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| Grim portents after
'corrections' to oil and stock markets |
George
Kardouche |
Right up to mid-October, major
currencies showed little volatility through most of 2006, the dollar having
maintained its level vis à vis the euro and sterling within a few
percentage points on either side of 1.20 and 1.85 respectively, and the yen
sliding instead of strengthening, as widely expected, to 115 from about 105 in
the summer.
By November, however, the dollar began declining rapidly
and went past the 130 level against the euro and 195 against the sterling.
Meanwhile, there was no let-up in the high US trade deficit, $800 billion
annually, or the US current account. The fact that these negative balances did
not get worse during 2006 had to do with the drop in US oil import prices and
economic activity, from 5.6% annually in the first quarter to 2.2% in the
third. The US housing market, already buffeted by high prices in the face of 13
consecutive increases in interest rates between June 2004 and June 2006, slowed
down. The overall effect was to moderate consumption, inhibit residential
investment and housing starts.
At the same time there has been some
relief in the US fiscal deficit. Whether that will reduce global current
account imbalances remains moot. How long will Asia (with China alone awash in
$1000 billion reserves!), Russia and the GCC continue to accumulate the dollar?
Bubble trouble
Beginning early in 2006, expected corrections rocked the bubbly
Middle East stock markets and in Saudi Arabia and the UAE in particular the
rollover continues. Now that the oil price has dropped 25% from its summer
high, wiping more of the lustre off GCC stocks, the combined impact on personal
wealth already has real estate feeling the heat. The fear now is that a
continuing decline of stocks and superfluous real estate will pull each other
down, especially since the response even to recent IPOs has been lacklustre.
Construction may still be in full swing in some countries, but sales are not
so, especially in the GCC. Largely unscathed so far, Egyptian and Moroccan real
estate continue to perform relatively well, as do their stock markets, now in
recovery.
The Egyptian stock market has recouped more than half of what
it lost during spring and summer, and Morocco's is up about 50%. Dubai and
Saudi Arabia are still way down, though the rest of the GCC are less badly off.
Some companies in these markets are appearing to be fair value.
Mushrooming financial centres
Financial centres are fashionable now. Kuwait recently restated
its interest in becoming not only a regional centre but, according to the
Minister of Finance, Bader al Humaidhi, a centre for the whole MENA region.
Meanwhile, centres like the DIFC and QFC continue to attract applicants, and
Saudi Arabia is developing King Abdullah Financial District in Riyadh. Bahrain,
which has been a centre for a long time, recently appointed Jane Dellar as
Managing Director of Bahrain Financial Services Bureau. The only GCC country
with no similar aspirations (yet) is Oman.
In addition to
well-established global houses licensed of late, especially at the DIFC,
licensing Arab firms is always desirable. But caution is advisable, too,
especially if applicant firms are in the early stages of developing research,
trading and back office systems, or embracing corporate governance and
transparency.
Iraq, Lebanon,
Palestine and ...?
The deterioration in Iraq has gone from bad
to worse to catastrophic, especially for Iraqis. While the main coalition
forces of the US and UK have lost a little under 3,000 and about 130
respectively, Iraqi civilian deaths are estimated to exceed 600,000. And that
excludes the Iraqi military for whom, as General Tommy Franks states, 'We don't
do body counts.' Arab governments that supported the removal of Saddam Hussein
have been hugely disappointed by the perceived difference between what they
were told would happen and what is happening daily, especially to Iraqis. The
'project democracy' is on the back burner, too, and it's not difficult to see
why. When a patently free election in Gaza, for instance, produced results that
were not acceptable, the West's response was to look on while Gaza's 1.4
million citizens were collectively punished.
An indication of how
concerned the Arab public is at the painful unravelling of coalition policies
in the region was made tellingly clear recently during a conference in Abu
Dhabi with George Bush Sr in attendance. The audience told him his son's
policies were 'not respected.' Stunned, Bush Sr replied, 'I just told you the
thing that matters in my heart is my family,' adding, 'My son is an honest
man.' This assertion is baffling, at best, in the context of Iraq, where the
casus belli, Saddam's WMDs and Al Qaeda links, was later found to be baseless.
What the next phase in the painful processes will bring is anyone's
guess. The sooner the West realises that there are no easy options the better
it would be. As if the chaotic horrors and destruction in Iraq and Gaza were
not sufficient, a new tragedy was deliberately created by Israel's war on
Lebanon in July. The direct financial cost of the destruction has been
estimated at $3.5 billion, but that excludes the cost of lives, emotions and
lost confidence in the Lebanese economy.
Israel has also ratcheted up
its wanton destruction of large areas of Gaza since June 2006, resulting in
some four hundred Palestinians killed, mainly civilians, by Israeli tanks,
helicopter gunships and F16s. Recently, father Peter and Sister Mary Ellen of
the Michigan Peace Team visited Jabalya and Beit Lahin in Gaza. Among their
comments and observations, they are reported to have said: 'The occupation of
Palestinian land by the Israeli military is the fundamental violence. The use
of collective punishment such as the destruction of homes is a violation of
international law. It is never legitimate to destroy the homes of women,
children, and elderly for the actions of one person.'
Spotlight on Kuwait and the GCC
This issue contains a feature on Kuwaiti Finance and Investment
in which we interview prominent bankers in Kuwait. We also have a section on
Kuwait Investment Projects Company, the holding group of 55 regional companies,
and another on the Qatar Financial Centre. Other articles include a critique of
the IMF's reform programme, analysis and evaluation of hedge funds, Saudi
Arabia's water policies, the direct financial cost of the war on Lebanon plus
other interviews with well known Arab bankers.
The Art and Culture
piece is about the Arabic and Islamic art in the British Museum and the
Victoria and Albert Museum, specifically the new Jameel Gallery.
The
book review section deals with Iraq as well as Professor Ilan Pappe's new book
The Ethnic Cleansing of Palestine, Readers' comments are welcome.
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The
suffering of the people of Palestine is being graphically illustrated on our
television screens and in our newspapers and we hear daily examples of the
stress, trauma and tragedy that has become the norm for so many Palestinians.
Conscious of the concerns of Arab Banker readers and their desire to do
what they can to help the people of Palestine the Arab Bankers Association has
established the ABA Emergency Palestine Relief Fund. All monies donated
to this fund will be distributed on an equal basis between the following
well-respected UK-registered charities that work in Palestine. 