Gulf states follow US rate rise at risk of hitting borrowing

The UAE central bank raised its benchmark short-term borrowing rate to 1.5 percent. (Reuters)
Updated 14 December 2017
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Gulf states follow US rate rise at risk of hitting borrowing

DUBAI: The Gulf’s dollar-pegged economies have followed a US interest rate hike to maintain the value of their currencies but at the risk of denting efforts to stimulate their flagging economies.
Saudi Arabia, the UAE, Qatar and Bahrain all raised their key benchmark interest rates by 25 basis points after the move by the US Federal Reserve late on Wednesday.
Only Kuwait, whose dinar is pegged to a broader basket of currencies, held out, as it battles to boost its economy which is forecast by the International Monetary Fund to shrink by 2.1 percent this year.
The Saudi central bank said it was raising one of its benchmark rates to 1.5 percent although that was counterbalanced by a government announcement of $19.2 billion in stimulus funds for the private sector.
The kingdom reported a negative inflation rate in October and economic forecasts say the region’s largest economy is likely to shrink this year.
The UAE central bank raised its benchmark short-term borrowing rate to 1.5 percent while Bahrain raised its key rate to 1.75 percent and Qatar raised its to 2.5 percent.
The Kuwaiti central bank kept its main discount rate at 2.75 percent. There was no immediate word from Oman.
Raising interest rates is a tool normally used to cool heating economies and check inflation but the Gulf states are suffering from the reverse problem — economic contraction and deflation.
Gulf oil exporters have been hit hard by the slump in world prices for crude, which provided a major part of their finances.
Huge budget deficits have forced them to cut public spending and seek to restructure their economies away from oil.
They have all been keen to boost lending to expand their private sectors.


Non-Saudi Gulf companies get ready to joint list on Tadawul

Updated 25 April 2019
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Non-Saudi Gulf companies get ready to joint list on Tadawul

  • Two companies, from UAE and Bahrain, about to submit documentation, bourse CEO tells Arab News
  • Joint listings for other Gulf stocks would be an important step in Tadawul’s ambition to be the dominant stock market in the region

RIYADH: Tadawul, the Saudi Arabian stock exchange, is on the verge of announcing the first ever joint-listings of companies from other Gulf countries in a move that further illustrates the growing regional power of the market.

Khalid Al-Hussan, the exchange’s chief executive, told Arab News on the sidelines of the Financial Sector Conference in Riyadh that two companies — one from the UAE and one from Bahrain — are about to submit the necessary documentation to enable their listing in Riyadh. He declined to identify them.

“Two companies are in advanced discussions and are about to submit their files,” he said. The final decision on their listing rests with the regulator Capital Markets Authority, but Al-Hussan has made no secret of his desire to get non-Saudi companies from the Gulf Cooperation Council listed on the Riyadh market.

“We are an important regional platform and we can complement secure access to capital and the liquidity they lack in their home markets,” Al-Hussan said, adding that Tadawul was speaking to several other corporates in the region to gauge their interest.

Joint listings for other Gulf stocks would be an important step in Tadawul’s ambition to be the dominant stock market in the region. Al-Hussan is also planning Gulf-wide initiatives in other areas of securities trading, like settlement and clearing.

“Tadawul can play an important role in post-trade business, because of its size and liquidity. Running a clearing house is very expensive,” he said. Tadawul is already in talks with the Abu Dhabi Securities Exchange and Bahrain Bourse about the possibility of them using Tadawul for clearance and settlement activities.

“They are assessing whether Saudi infrastructure is right for them,” Al-Hussan said. There have been no talks yet with Dubai.

We are an important regional platform and we can complement secure access to capital and the liquidity they lack in their home markets.

Khalid Al-Hussan

News of Tadawul’s growing regional ambitions comes as the Riyadh market continues to reap benefit from the ongoing upgrades to emerging markets status and inclusion in the main indices.

The next tranche of Saudi stocks get included in the FTSE-Russell index next week, while the first tranche under the MSCI upgrade takes place at the end of next month.

“We’re up 18 percent since the beginning of the year, and I don’t think you’ll find many emerging markets performing better than that,” Al-Hussan said of the Tadawul index’s performance.

He said that an influx of foreign investors was a very important reason for the strength of Saudi markets. “It is not just my feeling, it is the facts. Foreign investment is positive every day. Cash inflows are positive and increasing each week,” Al-Hussan said.

The market is also finessing preparations for the introduction of derivatives trading, which is likely to happen in the second half of the year. Al-Hussan said that all the necessary regulations were in place to allow trading in derivatives — securities based on future values of stocks — and that it was awaiting final regulatory approval.

 

 “We are still waiting on the readiness of market traders to actually trade derivatives, and on the readiness of local investors for them. They have to be well informed,” he said.

The Nasdaq Dubai exchange in the UAE already has a platform for derivatives trading in Saudi equities, but Al-Hussan said: “It is very hard for a regional exchange to compete with the domestic one, especially if it does not have much liquidity.”

In the course of the Financial Sector Conference, tech firm Al Moammar Information Systems Company began trading on Tadawul, and marketing is well underway for the forthcoming initial public offering of Arabian Centers by the Fawaz Alhokair Group.

Tadawul also announced a number of “enhancements” to the fee structure of the bond markets, including reducing commissions and waving others, to enhance the competitiveness of debt instruments on the exchange.

FACTOID

18.5%

Rise in the Tadawul All Share Index so far this year