance of power in the Middle East could undergo sharp fluctuations if Iraq succeeds in tripling its oil production and forming a strong Shi'ite front with Iran inside OPEC.
This could raise concern in Saudi Arabia, which suspects that the rise of the Shi'a majority to power in Iraq could cause dissention inside OPEC that would inhibit harmony inside the organization.
More likely, however, the development of oil in Iraq will feed tensions with Iran, since it would draw investments away from the Islamic Republic and heighten its social tensions, as it will deprive Tehran of funds it badly needs, particularly if the development of oil fields in Iraq brings down the price of crude.
The revenues from the additional 4.5 million barrels a day that Iraq would produce will allow it to challenge Iran's influence in the Shi'ite world.
One observer pointed out that Iran would be the loser as a result of the auctions that Iraq has adopted in the selection bidders for the development of its oil fields.END
This could raise concern in Saudi Arabia, which suspects that the rise of the Shi'a majority to power in Iraq could cause dissention inside OPEC that would inhibit harmony inside the organization.
More likely, however, the development of oil in Iraq will feed tensions with Iran, since it would draw investments away from the Islamic Republic and heighten its social tensions, as it will deprive Tehran of funds it badly needs, particularly if the development of oil fields in Iraq brings down the price of crude.
The revenues from the additional 4.5 million barrels a day that Iraq would produce will allow it to challenge Iran's influence in the Shi'ite world.
One observer pointed out that Iran would be the loser as a result of the auctions that Iraq has adopted in the selection bidders for the development of its oil fields.END
BANK OF CANADA: STOCKS ARE OVERVALUED
It’s refreshing to see a Central Bank that at least appears to reside in the same world as the rest of us. While Bernanke remains oblivious to new bubble formation and overheated equity markets the Central Bank of Canada remains quite concerned about the the state of the global economy. In their recently released Financial System Review they provide a mildly bullish outlook for the global economy, but remain defensive in terms of their outlook on the sustainability of the recovery:
The Bank says those risks are:
Hmm, sounds familiar….
Not according to Bernanke. Then again, he does subscribe to the Greenspan policy of print or die which helped him to forecast approximately none of the problems that got us here to begin with….
In terms of the equity markets the Bank of Canada once again provides a very pragmatic view. In addition to overheating equity markets they remain uncertain that revenues will follow-thru to sustain the earnings growth we have seen thus far:
All in all it’s a very good and balanced read. Take some time to review it over the weekend. Full text can be found here.
- The crisis of confidence that disrupted global financial markets in late 2008, resulting in heightened counter-party risk and intense funding pressures, has largely abated.
- The likelihood of system-wide stress arising from the household sector over the medium term is judged to have risen as a result of increased indebtedness.
- Although the uncertainty surrounding the global economic outlook has diminished somewhat, it nevertheless remains elevated.
- Several medium-term risks have intensified.
The Bank says those risks are:
1. No exit strategy in many countries.
Hmm, sounds familiar….
2. Asset prices could outpace fundamentals.
Not according to Bernanke. Then again, he does subscribe to the Greenspan policy of print or die which helped him to forecast approximately none of the problems that got us here to begin with….
In terms of the equity markets the Bank of Canada once again provides a very pragmatic view. In addition to overheating equity markets they remain uncertain that revenues will follow-thru to sustain the earnings growth we have seen thus far:
The recent rally in equity markets is supported, at least in part, by better-than-expected earnings in the second and third quarters of 2009, with 70 per cent of S&P 500 firms surpassing expectations in the second quarter, and with 80 per cent of those reporting third quarter earnings up to 23 November exceeding expectations. In the second quarter, these better-than-expected earnings were largely the result of cost-cutting measures, while third-quarter earnings were also supported by revenue growth. For the recent improvement in equity markets to be sustainable, future earnings will have to be driven by revenue growth. Equity markets may thusexperience some reversal if earnings growth proves to be disappointing. While indicators point in different directions, various measures, such as forward price-earnings ratios, suggest that equity prices may have increased by more than warranted in the context of an expected slow recovery.
All in all it’s a very good and balanced read. Take some time to review it over the weekend. Full text can be found here.
Dubai faces self-made public image ‘disaster’
When public relations executives reflect on the way Dubai has handled its communications strategy over the past two weeks, they grimace before the adjectives fly thick and fast.
“Shambles” and “disaster” are common criticisms, along with agreement that the handling of the announcement that Dubai World was seeking a standstill agreement with creditors exacerbated market reaction, triggered uncertainty and caused untold damage to the reputation of the Gulf’s business hub.
The mistakes made would be part of “a fool’s guide of what not to do when announcing something of this level of importance”, says one PR executive.
“Shambles” and “disaster” are common criticisms, along with agreement that the handling of the announcement that Dubai World was seeking a standstill agreement with creditors exacerbated market reaction, triggered uncertainty and caused untold damage to the reputation of the Gulf’s business hub.
The mistakes made would be part of “a fool’s guide of what not to do when announcing something of this level of importance”, says one PR executive.