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.


Trump advisers urge delisting of US-listed Chinese companies that fail to meet audit standards

Updated 07 August 2020

Trump advisers urge delisting of US-listed Chinese companies that fail to meet audit standards

  • Growing pressure to crack down on Chinese companies that avail themselves of US capital markets but do not comply with rules
WASHINGTON: Trump administration officials have urged the president to delist Chinese companies that trade on US exchanges and fail to meet US auditing requirements by January 2022, Securities and Exchange Commission and Treasury officials said on Thursday.
The remarks came after President Donald Trump tasked a group of key advisers, including Treasury Secretary Steve Mnuchin and SEC Chairman Jay Clayton, with drafting a report with recommendations to protect US investors from Chinese companies whose audit documents have long been kept from US regulators.
It also comes amid growing pressure from Congress to crack down on Chinese companies that avail themselves of US capital markets but do not comply with US rules faced by American rivals.
“We are simply leveling the playing field, holding Chinese firms listed in the US to the same standards as everyone else,” a Treasury official told reporters in a briefing call about the report.
The US Senate unanimously passed legislation in May that could prevent some Chinese companies from listing their shares on US exchanges unless they follow standards for US audits and regulations.
Democratic Senator Chris Van Hollen, who sponsored the bill described the recommendations as “an important first step,” but said that “without the added teeth of our bill, this report alone does not implement the requirements necessary to protect everyday American investors.”
The administration’s recommendations, if implemented via an SEC rulemaking process, would give Chinese companies already listed in the United States until Jan. 1, 2022, to ensure the US auditing watchdog, known as the PCAOB, has access to their audit documents.
They can also provide a “co-audit,” for example, performed by a US parent company of the China-based affiliate tasked with auditing the Chinese firm. However, companies seeking to list in the United States for the first time will need to comply immediately, the officials said.
A State Department official told Reuters the administration plans soon to scrap a 2013 agreement between US and Chinese auditing authorities to set up a process for the PCAOB to seek documents in enforcement cases against Chinese auditors.
China said on Friday that the two countries have “good cooperation” in monitoring publicly listed firms.
“The current situation is that some US monitoring authorities are failing to comply with their obligations, and what they are doing is political manipulation — they are trying to force Chinese companies to delist from US markets,” foreign ministry spokesman Wang Wenbin told a media briefing.
The PCAOB has long complained of China’s failure to grant requests, giving it scant insight on audits of Chinese firms that trade on US exchanges.
The report also recommends requiring greater disclosure by issuers and registered funds of the risk of investing in China, as well as mandating more due diligence by funds that track indexes and issuing guidance to investment advisers about fiduciary obligations surrounding investments in China.
The moves come amid rising tensions between Washington and Beijing over China’s handling of the coronavirus and its moves to curb freedoms in Hong Kong, among other issues.