Kuwait SE: The Panic Continues September 16, 2008
Posted by mylastresort in analysis.Tags: bahrain, Bankruptcy, Doha, Dubai Financial Markets, Great Depression, KIA, KSE, Kuwait Investment Authority, Kuwait Stock Exchange, Lehman Brothers, qatar, Stock Market
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The Kuwaiti Stock Exchange (KSE) continued to suffer from panic selling reaching a limit low for the day. Nearly all the companies on the exchange reached their daily limits dropping the maximum (approx. 5%) in the session. News that the Kuwait Investment Authority (KIA) will be investing $1 billion is eagerly awaited by the market participants having suffered large losses in a short period. Losses were felt all across the globe on Monday, the day is being referred to as “Black Monday” once again following Lehman Brothers collapse.
The global markets have suffered the most massive losses ever before witnessed in the past century. The US economy is being compared to the Great Depression of the 1920’s while the European union has not seen such catastrophe in its short history to compare it to. While in the Gulf the markets continued their decline since the beginning of the month.
Here is a summary of closing indexes:
- Kuwait Stock Exchange -3.80%
- Abu Dhabi Index -4.35%
- Dubai Financial Markets -1.71% (had reached -9.5% in the day)
- Doha Stock Market -7.06%
- UK FTSE 100 -3.92%
- Dow Jones Industrial Average (DJIA) -4.42%
- S & P 500 -4.71%
Part 3: The Collapse of the KSE September 9, 2008
Posted by mylastresort in analysis, qatar, saudi arabia.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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Kuwait’s Neighboring Nations
In Bahrain and the United Arab Emirates (UAE) riots began to proliferate among residents demanding action due to the rising prices in consumer goods. Doha and Dubai pride themselves as being tax havens while avoiding to mention double-digit inflationary figures. During the summer of 2008 all of the Gulf countries had peaked to record inflation levels never before experienced in the region.
The Lender of Last Resort
One of several methods to drain liquidity from the markets would be to increase interest rates to levels that would tempt investors to leave the exchange and head to the banks. The Central Bank of Kuwait (CBK) had failed to affect the markets in its previous attempts at raising rates therefore decided to force banks to increase rates without hiking the discount rate, by altering the money supply.
During July 2008 banks experienced a severe loss of liquidity in the market that forced banks to rapidly increase rates in an attempt to remain solvent and avoid the penalties set by the lender of last resort. Short-term deposit rates increased dramatically as banks battled for funds in order to remain solvent. Market participants finally recognized that banks were offering attractive rates that were enough to make them shift to deposits. During the period, banks were behind hundreds of thousands of dinars per day in penalties and exaggerated deposit rates forcing the central bank to flood the market with funds to avoid creating a new crisis.
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?
100% Tax on Luxury Goods June 4, 2008
Posted by mylastresort in analysis.Tags: analysis, bahrain, Doha, Dubai, gcc, Gulf Cooperation Council, kuwait, Markets, oman, qatar, saudi arabia, Tax, taxation, uae, Value added tax, VAT
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The Gulf Cooperation Council (GCC) is planning to introduce up to 100% tax on ‘harmful products’ & luxury goods likely to include cigarettes, luxury cars, private planes, & yachts, among others. A team has been commissioned to list items that could be liable to the new tax from 2012. The GCC team looking into the proposed taxes would next meet in October. The GCC has already set 2012 as the deadline for implementing a new value added tax system.
Each of the Gulf countries suffers from lack of productivity and sophisticated staff, including a very bureaucratic environment in the public sector. The GCC is just that multiplied by 6, therefore I doubt any decision will be made anytime in the next 20 years regarding taxation (if anything useful).
Some notes to consider:
The rich – are the powerful – therefore taxing their latest toys will not make them very happy buying in their own countries and will therefore register items across borders. A good example would be to buy the yacht and register it in Yemen, for instance, and then take it to Dubai marina. This is a simple way to avoid taxes. This will move the companies to areas where the wealthy will pay a more reasonable rate than the 100%.
There will be an increase of ‘wastas’ (quanxi) at the ports and customs to avoid paying the tax. We are already bombarded by having to payoff officials to get the latest DVD, book or game in to the country just imagine bribing one of them to bring in a Ferrari, this will take things to a new extreme.
The Governments DO NOT need any extra income. The future plans and growth in Dubai, Bahrain, and Qatar all involve a marketing plan that clearly states ‘a tax free’ incentive for company’s & employees to relocate. Although everyone knows the slow pace of government policies any threats such as this will deter future companys/individuals from relocating.
Gulf currencies collapse 40% April 8, 2008
Posted by mylastresort in analysis, bahrain, qatar, rumors, saudi arabia.Tags: AED, bahrain, BHD, Central Banks, Currencies, Dirham, Dollar, Dubai, gcc, Gulf, kuwait, KWD, oman, OMR, qatar, Revaluation, saudi arabia, Saudi Riyal, US
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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.
Gulf central bankers to discuss revaluation April 3, 2008
Posted by mylastresort in bahrain, qatar, saudi arabia.Tags: Arab Gulf, bahrain, Bank, Central Bank, Doha, Governers, Gulf, inflation, kuwait, Meeting, oman, qatar, Revaluation, Revalue, uae, United Arab Emirates, US Dollar
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On April 6 and 7 Gulf central bank governers plan to meet to discuss removing obstacles to planned monetary union at a meeting in Doha, Qatar. The Gulf countries are under pressure to revalue in the quickest time to minimize effects on their economies. The countries are planning a joint revaluation against the dollar in an effort not to hinder plans for a single currency in 2010.
The implementation of new regulations along with discussions into the depegging. Weak Gulf currencies are dettering foreign labor from choosing jobs in the region. Recently foreign workers called a strike to demand higher wages as inflation soars.
“The meeting will look into the matter of preparing for monetary union between states of the Gulf Cooperation Council, and ways to speed up performance and remove obstacles”
– Central bank of Kuwait statement
The 6 Arab gulf countries will be meeting to discuss the revaluation of their currencies against the US Dollar, amid soaring inflation and falling interest rates.
Asian average monthly salary – chart April 2, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: Arab, Asian, Average, Average wages, Averages, bahrain, Employee, Expat, Expatriate, Gulf, kuwait, Monthly, Monthly Salary, oman, qatar, saudi arabia, Wages
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A chart developed by EDB last month shows the average monthly salary for Asian expatriates in the Arabian Gulf. I am not familiar with ‘EDB’.
The accuracy of the data is questionable.
Kuwait’s policy strategy plan 2009 – 2014 April 2, 2008
Posted by mylastresort in analysis, bahrain.Tags: Arab, bahrain, Countries, Dubai, Future, Government, Gulf, Investments, kuwait, Kuwait City, Kuwaiti, Manama, Oil, Outlook, Parliament, Policy, Policy strategy, Report, Strategy, uae, United Arab Emirates
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Information in a 2009 – 2014 policy strategy plan formulated by Kuwait’s planning council has been made public. The policy strategy is not strictly adhered to, nor is it marketed to the public, rather it is just a report amid many reports circulated by the government.
Here are a few of the plans:
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Boost non-oil economy (at less than 10% of revenue)
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Increase foriegn investment (become a financial hub)
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Sell land/Ease ownership rules (in preparation of post-oil era)
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Continue privatizations (eg. selling of Kuwait Airways Corp.)
Charts & Numbers 