#UAE equities gain amid global rally on rate optimism | Reuters

UAE equities gain amid global rally on rate optimism | Reuters

Stock markets in the United Arab Emirates edged higher on Friday as investor sentiment was bolstered by encouraging U.S. inflation data and expectations of a rate cut by the Federal Reserve.

The sharp turnaround in sentiment came after a batch of U.S. data this week showed inflation moderating but retail spending was robust.

Monetary policy in the six-member Gulf Cooperation Council (GCC), including the United Arab Emirates, is usually guided by Fed policy decisions because most regional currencies are pegged to the U.S. dollar.

As for lingering geopolitical risks, negotiators were to meet in Qatar again on Friday seeking a Gaza ceasefire agreement that could help avert a regional escalation, end a war that has killed tens of thousands of Palestinians and free Israeli hostages held by Hamas.

In Dubai, the main share index (.DFMGI), opens new tab rose 0.6% to settle higher for a third session in a row, with Emirates NBD Bank (ENBD.DU), opens new tab edging up 0.3% and Watania International Holding (WATANIA.DU), opens new tab surging 14.3% after reporting quarterly profit on Thursday.

Blue-chip developer Emaar Properties (EMAR.DU), opens new tab, however, was down 1.8%.

Abu Dhabi's benchmark index (.FTFADGI), opens new tab also rose for a third session, adding 0.5%, with conglomerate International Holding Company (IHC.AD), opens new tab up 0.9% and ADNOC Distribution (ADNOCDIST.AD), opens new tab up 2.6%.

ADNOC Gas (ADNOCGAS.AD), opens new tab fell 1.6% as stock traded ex-dividend.

On a weekly basis, Dubai's index was down 0.2% while Abu Dhabi's was up 1.4%.

#SaudiArabia’s US Treasury Holdings Rise to Highest Level Since Pandemic - Bloomberg

Saudi Arabia’s US Treasury Holdings Rise to Highest Level Since Pandemic - Bloomberg

Saudi Arabia added $4 billion to its US Treasury holdings by the end of June, taking its stockpile to the highest level since the pandemic in 2020.

The amount stood at just over $140 billion at the end of the first half of the year, according to the latest figures from the Treasury Department. Other top US government debt holders, including China, the UK and France, also increased holdings in the world’s safest asset.

“A key factor was taking advantage of the higher interest rate,” according to Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. The strength of the US dollar and the fact that Treasuries are a liquid asset were also factors, she said.

The world’s largest oil producer has been adding to its holdings since April.

US Treasuries are traditionally known for being safe assets, especially at times of uncertainty in the global economy. The benchmark 10-year Treasury yield rose by 10 basis points by the end of June, and is currently hovering around 3.9%.

Saudi Arabia had drawn down its holdings of US debt in 2020, when the Covid-19 pandemic ravaged the global economy. That was also around the same time the central bank transferred $40 billion to the kingdom’s sovereign wealth fund to finance a flurry of stock investments during a slump in equity markets caused by the pandemic.

Overall, foreign holdings of Treasuries rose in June to around $8.2 trillion.

With the possibility of a Federal Reserve interest rate cut before the end of this year, investors are likely taking advantage of securing higher yields now. In July, the US consumer price index fell to 2.9%, the lowest it’s been in over three years.

Goldman Says #SaudiArabia to Reduce Big Spending on Oil Sector - Bloomberg

Goldman Says Saudi Arabia to Reduce Big Spending on Oil Sector - Bloomberg

Saudi Arabia is expected to put less money into the oil industry than initially predicted in its goal to invest $1 trillion in strategic sectors by the end of the decade.

The Gulf kingdom will likely direct the majority of its funds, around 73% of total investments, into non-oil sectors by 2030, according to Goldman Sachs Group Inc., a shift from the bank’s earlier estimate of 66%.

The increased allocation toward non-oil investments leaves only a quarter of the remaining funds for oil sectors, as the kingdom focuses on industries that enable its diversification including metals and minerals, transport and logistics, and digitalization.

Under Crown Prince Mohammed bin Salman’s economic transformation plan Vision 2030, Saudi Arabia has opened up its economy to new avenues, investing in new sectors and re-branding the country’s image. A big goal in the vision is to reduce reliance on crude sales.

Although capex in the oil sector is likely to shrink by $40 billion between now and 2028, natural gas continues to be “a key contributor to the country’s decarbonization, economic development, and diversification plans,” Faisal AlAzmeh, head of CEEMEA equity research at Goldman wrote in a report.

With Brent crude prices currently hovering around $80 a barrel and with Saudi oil production down to around 9 million barrels a day, the kingdom faces the rising threat of a widening budget deficit.

The government’s oil earnings have dropped around one-third from 2022 levels, when oil prices averaged nearly $100 a barrel.

Saudi Arabia’s second-quarter budget shortfall came in at 15.3 billion riyals ($4.1 billion), showing just how reliant the government still is on hydrocarbon revenue. Authorities expect the budget will be in the red for at least several years. Goldman’s own research expects the deficit will widen to 4.3% of gross domestic product this year, up from 2% last year.

Still, progress in financing new sectors is picking up, with an uptick in renewable energy investments, according to Goldman’s research. Clean energy is seen receiving $235 billion in funding, up from a previous estimate of $148 billion as the kingdom more than doubles its capacity target by the end of the decade.

India central bank asks banks to push direct rupee-dirham settlement, sources say | Reuters

India central bank asks banks to push direct rupee-dirham settlement, sources say | Reuters

The Indian central bank has told banks that deal with the United Arab Emirates (UAE) to settle at least a part of their trade payments directly using the rupee and dirham, according to five banking sources.

The Reserve Bank of India (RBI) hasn't given banks a specific target but has asked them to report the extent of such payments to it on a regular basis, the sources said.
The sources declined to be identified as they are not authorised to speak to the media.

The advice goes beyond a 2023 nudge to banks to facilitate such payments after Prime Minister Narendra Modi's visit to the UAE.

An email sent to the RBI seeking comment was not answered.

The move is part of India’s attempt to increase trade settlement in the rupee and reduce reliance on the dollar, an ambition that has evaded most nations. Approximately half of world trade is denominated in dollars, according to the Bank of International Settlements.

In addition to pushing for rupee-dirham settlements, the Indian central bank has renewed discussions to set a mechanism to expand local currency trade with Russia, Reuters reported earlier.

Reuters also reported last year that Indian refiners have begun paying for most of their Russian oil purchased via Dubai-based traders in dirhams instead of dollars.

To encourage the development of a rupee-dirham market, the RBI has said banks should first seek "a matching flow" in dirham from another bank when payments are to be made to UAE, said one of the sources.

Operationally, this would mean that banks would seek a rate for the dirham-rupee pair from another bank, while avoiding going to the market to first convert rupees to dollars and then dollars to dirhams.

The UAE is India's third largest trading partner with annual trade of about $83 billion in the 2023-24 financial year ending March, according to government data. The trade includes over $17 billion in oil and related imports by India.

India had a merchandise trade deficit of $12.4 billion with the UAE in 2023-24. Settling trade in local currencies would help reduce dollar outflows on account of the trade deficit.

The RBI has not instructed banks to shift all dirham payments to this channel but instead is taking steps to encourage the development of an rupee-dirham market, a second source directly familiar with the matter said.

Following the central bank's communication, banks would "perhaps be more inclined to seek a matching (dirham) flow" instead of directly converting the dirham to dollars, which is currently the dominant practice, the second source said.

While banks and clients appear open to adopting the mechanism, the process in a "nascent stage," a third source, also a senior banker, said.

HSBC’s Play for Mideast Wealth Marred by Exits, Regulatory Curbs - Bloomberg

HSBC’s Play for Mideast Wealth Marred by Exits, Regulatory Curbs - Bloomberg

At HSBC Holdings Plc, a star hire who was supposed to reinvigorate the firm’s private banking business in the Middle East is facing a reality check.

Aladdin Hangari’s efforts to build HSBC’s wealth offerings in the region have been hindered by a bevy of high profile departures — including his predecessor Sobhi Tabbara — and fresh regulatory restrictions that will limit his ability to bring on Gulf royals and their associates as new customers, according to people familiar with the matter.

For years, HSBC has topped the league tables for capital markets in the Middle East. It’s landed plum appointments on most of the region’s highest-profile fundraisings, from Aramco’s historic share sale to Abu Dhabi National Oil Co.’s mega initial public offering of its natural gas business.

But there’s always been one problem with the bank’s business in the region: While Gulf royals have long turned to the bank for their underwriting needs, they largely haven’t chosen HSBC to manage their hundreds of billions of dollars in wealth. Instead, they’ve parked their fortunes with the likes of Credit Suisse, UBS Group AG and Julius Baer Group Ltd.

That’s had HSBC looking to Hangari, who was Credit Suisse’s top wealth-management executive in Qatar before he joined the British bank late last year, to reignite the business. To pull it off, Hangari made a series of pledges, including that he’d double his division’s roughly $50 billion in assets under management in the coming years, according to one of the people familiar with the matter, who asked not to be named discussing non-public information.

“In wealth, in Hong Kong, we’re already a powerhouse,” Georges Elhedery, who will take over as HSBC’s chief executive officer later this year, told investors in March. “But we recognize we can do more in other parts of Asia and the Middle East.”

Tabbara’s exit angered several ultra-wealthy customers, who yanked about $4 billion dollars from HSBC at the start of the year, according to the people familiar with the matter. While that’s now stabilized, the people said, it’s a sign of some of the challenges Hangari has faced in his first few months on the job.

“Staff turnover is natural and we’re not seeing anything out of the ordinary,” a spokesman for HSBC said, declining to comment on individual employees. “HSBC continues to invest in expanding our franchise in the Middle East. We’re growing our business and actively recruiting talent in the region.”