“Natural” Market Cycle in Kuwait September 16, 2008
Posted by mylastresort in analysis, bahrain, qatar, rumors, saudi arabia, sovereign funds.Tags: gcc, Government Interfernce, Gulf Collapse, kuwait, Markets, Stock Exchange
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The significance of Lehman Brothers collapse is of extreme importance to the local region to understand the events that occurred leading to its bankruptcy. In the GCC the markets have enjoyed prosperity for so long that they have forgotten that markets do fall, and fall hard fast. Since the beginning of September the Gulf Markets have been tumbling to record levels. In a single session, Dubai fell an unprecedented 12% and Kuwait approached the bottom limit of a -587 points drop, among many other significant declines. (more…)
Part 2: The Collapse of the KSE September 8, 2008
Posted by mylastresort in analysis, bahrain, qatar.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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The CBK Regulations
The Kuwait Stock Exchange (KSE) had exhausted all locally available funds by 2005. Beginning in 2006 the market was increasing based on the concept that investors who entered into new positions were not selling shares in the market to buy new ones rather they were trading on leverage, obtaining bank loans, or selling foreign assets to acquire additional exposure in the surging market. The regulators acknowledged the pending epidemic and set up sequential regulations at drying up liquidity in the market to contain inflation.
The Single Gulf Currency
Beginning in 2004 serious discussions between the six GCC nations began regarding the unification of the Gulf’s currency. Central bank Governors would hold regular meetings to discuss methods and deadlines for the process. The Governors decided that no major changes to currency policy would occur and that inflation must be contained to strict measures prior to the 2010 deadline. Following a regular meeting in May 2007 the Central Bank of Kuwait unexpectedly announced that it has entered into a currency basket, citing that the falling US dollar would boost inflation if the country remained in a pegged exchange rate system. The move astonished other members of the GCC since the move was in direct violation of the terms the countries agreed upon hours earlier. The currency revaluation was one of the the earliest moves the CBK had undertaken to combat the predicted inflationary threats of today.
The Regulations
In the short period following the Kuwait Stock Exchange (KSE) reaching the 10,000 points level the Central Bank of Kuwait (CBK) would unleash several coordinated regulations each serving the same purpose: Contain inflation. The CBK would allow listed companies to call for capital increases. Many companies increased capital, sending frantic investors to local banks to obtain loans. Then the first of the major regulations occurred, the CBK abruptly prohibits real estate investment and its use as collateral for borrowing purposes. The move prevented many from increasing debt to finance new investment opportunities. The move also sends the real estate market to decline by up to 40% in some areas forcing investors increase collateral or repay loans.
The CBK continued to allow companies to raise capital sending investors to the banks once more, this time to get consumer loans (without collateral) and placing the funds in the exchange. The central bank was adamant at ending leveraged positions in the markets, hence it announced a cap on consumer loans forcing market participants to only use available cash to invest in the exchange. No longer could individuals obtain massive loans to invest in the booming markets. The central bank predicted that the inflation rate would finally decrease. Soon after, the CBK surprisingly announced the highest inflation on record.
Part 1: The Collapse of the KSE September 7, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: bahrain, Central Bank of Kuwait, Central banks role, Collapse, economy, Government, inflation, KSE, kuwait, Kuwait Stock Exchange, Part 1, Part 2, Part3, qatar, Regulations, uae
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The recent collapse in the Kuwait Stock Exchange (KSE) index this past week has not been given its proper placement in the headlines. I have found it difficult to find resources covering the details of the collapse or reasons justifying the decline. Some might hail the events as a market correction but I believe the reasons are far more complex and intertwined with recent economical events in the country.
This post will be composed of 3 parts.
A Brief History of the Local Economy
Economies across the globe experienced massive economic prosperity beginning after the millennium ending in 2007. Emerging markets were recognized as superior untapped resources by some of the leading financial institutions. Several companies relocated to the third world in a race to attract as much wealth as possible. Investors in New York, London, and Paris devised plans to invest in countries they could not locate on maps. During the same time Kuwait experienced its own expansion of economic growth.
The rush of riches to the citizens from a single source in a rapid pace began worrying regulators. The Kuwait Stock Exchange (KSE) index multiplied exponentially in 10 years from 98 to 08. During this short period, college graduates headed directly to the exchange for employment regardless of specialization. Housewives began exchanging stock tips. Industrial and service companies began trading the markets neglecting their core businesses. Investment companies began propping up across the horizon. They all shared the same objective: To generate as much wealth in the shortest time possible. In order to maintain economic stability in the nation the central bank of Kuwait would need to act by containing growth to prevent surging inflation.
CBK Vs the Government
The Central Bank of Kuwait (CBK) has recently been finding it difficult to contain inflation using conventional methods. Central banks around the globe use their power to predict the future behavior of markets and adjust interest rates, money supply and use influence to guide markets in controlled movements. The central banks are capable of requesting aid from the governments to fight sudden implications, but of course the central bank is not required to act when the government requests certain actions from it. Also, the central banks must be independent from local politics and unbiased in their decision-making. These are core fundamentals that allow the central banks to operate in the most proficient manner possible.
In Kuwait however, the methods are different. During a year of record inflation parliament announces the highest spending budget in history, an increase in wages, demands decreasing the dicount rate, and finally the dissolution of consumer loans. The government’s actions were all created with the CBK’s direct objection proving that the government will not aid the CBK in preserving the economical well being of the country. The governments actions would prove catastrophic to the economy if left unabated therefore the CBK must act swiftly and alone to correct the government’s blunders.
Gulf Air settles the financial “irregularities” September 4, 2008
Posted by mylastresort in analysis, bahrain, random.Tags: bahrain, Corruption, Court, Gulf Air
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Gulf Air, a Bahraini based airline, has announced that it has reached a settlement with a former senior manager who is under investigation for alleged financial “irregularities” in the company. It seems as though only foreigners are being prosecuted these days. The Gulf countries are all in dire need of some cleaning up since white collar crimes and corruption have taken over the entire spectrum of the economies.
Since most countries want to show that they are battling corruption yet, they do not want to be categorized as corrupt states therefore, Would the countries publicly announce every case of corruption or would they dismiss the cases all together?
Gulf Countries Delay Currency Union June 10, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Central Bank, Currency Union, gcc, Gulf, Gulf Cooperation Council, Single currency
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Central bank governors from the Gulf Cooperation Council (GCC) agreed to form the nucleus of a joint central bank by 2010 in a major step forward for monetary union but signalled that the new common currency would be delayed (as explained in previous posts) and not launched by the 2010 target.
Record-high inflation in all the countries in the GCC is threatening to derail the project. Central bank governors from the GCC laid out a roadmap leading toward common monetary institutions before 2010. It seems very optimistic that with all the economic dilemma’s we are facing the Gulf the central banks still believed that we could form the single currencyCurreny Union by 2010.
A List of Major Gulf Projects June 5, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Abu Dhabi, Al-Uqair Tourism Development Project, Aldar - Yas Island Project, construction, Culture Village Project, Dubai, Duqm New Town Project, Forecast, King Abdullah Financial District Project, kuwait, Masdar City Project, Mohammed bin Rashid Gardens Project, oman, Outlook, Projects, Sama Dubai-The Lagoons Project, saudi arabia, Tatweer Badawi Project, uae, United Arab Emirates
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Here is a list of major projects currently underway in the Gulf:
Kuwait
Silk City Project, Value $77 billion
Planned completion: Q4 2030
Current stage: Planning
Gulf bourses gain $60 bln in April April 27, 2008
Posted by mylastresort in analysis, bahrain, saudi arabia.Tags: Dubai, kuwait, Market Cap, Money, oman, qatar, Stocks
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Gulf bourses shrugged off global market turmoil and surged ahead by more than $60 billion in April despite fluctuations in the previous month. The figures show that the UAE, Saudi Arabia, and Qatar were by far the best performers. Starting at $1 trillion during the first of April, the market caps in the GCC grew to $1.126 trillion by todays (Sunday’s) opening.
“This year is expected to be a good one based on the market and economic fundamentals. But you have to expect instability from time to time because of speculation in some markets, mainly in Saudi Arabia and UAE bourse.”
- In a report by the AMF
Here is a detailed list of the exchanges increases (by region):
- Dubai’s International Financial Exchange (DIFX) – $8 billion
- Qatar’s Doha Securities Market – $19.8 billion
- Kuwait Stock Exchange – $1.2 billion
- Oman Stock Exchange- $2 billion
- Bahrain Stock Exchange- $1.5 billion
“All GCC markets have emerged as gainers so far this year and this shows their exposure to overseas markets is minimal… Another reason is that many foreigners are scared of volatile global markets and are finding a safe haven in this region… Since most of the listed companies are expected to make higher profits this year, the investors’ gains will be more”
- Ziad Dabbas, National Bank of Abu Dhabi.
Gulf currencies collapse 40% April 8, 2008
Posted by mylastresort in analysis, bahrain, qatar, rumors, saudi arabia.Tags: gcc, kuwait, saudi arabia, qatar, Dubai, Central Banks, Revaluation, Currencies, Dirham, AED, Gulf, US, KWD, BHD, Dollar, bahrain, oman, OMR, Saudi Riyal
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Many have called for a revaluation of Gulf currencies from the historical dollar peg. The flood of liquidity and rapid inflation has been hailed as a warning to the falling interest rates, decline of the US Dollar, and record high oil. The loss in value of the Gulf currencies has been partially responsible in the rise of inflation. The inflationary pressures, which should govern an increase in rates by the central banks, have created markets so liquid that deposits are being quoted at negative rates. The list below shows the Gulf currencies depreciation, in value, due to the Dollars decline.
Why the single Gulf currency will not happen… April 7, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Arab Gulf, currency, Dinar, Doha, gcc, Gulf currency, Meeting, Single, Union
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Following the central bankers meeting in Doha this week its clear they are all enthusiastic and confident in the 2010 unified Gulf currency, known as the ‘Dinar’. The expected time frame for the single currency is on the extreme side of optimism, (also note, I am very skeptical that a single currency will be adopted in the first place). There are many obstacles that must be overcome before discussing a unified currency. The Gulf, although neighbors, do not share the same political veiws, economic reform or civil freedoms, among many other factors that will be of prime importance to the unification of the currencies.
