Archive for the ‘hedge fund’ Category
It has long been an anomaly that a relatively small country like the UAE has three stock markets – the Abu Dhabi Securities Exchange, Dubai Financial Market and Nasdaq Dubai – and the logic for consolidation is overwhelming.
Now with the merger between the Nasdaq Dubai and Dubai Financial Market in its ‘very final’ stages, according to officials, there have also been talks about making this a three-way merger.
This is clearly a decision to come from the government level. The ADX is 100 per cent government owned and the DFM has only listed 20 per cent of its stock. In December the DFM announced an agreement to buy Nasdaq OMX’s remaining stake in the Nasdaq Dubai in a $121 million deal.
The merger of the Nasdaq Dubai and DFM is actually more complicated than merging with the ADX from a regulatory standpoint as the two Dubai exchanges have different regulators, the Emirates Securities and Commodities Authority for the DFM and the Dubai Financial Services Authority for the Nasdaq Dubai.
Nasdaq Dubai stocks are also quoted in dollars and not the local UAE currency the dirham. After the merger Nasdaq Dubai listed companies will have a choice over whether to trade in both currencies, although the fixed peg to the dollar effectively makes the dirham a dollar proxy in any case.
UAE bourse a big step
But the creation of a unified UAE stock market is a far more important step. It would mark a decisive breach with the past and the disappointing performance of UAE bourses since their crash of late 2005. There would be a sense of a new start, and a start from a low point.
This would also be more than a symbol of the new unity of purpose in the UAE since the savage credit crunch first struck in autumn 2008 and the country dipped into recession last year for the first time in more than a decade.
For global investors a unified UAE stock market would look far more attractive. It would be a deeper and more liquid market. The potential for initial public offerings would be considerable. And this flow of funds into equities would assist the nation in a rapid recovery from last year’s recession.
The poorest figures for new home sales in US history were largely ignored by financial commentators yesterday as the markets focused on global debt problems that threaten a rise in interest rates before the fragile global economic recovery can handle it.
Portugal saw its sovereign rating cut by Fitch. US treasuries were hit by poor demand in an auction of five-year notes. Japan approved a new budget with a record $49 billion in new bond issuance. And a pre-election budget in Britain offered no relief for its huge debts.
US dollar surge
The main beneficiary was the US dollar with the euro down to $1.33. US financial markets also took a breather from their endless rally as risk aversion crept back into the market. The S&P is now valued at 22 times earnings, 32 per cent above its 30 year average, and clearly overvalued for this stage in the economic cycle. Gold fell to $1,085.
Meanwhile, the market largely ignored data showing that US new home sales fell to the lowest level on record in February. Sales of new homes dropped unexpectedly, falling 2.2 per cent during the month to 308,000. That was the lowest sales rate on record and much worse than expected.
US new home sales are down 23 per cent since last October. New home sales are off 13 per cent from February 2009. With sales falling for four months running, the inventory of new homes has increased, reaching a supply of 9.2 months.
The construction of new homes in the United States is a critical source of demand for commodities used in building houses. Only a surge in demand from China has prevented a meltdown in building material prices and related commodities from steel to aluminum and timber.
The now frosty relationship between China and the US is symbolized by the Google condemnation of Chinese censorship and its self-imposed exit. The call for tariffs on Chinese goods to protect US industry is growing. At the same time China is tightening up on credit and could start buying less US treasuries.
Far from being in a fragile recovery the world is set for a round of further instability in global financial markets. In the initial stages the chief beneficiary will be the US dollar but the problems in the treasuries’ market is a reminder that dollar strength could be transitory.
The investment community has an understandable fascination with the usually secretive world of Abu Dhabi sovereign wealth funds. But although these private, non-listed funds are hardly likely to throw open their books to public scrutiny, a lot more data is now being provided.
Yesterday the Mubadala Development Company posted its 2009 financials. The fund clearly benefited from the huge bounce in equity prices last year with a 75 per cent surge in totals assets to $24 billion under management.
Return to profit
The profit attributable to shareholders stood at $1.3 billion compared with a loss of $3.1 billion in 2008. Something described as ‘total comprehensive income’ for 2009 was $2.3 billion, with Dolphin Energy contributing $761 million to revenues.
CEO Khaldoon Khalifa Al Mubarak said: ‘We have a robust portfolio of businesses, a solid pipeline of projects, a ready access to diverse sources of funding coupled with strong support from our shareholder. This puts us in a unique position to realize value and further opportunities in 2010.’
Aside from Dolphin Energy, the fund holds stakes in Ferrari and the US private equity firm the Carlyle Group, UAE telecom company du, AMD and Aldar Properties.
But the main contributors to growth in revenues came from: SR Technics at $1.1 billion; $706 million from concession revenue from local universities; and $217 million from the sale of land on Sowwah Island.
Not surprisingly Mubadala has excellent credit lines and a $2.5 billion syndicated loan facility should be renewed within the next few weeks.
Rumors about Dubai stakes
Rumors continue to swirl in Dubai that Abu Dhabi funds are about to, or may have already, taken stakes in major local companies such as Emirates Airline, but these rumors are still vigorously denied. Nonetheless it is obvious that Abu Dhabi’s sovereign wealth funds are going to become more and more important in the development of the UAE in the future.
For these funds are the depositories for the vast accumulated oil wealth of the UAE. Here is the wealth saved for the benefit of future nations, and to ensure that passing downturns in the oil price have a lesser impact on the economy than otherwise.
In a world of debtor countries the UAE is a net creditor, even allowing for the huge debts of Dubai. That is a massive advantage is today’s world.
When the global financial crisis first struck 18 months ago there was a commendable consensus among the world’s politicians about the need to tackle the crisis, and the actions that followed have done much to offset a fall into an even deeper slump.
However, global governments do not usually work in harmony. National interests are competitive and usually work to undermine a consensus. That is what now appears to be happening. It will not aid what is only a very tentative global economic recovery. It could undermine it completely.
IMF and Greece
Consider the Greek debt crisis. Far from being resolved by Germany it now appears that Greece will be thrown into the arms of the IMF for an austerity package. Which countries from the European Union will follow? Spain, Portugal and Ireland? Italy perhaps?
Then there is also the simmering potential of a trade war between the US and China. Nobel prize winning economist Paul Krugman is calling for a 25 per cent tariff on Chinese goods if China fails to revalue its currency to rebalance global trade. Google is to exit China over censorship.
It is notable that both these cases involve creditor nations protecting their national interests, and refusing to pick up the bill for debtor nations. You can certainly understand the logic of not wanting to pay off the debts of another nation. Why should German pensioners retire late to pay for the Greeks to retire early?
Yet the risk is that we deteriorate into a downward spiral for trade like in the 1930s. Both China and Germany have reason to pay attention as last year was their worst for trade since the Great Depression with export slumps of 16 and 18 per cent respectively.
Horrific trade slump
These are horrific export figures and the bounce back this year, to levels of trade still nowhere near pre-crisis levels is by no means secure.
The problem is that the creditor nations running export surpluses have been relying on the debtor nations to borrow more and more to fund their imports. Now that cycle has reached its limit or will so very soon as national debts grow bigger courtesy of stimulus package spending.
Ironically what the creditor nations say is right. There is no way out for debtor nations apart from austerity, default or devaluation and the latter is not open to eurozone countries. But this is not going to be good for the creditor countries either.
To take the UAE as another example of a creditor nation. A business slump in developed countries will reduce demand for oil and hence the price and revenues. Then there will have to be a draw-down of savings to keep the economy going.
Where creditor nations theoretically win is that they can afford to buy things in a global liquidation sale. That might not be much compensation, however, if the world economy is shattered in the process.
In the meantime, we must hope that mutual self-interest triumphs on the global stage. But the omens are not good right now with nationalism on the rise. This sets the stage for a double dip global recession, not a recovery.
Anybody who thought this city might be destitute ought to have looked around Art Dubai last weekend. Most of the city’s leaders certainly did so.
18 months post-crash
For 18 months since the $20 million party to open the Atlantis Hotel on The Palm Jumeirah symbolized the height of excess, Dubai is a more sober city. But there is still an awful lot of creative and entrepreneurial spirit in Dubai, and that magic ingredient to commerce, money.
Many investors may have lost their shirts in the real estate boom. Yet the splendid modern infrastructure of the city remains. Art Dubai was held in the Madinat Jumeirah, a sprawling complex of beautiful Arabian themed hotels and a souk, opposite the iconic Burj Al Arab hotel.
It was not clear how much art was being sold, although ArabianMoney saw one elderly national buying three ladies in black several AED500,000 hand-painted watches. The artist who painted these time-pieces was giving a display of painting under the microscope.
Yet the surrounding hotels obviously benefited from this modern art fair. The sponsors HSBC and Abraaj Capital benefited from the prestige of association. And Dubai has an event that will probably gradually morph into something like the Royal Academy Summer Exhibition. It is another leap forward for a city that had no defining annual art show until four years ago.
Boom and bust
Of course, it will be some years before anything like the recent Dubai real estate boom can happen again. These booms do tend to be once-in-a-generation transformations that are followed by long consolidation periods.
But if anybody doubts that a global hub city like Dubai is going to bounce back then they should have taken a look at Art Dubai 2010.
Modern art is also presently in recession with auction prices on the floor. So it makes sense for the galleries to come to their potential buyers rather than expect them to journey to overseas.
Increasingly, multinationals and banks are also going to relocate to Dubai for the same reason, and to avoid taxes and take advantage of much lower real estate costs. That is the new vision for Dubai.
Warnings from credit rating agencies like Moody’s that the US and UK are in danger of losing their AAA ratings could be the final straw that persuades central bankers to jack up interest rates by a marginal amount this week.
An article on the financial website arabianmoney.net last week that cited senior banking sources as predicting a 0.25% rise in the Fed funds target overnight rate on Tuesday, has set pulses racing (click here).
But few commentators give this source much credence and the tendency is to believe the Fed and its promises of an extended period of low interest rates.
Words can always be twisted, of course. The Fed could jack up rates 0.25 per cent and still claim that it is sticking true to its word, with rates still low and expected to stay low for the foreseeable future.
The impact on financial markets would be instant. The AAA-rating would be assured and bond prices surge. Stock markets would come off their recent highs and this might be greeted as a healthy correction from overvalued levels.
Markets dislike the unexpected but they may have become unduly complacent recently believing that emergency low interest rates are an indefinite phenomenon.
All history says otherwise if only because artificially suppressing the cost of money is inflationary and unfair to those paid low interest rates. It is also bad for government debt ratings and the government has a lot of debt to raise this year.
Standby for a shock announcement from Fed chairman Ben Bernanke tomorrow night. The fear in the market today is that China is tightening but the real gorilla in the front room might be much closer to home.