Thursday 30 April 2009

Abu Dhab + Qatar - 30th April

Markets are rocking. We’ve got people focused on the ongoing pandemic concern with the WHO raising the level of imminent threat to one notch below the “pray for your life” indication – but at the same time they are forcefully advising us all through the media that it is not that serious a situation – yet. Chrysler is about to change from a brash American character to a suave Italian carattere. We’re all also reflecting on Obama’s first 100 days in office, as well as Michelle’s – those all important questions concerning her choice of outfit and how many times she has been moved to tears during a speech, which are of course paramount to the national security of the nation which her husband is charged with the leadership of, not to mention the effect her colour co-ordination has on the financial markets. I’m sure if someone charted the last quarter they would figure out a way to extrapolate a correlation between positive moves in the US trading day, and her decision to wear a blue skirt that same morning.

*On markets today, well, I’ve picked a great day to turn my screens back on! A sea of green sits in front of me and all those “+” signs are making me dizzy – there haven’t been so many in a looong time. Always good to stop and pause to take in the good moments, so…………………………… .
*Seems our friends in Japan have been one of the catalysts for this morning’s euphoria (pushing the MSCI World Index to one of its best months since 1989) – industrial production numbers out of Tokyo surprised greatly on the upside (1.6% vs 0.8% cons MoM) which of course followed some decent US consumer numbers overnight (markets there had closed +2%). Japan’s central bank kept base rates at practically zero (no surprise). They also suggested Japan’s economy would return to growth by 2010 – many are hoping they are right.
China didn’t want to be left out of the party, so it announced that it would allow companies to invest in businesses in Taiwan, keeping the ball rolling for investors to send markets soaring in Taiwan (+6.7%) and China able to stem some of the losses seen earlier this week (CSI +1%, still a beautiful YTD return of +42%). The reason China is warming to the idea of cross-border investments? Well, if anyone had been following recent articles increasingly focused on China’s waning appetite for the US$ they’ll understand that China is possibly looking to diversify where its vast surplus + revenues are parked.
*All other Asia markets without exception post very impressive gains indeed (ok I lie, it would have been so much easier if just Pakistan’s had not dropped -1%). Avg gains close to +3%.
*Again, I’m in a good mood so I hesitate to allow cynicism back in right now but we have to anticipate a slight amount of disappointment amongst the investor community if economic indicators in the next few weeks do not continue to impress – and with each incremental improvement, it becomes exponentially harder to please the very flaky (and now bear-market cynical/experienced) traders and money managers out there. Pleasing earnings results can disappear as quickly as they pushed markets higher.

*In addition to Japan’s better than expected news, another big industrial producer Germany has provided better jobless numbers than anticipated – markets in Europe all up strongly (+2%) so far today. Again, pleasing earnings announcement across Europe’s majors helping sentiment and ensuring Europe is now in +ve terrirory for YTD returns. This all coming despite a rise in the unemployment rate across Europe as a whole, but markets understand that the larger economies’ recovery will bring about faster stability for the remaining 23 or so across the Eurozone.

*US futures are indicating a strong opening (DJIA +145pts, S&P +17.2pts) at the same time as Gold falls back below $900/oz, and the US$ loses some ground vs GBP and Yen – signs that some of the uncertain money is moving out of the safest asset it can find and seeking some slightly higher yield? Even with oil continuing to hover around the $52/brl level, worldwide investors are clearly putting some of the huge piles of cash they have all been sitting on to work. Notice the BDIY is down again though – shipping has not been playing along when markets have been recovering – why?
*What is slightly worrying is that the economic situation in many parts of the world, not least the US, is still quite precarious. There are most likely a few nasty surprises still to come: stress-test failures, rising unemployment leading to further credit-card defaults, falling consumption after a brief respite through government spending which cannot last forever (feasibly) and a very slow recovery in the housing market. Some predict the recession has reached its nadir, others are not so rosy in their outlook and remain on guard for a repeat of the 1930s – there were many false moment of “recovery” there.

No jogging, nor interest, in GCC
Having been in Abu Dhabi and Qatar in the last couple of days, the activity and sense of growth prevalent across both territories is in stark contrast to continued reports of slow-down in London and New York – sightings of entire investment bank departments out jogging at the same time over lunch a common theme – who’s manning the desk guys and answering all those client calls? – oh, wait a minute, that’s right, what client calls….
At present, the two most impressive locations in the GCC when all is said (there’s a lot of talk in this region at the best of times) done and considered must be Abu Dhabi and Qatar. The reason – both statelets have put together a very transparent and rational 25yr plan – they have clearly expressed their desires in the fields of healthcare, education and finance, and have already put into motion the necessary steps to achieve many of their aims. At a conference on Tuesday, an energetic and impressive COO for Mubadala laid-out the organisations major achievements and the path they intend to follow.The unique attribute to the dynamic and socially-responsible organisation being their unprecedented transparency – the publishing last week of their full-year results. Since Mubadala is 100% owned by the Abu Dhabi government, it was the first time a sovereign entity had ever gone public with its finances. Don’t hold your breath for many others to follow though.

These statelets are busy working to get their populations and various burgeoning industries working. They understand that oil & gas, whilst not disappearing anytime as soon as some conspiratorially suggest, will not be around forever – diversifying investments is the obvious (first) solution. However, the sign of a deeper level of thinking is that unlike in the past, these freshly-intellectual statelets are using their greatest attribute in the eyes of the west/east – cash – to buy their way into new technologies and affecting a transfer of knowledge. The new ventures that are being opened in their back-yards will build new industries and sectors that will furnish their people with resources for many more years to pass after the final drop of oil has been extracted and sold. An intriguing angle to Qatar and Abu Dhabi’s efforts – which aspiring statelet will out-do the other?

While sitting with a good friend and client in Doha yesterday, I was surprised to find that some financial issues are truly global. Seems that one or two local financial institutions had been “misplacing” dividend payment cheques for a number of prominent customers – these cheques were never sent through to the correct address, nor were they deposited in interest bearing accounts for the customer. In fact, when the banks were requested to do exactly that and pay-in to an account they would all-of-a-sudden have some sort of technical issue with their inter-bank systems – for a couple of months.
Despite Qatar being in a very strong financial position, and with its economy chugging along nicely, it seems banks, in a bid to maintain deposit levels and pay out as little interest as possible, are resorting to the oldest tricks in the book – your cheque is in the post Sheikh.

Monday 27 April 2009

Stress-Testing - 27th April

Stress-testing, but not the financials…
The weekend started with talk focused on the US financial industry’s stress-test results. At the time that seemed like the single largest problem the world faced, and it was certainly serious enough to dominate the thoughts of every market investor. If someone had told you that by Sunday evening we’d be talking about pig-flu and a possible global catastrophe, well I’m sure many would have simply sneezed at such a suggestion. Truth is, global markets have for once seized upon a reason other than the near total collapse of the financial industry and are now focusing on what might make them money if indeed an end-of-the-world scenario were to occur – not the most heart-warming reaction by the investor base to such a global concern now is it? Some will never learn.

Flying Pigs…
Filthy Swines! – it’s all over the global news networks – whilst a terrible potential epidemic, it makes for a nice change to NOT have the investment banking community mentioned in the same sentence as the often-derided livestock responsible for the latest outbreak of pandemic panic. For the first time in almost 18mths, the world’s woes are not being directly attributed to the fanciful machinations of an all too greedy and immoral financial community. Many will be relieved to have the spotlight shining in a different direction for (hopefully) even a short while.
Then again, one cannot help but smile when realising just how close we have come to witnessing one of life’s greatest myths that has so many times provided a swift exit clause for those avoiding the undertaking of some responsibility – declaring they might acquiesce ‘when pigs fly”. Well, get ready for a lot of promises to finally be acted upon. With the airborne nature of the “swine flu” spreading from pig to human (how I wonder?) and now human-to-human as it is hurtled through the air in coughs and sneezes - this is as close as you’ll ever get to seeing that pig fly.

Markets all around the world are taking their chance to react for the first time since the news (and flu) began to spread – and reacting extremely negatively they are. Not even news that Japan has sharply revised down its GDP forecast (from 0 to -3%) has occupied investors’ concerns – Tokyo’s markets managed to end-the-day in +ve territory though, after rumours spread of certain bank mergers at the lunch-break. Japan’s pharma-leader, Chugai, also advanced strongly being one of the largest suppliers of Tamiflu’s major component – the Roche branded antiviral treatment.

Run-away planes…
Transport and leisure stocks have been absolutely destroyed in the first few hours of trading, with only some recovery coming through in Europe. There was no respite for Asia though. In a less-than-welcome revisit of the fear that swept through the region back in 2003 with SARS, investors have sent all the major indices down sharply – exacerbated by profit-taking following last week’s strong markets. Trades in Australia and New Zealand in particular were the first to be unwound and certain currency trades that had pointed to a brief return of risk-appetite suddenly disappeared – look at the re-gained strength of the Yen, trading at $/Yen 96.5 now. The US$ is gaining against other global currencies though as its safe-haven status takes on a new meaning in the face of a virus far more potent than human greed and materialism.

Hong Kong, Taiwan, Korea, Indonesia and Singapore are all down heavily – they were the first markets open to react with the selling-off of airlines and other leisure + tourist related companies. Those markets able to follow a bit of a recovery in Europe when it became clear that some of the airline stocks in particular (Air China -13%, Cathay -8%) had maybe been over-sold only had a short-time of trading left. As a result, the losses seen in the first few minutes of trade were never recovered. China saw the CSI fall -2.2% with pressure on the heavily-weighted airline firms as well as one of the world’s largest banks by market-cap, ICBC (-5.2%), as news spread that both Allianz and American Express may sell part of their large stakes in the lender after a lock-up expires. A number of China’s recently IPO-ed financial giants are facing large-stake divestments as western investors seek to realise some very large percentage gains to help pay their way out of other less successful investments and free-up some needed capital. The Chinese authorities have been encouraging ongoing negotiations with a number of the larger foreign-holders of stock, and how the first divestments are carried-out will be the creation of an essential precedent for those looking to take-profit as well. It will also be a reflection of how China is intending to deal with future foreign investors. They may well not be happy with the lack of dedicated foreign long-term holders.

Europe has followed-suit at the open, which is a real-shame considering the thoughtful appreciation that had been painfully achieved across the majors over the last couple of weeks. Anyone watching must be wondering whether there could have been a worse-time for such a global flu-scare. Just when it appeared authorities had successfully rid the markets of fear and panic (look at how the VIX index has recovered from 56 in mid-Jan to below 37 today) the bears out there are provided with the perfect excuse to send stocks tumbling once again. The allure of profit-taking was always going to be a problem in a bear-market rally (take what you can while you can) but those pig surely made it a no-brainer to come out of winning-trades this morning.
Europe’s majors opened negative and are struggling to recover as we near the lunch-break – FTSE -0.6%, CAC -1.1%, DAX -1%.

Not even news that the Qatari’s may step-into the Shakespearean family-feud evolving between Porsche and VW was enough to elicit delight that another chapter in this long-running saga may yet be written. Gulf states enjoying taking stakes in car companies is not a new fad (Kuwait’s purchase of Aston Martin, Abu Dhabi’s investment of $2.7bn in Daimler last month),and the existence of one-upmanship between the GCC’s investment entities is always a play for international investment bankers looking for the next white-knight. Let’s hope the Qatari’s love of cars doesn’t end-up in the compound like all those super-cars when the Emir decided to punish his subjects for the flaunting of their wealth last summer!

US futures naturally trading lower right now, sharply lower – DJIA-139pts, S&P -16.9pts. As more developments become clear in the spread (or not) of swine-flu, investors will either become more calm, or dangerously have another excuse to sell the markets. As aforementioned, US$ is gaining in the currency markets. As with any time of uncertainty, Gold is trading up +0.23% but Oil has slipped back below $50/brl (-4.7%) on aviation concern (less flights, less aviation fuel). The BDIY is sadly down 1.3% since Friday.

Friday 24 April 2009

Another week, another mixed bag - 24th April

Another week, another mixed bag…
The end of a mixed week for both the political and economic landscape: No major global conferences for what must be the first time in a year, a dismal outlook to global growth by the IMF who have pointed to the resuscitation of the financial system as the only route to recovery, and a street now eagerly awaiting the results of the US stress-test. We’ve seen a total deterioration in security across near-Asia as Pakistan and Sri Lanka descend into chaos, and even Irag suffers a slew of Baghdad bombings once forgotten in a worrying shot-across-the-bows of Obama’s still warming-up administration. Tougher pay rules on financial industries across US and Europe are touted, surely affecting risk appetite and the attractiveness of the industry with directors’ pay limited to 2yrs of fixed salary. US house prices have shown a month-on-month increase for two months in a row for the first time since 2006 – green shoots of a housing recovery? Or simply an easily achieved economic release when you consider how incredibly far prices dropped in previous months? What about the latest plans to increase UK taxes to 50p on the £ – are they crazy? No further comment on that really. Chrysler may (finally) apply for Chapter 11 bankruptcy. Even mighty Microsoft that has made money since 1986 suffers the first quarterly revenue drop since then for Q1 ’09. One piece of positive news amidst the earnings debris, a recent survey indicates that the majority of investors believe the worst is over and that we should be in for a turn-around, interestingly the focus and belief in return expected from growth stocks and not value stocks.

Another election, which wife?
One cannot help but smile on a Friday when realising the major differences in life and politics between continents such as Africa and North America - whereas Obama’s most pressing issue when he won the US election was what puppy to choose to take to the White House, the newly victorious South African President, Jacob Zuma, must face a dilemma which is more human in nature – he has to make a tough choice between his two current favourite wives - being a Zulu leader, he’s entitled to more than one and has had four in the past - and promote one to the first lady of South Africa – you wouldn’t want to be in the room when he break the news to the unlucky lady!

Notice the Baltic Dry Index (BDIY) has continued its rise, 9th day in a row now, +20% in 6 days. Gold has run right back through the $900/oz level as a number of stop-losses are triggered with the sudden appreciation in the last 5 days (+5%). Oil has decided to set-up camp at the $49/brl level, seemingly content at teasing the oil-producing nations in the face of their desired price. Currencies have again seen the strength of the Euro vs US$ but other major cross-rates have maintained a pretty level-headed stance since the start of the week. There were no major economic announcement from China this week, which left the US Treasury market to rally as hot-inflows reacted to growing concern over the results of the financial stress-testing. Watch the figure for New Home Sales in the US later today (337k cons).

More bad news for our Japanese friends, as HSBC shuts down its stock-research and trading business in Tokyo. Nomura reports a 5thstraight quarterly net loss ($2.2bn), after yesterday’s disappointing negative surprise from Mizuho – again, nothing looking good for the world’s second largest economy right now. SMFG has also just announced its intention to purchase Nikko Citi. Luckily for the markets in Tokyo, Nomura’s news was released after the close, but we still saw declines across the largest listed firms and financials of course, with the Nikkei down -1.6% (it is now in negative YTD return once again, -1.7% YTD)
Rest of Asia has not done too badly this week, slight falls in China but nothing too worrying - for now. Taiwan and Korea have held onto hard-won gains and even today ASEAN nations outperforming their peers with an avg return of +1.7%. Surprisingly, despite the US’s best efforts at scaring away any investors, Pakistan has performed resiliently today, +3% on the Karachi 100.
On the tech-front, Korea’s Samsung did manage to make money this year so far, but at a far reduced pace – the guidance from the firm suggests that the consumer electronics business will continue to prove a tough environment to generate profit from. Some of the first luxuries consumers are making do without are of course those gadgets they used to buy with the disposable income they all believed they really had.

Europe is in the grip of its own Shakespearean (potential tragedy)-play as VW and Porsche, tied-at-the-hilt through long-standing family ownership and feud, the sudden reversal in Porsche’s fortunes has left it susceptible to a take-over – watch the old-adage that “you can’t choose family in life” reflect itself in all its glory on this one as the Porsche family does all it can to avoid Ferdinand Piech (VW’s Chairman and cousin) getting what he’s wanted for many years. Markets are not suffering on the back of this news, as the majors across Europe all currently appreciate around +1.3%.

In the US, where futures are currently trading slightly higher (DJIA +5pts, S&P +0.9pts) a preliminary investigation has revealed that Paulson back in December had to “threaten” BofA management into completing their purchase of Merrill Lynch – fearing the worst if another investment bank was to fail, it appears that the Fed and Treasury were adamant to avoid a reneging of the deal. Of course, many were fully aware that here had been some behind the scenes “encouragement” to get the deal-done, but it makes one sharpen their thoughts on what must be happening behind the scenes right now in the face of the awaited stress-test results.
Can you picture Geithner and Bernanke sitting in a dark-room somewhere surrounded by harangued and anxious senior investment banks managers as they shift around nervously in their seats awaiting to be called to the front of the room and pressured into picking one of their peers sitting behind them to come-up and join their team – I’m sure it’s not quite as random as that, but you get the picture.

Thursday 23 April 2009

IMF Outlook - 23rd April

All about the fall-out from the IMF’s quite dismal outlook for global growth, and the increasing concern over Pakistan’s “abdication’ to the Taleban and the US’s noticeably aggressive rhetoric as Clinton warns of a “mortal” danger to global security, while South Africa has been busy re-electing its favourite party, the ANC, this time around with an energetic new and controversial leader – Jacob Zuma. Morgan Stanley last night helped bring the financials back down to earth as it provided some disappointing results. In the midst of talk of nuclear annihilation you can’t help but wonder just how important those Q1 earnings really are – or aren’t.

Markets have been jittery at best this week and today/tomorrow will not prove an exception. In Asia, Japan’s woes continue, not only did the IMF show the largest contraction would come through in their stricken economy (-6.2%) but one of the largest super-banks has just admitted it will be making a larger loss than anyone had anticipated – Mizuho posting $5.4bn loss, with the main culprit being a tumble in the value of its equity investments. With an apparent return to some-sort-of-form from the US lenders (BofA and Citi in particular), Japan’s mighty institutions are looking fragile and more questions concerning their future ability to withstand a deepening recession are arising. Good times are not ahead for the once seemingly immune (back in early 2008) Japan financial industry to the credit-crunch fall-out. A key immediate issue is the need for additional capital raising - something the Japanese banks have not done with great relish.
Despite the bad news in Japan and concerns over China’s slowing growth rate from the IMF, markets across Asia managed to put in some good performance today, with Hong Kong the star +2.3% and Australasia doing quite well – avg +2%. The most declining market today unsurprisingly Pakistan’s (-3.2%) as the political situation takes its toll.

Europe has been trading flat and light most of the morning until Credit Suisse provided a little extra vitamin injection and announced it has returned to profit – most European indices now trading modestly higher but possibly following the (for now) decent indication of a positive open on the US futures (DJIA +68pts, S&P +8.5pts)
US futures appear to have had a boost from Obama’s administration calling for banks to prepare for a report of the “stress-testing” they have undergone – the report is to be released on May 4th and Obama wants answers before the questions that will surely follow are asked. This may be improving confidence amongst some market watchers that the financials will be able to survive the worst-of-
the-worst of this crisis – Obama would not be asking for explanations of how a banks might survive unless he knew they able to already – some market confidence building tricks here most likely.
On a positive note for the US, and a great sign for the most recession proof of all businesses – entertainment - major Hollywood studios have generated enough ticket sales this year (+17% YoY) to be on course for the first ever $10bn revenue year. By bringing forward a large number of their traditional summer big-ticket (pun intended) releases, studios have (incredibly astutely) realised that lumping all your best movies into a one month period may not be the best way to ensure large audiences – nothing like a sobering crisis to get the best out of those highly-paid MBA grads slaving away amongst the stars in Hollywood.

Oil has edged closer to $50/brl again, despite some news yesterday that inventory levels at US’s Department of Energy were not as low as expected, but the weakening US$ vs Euro pushing crude higher. Gold has quietly edged higher all week and we are back within melting distance of $900/oz once more. Currencies have seen the aforementioned strength return to Euro, but cable remains relatively stable at around 1.45. $/Yen has not returned to tackle the 100 level since 13th April.

Water fights…
China has gone and put on display the best of its naval offering, with some exceptionally advanced warships as it goes ahead with a military parade to celebrate the 60th anniversary of the country’s navy. Just another example and sign of China’s growing international power. The US response to all this – “there is no way the Chinese navy is on par with the United States, or even Japan” – oh dear, is that really the right way to react to a country that is intent on always proving people wrong – especially one that will go to any length, and spend any size fortune, to achieve exactly that, and prove people wrong.

I buy a home, and you give me a voucher…
More bad news about Dubai’s real estate market today out from UBS, as it states a further 70% fall may be expected in 2009 (from peak levels in 2008) –this would be in keeping with much of the anecdotal evidence that has been doing the rounds as well as a number of official views recently released. Unlike some before it, the report from UBS though was quite damning of the entire real-estate sector, even noticing fundamental weakness amongst the Abu Dhabi developers where others have not. They downgraded and recommended investors sell every developer they cover. This is not in keeping with our view, where we have significant differences in opinion on the Abu Dhabi names and even a few in Dubai.
In the midst of this, Emaar continues to draw up plans to deal with its toxic assets, attempting to highlight those most damaging to future revenue targets. Emaar has already provided some purchasers that have found themselves invested in properties that are not being completed with “vouchers” – allowing buyers to swap their investment for other Emaar properties. These credit notes are transferable and word is that they are already exchanging hands for cash at 40% discount to face value. Not bad if you consider those not holding any properties at the moment can come in and “buy” a new property for a 40% discount on top of the discounted voucher.
What will be exciting is if these vouchers quickly take on a life of their own and become acceptable forms of currency for settling very expensive bar tabs at very expensive Dubai bars. “Double vodka on the rocks sir? No problem…that’ll be a nice two-bed, 3 bath, sea view please – may I keep the change too?”

Wednesday 22 April 2009

Tech Recession- 22nd April

Markets a little sticky today, in fact the general financial environment and surrounding news is lacklustre all over. There aren’t even any profoundly interesting tidbits to grasp onto to use as an intro to the usual market talk. Things must be slow. Nothing even to complain about in the UAE – that won’t last long.

After the falls on Monday, the bounce by the financials yesterday half-way through Geithner’s testimony to congress “banks have adequate funding to see through the crisis” saw a return of some 8% across the financial sector, but a lot of this was down to short-covering. The weight of concern over earnings made for a depressed start to the trading day across Asia, with Japan only managing to close positive at the close as some decent tech performance kicked in towards the end (Elpida announces plans to increase memory-chip prices). Unfortunately for Hong Kong and China markets there fell an avg. of -3%, not on any recent news but more a continuation of concern over the GDP growth rate of only 6% China has been forecasting – there was also confirmation that authorities will begin reigning in some of the increase in liquidity provided over the last few months (CSI down 3.2% today but still returning a lovely 41% YTD).
The China story, as well documented here and elsewhere, is incredibly important to the rest of the world, and it has become an increasingly important indicator for any investor concerned as to the future viability of a strong capitalist system. The more the US deals with its own issues at home and fundamentally alters the financial industry landscape, the more China’s own issues multiply in importance, not least due to its own non-performing loan portfolio – viewed by many as a disaster waiting to (officially) happen. There’s also no forgetting the nest-egg sitting safely for the moment in Uncle Sam’s lap.

European markets are trading up, but not as much as you would like following the decent turn around in the US. Currently seeing the majors return avg +0.6% for the day, with some anticipation in the UK ahead of the Budget statement, and a widening of the UK’s deficit to the largest since WWII (90bn GBP), not to mention highest unemployment rate in 12yrs. If you recall the messages from London a few weeks back it was clear that certain parts of the capital were swinging away without a care to the crunched-world, but the rest of the country which is not merely a larger version of Monaco is suffering greatly as the flood of easy-credit and all things nice ‘an easy seem nothing but a distant memory. The damage done to the economy and the release of such dismal statistics leaves little room for the Chancellor (wonderfully titled Chancellor Darling – anyone that’s a fan of Blackadder will be smiling now) to announce further grand stimulus plans. It will be difficult for the incumbent government to wriggle out of things if the economic situation worsens any further, for Gordon Brown was of course directly responsible for the unprecedented rise in borrowing and the seemingly endless expansion of the bubble from 1999-2007.
US futures are trading lower at present (DJIA -53pts, S&P -5.4pts) but it’s still early and we’re expecting another slew of corporate results throughout the trading day. Also awaiting House Price Index release (MoM, cons -0.7%) – won’t be good if much worse than expected.
Crude has come back a little, now only $1 or so short of $50/brl. Gold again holding steady. Currencies equally stable for now

Mature MENA…
MENA markets have expressed a certain maturity in the last few weeks. First, they saw an orderly and concerted investment effort when risk became less of an evil word and global markets picked up with some decent and thoughtful inflows. Equally, when markets shook some of their gains, there was not a typical stampede for the exit as those investments that had been made were either correctly divested or held on to until the picture was clearer. It is nice to see that these markets have learnt from past lessons, and more importantly that there is a definite improvement in transparency and understanding of the companies that make up the markets in the region. The hope that this will continue is widespread, and all are awaiting the continued opening of Saudi’s market – see previous messages for more.

Tech + surfing
There was talk over the weekend that Nintendo has now surpassed sales of both its rival consoles – selling twice as many as the other two (Playstation and Xbox) combined. This is an extremely impressive performance for a company that had seemingly lost the lead in a business it practically invented (first came playing cards, then their Donkey Kong classic). However, in a worrying sign, demand for its Wii and even its incredibly popular DS consoles (there’s a great game called brain-training on it) has recently decreased in pace in Japan. The Japanese market is normally a pre-cursor for both the European and US gaming market, and it appears that the natural attraction of simple games that appeal to a diverse demographic (particularly those that would not normally be found sitting-up in the dark at 3am playing that “one final round” of Grand Theft Auto 4) is only recession-proof for a while. The stay-at-home-and-play environment that many households have transitioned to with the onset of the credit-crunch can only last a while and now that the human desire to enjoy life has returned to many of those that secluded themselves, the more complicated and rewarding gaming devices are beginning to shine through as the truly sustainable part of the business – only serious gamers will continue to buy games every month that can cost up to $90.
This phenomenon above can be extended to many different industries – when something occurs that is as widely disruptive as the credit-crunch that many inn the western world have experienced, the initial reaction is to retreat and move towards innovative and cheaper solutions. However, the desire and appetite to return to more of a “normal” lifestyle ultimately wins through – the question many are now asking themselves is what exactly is a normal lifestyle given so much of what passed as “normal”, i.e. greed and wanting what you can’t have, is now frowned upon. Expect Wii sales and the new DSI handheld to do quite well for a while in the US I think.

Oh, I suppose we can concede there is one piece of entertaining news out there this morning is talk of how almost 2million PCs have been infected by malicious hackers, after users that have visited certain websites unwittingly download a programme that enables a gang of hackers based in Ukraine to control their systems – simple solution to this one: those 2 million need to stop visiting those types of “certain” websites as they surf the web at night – problem (the tech one at least) solved.

Tuesday 21 April 2009

Lebanon Special - 21st April

Markets…a lot can change in 5 days..and it did.
Markets dive, global leaders are left without any further reaction having done all they can in the last month, Obama’s at home playing with the dog, some representatives of the United Nations walk-out on Iran as it addresses a racism conference as if to underline the fractious developments on the uniform face of optimism so many were trying to achieve, and investors are left dazed and confused despite having read the writing on the wall and been guilty of sweeping themselves away with the short-lived bounce of hope. Even a story this morning suggests that our normally ever-so-reliable sun is cooling and experiencing its quietest period ever – is nothing working normally? A portend of worse to come? It is never a nice thing when the pessimists win, but it would not be out-of-place to suggest that it is nothing more than reality that has trampled all over the bull’s party.

For those investors that had been brave/foolhardy enough to delve right back into the market on the back of what must have seemed like sound advice from a bunch of media commentators, it must feel like a les than memorable period of their adolescent lives all-over again. Once rejected by an object of their affection, they build up the courage over a number of months to try once more, encouraged and cajoled by their friends and those around them that have been able to overcome their fears, only to get sucker punched by the sting of rejection straight in the gut once more when the very event they feared the most returns to haunt them – it takes a long time for someone to recover from such an episode, and it is not to be expected that it is any different for those investors out there that dipped their toe back into the shark-infested waters of stock-market-return-rejection.

It’s never nice to say it, but the warning signs were there and commentators everywhere are now sitting up straight and declaring “we told you so!” The bear market rally is well and truly over, and not only are we seeing those that appreciated so spectacularly over the last few weeks return to earth, those that had remained depressed are now being depressed further – this is where it gets really bad. US markets were down heavy last night (DJIA -3.6%, S&P -4.3%.), Middle East markets have given up the chase, falling significantly across all the major constituents (avg -3.5%). Asia reacted mixed today, with Japan mimicking some of the deep falls (-2.4%) and Hong Kong giving up in sympathy (-2.95%). Europe has far started the day with a bit of a bounce (DAX +1%, CAC +0.9%) but nothing worth writing home about. US futures for today are pointing at another lower opening reversing its indication from the morning and expressing the fragility of investor confidence (DJIA -39pts, S&P -4.2%). With very little in the way of economic indicators or releases, all eyes will be (unfortunately) on corporate earnings – with the fall across financials following what initially looked to be decent figures, it is anyone’s guess how markets will react to the slightest disappointment. Oil is trading a good $4 below the all-important psychological $50/brl level, and Gold is strangely sitting tight at $889/oz without any major movement in the last few days. Currencies have seen a return to form for the US$ as hot money flies back into US Treasuries.

Lebanon – Living the dream, or living in a dream?
A long weekend in Lebanon and countless renditions of “you can ski in the morning and swim in the afternoon” later have provided me with ample material to write commentaries on for easily the next 6 months. But that’s the thing about Lebanon, such a tiny country capable of generating such emotional and generous reactions – let’s look at a few of the facts to understand a little more. This list could have gone on for much longer, but for the sake of brevity I’ll just highlight a few of the more memorable - a personal favourite being the last:
Within a population of little more than 3.5m, the nation (proudly or not) boasts 18 separate and officially registered religious factions, the capital has been destroyed and rebuilt 7 times, occupied by over 16 countries, there are 15 rivers emanating from the country’s own mountains, 42 universities, 40 daily newspapers, 350 nightclubs to choose from and an astounding (and mouth-watering) 262 different ways to cook an aubergine – come on, that alone deserves imaginative/creative credit!

The importance and strategic positioning of Lebanon’s geography has not been lost on its neighbours, dooming the country to endless invasions and occupations – in more recent times of course the country’s south has controversially acted as a hotbed of anti-Israeli aggression, and been the victim of an unhealthy dose of neighbourly aggression itself on more than once occasion. Worse, the country seems hell-bent on destroying itself from the inside, as each of the 18 religious factions vie for their “God-given” representation within the region’s oldest/purest democracy.
Always a sensitive subject this one, and one that could go on forever, so we’ll skip the quagmire otherwise known as Lebanon’s political mine-field and concentrate on the elements that are combining to create what many are calling the only “recession proof” economy in the world.

Fool or Foul Mdammas?
The leading indicator in Lebanon’s economy is the real-estate market. Where the rest of the world (except Abu Dhabi) has witnessed huge declines in property prices (as deep as 60-70% in even parts of the US) old houses as well as new developments in Beirut are experiencing and enjoying 30-40% appreciation bursts. Rents are either maintaining a strong-steady level (relatively cheap to the rest of the world it must be said) or rising slightly - and there is no hint of a fall anywhere along the horizon. Any conversation you happen to come across that is not concerned with the elections in June contains at least three or four expletives when the price of the last sale on a house nearby to one of the speakers is described. Billboards for the latest real-estate companies (technically there are no pure real estate “agents” but more real estate “advertisers”) are mushrooming all over the country – the interesting difference between this all-too-normal scenario and one of that in, say, Florida, is a noticeable lack of corresponding bank promotions offering 90% mortgages and “the best interest-rate deals around”.

The above sounds like a recipe with all the right ingredients for a nice big bubble followed by a disastrous burst right? Wrong. Wrong for a while at least. The reason real-estate is holding steady, and the reason hotels and restaurants, and clubs and bars and any other place you can squeeze into in the most vibrant of vibrant cities is because so many Lebanese from outside have returned to their motherland. An estimated 20,000 Lebanese former ex-pats have recently bought a one-way ticket to Beirut (over the last 12mths) either out of choice (fed-up with their jobs and lower quality of life outside) or unfortunately out of necessity (having lost their positions in companies abroad that have made some harsh cuts) The wealth accumulated by a great number of those that are returning is going straight into a property, or developing the land that they had inherited and waited upon.
There is a noticeable increase in construction around the more desirable areas, and tradesmen and furnishing companies are reporting booming trade. Interior designers are in demand more than ever and a whole new collection of books celebrating “Lebanon’s most beautiful homes” have been launched, pushing the I-want-it-too culture to the limit. The property market is strong, but even in the absence of speculation and buying-to-let, will what appears to be a truly strong and built-upon-sound-foundations-boom be a matter of fooling all of the people only some of the time?
A worrying indicator is that this real-estate sentiment is not translating into a strong stock market – unfortunately not. The BLOM index is down -7% or the year, and recent performance has not been too heartening. With the rest of emerging markets in the lines of fire once more, it will be a rough ride for those (few) listed entities.

There is no rise without a fall unfortunately, and the risk for Lebanon (apart from the obvious political machinations) is what happens when the money that has been repatriated runs out? Those that have returned will be happy to take some time off and spend some money in the near-term, but what happens when they realise that there are no jobs in Lebanon (outside of the service business) and begin wondering why their belts are so loose for reasons other than having stuffed too much tasty humus and fattoush the night before. The good times are certainly rolling right now in the country, and everyone is happily trotting down what seems like a problem-free path, but unfortunately the reality is that like any other economy in these times, the fragility of sentiment is the biggest single risk.

Lounge Lovers…
What about Lebanon as a potential economic force through tourism and hospitality? I must of course point out that I am biased in my views before I continue, but anyone that you meet who has been to Lebanon will certainly echo many of the sentiments that follow. There is nowhere you will visit that will provide a level of service as friendly and efficient, not to mention attentive, for the price you pay. Value-for-money as it is called in the rest of the world, is the norm in Lebanon. In fact, so ingrained into the depths of society is the natural ability to provide service-with-a-smile that it is little wonder you will find the Lebanese in charge of client-facing positions across any industry in the world. The idea of charisma, as so many Lebanese like to point out in the same breath as mentioning the city of Byblos is the oldest recorded-consecutively-lived-in-city-in-the-world, was almost invented in the country. Can you remember the last time you would describe a waiter/waitress in the Gulf as being charismatic?…hmmm…let me think for a while…….

In all aspects of society, the quality of produce and inventiveness of preparation is second-to-none, and not just in cooking terms. The natural beauty of the country and entrepreneurial nature of the people are of course the two major attributes Lebanon thrives upon. Sitting in a restaurant in Lebanon, you will go through a rather different experience to sitting in a restaurant in Dubai. Rather than spending an excruciating 15-20mins playing a game that is a combination of charades and pictionary to describe to your waiter what it is you really want to eat, you will be served like a king for even the simplest of orders. It does not matter if you are sitting in a Lebanese/Italian/Japanese/French restaurant with the most stunning views of the valley below and Mediterranean sea beyond, you will be made to feel as though you are one of the most prized customers the restaurant has ever been lucky enough to have walk through its doors – and you will (relatively) pay hardly anything for this pleasure and benefit. Not just that, and maybe even more importantly, please do yourselves a favour and go to any bar in the country and order a drink – after your first sip, you will have to beg the enormously generous bar tender to stop pouring your alcohol of choice and add a little of the mixer – assuming you are still conscious at the time. Did I already mention you don’t have to repeat yourself three times before your order is understood?

Close, and the cigar
Oh, one thing everyone (everyone if you are male that is - sorry ladies but I’m certainly biased in this) should definitely do – when at Beirut Int’l airport on your way back, hang a left after passport control and browse around the cigar section (even if you don’t smoke) – you will sooner or later bump into a member of one of the most spectacularly efficacious sales forces to be found anywhere in the world. With a mixture of that aforementioned natural charm and armed with some additional attributes, you will quickly be engrossed in the most minutiae of information relating to the cigar industry. Not only will you want to learn, you won’t want to stop learning. I defy anyone to walk away, after initiating even the briefest of conversations, without a box of glorious cigars – a recent trip saw an individual walk out of the well-maintained humidor with not only a big smile on his face but brandishing a brand new box of Cuban Maduros, despite the fact barely a month earlier he had purchased a fresh batch of recently released cigars which were still sitting at home waiting to be smoked – that’s a lot of smoking I’m, uhhmmm..I mean he, is going to have to do in the next few weeks before the next trip to Lebanon.

Thursday 16 April 2009

Credit Tears - 16th April

I’ll be travelling again and will be out of the office until Tuesday 21st April – no commentaries in my absence, but plenty I’m sure to write about on my return.

As tears continue to stream down our faces for those that have lost huge (unrealised) wealth created on the back of easy credit during the boom years, we now hear about the self-styled “Warren Buffet” of the Middle East – Walid Bin Talal, having to possibly sell his holdings in Raffles Fairmont Hotels – I’m surprised he hasn’t been able to amass more of a fortune on the back of all his memoirs and “How I Made It” business books – I guess I wasn’t the only one that never bought a single copy!

Markets have again been all over the place. It was warned that the bear market rally was truly nothing but that, a sharp opportunistic rally in the midst of one of the worst bear markets in history. Obama did his best in the last couple of days to placate the US consumer that the capitalist system they have worshipped for the last 50yrs is intact and not hindering any of their efforts and decisions to protect the economy. In fact, the US was mixed yesterday, with the financials coming under a little pressure following UBS’s less than impressive (putting it mildly) results and plans to let go of another 11% of its workforce.

The broader market had a decent day, especially amongst some of the more industrial sectors and this resulted in a strong open in Tokyo where the heavily exporting leaders kept markets trading high until after the lunch break and a disappointing figure from China – it posted its slowest growth rate in almost a decade - +6.1% this would have been an incredible figure anywhere else in the world, but you must remember that the natural rate of growth for China is equivalent to 8% (US would be 1%) – this puts the number into perspective and explains the fall in Hong Kong as well. Other markets fared better despite the political goings on in India and Thailand. Good gains were seen in Taiwan (+2%) and Vietnam (+1.4%). It may be too early to start singing its praises again, but definitely keep an eye on Vietnam for the next few weeks as it may enjoy a moment or two of long-expected glory.

Europe has been busy talking about the split in the ECB on future rate decisions, the currency has of course slightly fallen vs US$, and some markets more in need of a continued fall in rates (around the Eastern region) are suffering. The major markets across the mainland are performing better, with FTSE and CAC both rising +.08% so far.
US futures currently trading a little lower for the open (DJIA -10pts and S&P -1.6pts) – the news that US home foreclosures have jumped to a record in Q1 hitting sentiment – surely most must have seen this coming (and priced it in) considering that so called “moratoriums” on payments were coming to an end and job losses continue to mount through the deepening recession. That is what happens when too many begin focusing on fancy indicators such as the “second derivative” i.e. the rate of the fall in the economic slowdown – you lose track of the logical explanations and signs.

Despite the disappointing growth rate this morning, China has propelled itself back into the top spot amongst the world’s best performing markets (apart from tiny Peru though – up 49% YTD) – the CSI300 is +39% YTD now. Promises of huge infrastructure spend and a controlled response to the crisis by the central government clearly assisting sentiment and possibly clouding over some of the deeper structural issues for now – but hey, it looks great on the world scene and is surely playing its part in securing the authorities grip on other issues and avoiding dissent in a number of controversial areas. One immediate concern is that if it wasn’t for the huge spending unleashed in the last several months, the slowdown would have taken a far heavier toll – how much longer will China be able to spend in this manner without wanting to tap into some of its overseas “rain-day” savings? Or will it really move to the international finance markets and issue domestic bonds available for open purchase? Big questions, and big ripples depending on the outcome.

Oil has fallen back below the $50/brl level for now after a report yesterday suggested demand was falling faster than expected, but this may prove short-lived as another report today suggested the slowdown in demand will be very short-lived – please make up your minds whoever puts out these reports!
Gold is STILL holding still around the new trading range of $880-890 – it may well still shoot through to $1,500/oz by the end of the year if this bear market rally shows itself to be nothing more than a well-dressed impersonator of a real return to conviction buying – and will certainly shoot right up if a nasty surprise or two present themselves – remember that horror movie ending scenario? – it could grab you anytime!

Wednesday 15 April 2009

Saudi Special - 15th April

Markets are looking good today. Obama’s puppy was looking good yesterday – could there be a connection between the cute little Portugese canine (a gift from Sentor Kennedy to the Obama girls, who were promised one during the election) and the positive earnings emanating from the financial sector? Bankers have recently been all-too-often-described as “dogs” after all.
Asian markets have been mixed today after the strong rally in the US earlier this week on the back of the financials – but with short-term profit taking kicking in on the S&P in yesterday’s session (Goldman’s, JP and MS all down, Citi up!) Japan was unable to follow-through on some of the euphoria created with the stimulus package over the long-weekend. Hong Kong struggled to return positive but other exporters retreated slightly
Europe is currently trading broadly slightly negative, and US futures are a little up (DJIA +11pts, S&P +0.6pts.
Oil is holding above $50/brl, Gold is still just below $900/oz and the BDIY is up for the third day in a row!
On currencies, cable has re-topped the 1.50 level for the first time this year, as some sterling strength returns, and the Euro remains strong despite being off recent highs.

Saudi’s Shifting Sands? – some observations following a recent visit to Riyadh.
Saudi is a strange and wonderful place. Some of the richest people in the world are to be found, and some of the poorest. Some of the most liberal lifestyles (in the compounds) and some of the most restrictive within any Islamic state – at times even more stifling than those living under the oppressive Islamic leaders in Iran.

Recent headlines such as the endorsement of a marriage of an 8yr old girl to a man 20 years her senior have obvious negative impacts on a Kingdom often rocked by scandal and disdain from the point of view of an all too hostile Western and liberal press. Of course, it does not do itself any favours by creating headlines such as the “stoning of a woman to protect her honour” – what they were apparently “protecting” was nothing more than her attempt to exchange innocent girlish glances at a boy across a room – something of course stringent in its effect and negative in its implication for a youth struggling to deal with an ever freer world through technological change and innovation and a clerical oversight committee doing all it can to prevent many natural adolescent urges to flourish. Whatever your personal view, restricting the most basic of human behavioural development cannot make for a very happy and easy-going population. Let alone a demographic that boasts 80% of the total number of 27m living in the country between the ages of 18-30yrs.

Things are certainly changing though. In the last 5 years in particular, the slow-moving yet definitely reform-minded King Abdullah has put into place a long-term plan of changes to plant the seeds of a powerful youth movement that will bring about inevitable changes. These changes are sometimes subtle to the point of not being noticed by the outside world, but significant in the context of the Kingdom.
Anyone that has visited Saudi in the last 10 years will be amazed at the differences they will notice when taking a trip there now. Women walking around the gleaming shopping malls with their heads uncovered and hair flowing over their tight-fitting and lavishly decorated abiyas, many of them only loosely wearing them around their western clothing underneath, their coloured hair and sometimes even tattoos on brave display for those moments where there do not appear to be any religiously strict Saudis walking around. Groups of girls and boys walk around with only a few feet separating them (something that would not have been allowed merely several years ago) and some establishments (where single men must sit in the non-family section) have no real physical barrier between the sections where men and women sit anymore. Small and insignificant observations in any given day, but monumental and attitude-shifting developments in this tightly-controlled and ruled city.

King Abdullah has made two very important and significant changes to the political landscape in the last month or so. First, he unceremoniously removed the sitting head of the religious police. An extremely powerful position when considered that at any point you can be whisked away by forces of the religious police for any misdemeanour they may think you have committed, no proof necessary – naturally. He was replaced by a far more reform-minded and less conservative head – someone in fact that King Abdullah had been preparing and nurturing for a long time – to ensure he was fully briefed in the long-term strategic plan for the Kingdom.

The second important development came on the eve of the G20 summit – faced with a vacuum at home with the now no-longer-a-secret terminal illness of the Deputy Prime Minister Crown Prince Sultan Abdul-Aziz (86yrs old), the King appointed a second Deputy Prime Minister, Prince Nayef bin Abdul-Aziz, the former interior minister (not exactly a spring chicken at the age of 76 himself). The perception that there must be a clear answer to who will rule (and “rule” the King does in Saudi, one of the clearest forms of monarchy anywhere in the world where royal decree is absolutely final and binding) has troubled some senior Saudis. This has now been resolved. King Abdullah is now free to continue his reforms at a pace the religious clerics have no choice but to be happy with – the concession is that the naturally disruptive force of a young western-educated population are being asked to delay their hankering for an open lifestyle where it is not taboo to meet with a member of the opposite sex unless she is your relative or wife.

An example of the potentially country changing force you will find all around you in the capital is the widespread use of Bluetooth. In a country where communication is controlled between the sexes, this technological advance has provided the perfect outlet for many to continue “covert” communication across a separated family section in a popular restaurant and/or food court in a mall.
Cable television and the internet have of course been catalysts for a number of changes amongst the young and restless population (what do you do when you have no cinemas, no bars, no clubs, no social hang-outs and no arcades or anywhere else the young are able to gather and live out their rights of passage?). It is bad enough for the religious conservatives that the younger population are fully aware of all that life has to offer outside of the Saudi religious borders via information being piped straight into any home with a phone connection and a little tech-know-how – you have to circumvent the barriers imposed on internet sites to obtain certain content.
More than the outside world coming into the Kingdom through technology is the pressure of a nation that sends the majority of its young students abroad (the US and UK in particular) to study at universities and other higher education institutions. The lifestyles that these young Saudis enjoy and become accustomed to during their informative years naturally creates a desire for a similar lifestyle when they all of a sudden return home to their infinitely more restrictive family households – this is totally normal, but exceptionally disorderly for those that like things the “old-way”.

Saudi remains the sleeping-giant in the region that all are hoping will soon awake from its slumber. The relatively highly industrialised nature of the nation makes for an attractive prospect, and the huge riches that can be spread and serviced further throughout the GCC are mouth-watering when viewed as a reflection of the potential importance of the region as a whole. Once the powerful engine that is Saudi is revved up and put into gear, there will be seismic changes developing in each of the constituent nations that at present only slightly ripple on the back of its idle-rumbling.

A story to highlight some of the frictions prevalent – on entering a lift with a colleague and three young Saudi women (in Riyadh’s Kingdom Tower) covered in their abiyas from head to toe, the doors shutting to the outside world as it descended the tallest tower in the city (a good 70 second ride), the three of them un-wrapped their black clothing to reveal beneath very normal and attractive examples of female attire – mid-riff exposing t-shirts and tight jeans (normal almost everywhere except in Saudi of course). They giggled and joked in perfect American-accented English how they were going to spend their evening and which boys they were going to text having recently obtained their numbers via “bluetoothing” – totally oblivious to my (Western) colleague and I standing in the corner in our business suits – clearly not Saudi locals nor religious police-force members. A few seconds before the lift arrived at the lobby-level they all re-adjusted their clothing to ensure nothing was unduly exposed, apart from some fetching high-heels, and glanced over in our direction with total confidence and a sense of delicious irony to say “we’re like any other girls, you know”.

Saudi will one day soon be like any other country, you know.

Friday 10 April 2009

Easter Break, New Beginnings - 10th April

Easter Break – new beginnings?
*What am I doing here when most of the world’s markets are shut I hear you ask? Well – sometimes the markets never sleep, and other times good commentary never sleeps. Reminds me of a line from a recent great comedy movie…”60% of the time, it works every time” – what?
So what’s happened this week? Japan has temporarily stolen the limelight announcing its plans to spend big ($150bn) to get the world’s 2nd largest economy moving again, North Korea has caused some consternation for its neighbours through its military muscle-tensing (although the US and others say they are simply lying about the “successful” test), Iran is also flexing itself through new improvements in their nuclear programme, Obama has slipped back into second gear for a moment or two after an incredibly charming two weeks (it’s not easy dealing with so many older and more bitter characters around you in Europe I’m sure), and the all-important financial markets have continued to rise across the globe for a 5th week in a row – the US financials have embarked on their Q1 ’09 earnings announcements - and results are looking strong. Even the UAE has declared that Dubai’s woes have reached their nadir and that “things can only get better”. Positive feelings all around then wouldn’t you say? The most worrying piece of news the growing stand-off between a tiny band of pirates and the mighty US naval fleet cruising in to confront them – oh..and a disorientated hump back whale stuck in New York harbour – could that be an omen portending great performance for the markets though? In this environment we should jump on any excuse to cling to positive hope!

Most global markets are of course shut today, but those that are trading (primarily around Asia) are trading positive – Japan’s Nikkei adds to recent strong gains and ends the week +0.54% (YTD now +1.2%) – China’s CSI continues to rise and rise +3% to close out the week - some profit-taking most likely to come into play soon – but also all part of China’s plan to ensure it looks great in the hardest of times for the Western world. Associated economies in Asia that hinge greatly on the export market that Japan and China generates, namely Taiwan and Korea also pursuing their impressive rebounds - +2% and +1.5 respectively.
Europe is shut for Good Friday, as are US markets.
Currencies still trading though, and US$ heads for a weekly gain against Euro (biggest weekly gain here in 3mths) and GBP.
Oil spurts +5.5% to most-likely end the week flat. Gold also maintains that new trading range, but still slightly off for the week. The BDIY managed to make its first positive close yesterday (+1%), the first time in 23 sessions! Whether this is another significant change in sentiment or just a blip we’ll have to wait-and-see, but it’s certainly nice to have this leading indicator looking green again.

*Language Lessons”
The top US banks that once dominated not only the financial lending scene as well as commandeered respect for apparently hiring the brightest and best of any profession have certainly been humbled in recent months. In fact, the combined markets cap of the top 5: Citi, Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America is a good 30% higher than the lows witnessed in November through to February – but total market cap is not much higher than Citi’s market-cap at its high in May 2007 - around $290bn for all 5 combined. However, when you compare this to the market caps of China’s two largest banks at present, ICBC ($240bn) and China Construction Bank ($220bn) it is clear just how far the US mighty have indeed fallen.
Spending any time with the sub-prime-tainted-free senior management of China’s largest financial institutions provides a great insight into the relaxed and strategic thinking behind the nation’s increasingly influential domestic financial giants. The natural rate of saving across China is playing right into the hands of the banks, and the relatively clean (and large) balance sheets are being tightly controlled to prevent a larger portfolio of NPLs than necessary. Of course, transparency (compared to below) is still an issue through corporate results, but one that is being addressed from within the Chinese state authority itself.
What language would you expect the world to conduct business in if you consider that 1/3 of the population are Chinese? Yep, English – doesn’t really make sense does it? The reason of course is steeped in the history of capitalism and the great marketing job the US has achieved through media to create a de-facto global business language. Some would expect the Chinese to look to reverse this and stamp their own sense of national pride into their corporate culture. However, the most striking aspect of China’s new breed of corporate giants is that the majority of their senior delegation have been educated and trained in foreign institutions and all read, write and speak English with an eloquent fluency that many who claim to be native speakers (like those with strong Texan twangs) could only dream of mimicking. Moreover, I learnt that even in the offices back in Beijing where these new giants of the financial world operate from, many meetings are conducted solely in English as part of their training and to ensure ease of integration for those foreigners working there.
The more the world sees of China and the best of what it has to offer, the more it understands its aims and goals on the world stage. We should not be frightened of having this rising world power set the tone for the rest when they place such emphasis on understanding other cultures in addition to their own – as witnessed on a recent trip across the Middle East. I was especially pleased to see the Chinese delegation passionately embrace the art of shisha-smoking, at a relaxed Lebanese dinner one evening, paying close attention to the details established around this most pleasant pastime. It made a refreshing change from the many times I have had to endure the negative responses from those western institution representatives that profess the “tobacco content is far too high” or “I don’t pollute my body” for them to consider doing the polite thing and trying a local custom. Pleeaaase..give me a break and send me those willing to learn and try any day!

Abu Dhabi – as clear as can be?
How things have changed in the last 5 years. Where once the Middle East and the secretive Sheikhs were considered as tightly-lipped as a captured secret-agent, they are now spilling the beans and providing information as easily as an excited little school-girl. A recent meeting saw the extent to which things have changed and the extremely professional nature of those now heading up some of the most important institutions within the UAE’s capital (and richest) city – Abu Dhabi.
A 20-yr document outlining the vision and expectations of the current Sheikh and his closest advisors has been published – from diversifying the Emirate’s reliance on oil and gas, to creating leading educational and healthcare institutions, plans have been laid out for all to see and for those on the outside to understand exactly where they might come in and provide their assistance.
Praise must be heaped on Abu Dhabi for its classy and consistent approach to providing guidance and clearly setting out an exciting and significant vision. If executed correctly, then the desire to become a true cross-road hub and a city of the future is a very feasible conclusion.
It is reminiscent of the great (and notoriously oft-repeated) “vision” that Dubai’s ruler put into place over 20yrs ago, the only difference that Abu Dhabi is capable of carrying out each and every project using only its existing riches and resources – this makes for a very different environment and one where the city’s personality and own characteristics can be tightly controlled without pandering to the whims and desires of an over-eager international construction company etc. There are surely some examples easily pointed out across Dubai where international firms were maybe a little too pushy when designing aspects that were there for more reasons than simply practical functionality – two Chrysler-like towers for example? Could it be anything to do with the fact it costs twice as much? Nahh..

Monday 6 April 2009

Rallying Football + Markets - 6th April

Rally – really?
*Markets are still buzzing. Positive sentiment is holding firm despite North Korea’s best (failed) effort at launching a test-rocket over Japan and towards the US. This latest move in their “space programme” over-shadowed events at the NATO summit where Obama continued to pledge full support for those pledging their own support back. The IMF has urged eastern Europe to adopt the single currency – at the same time as GCC leaders meet to discuss the future of the (surely never to arrive any time soon) single currency across their constituent economies. As the US administration gets to grips with the situation, they are finally getting tougher as well. It seems they have realised that the tax-payer is not too happy when billions of US$s are funnelled into an institution and top management all remain – board members at US banks may now be ousted if “exceptional” assistance is sought.
*As markets push on in what has been a strong 4-wk rally (much of it short squeezing of course, the rest some good opportunistic trading, maybe even some repositioning of longer-term portfolios) investors are now stating to wonder how long exactly this new turn will last? The worrying thing is that just 4-wks in and everyone is already questioning the longevity – if there was a real sense of comfort and a genuine appetite for equities with no concern of the macro-environment still stumbling and providing nasty surprises, there would be no questions.

*Asia has done well today with the catalyst of HSBC’s successful rights issue - investors subscribing for almost 97% of the record $18.7bn rights issue – Hong Kong trading saw the shares jump 4% to a 5-wk high. Asia has performed remarkably well since hitting its depressing lows in early March. In fact, Hong Kong’s Hang Seng has now hit a +4.2% YTD performance, Taiwan +21% and Korea +15%. Even Vietnam is now only -1.7% YTD – seems investor demand across Asia equities has certainly returned in the short-term – undoubtedly a lot of this must be related to the excessive sell-off that was forced upon portfolio managers to finance their calls across Europe and the US back in 2008.
*With Japan’s new found currency weakness (essential to the exporters) we can now couple a new stimulus package. They are contemplating another $100bn in spending. The ravaging of Japan’s economy and especially its export industry has still left it with a flat return for the year on the Nikkei. Any further weakening of the Yen and good news on exports will certainly push us higher quicker – worth watching.
*Europe has started the week in a good mood, with the majors all there +1% and with US futures keeping up its own (DJIA +29pts, S&P +2.6pts) we look set for a decent couple of days of trading – in the absence of any spectacular busts etc..
*In another positive sign related to sentiment for now though, Gold has come way-off and is trading back below $880/oz (-5% in 5 days). Oil still steady in its $51-53/brl range and currencies continue their delicate return vs US$. Yen in particular has continued the decline and has now cemented itself above $101.
*Whilst commodities and those commodity producing nations are once again in focus, the BDIY (favourite leading indicator) is still falling in a contrarian move – it has now fallen for 18 days in a row and may be a sign that inventory depletion has not totally bottomed out yet. The world needs to start demanding more goods to get things moving.

*An article today explains that scientists have discovered the reason why scratching can stop an itch (apparently it blocks activity in some spinal nerve cells that transmit the sensation to the brain) – could this be the explanation for the sudden disappearance of the US consumer and market investors? Are they all sitting around scratching themselves preventing that itching sensation to spend money from taking hold?? Please stop scratching people!

Football vs Finance
*Few things in life can be as poetic and dramatic as a great sporting moment. Whether you are a follower of English Premier League soccer or not, there was no denying the sheer thrill of watching the league’s recent leading force, Manchester United come back from behind to seal an important victory. It was not so much that it was completed in the 5 minutes of extra-time tagged onto the end-of-the-game, or that defeat would see their dreaded-rivals Liverpool overtake the leading position in the league, but the fairy-tale like sequence of events that closed out the game. With but a few precious minutes, a substituted 17-yr old who had never played in the senior team strode onto the pitch to the delight of his family-members watching in the crowd (their faces beaming with smiles captured by the cameras in an wonderfully premonition-like moment). After returning to level the game, there was a buzz in the air from the Man U supporters that could be felt through the television thousands of miles away. Even if there was nothing more you wanted to see than their defeat, there was no denying Man U’s grit and desire. With one last push of their attacking force, the brash 17-yr old Macheda danced his way in front of the goal mouth in an aggressively youthful advance, only to be thwarted – temporarily.
He immediately regained his composure to produce a delightful back-kick which he pivoted upon and in one swift movement hooked with this right foot in a sweeping, arching and achingly pre-destined path right past the fingertips of the diving keeper to nestle in the net. With it he broke the split-second silence that had fallen upon the stadium as 50,000 hearts stopped pumping simultaneously and watched on in slow-motion as the ripples at the back-of-the-net applauded the absolute beauty of the moment – rarely has a goal seemed so incredibly special – rarely will such a story be repeated. A losing position, a substitute, an untested 17yr old, a last minute thing of beauty – a memorable win. It truly took the breath away.

*I wish I could somehow find a way to take-heart from this deeply romantic display of sporting brilliance, and tie-it into the financial crisis. However, unless Geithner and Obama have any super-subs waiting in the shadows to tackle the remaining issues head-on with a vitality that will extinguish lingering concerns and negative market sentiment, we will have to hope that the fast-becoming-a-veteran-Obama can prove co-ordinated enough to curl the ball in himself.

Thursday 2 April 2009

London Special - Part 2

G20 + London Special - Part 2
*The world is happy. Markets are even happier, and if you caught that wonderful image of Obama, Berlusconi and Medvedev posing as if they were three college buddies on a booze-trip around the world, the most powerful men on the planet seem quite pleased with themselves too. The star of the show was always going to be Obama (sorry Sarkozy) and he certainly did not disappoint – easily moving between greeting royalty at Buckingham Palace to immediately warming relations with Russia, and even impressively charming the King of Saudi Arabia in Arabic and exchanging the traditional religious greeting in flawless fashion. Every move Obama makes during his first stop on his first visit outside of the US has been measured and confidence building. Whatever problems he has had back at home in these first few difficult months, the promise that his election itself would ensure a change for the global stage is evident for all to see and enjoy. We are living in a very different world economically speaking, but we are also luckily living in a very different world politically speaking.

*Ahead of the Nato summit at Strasbourg which kicks off today amid even tighter security than London had to provide (and unfortunately for Strasbourg amidst a much greater degree of violence than simply a few smashed windows around the Bank of England) let’s have a look at what has been achieved: – as you are all no doubt aware, there were some exceptionally large sums of money promised: - a total pledge of $1.1 trillion (£681bn) in funding to tackle the crisis, including $750bn to the International Monetary Fund, $250bn to boost global trade and $100bn for international development banks to lend to the poorest countries. Those kinds of headline figures (fast becoming almost mundane to many) still pack enough of a punch to generate a positive reaction for all.

*The conclusion of all this? When asked if he was satisfied with the outcome of the G20, George Soros replied that he had been “greatly impressed” and extremely happy with the manner in which the G20 leaders conducted themselves and came together to put together some truly global economy altering measures – if it’s good enough to put a smile on George’s face, whom am I to disagree!?
*Even Sarkozy who had threatened to walk out of the summit before it had even begun, graced the rest of the delegation with his presence for the gathering’s entire duration – and that was even with the absence of Carla Bruni (leaving the spouse limelight to Queen-hugging Michelle Obama) who surely must have provided a tantalising reason to leave – but it seems Sarky loved being hugged by Obama even more.
* The show-of-force by those that represent almost 70% of the world’s population and 80% of its wealth looked remarkably like a step-closer to a (realistically still very far off) global government – the idea is a beautiful thing but whilst different cultures and varying philosophies can sit happily together for a few days and provide a united front – there is a long way to go before we can honestly declare the formation of any global decision making structure – there are too many nationalistic ideals and goals still at play – yes, I’m talking about China and the US.

Making it to the markets’ summit…
*With all this spending, there was no choice but for markets to continue their rise upwards (after the blip on Monday when General Motors’s tough treatment at the hands of the White House caused the temporary dip) – many markets have now started trading above their 100day moving average, including the S&P500 – first time since May 2007.Even the ECB cutting rates by “only” 25bps yesterday failed to stem the heart warming near 5% avg. rise across all European markets. Investors seemed to turn positive almost 3wks ago, and whilst there is still much that must be discussed and solved, two of the largest obstacles in front of us have now been addressed – whether the world is prepared to spend enough to keep the economy going (yes) and whether politics will not stand in the way of necessary changes to regulatory and accounting rules – also yes, with the relaxation of mark-to-market requirements in the US a long needed and extremely significant change.
*Asian markets today continued the good performance throughout the morning, only giving up some of the earlier gains as we headed to the close. China (CSI300 -0.3%) and Japan (NKY +0.34%) the laggards in fact where India and Vietnam were able to rise +4%. Taiwan’s index (+1% today) is now the world’s 6th best performing market, with China still in 2nd position (behind tiny Peru). Europe has latched on to the low-end of Asia’s close, with mixed markets there (FTSE flat, DAX +1.1%) as they contemplate breathless moves in the last 72hours and anticipate further reaction from the US markets later in the day. US futures so far pointing to a small positive opening (DJIA +6pts, S&P+1.4pts)
*Gold has fallen as global sentiment improves – trading now again at around $900/oz, but when inflation returns as a major concern once more this should return to a move for $1,000/oz. Oil has been trading sideways and is still around $52/brl. There was not much talk around the G20 of future energy requirements and no special side discussions between Saudi Arabia’s King and Obama –nothing the public are privy to at least.

Yen holds…
*We haven’t spoken about currencies in a few days, and when you look at the cross-rate screens today the large move by the USD/Yen in particular is very telling - trying to hold above 100 for the 1st time since April last year. Could we be watching a return to some form of risk appetite as carry-trades get put on?
*Cable has moved an immense +5.2% sine Monday afternoon (almost 1.48 now) when the dip to 1.41 came on the back of the (short-lived) GM news+negative sentiment via some pre-summit jitters. The ECB’s 25bps cut has re-strengthened Euro/USD despite a host of worrying date out of the Eurozone in the last few months. It seems investors are now understanding more and more that the US will continue to print US$ at the expense of inflation and hence a move away from US$ denominates assets is only a natural occurrence. Currency traders are notoriously a smart bunch and normally call market + economic environment moves nice and early (just like the premonition move in August 2008 when US$ saw immense hot-inflows) – worth keeping an eye firmly glued to the currency screens considering Obama’s performance on the international scene will indubitably provide greater ammunition for his reforms on his return to US soil.

*Protestors working for London Boroughs?
*Any time spent in London will warm the hearts of those that believe the world has fallen into a stupor of depression that will cloud people’s lives for many months yet..the atmosphere and vibe around this extremely hard-hit city in the storm of the economic crisis is one of resilience and a definite sense of “we-can’t-remain-depressed-forever”. The fact that the clocks have moved forward and the sun has decided to shine for those rare moments of the UK’s “pleasant-weather” season has added to the general ambience of a thronging capital city that has certainly taken a beating and is bruised but is recovering and picking itself up to continue the fight. The fact that the city is almost 30% cheaper than this time last year is only a good thing – forth and overpricing had prevailed for a couple of years too many. Mid-season sales and a weak sterling are two things bringing much joy to a great number of tourists adding to the vibrancy of the city.
*Even the protests in London seemed destined and engineered to help push forward the immense plan of road-work (stimulus) repairs – the more cynical out there may have been led to believe that the damage caused by the protesting around the G20 was all engineered to allow more excuses for construction teams to unleash upon the ruined tarmac around the Bank of England – watch out for a surfeit of red and white barriers popping-up soon all over the “square-mile” and plenty more unfortunate displays of the not-so-attractive type of “cleavage”.

Have the Grey Geese fled?
A few months ago it was reported that beer sales in Japan were down and that was a shocking admission of trouble in the economy of one of the world’s most beer-loving nations. Now we are hearing news that the premium-brand Grey Goose has been losing market share for the first time in almost 7 years in the US as New Yorkers switch away from trying to impress their friends with their choice of luxury white spirit – could someone please have a word with the bars across the UAE so we can stop paying the equivalent of a double-serving of the stuff for the price of the bottle in duty free!