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December Confessions #3 December 31, 2008
Posted by Ali in analysis, kuwait.Tags: December Confessions, kuwait, Oil, OPEC
2 comments
During December the market confessed three important facts. The first is that the Kuwait Investment Authority (KIA) will not provide the optimism needed to restore confidence in the market. The second is that investment banks will fail in succession amid the greatest government intervention since souk almanakh. Finally that oil prices will no longer be controlled by the oil cartel, OPEC.
OPEC Versus Oil
A positive relationship between, long-term oil and the Kuwait Stock Exchange (KSE), has existed for decades. In the 1970’s the KSE rallied with the sharp increase in oil prices. Early in the 1980’s the market crashed when oil prices fell. Later in 1997, the price of oil fell below $10/barrel sending the market spiraling. Thus it should not be surprising to see the KSE collapse in 2008 considering the massive decline in oil prices from $147 to below $40.
Since oil determines Kuwait’s fiscal policy the higher oil prices translate into higher income generated by the government. The higher income results in greater government expenditures thus a bigger fiscal policy. (more…)
December Confessions #2 December 31, 2008
Posted by Ali in analysis, kuwait.Tags: global, investment, kuwait, TID
4 comments
During December the market confessed three important facts. The first is that the Kuwait Investment Authority (KIA) will not provide the optimism needed to restore confidence in the market. The second is that investment banks will fail in succession amid the greatest government intervention since souk almanakh. Finally that oil prices will no longer be controlled by the oil cartel, OPEC.
Investment Banks Collapse
During this crisis many speculators believed that investment companies would not fare well, but none could fathom the utter failure of Global Investment House (Global) or The Investment Dar (TID). This is labeled as another of the December surprises that would rattle the local economy once more following the collapse of Gulf Bank of Kuwait a few weeks earlier.
On December 16th, Fitch downgraded Global five notches down to C, in other words Global went from “investment grade” to “junk.” Global was downgraded because of its default on a payment to WestLB. That was a shock to investors in the market. Investors were not expecting Global to default. Although a few weeks earlier, we heard in the market about TID defaults and the possibility of Global’s default, still it was hard to believe to see these two gigantic investment banks failing. (more…)
December Confessions #1 December 30, 2008
Posted by Ali in Regulation, analysis, kuwait.Tags: December Confessions, Intervention, investment
6 comments
During December the market confessed three important facts. The first is that the Kuwait Investment Authority (KIA) will not provide the optimism needed to restore confidence in the market. The second is that investment banks will fail in succession amid the greatest government intervention since souk almanakh. Finally that oil prices will no longer be controlled by the oil cartel, OPEC.
The Mega Fund Investment Strategy
Over the previous month Mustafa Al-Shamaly, Minister of Finance, gave three different statements, over a period of three weeks regarding the date of the first acquisition of the Mega Fund. Following the third statement investor confidence turned to a new low as speculators lost faith in the market or the very existence of the Fund. (more…)
“K-Dow”: Scandal or Strategic Investment? December 29, 2008
Posted by Abdul in Regulation, analysis, kuwait.Tags: Dow Chemical, K-Dow, KPC, kuwait
16 comments
Named K-Dow, this joint venture (JV) represents one of the most talked about deals in the country. Petrochemical Industries Company (PIC), a wholly owned subsidiary of Kuwait Petroleum Corporation (KPC), announced a multi-billion dollar joint venture with the Dow Chemical Company (Dow) in December 2007, in which Dow would contribute its Oil and Gas arm totally into the deal, creating the largest Polyethylene provider in the world. Polyethylene is the main ingredient in plastics. K-Dow would be larger than the JV between GE Plastic and SABEC and Chevron Phillips.
Oil and Gas represents nearly 25-30% of Dow’s operations. In December 2007, the JV was valued at $19 billion. With the markets plunging since the deal was announced, the JV was revalued to $15 billion in late November 2008, in which Kuwait would provide $6 billion for a 50% stake in the JV. The worst-case scenario for this deal would provide a return of at least 10% annually, as announced by PIC Chairman Maha Mulla Hussain. The venture would employ more than 5000 people (Kuwaitis and non-Kuwaitis) and have annual revenue of about $15 billion. Agreements were signed on November 28th after approval from Kuwait’s Supreme Petroleum Council, the highest authority in the Ministry of Oil.
So where’s the problem? Sounds like a great deal for Kuwait and Dow. (more…)
A look into Global’s Assets: The Insolvency Question December 28, 2008
Posted by Ali in analysis, kuwait.Tags: Bankruptcy, global, investment
7 comments
Investopedia.com defines insolvency as the company status when its liabilities value exceeds its assets value. In other words, it is the status at which it becomes impossible for the company to satisfy its debt obligations. In my previous post, Globals Desolution, I explained the dire seriousness that Global Investment House (Global) is facing this time I will use numbers to emphasize my point. (more…)
81.3% Correlation! December 26, 2008
Posted by Aziz in analysis, kuwait.Tags: KSE, Oil
6 comments
The chart above plots two interesting highly correlated assets if I may say, the Kuwaiti Stock Exchange (White line) and the price of the NYMEX Crude Oil (Orange line). the reason I chose the period between 2006 and 2008 is to show how they behave in a bull, bear market and at reversal points.
Got Oil? December 25, 2008
Posted by Aziz in analysis.Tags: NYMEX, Oil, OPEC
6 comments
I walked into the office thinking about the post i’m working on which is related to oil, so I open the daily monitor to look at the futures and there goes NYMEX Crude trading at $35.35 (-9.31%) from yesterday’s trading. Oil has lost 78% of it’s july 2008 highs.
- OPEC cuts oil production and will cut it even further(in my opinion) but that didn’t help.
- We still can’t see the light at the end of the tunnel (economy wise) which means nothing will increase the demand for oil.
KIC Funds delayed December 25, 2008
Posted by mylastresort in analysis, kuwait.Tags: Intervention, KIA, KIC
6 comments
Contrary to many statements in the news the Kuwait Investment Company (KIC) funds have not invested in the Kuwait Stock Exchange (KSE), yet. The KIC has received the funds for investment but decided not to act. Even after knowing that the funds were coming, they decided not to prepare for the investment until the funds arrive. Now that the funds were received, the company just decided to form a committee to study the potential investments. No statement was made public on behalf of the company.
In a press release on Monday, the government announced plans to invest KD 1 billion in the market. Due to the reckless behaviour on behalf of the KIC, investor confidence has reached an all time low. Any government press release will not be regarded as fact and dismissed due to the lack of trust in the government following the actions taken by KIA [Correction] KIC.
