Middle East

[winston]

Palestine

The best-performing stock market in the Arab world this year does not reside in a gleaming new skyscraper in Dubai or Abu Dhabi, and its success has little to do with the oil-fuelled boom sweeping much of the Gulf.

The Palestine Securities Exchange, based in the troubled West Bank city of Nablus, has shrugged off the continuing violence and instability in the Palestinian territories to outperform its regional rivals by a comfortable margin.

Since the start of the year, the Al Quds index of leading shares has risen by almost 40 per cent – better than the 34.5 per cent increase registered by the Qatari exchange, the other top performer in the Arab world.

Source: Financial Times

[winston]

Almost a fifth of the [United Arab Emirates'] native population suffers from diabetes, a rate second only to Nauru's. Next come three fellow members of the Gulf Co-operation Council (GCC) – Saudi Arabia (16.7%), Bahrain (15.2%) and Kuwait (14.4%).

The six nations of the GCC, which also includes Qatar and Oman, earned $381 billion from their exports of oil in 2007 and another $26 billion from gas, according to the Institute of International Finance (IIF).

If the oil price remains at about $100 a barrel, they will reap a cumulative windfall of almost $9 trillion by 2020, reckons the McKinsey Global Institute: a vast number relative to the size of the GCC economies, which had a combined GDP of $800 billion in 2007.

Not all these riches are ingested, of course. The Gulf added $215 billion to its stock of foreign assets in 2007, the IIF calculates. This hoard is divided between the region's central banks, its sovereign-wealth funds and its wealthy sovereigns. It added up to $1.8 trillion by the end of last year, by the IIF's estimates, and more like $2.4 trillion, according to Brad Setser of the Council on Foreign Relations and Rachel Ziemba of RGE Monitor.
– The Economist

[winston]

How Arabs Will Drive the Next Great Infrastructure Boom
By Dan Denning

The Economist reports the six nations of the Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Omar, Qatar, and the UAE) earned $381 billion from oil exports in 2007. The cumulative earnings will reach into the trillions if oil remains over $100 for several years.

The region literally has more money than it knows what to do with. A lot of that money is flowing into infrastructure.

From Dubai to Kuwait, there's an estimated $2.4 trillion in construction projects either underway or in development in the world's biggest oil patch.

Surprisingly, $1.4 trillion of that total is for projects in civil construction. This means spending on residential and commercial construction projects in the Middle East outweighs construction on oil, gas, power, petrochemical, industrial, and water projects combined.

The three largest civilian projects are:

1. King Abdullah Economic City, Saudi Arabia: $120 billion. The leading firm is Dubai-based developer Emaar.

2. Silk City Project, Kuwait: $86 billion. The leading firm is Tamdeen Real Estate.

3. Dubailand, UAE: $60 billion. The leading firm is Tatweer.

The Saudi Arabian government wants to diversify the Saudi economy from its current "Three Pillars" strategy of oil, petrochemicals, and industrials. This building strategy is just one of the forces driving up steel prices, which are now over $1,000 a ton.

The Saudis know their 262 billion barrels of oil reserves won't last forever. They are attempting to plant the seeds for self-sufficient regional growth that's not related directly to the oil economy. This means building six brand new cities as centers of commerce and enterprise.

That's right... They're building giant new cities out of nothing. Four have already been launched. They are:

1. King Abdullah Economic City
2. Jizan Economic City
3. Knowledge Economic City
4. Prince AbdulAziz Bin Mousaed Economic City

Whether the Saudis can build economic prosperity from nothing is an open question. They certainly have the capital to try. High oil prices have guaranteed that.

From an investment perspective, the long-term success of the Saudi's grand economic strategy doesn't matter. The money is going to be spent. Any sensible investor, seeing such gaudy capital expenditure figures, would do the only sensible thing: follow the money.

It is not just Saudi money either. And it is not just residential and commercial growth. A lot of it is industrial, petrochemical, and power related.

For example, in the United Arab Emirates, Dubai recently announced plans to build the world's largest aluminum smelter ever. It's a $5 billion project with the aim of producing a smelter that can generate 700,000 tons per year. Saudi Arabia has plans for its own $3.8 billion aluminum smelter. Oman has plans for a $2.2 billion smelter.

That's $11 billion for just three projects.

How can you profit from all this? As I've written in my previous columns, the global building boom is going to require awesome amounts of iron ore and base metals... so producers of this "stuff" still have years of gains ahead of them.

You can also buy engineering and construction firms. Someone has to receive the contracts to build all of this stuff. Go through the holdings of the PowerShares Building & Construction ETF for some ideas.

Whichever investments you choose... realize the infrastructure boom isn't just focused on China. The U.S. is spending to upgrade its "F" infrastructure rating. Russia is spending. Latin America is spending. And now, the Middle East is spending its oil money. It all points to big returns in infrastructure stocks.

[winston]

Gulf May Move Closer to Currency Union, Easing Pressure on Pegs
By Matthew Brown

June 8 (Bloomberg) -- Central bankers from the six Arab Gulf states may agree on the framework for a single regional currency at a meeting tomorrow, increasing chances they will keep their currencies' pegs to the dollar, said economists.

Governors from the six-member Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, agreed in April to meet in Doha, Qatar, to lay down the principles for monetary union in 2010, according to GCC officials.

Success may ease pressure on Gulf governments to revalue their currencies against the dollar or drop the links completely, which has intensified as inflation accelerates to records in the region. U.S. Treasury Secretary Henry Paulson said last week he'd been assured the Arab states will maintain the pegs, helping to prevent a further weakening of the dollar.

``The plan for currency union does seem to have received a fresh lease of life in recent months,'' said Simon Williams, chief Middle East economist at HSBC Holdings Plc in Dubai. Any sign the plan ``is in disarray again would refocus attention on the possibility'' of currency revaluations.

Contracts to buy U.A.E. dirhams and Saudi riyals in 12 months' time have fallen 0.4 percent against the dollar since Paulson said on June 2 that Gulf states are unlikely to drop their links to the dollar following meetings with Saudi Arabian and Qatari government officials.

Holding the Line

``They probably will try to hold the line until 2010, until they've accomplished currency union, and then think about changing,'' said Eckart Woertz, chief economist at the Gulf Research Centre, in a telephone interview from Berlin.

The GCC states, which also include Bahrain, Oman, Qatar and Kuwait, in 2001 agreed to form a European Union-style monetary union with a single currency by 2010 to help boost regional trade.

The project was thrown into doubt last year when Oman said it would not join the single currency and Kuwait dropped its peg to the dollar, citing faster inflation.

``The market will be looking for evidence that the renewed enthusiasm for currency union is being translated into concrete agreements on the many technical, economic and political disagreements that have impeded progress so far,'' Williams said.

The Gulf states meet all the five convergence criteria except for inflation, which stipulates that consumer price growth must be within 2 percentage points of the average of the six GCC states.

The other criteria refer to budget deficits, interest rates, foreign reserves and the ratio of public debt to gross domestic product.

Inflation Threat

``From a technical perspective on a number of fronts I don't think they have made headway,'' said Giyas Gokkent, head of research at National Bank of Abu Dhabi, the emirate's largest lender by market value.

Inflation in Saudi Arabia accelerated to a record 10.5 percent in April as the cost of food and housing soared. In February, Kuwaiti inflation quickened to 10.1 percent, while in Oman consumer prices rose an annual 11.1 percent.

Qatar has the highest inflation rate in the GCC, with consumer prices jumping 14.8 percent in the first quarter from a year earlier.

[LenaHuat]

Almost a fifth of the [United Arab Emirates'] native population suffers from diabetes, a rate second only to Nauru's. Next come three fellow members of the Gulf Co-operation Council (GCC) – Saudi Arabia (16.7%), Bahrain (15.2%) and Kuwait (14.4%).

..........................
Not all these riches are ingested, of course. The Gulf added $215 billion to its stock of foreign assets in 2007, the IIF calculates. This hoard is divided between the region's central banks, its sovereign-wealth funds and its wealthy sovereigns. It added up to $1.8 trillion by the end of last year, by the IIF's estimates, and more like $2.4 trillion, according to Brad Setser of the Council on Foreign Relations and Rachel Ziemba of RGE Monitor.
– The Economist

Our biomedical industry has a bright future, a great potential mart.
More so when the customers can afford to and will pay big bucks.

Winston - Thanks for bringing this to our attention.

[kennynah]

dear L :

your proposition sounds interesting...can u kindly point me to a few ses counters that are into med development for consideration....many arigatoes in advance...

K

[winston]

I think the Arabs ( and others ) are going having their "Medical Vacation" in four countries ie. Singapore, Malaysia, Thailand and Indonesia.

The South Koreans are also now heavily marketing their "cosmetic surgery" expertize

[LenaHuat]

Ah Ken - yes, my brains are oredi connecting things together. When I get my brainwaves in order, I will let U know for sure.

Ah Winston - I've met many Arabs in Bangkok's Bumrungrad Hospital. My Thai friends tell me that they luv to proceed to Phuket Isle to experience monsoons. They've never had monsoons in their countries.

[kennynah]

very inflationary now in several mideastern countries..
**********************

14 Jun 2008 12:12 GMT
UAE Inflation +10.9% In `07; Surging Home Rental Prices Blamed

ABU DHABI (AFP)--Inflation in the oil-rich United Arab Emirates, where the consumer prices index has sharply increased over the past few years, hit 10.9% in 2007, an official study said Saturday.

Consumer prices in Abu Dhabi, the wealthiest of seven emirates forming the UAE, increased by 11.5% in the first quarter of 2008 from 10.7% a year earlier, Abu Dhabi's Department of Planning and Economy said.

The study blamed the increase in UAE and Abu Dhabi inflation mainly on the surging cost of house rentals, the official news agency WAM said.

It slammed a UAE central bank policy of copying decisions taken by the U.S. Federal Reserve reducing interest rates instead of tightening the monetary policy in the robust UAE economy. The dirham is pegged to the dollar.

"It is unreasonable that local interest rates would increase or decrease for external reasons, most importantly the policies of the U.S. Federal Reserve, when the indices of the UAE economy imply that the opposite is needed," WAM quoted the study as saying.

The last official inflation figures provided by the ministry of economy pertain to 2006, which put inflation at 9.3%. Inflation figures for 2005 weren't provided, but the International Monetary Fund put it at 7.8%.

The UAE sits on 97.8 billion barrels of oil reserves, which are ranked as the fifth largest in the world. Its economy is estimated to have grown by 7.4% in 2007, according to the IMF.

[winston]

From Scotsman.com:-

The Qatari that got the cream

Some of the Middle East's biggest financial players are on a western shopping spree, writes Nathalie Thomas.

HAMAD bin Jassim Bin Jaber Al Thani isn't a name that rolls easily off the tongue, but it is one that is becoming increasingly familiar in the City of London. The Qatari prime minister and head of the Qatar Investment Authority (QIA) has had a busy week, shopping for stakes in some of Britain's best known blue chip firms, including Barclays bank.

But as he sits in his lavish home this weekend and reflects on his spending spree, questions are being asked about whether his, and other sovereign wealth funds (SWF) investing in the UK, have chosen a good time to invest and how much more is heading our way. As their appetite for western companies shows now signs of abating, many are wondering where this spate of foreign investment is likely to lead us.

Al Thani's spree began on Wednesday when the QIA offered £1.7bn for 7.7% of Barclays as part of the bank's bid to raise £4.5bn to improve its liquidity position. Challenger, the offshore vehicle which invests his family's personal wealth, said it would also be willing to pay £533m for a 2.3% stake, which could see the two Qatari sovereign wealth funds combined own as much as 10% of the UK bank.

Al Thani then turned his attention to J Sainsbury, the supermarket chain he tried to buy at the end of last year. He increased the QIA's stake in Sainsbury to 25.3%. Its holding now dwarfs the founding Sainsbury family's 18% stake and leaves the door open for a fresh takeover approach.

It was subsequently rumoured that Al Thani has also set his sights on the London Stock Exchange (LSE). Speculation that the QIA has bought further shares to add to the 15% holding it already has in the LSE sent its shares soaring on Wednesday night, closing up 14% at 952p.

But Al Thani's splurge in the City is not unique. It follows a flood of investments from sovereign wealth funds in western economies over the past 18 months as UK, US and European companies – strapped for cash in the ongoing credit crisis – look to the Middle East, Asia and other emerging economies for much-needed funds. As the FTSE 100 continues to languish well below the 6,000 mark, UK blue chips are becoming an increasingly attractive prospect in which sovereign funds can invest their formidable wealth.

According to Morgan Stanley, sovereign funds now hold more than $113bn of investments globally. In the past 18 months alone, it is estimated they have ploughed more than $60bn into western banks.

In April, for example, China set the rumour mill churning when it emerged that one of its funds, the identity of which was concealed, had acquired a 1% stake in BP for an estimated $2bn.

Barclays turned to two other funds – Singapore's Temasek and the China Development Bank – for extra cash during its battle with Royal Bank of Scotland for ABN Amro last summer. Together they paid ?3.6bn, for 5.2%.

Not long afterwards, the Abu Dhabi Investment Authority, the largest sovereign wealth fund worth an estimated $875bn, ploughed $7.5bn into US investment bank, Citigroup.

But as the credit crunch has seen leading stocks across the world continue on a downward trajectory, many are beginning to wonder whether these funds, built up from oil and gas revenues or, as in China's case, large current account surpluses, are likely to see value for their money.

Many of the wealth funds, including the China Investment Corporation (CIC), are already feeling the heat after some of their early investments have fallen short of expectation. According to reports in China, CIC's loss-making $3bn investment in Blackstone, the US private equity group, has raised eyebrows among the country's ruling Communist party, which is eager to see healthy returns from its western investments.

China Development Bank hasn't fared much better. Since buying its stake in Barclays for 720p a share last July, both it and Singapore's Temasek have watched helplessly as the value of their investments have plunged further and further into negative territory. Barclays shares closed last week at 298p – a 59% drop since last July. The Government of Singapore Investment Corporation, which holds a 9.5% stake in UBS has also watched the Swiss bank's share price halve since it made its £5.4bn (11bn Swiss francs) investment in December.

With political pressure mounting on these phenomenal investment vehicles back home, are the recent shopping sprees in the City and Wall Street likely to continue?

According to Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, the short-term losses are unlikely to affect most sovereign funds, which look at their investments through a long-term lens. "There are going to be long-term investors in what they consider to be global blue chips. They are very much in with a long-term view," he said.

Analysts point out that despite their losses so far, both Temasek and the China Development Bank (CDB) did not shy away from making further investments in Barclays last week. CDB committed a further £136m in the latest funding round, while Temasek has offered up to £200m extra.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, is unsurprised. He argues that in the past, sovereign wealth funds have always seen solid returns from their investments in the West. Although they have changed the way they invest from making indirect investments through private equity groups or other vehicles to investing directly themselves, he points out that they have been on the scene in Britain since the 1970s. Most of their investments have been successful over the long-term, he argues.

"They have been investing in the UK since the oil price boom of the Seventies," he says. "I think they have done very well from these investments. By their very nature, these funds are investing over periods of decades."

Despite some of their recent losses, Hawksworth predicts sovereign funds are unlikely to stop investing in UK and American blue chips, not least because the sharp spike in oil and gas prices will dramatically increase the amount of money they have to spend.

With oil selling at $142 a barrel last week, he says the wealth of the Middle Eastern funds in particular will only grow.

Standard Chartered Bank has estimated that sovereign wealth could soar as high as $13.4 trillion over the next 10 years.

Alan Kennedy, private equity partner at KPMG, says sovereign funds will be forced to continue investing abroad as the sheer amount of capital they possess will far exceed what they are able to invest domestically. "In Dubai for example, they can only build so many hotels in the desert," he said.

Stephen Barrett, international chairman of KPMG's corporate finance division, predicts sovereign funds could overtake private equity groups and other investors as the most significant dealmakers in the global market over the next five years. But, he says, they still have a lot to learn, and Al Thani and other sovereign fund managers would do well to look at the private equity movement for inspiration.

"There is massive potential within the SWFs for them to become really serious players on the deal-making scene, perhaps even becoming the most significant dealmaker group within a five year timeframe," he argues in a recent KPMG report. "To do that though, they would need to learn from private equity's (PE) experience as it burst on to the scene years ago. Back then, PE was still the new kid on the block, particularly in terms of major M&A activity. Astutely, the early days in big ticket M&A for PE were characterised by projects on which PE worked alongside other kinds of buyer such as corporates. But, once PE firms had grown in confidence and, crucially, experience, they were able to go it alone, changing the face of corporate deal-making for good.

"There is no reason to believe that the SWFs will not follow a similar path. With the right people in place – and experience of some major deals under their belts – they could make some pretty rapid progress up the deal-making hierarchy."

But not everyone is pleased about the rapid rise of sovereign funds. Questions have been raised, particularly in the US and Europe, about transparency and the political motivations underlying their investments. Although there is little evidence so far of sovereign funds using their stakes in western companies as anything more than investments, there are concerns about the influence vehicles linked to foreign governments could wield in the West. In particular, there are suspicions around a group of assets nicknamed "the Secret Funds" originating from countries including Brunei, the United Arab Emirates, China, Taiwan, Kuwait, Oman and Venezuela.

In the US, these concerns were blamed for China National Overseas Oil Company's failed attempt to buy UNOCAL, the US energy firm.

At their meeting in Japan earlier this month, the finance ministers of the Group of eight richest nations urged sovereign funds to work with the International Monetary Fund (IMF) to "identify and adopt high standards" of transparency and corporate governance. The World Bank and the IMF are currently drawing up a voluntary code of conduct for sovereign funds.

The UK has so far adopted a more flexible attitude to sovereign investors but many in the City are keen for funds with large stakes in UK firms to adhere to the same transparency guidelines as, for example, private equity investors. The British Private Equity and Venture Capital Association (BVCA) is hopeful that several sovereign wealth funds will soon sign up to Sir David Walker's code of conduct, which private equity firms including Permira and Terra Firma follow.

But as Hunter of Hargreaves Lansdown points out, the greater involvement of sovereign funds in UK companies is not necessarily cause for alarm. In the case of Barclays, he argues that the new shareholder structure of several larger investors, as opposed to a whole host of minority investors, will in fact help stabilise its governance.

"Further sovereign wealth fund investment will stabilise the shareholder base, while allowing Barclays to shore up its capital ratio and position it more strongly for future growth."

Hawksworth of PwC also points out that even the biggest sovereign funds are still dwarfed by global pension funds and other institutional investors. "They are still not a huge part of the global capital market," he says.

Deals out of the ordinary where interest is forbidden
Deals involving Middle Eastern companies are no ordinary transactions. Royal Bank of Scotland has supported two deals in Scotland this year that have required compliance with Sharia Law.

Motherwell Bridge was sold to Kuwait Finance House (Bahrain) 10 days ago and in April the Aberdeen-based oilfield equipment firm Downhole Products was acquired by Varel International Energy Services, a global energy services holding company backed by affiliates of Arcapita, a financial institution with offices in London, the Middle East and the US.

Alan McCaskie, director of RBS Structured Finance, explained that under Sharia Law interest payments are forbidden. So a deal had to be constructed whereby RBS entered the commodities market, selling a product to the borrower who bought it back at a lower price, thereby providing RBS with its margin.

"We consider that this will become more common as Middle Eastern sovereign wealth funds extend their reach further into UK assets," said McCaskie.

"There are clear signs that they are looking towards private equity as an attractive asset class."