Archive for September, 2008

Though Gulf nations have certainly felt the aftershocks of Wall Street’s crash, including the UAE, which had to pump billions into their public market to sustain liquidity levels, the region may soon join a growing list of institutional and sovereign suitors seeking bargains among the ruins.  As the U.S. Congress fiddles with the terms (and moral hazards) of a $700 billion bailout, Wall Street continues to burn.  Even with the passage of the bailout, the wholesale collapse of over-leveraged companies and industries burdened by subprime toxic waste is likely to proceed, largely unabated and at an accelerated pace.

Gulf ministers approved a draft for monetary union and creation of a central bank at a meeting in Jeddah on Wednesday.  The plan is seen as a concerted effort to calm regional markets while declaring a measure of independence from the hyper U.S. business cycle.  Qatar’s Minister of Finance and Economy reportedly argued that without monetary union, “future storms may be more difficult to deal with.”  After Wednesday’s meeting in Jeddah, can depegging from the U.S. dollar be far behind?  For more, see article in Financial Times.

In consecutive days the FT has reported on the situation for equities in the Gulf region (see clipped excerpts below). In spite of the U.S. induced credit withdrawal felt around the world, the fact remains that the Gulf is liquid in every sense and can intervene via SWFs, if truly need be, without longer term repercussions, unlike the funny money show on front stage elsewhere around the world.

clipped from www.ft.com Mideast states urged to prop up stocks Middle East governments and their sovereign wealth funds were yesterday urged to intervene in their domestic stock markets by a leading Gulf banker following sharp declines in the region’s equity markets. There are fears that, despite the unprecedented oil boom, the Gulf could be heading towards a dramatic correction, similar to 2006 when hundreds of billions of dollars were wiped off the region’s equity markets. On Tuesday the Kuwait Investment Authority, Kuwait’s $200bn sovereign wealth fund, started buying into the country’s stock exchange, which was up about 20 per cent in the first half of the year, but has since fallen 21 per cent. clipped from www.ft.com Flight of foreign capital adds to woes So much for decoupling. The MSCI Gulf index is down nearly a third this year, and paradoxically, the foreign capital that was supposed to decrease the volatility of regional equity markets has been blamed for much of the slump.

When the Bush administration announced last week the proposed sale of the $7 billion Terminal High Altitude Defense system (THAD) to the United Arab Emirates, some observers interpreted the deal as a necessary antidote to Iran’s missile capabilities. Behind this headline, however, are the wider questions of commerce and security. As direct investment continues to flow into the region, countries such as the United States may now feel compelled to protect their interests by all available means, including the sale of military hardware to those Gulf nations where booming markets are attracting Western capital and personnel at an unprecedented rate. Is such explosive growth, and the need to secure it, a harbinger of a new 21st-Century paradigm? Will commerce, in effect, prompt the U.S. to discard its well-worn Middle East policy, which defines Israel as the sole ally and arbiter of American interests in the region?  For more on the proposed sale, see article in Reuters.  (Image above is a DOD photo.)

When the Saudis walked out of Thursday’s OPEC meeting in Vienna to protest a decision to cut oil production in response to declining prices, which now hover just above $100 per barrel, some members of the business press and related blogs were quick to signal the organization’s demise. There are, however, a handful of US-friendly member nations who may view such reports as premature, including the UAE, Qatar, Kuwait, and Iraq. This latest feud appears to be more about the floor price than the purpose of the cartel. For more, see article in Financial Times.

With $1 billion in hand, the government-sponsored Abu Dhabi Media Company announced plans to produce eight feature films over the next five years.  Abu Dhabi’s move into filmmaking is seen as an attempt to unseat sister city, Dubai, as a media hub and to establish itself as a “center for content creation.”  See article in Financial Times on Abu Dhabi takes fortunes to Hollywood.