Shift in pattern of global fund flows benefits Dubai

Shift in pattern of global fund flows benefits Dubai
Updated 28 June 2014

Shift in pattern of global fund flows benefits Dubai

Shift in pattern of global fund flows benefits Dubai

DUBAI: Bond investors’ confidence in Dubai is surviving two tests at once, with bond prices staying strong even as the stock market tumbles and concern mounts over volatility in the real estate sector.
Wild swings in the Dubai stock market have erased about a quarter of its value, roughly $30 billion, over the past six weeks and prompted fund managers to complain about standards of corporate disclosure.
Meanwhile, both the International Monetary Fund and the United Arab Emirates central bank warned this month of the risk of Dubai’s real estate market overheating, which could eventually lead to a crash.
Both issues evoke memories of Dubai’s financial crisis in 2009, when a collapse of its property and stock prices pushed the emirate to the brink of default, sending yields on Dubai-related bonds soaring.
But this time, the bond market is delivering a vote of confidence in Dubai. Yields have barely moved and the cost of insuring the emirate’s sovereign debt against default is near its lowest level since mid-2008.
Several factors are responsible. Dubai is benefiting from a shift in risk perceptions; in contrast to five years ago, it is serving as a safe haven not only in the region but also within the emerging market universe.
Investors think the emirate has learned lessons from its crash and can now manage its markets better. And for many investors, the economic strategy which Dubai has developed since the crash, based heavily on tourism, trade, regional business services and banking, looks compelling.
“The fact remains that Dubai still has the region’s most diverse economy, whose reliance on hydrocarbons is significantly lower than peers, both in terms of public finances and headline growth drivers,” said Raza Agha, emerging market sovereign debt analyst at VTB Capital in London.
“Bond investors appear comfortable with their Dubai positions, and this is being reflected in how Dubai has been trading in credit markets.”
Bond yields and CDS barely moved this week as the stock market tumbled.
The spread between the Dubai government’s $750 million, January 2023 sukuk, which is unrated, and Abu Dhabi’s dollar bond maturing in April 2019, which at Aa2 is one of the Gulf’s top-rated credits, actually narrowed this week, by 6 basis points to 207 bps. The spread has narrowed from around 300 bps in late 2013.
Five-year Dubai credit default swaps, which during the emirate’s financial crisis hit levels above 600 bps, edged up just 2 bps from Monday’s multi-year low to 147 bps.
One reason for the bond market’s calm was its belief that Dubai’s stock market plunge was to some extent an inevitable pull-back after huge gains over the past 18 months. The trigger for the plunge - management turmoil at Dubai builder Arabtec, which pricked a bubble in the stock - is being seen as essentially a company-specific problem, not a sign of weakness in the outlook for the emirate’s companies in general.
“CDS moved a touch but it was nothing significant,” noted Abdul Kadir Hussain, chief executive at local financial firm Mashreq Capital.
“The fact that the credit markets in the region and in Dubai in particular did not react strongly to the volatility shows that it had more to do with market technicals, and was not a fundamentally driven sell-off.”
Also, perceptions of Dubai risk relative to other emerging markets have shifted over the past three years.
Since the Arab Spring uprisings of 2011, Dubai has emerged as a major safe haven for money fleeing political instability in the Middle East. And over the past year, it has come to be viewed - perhaps surprisingly, given its history - as a safe haven among emerging markets globally.
While countries such as Turkey and Indonesia have been punished by markets for their current account and budget deficits, Dubai has been sheltered by the region’s huge surpluses, as well as the UAE dirham’s peg to the US dollar, which is backed by Abu Dhabi’s oil wealth.
There is also a perception that Dubai is handling its recovery from the 2009 crash well, juggling the debt maturities of state-linked firms which were forced to restructure tens of billions of dollars worth of debt.
That perception got a boost this week when local property developer Nakheel announced it would repay all its outstanding debt to banks by August, four years ahead of the schedule mandated by its restructuring plan.
While some investors remain nervous about Dubai’s volatile real estate market, where prices are back near pre-crash levels, others think the government has done enough to ensure that it does not overheat.
Yaser Abushaban, executive vice-president for asset management at Portuguese financial group Espirito Santo, said the current property boom looked more like one that occurred in 2005 than 2008, when the market got ahead of itself and then plunged from very high valuations.
“The economy is not overheated at present, so there is no bubble or catalyst for a bursting ‘bubble’,” Abushaban added.
The main risk to Dubai appears to be US interest rates, which when they start to rise could quickly transmit themselves to Dubai’s economy through the currency peg.
Higher rates would complicate the financing of Dubai’s restructured debt; the IMF has estimated about $64 billion of debt held by Dubai and government-related firms will come due between 2014 and 2016. Any worsening of the global market environment could also make it harder for Dubai to complete asset sales which are still needed to pay off some of that debt.
But with the US Federal Reserve signaling that any rate rises probably won’t come before next year and will then be gradual, that risk does not loom large at present.
Instead, some investors are focusing on Dubai’s success in diversifying its economy since the crash. The real estate industry is still a big driver, but the government has been putting a lot of effort into developing other sectors, which may reduce the risks of a boom-bust cycle.
Official economic data is published with a long lag but the latest gross domestic product numbers, from the first quarter of 2013, show manufacturing contributing 13.2 percent of growth, up from 10.6 percent in 2007, and the financial sector at 13.0 percent, up from 10.6 percent.
The contribution of the real estate sector has shrunk to 13.9 percent from 18.0 percent. Its share may have increased over the past year as the property market has boomed, but even so, Dubai’s growth looks somewhat more healthy than it did at the height of its last boom.
“With Dubai’s structural story, a trade and tourist hub with an unassailable lead over regional rivals and a centre for regional refugee capital, the recent equities sell-off should provide an opportunity” to consider buying Dubai blue chips again, said Hasnain Malik, head of frontier markets strategy at investment bank Exotix in Dubai.
He added that if international economic sanctions on Iran were lifted - something which could happen if Tehran negotiates an agreement on its disputed nuclear program by a July 20 deadline - Dubai, as a traditional hub for Iranian business, would look even more attractive.


Sudan PM hopes to settle $60bn foreign debt this year

Sudan PM hopes to settle $60bn foreign debt this year
Updated 13 May 2021

Sudan PM hopes to settle $60bn foreign debt this year

Sudan PM hopes to settle $60bn foreign debt this year
  • ADB arrears paid with $425 million loan from U.K., Sweden and Ireland
  • The Paris Club of major creditors make up around 38 percent of foreign debt

Khartoum: Prime Minister Abdalla Hamdok hopes Sudan can wipe out its staggering $60 billion foreign debt bill this year by securing relief and deals at an upcoming Paris conference that could bring much-needed investment.
The seasoned UN economist-turned-premier took office at the head of a transitional government shortly after the 2019 ouster of president Omar Al-Bashir whose three-decade iron-fisted rule was marked by economic hardship, deep internal conflicts, and biting international sanctions.
In the past two years, Hamdok and his government have pushed to rebuild the crippled economy and end Sudan’s international isolation.
“We have already settled the World Bank arrears, those of the African Development Bank, and in Paris, we will be settling the International Monetary Fund arrears,” Hamdok told AFP at his office in Khartoum.
Arrears due to the African Development Bank were cleared through a bridging loan worth $425 million from Sweden, Britain and Ireland, while debts to the World Bank were paid off with a $1.1 billion bridging loan from the US.
“Paris also is home to the Paris Club, our biggest creditors... and we will be discussing debt relief with them,” Hamdok said.
Sudan’s debts to the Paris Club, which includes major creditor countries, is estimated to make up around 38 percent of its total $60 billion foreign debt.
Hamdok and top Sudanese officials will be attending Monday’s Paris conference along with by French President Emmanuel Macron, and World Bank and IMF representatives.
The aim is to draw investments to Sudan including in the energy, infrastructure, agriculture and telecommunications sectors.
“We are going to the Paris conference to let foreign investors explore the opportunities for investing in Sudan,” Hamdok said.
“We are not looking for grants or donations.”
Sudan was taken off Washington’s blacklist of state sponsors of terrorism in December, removing a major hurdle to foreign investment.
The government has also embarked on tough measures including subsidy cuts and introducing a managed currency float to qualify for an IMF debt relief program.
Though widely unpopular, the premier says the measures were necessary to move toward debt relief “by the end of the year.”
But many challenges still lie ahead.
His government has been pushing to forge peace with rebel groups to end conflicts in far-flung regions.
In October, it signed a landmark peace deal with rebels from the western region of Darfur as well the southern states of South Kordofan and Blue Nile.
Only two groups including one which wields substantial power in Darfur refused to sign the deal.
To Hamdok, the peace deal represents “50 percent on the road to peace.”
Efforts are underway to sign deals with the remaining groups, and talks with a faction of the Sudan People’s Liberation Movement-North (SPLM-N) are slated for later this month.
Hamdok acknowledged the slow pace of implementing the peace deal, but said Sudan is “steadily moving forward.”
In February, Sudan appointed three ex-rebels to the ruling sovereign council and announced a new transitional cabinet including seven ex-rebels.
“We have come a long way... and in my view the second stage of talks will go much faster.”
Simmering tensions with neighboring Ethiopia over a fertile border region and a gigantic dam on the Blue Nile pose another challenge.


UK medical tech firm reveals Saudi expansion plans

UK medical tech firm reveals Saudi expansion plans
Updated 13 May 2021

UK medical tech firm reveals Saudi expansion plans

UK medical tech firm reveals Saudi expansion plans
  • Nemaura Medical has developed a diabetes-tracking wearable device
  • Product launches are planned for Germany, the UAE, and Saudi Arabia

RIYADH: A British medical technology company behind an innovative diabetes monitoring system has identified Saudi Arabia as one of its key target markets.

Nemaura Medical has developed a wearables device which can help diabetics track their blood glucose levels, and the Kingdom is high on the firm’s international expansion plans list.

Its sugarBEAT continuous glucose monitoring (CGM) product was recently launched in the UK and is targeted at people suffering from conditions such as diabetes who want a needle-free alternative.

Initially the company recorded orders of 200,000 sugarBEAT sensors in the UK and has forecast total sales of 2.1 million this year.

Following positive feedback in the UK, it has announced plans to expand internationally and is lining up product launches in Germany, the UAE, and Saudi Arabia.

Dr. Faz Chowdhury, the chief executive officer of Nemaura Medical, said: “We believe our technology is ground-breaking and represents a paradigm shift in the way people with diabetes can manage their condition.

“We believe we have a critical first-mover advantage with a product that is easier to use, more flexible, and more cost-effective than existing technologies. We are not aware of any product of a similar nature in clinical studies or that has been submitted for regulatory approval.”

Nemaura Medical was founded in 2011 and recently expanded into the wearables market to develop and commercialize devices which can help to monitor chronic diseases and health conditions without the need for needles.

The CGM market is a growing sector and according to the Allied Market Research company will be worth around $9 billion by 2027.

The potential market for devices such as sugerBEAT in the Middle East and North Africa (MENA) region is considered strong with data from the International Diabetes Federation (IDF) showing more than 39 million 20 to 79-year-olds in the region having the condition in 2019. The figure is expected to increase to 108 million by 2045.

The IDF has estimated that in Saudi Arabia 15 percent of the adult population has diabetes.


UAE, Seychelles create travel corridor for vaccinated travelers

UAE, Seychelles create travel corridor for vaccinated travelers
Updated 13 May 2021

UAE, Seychelles create travel corridor for vaccinated travelers

UAE, Seychelles create travel corridor for vaccinated travelers

ABU DHABI: The UAE and the Seychelles said that vaccinated people can travel freely between the two countries following the mutual recognition of vaccine certificates issued by their respective authorities.
Quarantine-free travel between the two nations is possible from May 13 as they look to boost tourism in the wake of the COVID-19 pandemic.
Travelers must show they have received both doses of a COVID-19 vaccine through a valid certificate from the relevant health authority.


UAE and Saudi Arabia among biggest sources of remittances in 2020

UAE and Saudi Arabia among biggest sources of remittances in 2020
Updated 13 May 2021

UAE and Saudi Arabia among biggest sources of remittances in 2020

UAE and Saudi Arabia among biggest sources of remittances in 2020
  • Remittances from Saudi Arabia have been slowly declining since 2015 as oil prices have moderated

DUBAI: The UAE was the second largest source of remittances globally in 2020, followed by Saudi Arabia, according to the latest report from the World Bank.

The US was the biggest source country, sending $68 billion abroad last year, while the foreign workers in the UAE sent home $43 billion and those in Saudi Arabia transferred $35 billion, said the report, published Thursday. Among middle-income countries, immigrants to Russia were the biggest remitters, sending $17 billion.

Remittances from Saudi Arabia have been slowly declining since 2015 as oil prices have moderated and the government has encouraged hiring of nationals. For instance, foreign workers sent $1.8 billion to the Philippines in 2020, down 36 percent from 2015.

Despite the large drop in foreign workers in the GCC, remittances from Saudi Arabia held up in 2020 thanks in part to the cancelation of travel to Saudi Arabia, which diverted funds set aside for the Haj pilgrimage to remittances to Bangladesh and Pakistan, according to the report. Both of those countries offered tax incentives last year to boost remittances from migrant workers abroad, while a devastating flood in July 2020 also led to an increase in payments.

Remittances to the Middle East and North Africa rose by 2.3 percent to about $56 billion in 2020, following a 3.4 percent increase in 2019, the report said. The gains came amid unexpectedly strong inflows to Egypt (up 11 percent to a record $30 billion), the fifth-largest recipient of remittances globally, and to Morocco (6.5 percent to $7.4 billion). Tunisia saw a 2.5 percent increase, while other countries, including Lebanon, Iraq, Jordan, and West Bank and Gaza all experienced double-digit declines.

Globally, remittances to low- and middle-income countries fell 1.6 percent to $540 billion, a smaller decline than expected, the World Bank said. The figure is forecast to increase to $553 billion this year and to $565 billion in 2022.


Turkish lira falls to weakest level this year

Turkish lira falls to weakest level this year
Updated 13 May 2021

Turkish lira falls to weakest level this year

Turkish lira falls to weakest level this year
  • Turkish currency weakens on inflation data
  • Latest losses focus attention on forex reserves

BENGALURU:Turkey’s lira fell to a six-month low on Thursday as risks of tighter US monetary policy after strong inflation data weighed on most emerging market assets, with stocks set for their worst day since late March.
The lira fell around 0.8 percent to 8.4968 against the dollar, just a few points shy of its 8.5789 record low. The currency was likely subject to offshore selling on Thursday, given that Turkish markets were closed for a holiday.
Recent losses in the lira have brought the focus back to Turkey’s shrinking foreign exchange reserves, as well as its central bank, which is hesitant to tighten policy even as inflation surges.
Data on Wednesday showed US consumer prices increased the most in nearly 12 years in April, raising expectations that the US Federal Reserve will tighten its monetary policy sooner than signalled.
The MSCI’s index of emerging market currencies fell 0.2 percent, its third day of declines, as the dollar advanced and yields on 10-year Treasuries marked their biggest daily rise in two months.
The MSCI’s index of emerging market stocks plunged 1.3 percent to a seven-week low.
“With yields moving higher and inflation expectations becoming increasingly un-anchored from 2 percent, expectations grew that the Fed might have to start normalizing monetary policy earlier than previously expected,” said Marshall Gittler, Head of Investment Research at BDSwiss Holding.
“There’s going to be a real struggle for control of the narrative between the Fed and the market for the next few months,” added Gittler.
The Russian rouble strengthened on Thursday, up 0.2 percent, recovering some losses sustained on Wednesday. Bloomberg reported that the country was planning bond buybacks to fix its COVID-ravaged debt market. (https://bloom.bg/33BhvxY)
South Africa’s rand held steady as higher gold prices outweighed interest rate risks and a stronger dollar.
Most Central European currencies gained on Thursday with the Czech crown, Hungarian forint and Polish zloty gaining between 0.2 percent and 0.3 percent.
Still, JPMorgan reiterated its underweight position in Central and Eastern European local bonds and currencies, warning of “taper tantrum” risk as central banks tighten monetary policy.
Central bank bond purchase programs in Hungary and Poland — to support their economies through the coronavirus crisis — have been among the largest in emerging markets over the past year.
Asian currencies and stocks declined, while Taiwan stocks dropped 1.5 percent and the dollar eased 0.2 percent on fears of a COVID-19 resurgence and as the island started a rotational electricity blackout after a major outage at a coal plant.