Archive for the ‘Markets’ Category

In the past twelve months, nuclear Pakistan has survived a constitutional crisis that led to the temporary suspension of rights, the assassination of a beloved former prime minister, and the resignation of a contentious president.  With nations throughout the wider Middle East, including the Gulf, now pumping billions into banks and stock markets in an effort to blunt the blows from the global meltdown, Pakistan’s modest, emerging economy is also in need of a bailout.  A fast-sinking rupee has created a balance of payments crisis, which has reportedly prompted the Pakistani government to seek $4B in aid from the World Bank and other industrialized countries, including the United States and China.  See article in Financial Times, Pakistan calls on lender to help anchor rescue package.

See the FT’s Lex team commentary below on the sole out-performance of Jordan amidst the ongoing massive global wealth destruction. Note the original was published last Friday, so after Monday’s global sell-off, even Jordan is in the red now.

clipped from www.ft.com From Jordan to Iceland Jordan is the equity trader’s favourite pin-up. Of Standard & Poor’s own 52 world market indices, the Hashemite Kingdom is the only one that is still in positive territory this year, albeit by just 1 per cent. Given that investors are $10,500bn poorer than at the start of the year, on a free-float basis, with 40 per cent of that wealth destruction occurring in the last tremulous month alone, that is small consolation. All other emerging markets, the hope of decoupling theorists, have been creamed. One-time wondermarket India, for example, has lost more than half its value so far this year, with China and Russia not far behind. This year’s best performing developed market, the US, is down by almost 20 per cent, while the worst performing, Iceland, has lost 69 per cent of its value. To some, the silicone dunes of Jordan have never looked more alluring.

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.

Reuters Dubai reports by way of the Financial Times that Qatar’s sovereign wealth fund the Qatar Investment Authority (QIA) is considering backing a share issue by Barclays PLC (NYSE ADR: BCS). The issue could approach US$8 billion. QIA has already bought a stake of under 2% in Credit Suisse (NYSE ADR: CS). QIA is said to have about $60B of AUM and is looking to spend $10B – $15B on bank stakes over the next two years.

Contrary to what finance sources have suggested to the Wall Street Journal late last month, investors are expecting the ME to organize a currency union by 2010, quashing speculation about a quick end to the USD peg. US Treasury Secretary Henry Paulson is in the region encouraging investment in the US, hoping to help attract  some of the $4T held by ME funds following strong profits on petroleum revenues.

Bloomberg reports (5/27) that the Iran Mercantile Exchange (IME) will begin trading futures contracts in selected commodities in July, with a view to eventually trading oil. IME began trading spot contracts in petrochemicals in February. IME’s future contracts will bear one- to three-month delivery periods.