Brexit: Gulf investors concerned over market moves

MARKET WATCH: The six GCC states have large interests in the British real estate market.
Updated 27 June 2016

Brexit: Gulf investors concerned over market moves

JEDDAH: Stock markets in Gulf states including Saudi Arabia dropped Sunday in the first trading session after Britain voted to leave the European Union.
As GCC markets reacted negatively to the so-called Brexit, regional analysts, quoted by local media, said that the Brexit result could provide a golden opportunity for the Gulf investors to seek positive returns from the British market, especially in light of the sharp decline in the value of the British pound.
These analysts expect the gains for Gulf investors from the Brexit to be greater than the losses — especially real estate.
Analysts, however, suggested that Gulf investors should wait a little longer until the picture becomes more clear about the ramifications of Friday’s landmark verdict.
Ihsan Bu-Hulaiga, an economist, commented that Brexit came at an inappropriate time for Gulf countries, who are suffering from a decline in oil revenues and are searching for alternatives.
On Sunday, Saudi stocks fell 4.1 percent at the opening but recovered to close down just 1.1 percent. All 15 sectors were in negative territory.
“Investors are very concerned now over what will happen next,” Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News.
“This uncertainty will drive prices down. Unfortunately, we will go through this turbulent phase for a while until a new prime minister is found to replace David Cameron,” he told Arab News.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, commented: "The main risk to Saudi Arabia is oil prices. The European Central Bank is likely to keep interest rates lower for longer. This will likely mean a stronger US dollar, which is negative for commodities including oil.”
The Tadawul All-Share Index closed at 6,479 points but bounced from an intra-day low of 6,257 points. Petrochemical blue chip Saudi Basic Industries Corp. fell 1.5 percent and National Commercial Bank was down 1.3 percent.
But Arabian Pipes, which soared last week after winning a contract from Saudi Aramco, jumped its 10 percent daily limit for a fourth straight day. Saudi Electricity Co., seen as a defensive stock, rose 1.6 percent.
On the Saudi exchange, 356 million shares were exchanged, 67 percent more than the 20-day average.
Out of the Tadawul’s 172 index members, 149 fell.
John Sfakianakis, director of economics research at the Gulf Research Center, commented: “There is limited impact between Saudi Arabia and the UK financial system and any impact will depend on secondary effects at a global level.”

He added: “There is a certain degree of risk-aversion over the short term. Over the medium term, investor confidence would be impacted by oil prices and the direction and confidence of global economic growth.”
Sfakianakis said: “Emerging market debt could see an uptick as liquidity takes priority over the short term. Fundamentals will drive economic growth over time. There is limited impact between Saudi Arabia and the UK financial system and any impact will depend on secondary effects at a global level.”
Speaking to Arab News, a regional analyst said: “The main challenge for now is the uncertainty (as always!!). Everyone knows that this will have implications but it is too early to tell how, how soon, and in what ways. Markets always overreact to uncertainty.”
He added: “I agree that the exposure of Saudi listed companies to the UK is probably likely to be fairly limited. However, many will have relationships with UK-based banks and affected by the volatility of the pound as well as many questions marks about the future of banking regulation in the country.” 
The analyst said: “For Saudi investors, a weaker pound represents a short-term opportunity, albeit into a market that now looks far less clear and predictable. For Saudi exporters, a weaker pound means a tougher market, whereas the competitiveness of UK products will increase.”
He added: “Strategically speaking, companies that had used  the UK as a global hub or a springboard for the UK market, the future suddenly looks far murkier.”
The analyst also said: “While the real economic impact on Saudi Arabia will likely be modest, the uncertainty in the UK, and its global implications will now potentially rumble on for a fairly long time.”
All seven GCC stock markets were closed on Friday when the result of the British referendum was announced.
The Dubai Financial Market began the day by sliding 5.0 percent, but the index — the Gulf bourse most exposed to international markets — finished the day down 3.25 percent.
At one stage, investment companies fell 8.0 percent and real estate dropped 5.0 percent.
The Qatar Exchange fell 1.25 percent, the Abu Dhabi Securities Exchange dropped 1.85 percent and the Kuwait Stock Exchange closed 1.1 percent lower.
The bourses of Oman and Bahrain ended the day down 0.6 percent and 0.7 percent respectively.
The six GCC states have large interests in the British real estate market and thousands of Gulf citizens own homes in Britain.
Britain also has sizable real estate interests in Dubai and more than a million British tourists visit the UAE annually.

Merkel seeks united front with China amid Trump trade fears

Updated 22 May 2018

Merkel seeks united front with China amid Trump trade fears

  • Merkel seeks common ground to ward off trade war
  • Plans complicated by US policy moves

Chancellor Angela Merkel visits China on Thursday, seeking to close ranks with the world’s biggest exporting nation as US President Donald Trump shakes up explosive issues from trade to Iran’s nuclear deal.

Finding a common strategy to ward off a trade war and keep markets open will be Merkel’s priority when she meets with President Xi Jinping, as Washington brandishes the threat of imposing punitive tariffs on aluminum and steel imports.

“Both countries are in agreement that open markets and rules-based world trade are necessary. That’s the main focus of this trip,” Merkel’s spokeswoman Martina Fietz said in Berlin on Friday.

But closing ranks with Beijing against Washington risks being complicated by Saturday’s deal between China and the US to hold off tit-for-tat trade measures.

China’s economic health can only benefit Germany as the Asian giant is a big buyer of Made in Germany. But a deal between the US and China effectively leaves Berlin as the main target of Trump’s campaign against foreign imports that he claims harm US national security.

The US leader had already singled Germany out for criticism, saying it had “taken advantage” of the US by spending less than Washington on NATO.

Underlining what is at stake, French Economy Minister Bruno Le Maire warned the US-China deal may come “at the expense of Europe if Europe is not capable of showing a firm hand.”

Nevertheless, Merkel can look to her carefully nurtured relationship with China over her 12 years as chancellor.

No Western leader has visited Beijing as often as Merkel, who will be undertaking her eleventh trip to the country.

In China, she is viewed not only as the main point of contact for Europe, but, crucially, also as a reliable interlocutor — an antithesis of the mercurial Trump.

Devoting her weekly podcast to her visit, Merkel stressed that Beijing and Berlin “are both committed to the rules of the WTO” (World Trade Organization) and want to “strengthen multilateralism.”

But she also underlined that she will press home Germany’s longstanding quest for reciprocity in market access as well as the respect of intellectual property.

Ahead of her visit, Beijing fired off a rare salvo of criticism.

China’s envoy to Germany, Shi Mingde, pointed to a “protectionist trend in Germany,” as he complained about toughened rules protecting German companies from foreign takeovers.

Only 0.3 percent of foreign investors in Germany stem from China while German firms have put in €80 billion in the Asian giant over the last three decades, he told Stuttgarter Nachrichten.

“Economic exchange cannot work as a one-way street,” he warned.

Meanwhile, looming over the battle on the trade front is another equally thorny issue — the historic Iran nuclear deal, which risks falling apart after Trump pulled the US out.

Tehran has demanded that Europe keeps the deal going by continuing economic cooperation, but the US has warned European firms of sanctions if they fail to pull out of Iran.

Merkel “hopes that China can help save the atomic deal that the US has unilaterally ditched,” said Die Welt daily.

“Because only the giant emerging economy can buy enough raw materials from Iran to give the Mullah regime an incentive to at least officially continue to not build a nuclear weapon.”