Mitsubishi upbeat on KSA growth as reforms gather pace

The Mitsubishi financial group, which has its headquarters in Tokyo, expects Saudi privatization plans to accelerate this year. (AFP)
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Updated 13 January 2020

Mitsubishi upbeat on KSA growth as reforms gather pace

  • MUFG analyst believes the Kingdom will continue to be regional outperformer in 2020

DUBAI: Japanese financiers are taking a cautiously optimistic view of the Middle East, despite recent geopolitical stresses, and believe Saudi Arabia, in particular, is set for a year of financial and economic outperformance, with a revived privatization plan as the centerpiece.
Mitsubishi UFG Financial Group (MUFG), one of the country’s biggest investment institutions and a major player on the international financial scene, recently told investors: “Saudi Arabia was the regional outperformer in the Middle East and North Africa in 2019, and we believe this trend will follow in 2020.” 
According to Ehsan Khoman, head of MENA research and strategist for MUFG: “Investors have moved on from recent ‘black swan’ events and are taking increasing comfort with the lengths and vigour that the authorities are demonstrating in enhancing the operating environment, enticing foreign investment and implementing structural reforms in accordance with Vision 2030 targets.”
MUFG, which opened a Riyadh office just over a year ago and has close links with Morgan Stanley, one of the Kingdom’s top financial advisers, gave a vote of confidence to Saudi economic policymakers, on the eve of the visit to the Middle East by Japan’s prime minister Shinzo Abe.
“The Kingdom’s ample wealth buffers have offered policymakers options, allowing the authorities to retain an expansionary stance throughout 2019,” Khoman said.
“The 2020 budget strikes a more conservative tone, which is in line with the approach wherein the state slowly withdraws and allows the private sector to lead.
“The central cornerstone of the transformation strategy is to structurally change the operating model to make investment, not government spending, the engine of growth.
“The emphasis on diversifying state funding to ensure the private sector is not crowded out, in conjunction with robust corporate confidence readings (which continue to break records), are consistent with this objective.”
Last year the Kingdom was a record achiever in the World Bank’s annual “Ease of Doing Business” ratings, jumping a record 30 places as the pace of reform accelerated under the Vision 2030 strategy to diversify the economy away from oil dependency.
MUFG believes this will continue. “The momentum from the leadership centered on a KPI performance-based achievement approach is undoubtedly serious, and critical structural reforms are creating the necessary platforms for corporates to evaluate strategic risk-reward opportunities,” Khoman said.
Analysts expect that the historic initial public offering of Saudi Aramco last year will kick-start the privatization program under the Vision 2030 strategy.
The Kingdom’s ministry of economics has ear-marked around 162 businesses currently owned by the government for privatization either by IPO, sale to domestic and foreign trade buyers, and public-private partnership, but that program was delayed while the Aramco share sale was being organized. 
MUFG expects its will gather new momentum this year. “Privatization, particularly in an volatile oil price environment, is intended to enhance the operations of state-owned enterprises, as well as the efficiency and overall management of the business, and improve the quality of services,” Khoman said.
“Privatization initiatives are an integral part of regional government’s strategies for achieving economic development, structurally adjusting the economy away from not only the reliance on hydrocarbons, but also realigning it away from volatile oil and gas prices.
“As such, governments in the region have devised wide-ranging reform plans, with privatization central to such initiatives.”
In conclusion, Khoman said: “We at Mitsubishi believe that the Kingdom as well as the rest of the region will accelerate privatization plans this year, which is in line with the economic transformation strategy wherein the state slowly withdraws and allows the private sector to lead.”


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.