car tomorrow tesco units - gulf times
TRANSCRIPT
Sunday, December 29, 2019Jumada I 3, 1441 AH
BUSINESSGULF TIMES Friendly laws
bolster Qatar’s real estategrowth in 2019
VALUSTRAT REPORT: Page 12
Tesla to deliverfi rst China-built car tomorrow
Thai tycoonssaid to vie forTesco units
MUSK MILESTONE: Page 2 ASIA BUSINESS: Page 3
IPAQ announces expansion of Turkey’s Doğuş Group Holding into QatarThe Investment Promotion Agency of Qatar (IPAQ) announced the expansion of Doğuş Group Holding, one of Turkey’s largest private-sector conglomerates into Qatar’s food/beverage, hospitality and construction sectors, in an agreement signed on the sidelines of the recently concluded Doha Forum.The agreement, which was signed by Sheikh Ali Alwaleed al-Thani, chief executive off icer, Investment Promotion Agency of Qatar; and Ferit Sahnek, chairman, Doğuş Group Holding; lays the groundwork for collaboration between the two sides and aims to increase co-operation to help them achieve mutually-beneficial common objectives.Under the agreement, the entities will work together to launch more food and beverage brands into the Qatari market, invest in Qatar’s flourishing tourism and hospitality market, as well as further facilitate Doğuş Holding’s expansion into the country’s construction sector. To date, Doğuş Holding has been actively involved in developing Qatar’s infrastructure through construction projects such as Al Rayyan Road among others.In order to achieve these objectives,
the Investment Promotion Agency of Qatar will provide Doğuş Group Holding with relevant information on market and investment opportunities in Qatar, assistance in the company’s business setup and establishment process, access to relevant Qatari public entities, such as ministries and state agencies, as well as support in seeking strategic investments in Qatar.Sheikh Ali said, “This agreement with Doğuş Group Holding further underscores Qatar’s attractiveness as an FDI hub as well as the importance that the State of Qatar places on its economic and political relations with the Republic of Turkey. We are delighted that the Investment Promotion Agency of Qatar can serve as a catalyst strengthening these relations.”Sahnek said, “Turkey and Qatar have enjoyed strong bilateral ties for decades. Doğuş Holding is honoured to be a part of these ever-growing ties and make impactful contributions to the State of Qatar through its array of core businesses. We look forward to continue working together on mutually-beneficial investment opportunities.”Qatar and Turkey continue to enjoy robust bilateral relations and the
combined value of their trade exchange hit $2bn in 2018, registering a sharp jump of around 54% compared to 2017. A commercial and economic partnership agreement signed between the two countries in September 2018 aims to expand such co-operation by promoting trade exchange and easing restrictions on investments, among other areas. Turkish companies are handling projects worth over $11.6bn in Qatar, most of which are geared towards preparations for the 2022 FIFA World Cup Qatar.As part of its mandate to attract more FDI into Qatar, the Investment Promotion Agency LLC will aim to be a single and complete source for investment solutions in the State of Qatar by attracting FDI in all of the country’s priority sectors. The entity will also pursue targeted, sector-specific investment promotion agendas and co-ordinate investment promotion and marketing activities with key stakeholders, as well as develop policy advisory.Doğuş Group Holding, through its subsidiaries, focuses on financial services, automotive, construction, media, tourism, real estate, energy, and entertainment businesses and serves clients worldwide. Sheikh Ali Alwaleed al-Thani (left) signing the agreement with Sahnek in Doha recently.
BUSINESS
Gulf Times Sunday, December 29, 20192
First Shanghai-made cars will be delivered to employees tomorrow; the locally built car qualified for tax exemption in China
BloombergShanghai
Tesla Inc will start delivering Chi-na-built cars tomorrow, a major milestone for Elon Musk’s com-
pany as it expands in the world’s largest electric-vehicle market.
The fi rst 15 units of Model 3 sedans assembled at Tesla’s new multi-billion-dollar Shanghai plant – its fi rst outside the US – will be delivered to company employees tomorrow, capping several months of wins for Musk. The latest came Friday, when the locally built car was included on a list of vehicles quali-fying for an exemption from a 10% pur-chase tax in China.
The shares closed little changed at $430.38 on Friday. The stock has surged since the carmaker reported a surprise profi t on October 23, and is now more than double its year low of $178.93 in June.
Chief executive offi cer Musk is counting on the China plant to help build on recent momentum for the company in the world’s largest market both for EVs and autos in general. The Model 3 will compete with electric cars from local contenders such as NIO Inc and Xpeng Motors, as well as global manufacturers including BMW AG and Daimler AG.
The Shanghai Gigafactory broke ground at the start of this year. Origi-nally just a muddy plot about a 90-minute drive away from Shanghai’s city centre, it is now a crucial test of Musk’s bid to keep his carmaker profi t-able as he bets big on Chinese appetite for electric cars.
With Tesla’s volatile stock price and strained fi nances, investors will be
watching closely how the ramp-up un-folds. The multibillion-dollar invest-ment will be a deciding factor to deter-mine whether Tesla will be able to take on local competitors and fend off chal-lenges by the likes of Mercedes-Benz, BMW and Audi.
Junheng Li, an analyst at JL Warren in New York, noted that the made-in-China Model 3s are not fully manufac-tured there yet. Tesla is importing parts
and assembling them at the facility near Shanghai, with production localisation expected later in 2020.
“Localisation of suppliers has been very slow,” said Li in an e-mail Friday. Tesla didn’t immediately respond to an inquiry seeking comment.
Although Musk has said he’s never seen a factory built so quickly, the fi rst delivery will come only a day before the end of 2019. Back in April, the CEO pre-
dicted Tesla would make at least 1,000 cars a week in Shanghai by the end of the year – a volume the company’s original factory in California spent months try-ing to hit. He’s also said a weekly rate of 3,000 is a target at some point.
Tesla said in October the locally built Model 3 will be priced from about $50,000. On top of the tax exemp-tion announced Friday, the China-built model this month qualifi ed for a gov-
ernment subsidy of as much as about 25,000 yuan ($3,600) per vehicle.
The company may lower the price of the locally assembled sedans by 20% or more next year as it starts using more lo-cal components and reduces costs, peo-ple familiar with the matter have said.
The launch will also provide clues about Tesla’s ability to truly go global. The company is planning to follow up with a production facility in Europe.
Tesla will start delivering China-built cars tomorrow
Robin Ren, vice president of sales at Tesla (left); Elon Musk, chief executive off icer (centre) and Ying Yong, mayor of Shanghai, react during an event at the site of the company’s manufacturing facility in Shanghai (file). Musk is counting on the China plant to help build on recent momentum for the company in the world’s largest market both for EVs and autos in general.
Lenders invite bid for India’s shadow bank BloombergMumbai
Lenders to an Indian shadow bank at the centre of an industry crisis since it started default-
ing three months ago have called for binding bids from potential rescuers by mid-January, people familiar with the matter said.
Altico Capital India Ltd is one of the latest caught up in the nation’s shad-ow banking crisis, which has deep-ened as lenders already reeling from one of the world’s worst bad loan piles balk at extending more credit.
The shadow bank started default-ing on its interest repayments in September, and its lenders are keen for it to get an equity infusion for any debt restructuring plan to be
cleared, the people said, asking not to be identified as the discussions are private.
Potential investors and creditors in Altico, which focuses on real estate lending and counts Clearwater Capi-tal Partners among its main share-holders, are waiting for due diligence reports and will take a fi nal call on the valuation and decide on any resolu-tion plan by the end of January, ac-cording to the people.
A spokesman for Altico declined to comment. There was no immediate reply to an e-mailed request for com-ment to a Clearwater spokesperson and to lead lender State Bank of India, and calls went unanswered.
Alitco’s bad loans spiked to 23.8% of its loan book in the July-September quarter, adding to concerns of recov-ery for the lenders.
Indian bankto launch OTP-based night-time ATM cash withdrawals from January
IANSNew Delhi
India’s public sector state-run
State Bank of India (SBI) will
launch a one-time password
(OTP)-based ATM cash with-
drawal facility from January 1,
2020, as an overnight service
(8pm-8am) which signifies that
while withdrawing cash, the
customer will receive an OTP on
the mobile number registered
with the bank.
The OTP-based withdrawal is
applicable only to withdrawals
from SBI ATMs.
“With a view to minimise the
number of unauthorised trans-
actions happening on ATMs,
State Bank of India announced
the launch of OTP-based ATM
withdrawal for transactions
above Rs10,000 between 8pm
to 8am,” it said.
“With the introduction of its
OTP-based cash withdrawal
facility, State Bank ATMs have
added another layer of security
for cash withdrawals.
OTP will be received on the
customer’s mobile number
registered with the bank.”
“The OTP is a system-gener-
ated numeric string of charac-
ters that authenticates the user
for a single transaction.
This additional factor of
authentication will protect State
Bank card holders from unau-
thorised ATM cash withdraw-
als”, the bank said in a Facebook
post. It also said the facility will
not require any major change in
the current process to withdraw
cash from State Bank ATMs.
However, this facility will
not be available for transac-
tions where a State Bank card
holder withdraws cash from
another bank’s ATM, because
this functionality has not been
developed in the National Fi-
nancial Switch (NFS). As per this
process, once the cardholder
enters the withdrawal amount,
the ATM screen displays the
OTP fields.
The customer has to then
enter the OTP received on the
mobile number registered with
the bank for getting the cash.
This will safeguard the SBI
customers against the risk of
unauthorised ATM transactions
using skimmed or cloned cards,
State Bank said.
More banks are likely to fol-
low suit as fraudulent withdraw-
als are on the rise using cloned
ATM cards.
Currently, banks alert and
send SMSs to customers when
they withdraw from ATMs.
“Introducing the OTP-based
cash withdrawal system to help
protect you from unauthorised
transactions at ATMs. This new
safeguard system will be applica-
ble from January 1, 2020 across
all SBI ATMs,” the bank tweeted.
Nomura sees wealth successionexpertise giving an edge in ChinaBloombergTokyo
Nomura Holdings Inc said its expertise
catering to rich Japanese should give it
an edge in a fast-greying China, where
it’s among a slew of global firms vying to
manage a slice of the nation’s growing
wealth.
“Japan is probably one step or a half-
step ahead of China in dealing with the
issue of how one can smoothly hand over
assets to the next generation,” Koji Nagai,
outgoing chief executive off icer of Japan’s
biggest brokerage, said in an interview.
“This is the area where we’ve put the most
eff ort in over the past few years – we have
know-how.” Koji Nagai speaks during an
interview in April.
Global financial firms are rushing to
capitalize on China’s moves to open up
its $45 tn financial industry, with Nomura
joining UBS Group AG and Credit Suisse
Group AG in setting up domestic wealth
management operations.
Read a QuickTake on China’s opening
of its financial sector Relationships with
wealthy clients, such as business owners,
could help Nomura expand into invest-
ment banking in China in a later phase,
Nagai said, explaining that the reverse
approach can be tough.“You can move in
more quickly through private banking,”
he said.“There are many cases where
it’s diff icult to break in with investment
banking.”
Business supporting asset succession
has long been part of Nomura’s focusin
serving retail investors at home.
Japan will see about a quarter of its
breadwinners turn 75 or older by 2040,
the National Institute of Population and
Social Security Research has said, mean-
ing that more elderly people may seek
advice on how to pass on wealth to their
off spring. China’s population is ageing
rapidly as well.
Following a baby boom during Chair-
man Mao Zedong’s leadership, with an
average of six children per family in the
1960s, and the subsequent 36 years of
a one-child policy, one in five Chinese
will be over 60 by 2030, according to
Bloomberg Intelligence.
While Nagai stressed that no decision
has been made about product lineups
for the brand-new business to serve rich
Chinese, he said Nomura has been hiring
local bankers with experience in wealth
management.“If those people join us,
their clients should follow.”
It has already recruited about 100
people for its Chinese joint venture, in
line with its mainland growth plans an-
nounced earlier this month, he said.
Nomura expects to expand headcount
to 500 by 2023, when it aims to start of-
fering investment banking services such
as advice on initial public off erings and
acquisitions. Still, the early emphasis on
wealth in China contrasts with Nomura’s
strategy in other markets such as the US,
where it is trying to build its corporate
advisory business and recently agreed to
buy a boutiqueinvestment bank.
Nagai has said he sees such “primary”
operations as key for generating revenue
as the firm trims costs in “secondary”
areas such as trading.
Following years of losses, Nomura’s
overseas business has returned to profit
this fiscal year, thanks to its latest cost-
cutting campaign as well as a pickup in
trading activity.
Revenue from the global markets
division rose 14% in the six months ended
September from a year earlier, while
investment banking fell 2.9%.
“Ironically, secondary business has
sharply recovered since the first quarter,”
Nagai said, adding that he’s cautious
about the sustainability of the recovery
given the reliance on market moves.
While central banks’ easier policies
boosted revenue in Nomura’s rates trad-
ing business, Nagai suggested that might
be only a temporary benefit.
Overseas profits “would become
sustainable if monetary policy were
normalised globally, restoring liquidity
in the market,” he said.“But we have to
brace ourselves for the possibility that
the current situation will last for five more
years or so.”
BUSINESS3Gulf Times
Sunday, December 29, 2019
BloombergBeijing
China’s central bank ordered lenders to adopt a new loan-pricing regime for all credit from
next year, marking an end to the previ-ous benchmark and another step to-wards liberalising the fi nancial system.
Financial institutions should stop using the old lending rate as the pric-ing reference for all credit from Janu-ary, while gradually converting existing loans to a new base – the loan prime rate – from March to August, the People’s Bank of China said yesterday.
The one-year lending rate had pro-vided the previous anchor for loans across the economy.
The move could lower costs for some of the 152tn yuan ($21.7tn) in yuan-denominated outstanding loans held by financial institutions and boost economic growth, even though it won’t involve a straightforward cut to interest rates.
The LPR – set at 4.15% for one-year tenor in December – is lower than the benchmark rate at 4.35%. Against the backdrop of the long-term slowdown in the economy, policy makers are opening the fi nancial system to outsiders more while making it more market-driven in some respects.
At the same time, offi cials are keen to control the pace of change as they try to weed out bad debt while keeping the system stable.
The transition is “in line with the need to further reduce the fi nancing costs for the real economy, although there’s still a long way to go,” said Fan Ruoying, an analyst at the Bank of China’s Institute of International Finance in Beijing.
The move will present more chal-lenges for commercial banks because the interest margin will be squeezed and lenders will need to improve their pric-ing ability, she said.
The LPR, revamped to become the benchmark for new loans this year, is
based on the interest rate for one-year loans that 18 banks off er their best cus-tomers.
Banks submit the quoted price each month in the form of a spread over the rate of the PBoC’s medium-term loans.
“By now close to 90% of new loans
are priced with the LPR, but outstand-ing loans with fl oating rates are still based on the benchmark lending rate,” the central bank said in a separate state-ment. That means the real lending cost “can’t refl ect changes in market interest rates,” it said.
The move may help make monetary policy more eff ective, resolving a long-standing problem in which cheap fund-ing that the PBoC off ers banks doesn’t result in cheaper loans to businesses.
In the new scenario when all borrow-ing is based on the LPR, the supply of central bank funding or cuts to the rates of medium-term loans will in theory push down the LPR, and reduce the cost of all lending to businesses.
Most central banks govern the price of money in an economy via the rate that banks are charged to borrow cash over short time periods.
In China, that approach had been di-vided into two steps.
First, the PBoC guided prices for funding in the inter-bank market via its reverse repurchase agreements and medium-term lending facility.
Then, it set the benchmark rates that were used to price mortgages, business loans and other commercial lending – the one-year and fi ve-year lending rates.
While the interest rate of home mort-gages should also be converted to the LPR, the new borrowing cost must be the same as the current charges to “re-fl ect the request to regulate the proper-ty market,” the central bank said in the statement.
Home mortgages could be repriced in the future, based on the LPR, it said.
The PBoC’s latest eff orts show its commitment to making the interest-rate system more market-driven, though controls on deposits remain for now.
The step-by-step approach appears to be trying to open up the system with-out shrinking interest margins too rap-idly and adding more pressure to small-er lenders.
China urges lenders to adopt new loan-pricing regime
Investment in Pakistan’s T-bills jumps to $1.41bn
InternewsKarachi
Foreign investment in Pa-kistan’s government debt papers continued with the
addition of over $400mn within a month.
The latest data issued by the State Bank of Pakistan (SBP) shows that the treasury bills at-tracted $413mn during a month, which pushed the total foreign investment in government pa-pers to $1.413bn.
On November 25, the total infl ow in the T-bills was $1bn which has since jumped to $1.4bn, refl ecting the growing confi dence of foreign investors.
These infl ows in local debt papers support, to some extent, the government’s claim that in-vestment environment has im-proved.
Prime Minister Imran Khan has recently announced that 2020 will be the year of econom-ic progress and stability.
Around half a billion dollar investment in the equity market could not stay and the outfl ow of $542mn practically reduced the overall infl ows in T-bills and eq-uity during a month period; the collective infl ows were $1.956bn during the month.
This is the fi rst time that Pa-kistan has succeeded to attract such large foreign infl ows in government papers which has aff ected other investment too.
For example, the foreign di-rect investment during 5MFY20 surged by 78% to $850mn.
Financial sector, which has been investing heavily in gov-ernment papers, believes that the high returns on T-bills were the main attraction for for-eigners. Currently the returns on three-, six- and 12-months T-bills are 13.51%, 13.28% and 13.24%, respectively.
However, analysts believe the new direction of foreign invest-ment was due to State Bank’s encouragement and marketing for the t-bills which paid the re-turns.
A debate is going on among the fi nancial and corporate sec-tor regarding the policy interest rate which is the key attraction for foreign infl ows in T-bills.
The SBP has indicated that the interest may not be changed during this fi scal year due to high infl ationary pressure in the economy.
The present interest rate, which is at 13.25% is being criti-cised by the business sector as it discourages investment in new ventures and expansions.
Details show that the infl ows in T-bills are largely coming from two countries: the United States and the United Kingdom.
The investment from the UK was $720mn while $621mn came from the US. The only other signifi cant infl ow amount was worth $48mn from Luxemburg.
Thai tycoons said to vie for Tesco’s $7bn Asia businessBloombergHong Kong
The Thailand and Malaysian operations of Britain’s largest supermarket chain Tesco Plc are on the shopping lists of Thai ty-
coons.Thai billionaire Dhanin Chearavanont’s Cha-
roen Pokphand Group and Central Group, con-trolled by Chirathivat family, are among com-panies that are weighing bids for the Southeast Asian business that could fetch more than $7bn, according to people with knowledge of the mat-ter.
CP Group and Central Group are holding dis-cussions with fi nancial advisers preparing for separate bids, said the people, who asked not to be identifi ed as the information is private.
TCC Group, controlled by Thai billionaire Charoen Sirivadhanabhakdi, has also expressed interest, the people said.
Tesco said in December that it is carrying out a strategic review of its Thai and Malaysian businesses after receiving interest.
A sale of the Asian operations would allow the supermarket chain to get an infusion of cash to continue a restructuring of its core UK business that has cut thousands of jobs.
Tesco is expected to call for initial bids for the
businesses as soon as next month, the people said.
Companies might decide against making any off er as deliberations continue, the people add-ed.
A representative for Tesco said the company has no comment beyond its December 8 state-ment.
A spokesman at CP Group said the company has no information to share at the moment, while a representative for Central Group de-clined to comment.
TCC Group isn’t immediately available for comment.
Tesco has more than 2,000 hypermarkets and convenience stores in Thailand under the “Tes-co Lotus” brand.
The chain was founded by CP Group in 1994 and later taken over by the British fi rm, accord-ing to its company website.
In Malaysia, Tesco has over 70 shops, accord-ing to its annual report.
Malaysian conglomerate Sime Darby Bhd owns a 30% stake in Tesco Malaysia.
Berli Jucker Pcl, controlled by TCC, bought a controlling stake in Casino Guichard-Perrachon SA’s Thailand supermarket chain Big C Super-center Pcl for €3.1bn ($3.45bn) in 2016.
Big C is the country’s second-largest super-market chain behind Tesco Lotus.
Pedestrians walk past the People’s Bank of China headquarters in Beijing. China’s central bank yesterday ordered lenders to adopt a new loan-pricing regime for all credit from next year, marking an end to the previous benchmark and another step towards liberalising the financial system.
Home sales in Mumbaijump to four-year high
The interior of the Asia’s biggest Tesco Lotus store in Bangkok. Tesco has more than 2,000 hypermarkets and convenience stores in Thailand under the “Tesco Lotus” brand.
BloombergMumbai
Home sales in Mumbai, India’s financial capital, jumped to the highest in four years as property developers switched focus to building cheaper apartments, according to Anarock Property Consultants.Sales in Mumbai rose 22% in 2019 even though a persistent credit crunch and economic slowdown curtailed recovery in India’s housing sales across top seven cities.Macrotech Developers, a Trump Tower developer in Mumbai, to Godrej Properties Ltd, controlled by billionaire Adi Godrej’s family, are building more low-cost homes as the credit squeeze crimps demand for posh properties.New home starts rose 21% across seven of India’s biggest cities led by affordable flats, highlighting pent up demand in the segment.“One of the major factors that helped Mumbai become the showstopper in 2019 was the developers’ conscious decision to bridge the demand-supply gap,” said Anarock’s chairman Anuj Puri. “The region saw maximum supply in the affordable category – something unusual for this market.”But overall housing sales growth slowed to 5%, according to data from Anarock.India’s property market was just recovering from back-to-back blows in the past few years, including a cash ban, new regulation and tax structure, when it faced yet another challenge in the form of a severe credit crunch as its
key lenders – non-bank financiers – started collapsing.The credit crunch is now feeding into – and worsened by – an economic slowdown that’s hitting demand for goods and services.In 2018, housing sales across top seven cities had grown by 17.6% according to Anarock, but the worsening economy has put a break on this revival.“The unrelenting liquidity crisis, lower-than-expected buyer sentiments and faltering GDP growth eventually put brakes on the overall housing growth in the second half of 2019,” Puri said.Mumbai Metropolitan Region and Pune saw highest growth in residential sales in current year, while sales declined in Bengaluru, Hyderabad and Kolkata Affordable housing continued its growth momentum in 2019 with overall new supply rising by 22% on year in 2019. Unsold housing inventory declined 4% to 648,000 units. Average residential property prices across the top cities increased by 1% in 2019 except Kolkata and National Capital region, where prices remained stagnant. Recovery in homes sales will depend on the government’s pledge to salvage stalled projects, Puri said.India last month announced a Rs250bn ($3.5bn) fund to revive residential projects in a bid to reverse slowing growth in Asia’s third-largest economy.“Residential growth in 2020 will mainly depend on the swift on-ground implementation of some of the previously-announced sops,” Puri said. “A major part of the residential growth will most likely unfold in the second half of 2020.”
Pedestrians walk past as one of two towers of Trump Tower Mumbai (centre), stands under construction at Lodha (file). Home sales in Mumbai rose 22% in 2019 even though a persistent credit crunch and economic slowdown curtailed recovery in India’s housing sales across top seven cities.
BUSINESS
Gulf Times Sunday, December 29, 20194
Five years after meltdown, rouble is reborn as trade war refugeBloombergMoscow
Five years ago, Russian central
bank governor Elvira Nabiullina’s
decision to let the rouble trade
freely faced a gut-wrenching test.
An oil-price collapse and interna-
tional sanctions had put the cur-
rency into a nosedive that even a
650 basis-point rate hike couldn’t
immediately halt. Fast-forward
half a decade and the picture in
Russian markets couldn’t look
more diff erent.
The government’s decision to
abandon currency interventions,
a cautious interest-rate policy,
and tighter budget rules, means it
enters 2020 with more than half
a trillion dollars of reserves and
one of the world’s most lucrative
carry-trade currencies.
And the rouble is set to top
the pack again in 2020, off ering
a safe haven amid concerns over
the trade war between the US and
China, according to a Bloomberg
survey of 57 global investors,
strategists and traders.
Analysts at HSBC Holdings Plc
see the currency gaining as much
as 7% from current levels, calling
it a “beacon of light” in emerg-
ing Europe, the Middle East and
Africa.
The following points show how
far Russia has come in the past
five years: A high interest-rate
diff erential relative to US borrow-
ing costs and rouble strength
have combined to yield the best
carry-trade returns in emerging
markets.
In fact, investors profited from
rouble assets more than twice
as much as the second-best
performer, the Egyptian pound,
which was floated in 2016. The
Bank of Russia started cutting
within weeks of its emergency
hike at the end of 2014, which, for
a while, led to negative real rates
in the rouble.
However, falling inflation has
restored those adjusted returns,
which are almost as good as
when the benchmark rate was at
17%. A budget rule that absorbs
Russia’s windfall oil revenue has
boosted international reserves as
a percentage of the nation’s gross
domestic product back to the
highest level since 2010.
The government enjoys a twin
surplus on its budget and current
accounts, with both measures
at the highest levels in at least a
decade.
Plunging oil prices and inter-
national sanctions over Ukraine
pushed the rouble to a record low
in January 2016. Since then the
budget rule has made the rouble
less vulnerable to the oil price.
The price of hedging against
a potential default by Moscow
using credit-default swaps has
narrowed faster than a similar
drop for the developing world.
The great decoupling of energy stocks from oil creates carnageBloombergHouston
This year has been one of moderate gains for the price of oil, but it has been
bleak for producers. West Texas Intermediate crude is heading for an annual increase of more than 30%, but the best perform-ance among the global oil majors has been Chevron Corp, which has posted a gain of just 10%.
The S&P 500 Energy Index has almost entirely decoupled from oil in 2019 and is on course to underperform crude by the most since the shale revolution began a decade ago. The malaise is largely attributable to the gush of supply from quick-to-drill shale wells. The shale revolution has made the US the world’s biggest pro-ducer of oil and natural gas.
In 2019, it became a net ex-porter of crude for the fi rst full month in at least 70 years.
But independent US oil com-panies have become a victim of their own success, boosting pro-duction via debt-fuelled drill-ing campaigns at the expense of their own shareholders, who have waited in vain for sustain-able free cash fl ow.
The message from investors to producers in 2020 is a simple
one: Stop spending our money. Shareholder apathy has seen energy slump to just 4.2% of the overall market value of S&P 500 Index at the end of November, a record low.
Even the majors, with opera-tions spread around the world, aren’t immune. Exxon Mobil Corp dropped out of the top 10 companies in the S&P 500 com-panies for the fi rst time. “Ab-solutely capital discipline is the number one priority, said Jeff Wyll, senior energy analyst at Neuberger Berman Group LLC, which has about $333bn under management. “Deliver on your promises, don’t raise capital ex-
penditures, stay disciplined. It’s that simple.”
In the broader US energy space, the best performers in 2019 have been pipeline op-erators, refi ners, and companies with big assets outside the shale sector. The worst have been shale-heavy producers, espe-cially those with high levels of debt and spending, or more as-sets that are more gassy – gas prices are down for a third year.
With energy now such a small share of the broader market, many fund managers are unwill-ing to devote time to studying individual stocks, according to Jennifer Rowland, an analyst at
Edward Jones & Co.Chevron is the go-to stock for energy expo-sure due to its large index weight-ing and commitment to fi nancial discipline, she said. “Pick Chev-ron, maybe one other, and to heck with the rest of the space,” she said, describing the mindset of energy investors in 2019.
Chevron distinguished itself this year by walking away from its attempt to buy Anadarko Pe-troleum Corp rather than top a $37bn bid from Occidental Pe-troleum Corp.
It was a move unthinkable during the boom times for Big Oil: One of the world’s largest companies allowing itself to be outbid by an independent only a fi fth of its size.
But in an environment where investors prize capital discipline above all else, that decision has so far been vindicated. Chev-ron burnished its reputation for fi nancial prudence, pocketed a $1bn break-up fee and later boosted its share buyback plan by 25%.
Occidental, meanwhile, has plunged to a record low and was forced to cut capital spending and sell assets to pare down the debt incurred buying Ana-darko. “The consolidators so far have been punished by the market,” Wyll said.
Treasuries have a hard act to follow in 2020as optimism risesBloombergNew York
It’s difficult to imagine how Treas-uries can top their performance from 2019 in the coming 12 months.
The world’s largest bond market is on track for its strongest year since 2011, with a total return close to 7%, based on Bloomberg Barclays index data.
But with 10-year rates now down at around 1.88%, the scope for additional capital gains is more limited. Moreo-ver, the market is entering 2020 in re-verse gear.
A sell-off in the last quarter trimmed its gains, driving the benchmark up al-most a half percentage point from its multi-year low of 1.43% in September.
The key to a market rebound in the New Year will be the health of the US consumer, according to TD Securities’ Priya Misra.
The rates strategist expects renewed rallies in Treasuries as the slump in US manufacturing spills over into weaker consumption, which has been the en-gine of this record economic expan-sion. In her view, that will motivate
traders to reinstate bets on further easing from the Federal Reserve, and bring an interest-rate cut in the first quarter. “I think we seem to be at this inflection point where a lot hinges on the US consumer,” she said.
“We’re pricing a little less than one cut in 2020, which tells me that a real slowdown in consumption isn’t priced in, and it could turn on a dime.”
Positioning for another Fed rate cut has all but disappeared in the last couple of months, as investors have gained confidence in the growth out-look. Progress on a US-China trade deal helped, as did a modest recovery in manufacturing data in Europe and China.
US factories are still struggling, however, with the last crop of reports showing the sector still in contraction. The latest readings on these are due next week, and economists anticipate continued weakness.
That’s somewhat out of step with the Fed’s latest pronouncements, as Chairman Jerome Powell this month told reporters the economy is “in a good place.”
Investors on Friday will be parsing
the minutes of the central bank’s De-cember deliberations for more color on the thinking behind the unanimous decision to keep rates on hold, and policy makers’ apparent preference to keep them that way for the coming year. But even before traders can turn their attention to the year ahead, those focused on the short end of the market must get through the next few days.
The final stretch of 2019 presents the biggest risk of renewed upheaval in funding markets, and all eyes are on the possibility of a repeat of the spikes in overnight rates seen back in Sep-tember.
The Fed’s actions since then appear to have helped tide the financial sys-tem over a potentially volatile period, but if not, it could be a rocky start to the new decade.
What to watch: The US economic data calendar is pretty sparse over the turn of the year, but Fed speakers and the release of minutes from Decem-ber’s Federal Open Market Committee meeting might get attention on Friday.
The Treasury market will be closed at 2 pm New York time on Tuesday, ahead of the New Year public holiday,
and will be shut globally on January 1.Manufacturing reports dominate
the week’s economic indicators: De-cember 30: Trade balance; wholesale and retail inventories; MNI Chicago PMI; pending home sales; Dallas Fed manufacturing activity.
December 31: FHFA house price index; S&P CoreLogic home prices; Conference Board consumer confi-dence.
January 2: Jobless claims; Bloomb-erg consumer comfort; Markit manu-facturing PMI; ISM manufacturing gauge; construction spending.
January 3: Total vehicle sales Fed speakers pop up on Friday. Richmond Fed’s Thomas Barkin speaks in Bal-timore; Governor Lael Brainard, San Francisco’s Mary Daly and Chicago’s Charles Evans join a panel at the an-nual American Economic Association meeting in San Diego, followed by Dal-las Fed’s Robert Kaplan; minutes of the December 11 FOMC meeting are also scheduled for release.
Treasury bills are the focus for the auction calendar: December 30: $42bn of 13-week bills; $36bn of 26-week bills; $26bn of 52-week bills.
The new era of negative rates
By Jana Randow and Yuko TakeoFrankfurt
Imagine a bank that pays negative interest. In this upside-down world, savers are penalised and borrowers get paid to borrow money. Crazy as it sounds, the 2008 financial crisis created a lingering economic slump that drove the European Central Bank to experiment by cutting benchmark lending rates below zero in 2014.Then Japan followed. Some 500mn people in a quarter of the world’s economies ended up living with rates in the red. The idea is to jolt lending, spur inflation and reinvigorate economic growth by pushing through the floor after other options are exhausted. Half a decade later, what once seemed unorthodox has become entrenched and hard to shake. The new era of negative rates is now the subject of a debate about whether the policy has distorted financial markets, crippled banks and threatened pensions.
The situation
Faced with renewed signs of economic weakness, the ECB pushed its benchmark interest rate further below zero in September 2019, charging banks 0.5% to hold their cash. Sweden, Switzerland and Denmark have also stuck with rates in the red, as has Japan. Acknowledging that negative rates have hurt banks, the ECB introduced a “tiering” system to partly shield a portion of their reserves; a programme that in eff ect pays banks to borrow from the central bank was also renewed. Most lenders were initially reluctant to charge customers for fear they’d trigger mass withdrawals; when those fears proved unfounded, more banks introduced fees. Because central bank rates provide a benchmark for all borrowing costs across an economy, the policy spilled over into a range of fixed-income securities, including government debt and a handful of corporate bonds. That means investors buying those securities won’t get all of their money back. By mid-2019, the pile of negative-yielding bonds topped $17tn, or a quarter of all investment-grade debt, increasing the focus on how citizens are hurt when their retirement savings fail to grow.US President Donald Trump has complained that the Federal Reserve has avoided negative rates. The disparity in rates
between the US and much of the rest of the world has drawn investment toward dollar-denominated assets, driving the value of the currency up and potentially hurting US exports.
The background
Negative interest rates were seen as an experimental measure after traditional policy options proved ineff ective in reviving economies damaged by the 2008 financial crisis and recession. In the eurozone in particular, countries grappled with a shortage of credit and unemployment that only slowly receded from its highest level since the currency bloc was formed in 1999. The idea behind negative rates is simple: While positive interest rates represent the reward investors earn by risking their money by lending, negative rates punish banks that are playing it safe by hoarding cash. The goal was to ward off the threat of deflation, or a spiral of falling prices that could have deepened economic distress. While negative interest rates drove down what banks earned on money they lent, they still by and large had to pay customers for their deposits. The resulting squeeze on profits left many European banks complaining that the ECB was making it harder for them to lend, not easier.
The argument
Some policy makers have repeatedly warned that ultra-low rates encourage “bubbles” in asset prices and risky lending. If more and more central banks use negative rates as a stimulus tool, the policy might ultimately lead to a currency war of competitive devaluations. There’s also a growing backlash about the impact on savers and concern about how that could taint the public’s view of the central bank. To many critics, though, the policy has simply run out of steam and may prove diff icult to reverse.The Bank for International Settlements, a study group for central banks, warned in a September 2019 briefing that there’s “something vaguely troubling when the unthinkable becomes routine.” Policy makers who’ve turned to negative rates say they’ve helped their economies and that the downside — so far at least — has been manageable. They also point to a lack of other options: With many governments refusing to boost their economies through more government spending, they say, they need to use every tool they’ve got.
Bloomberg QuickTake
The Treasury’s Pennsylvania Avenue entrance in Washington DC. It’s diff icult to imagine how Treasuries can top their performance from 2019 in the coming 12 months. The world’s largest bond market is on track for its strongest year since 2011, with a total return close to 7%, based on Bloomberg Barclays index data.
The rouble is off ering a safe haven in 2020 amid concerns over the trade war between the US and China, according to a Bloomberg survey of 57 global investors, strategists and traders
Weekly Market Report
The Qatar Stock Exchange (QSE) Index increased by 86.0 points, or 0.83% during the week, to
close at 10,426.37. Market capitalisa-tion rose by 1.0% to reach QR581.8bn as compared to QR575.8bn at the end of the previous week. Of the 47 listed companies, 26 companies ended the week higher, while 13 fell and 8 re-mained unchanged. Qatar Oman In-vestment Company (QOIS) was the best performing stock for the week, with a gain of 6.2%. On the other hand, Qatar First Bank (QFBQ) was the worst performing stock with a decline of 4.4%.
QNB Group (QNBK), Commercial Bank of Qatar (CBQK) and United De-velopment Co (UDCD) were the pri-mary contributors to the weekly index gain. QNBK was the biggest contribu-tor to the index’s weekly increase, add-ing 43.9 points to the index. CBQK was the second biggest contributor to the mentioned gain, tacking on 27.8 points to the index. Moreover, UDCD contrib-uted 7.5 points to the index.
Trading value during the week rose by 2.6% to reach QR871.7mn vs QR849.9mn in the prior week. The Banks & Financial Services sector led the trading value during the week, accounting for 39.5% of the total trad-ing value. Industrials sector was the second biggest contributor to the
overall trading value, accounting for 19.6% of the total trading value. QNBK was the top value traded stock during the week with total traded value of QR153.6mn.
Trading volume rose by 33.1% to reach 302.4mn shares vs 227.2mn shares in the prior week. The number of transactions rose by 24.8% to reach 25,490 transactions versus 20,426 transactions in the prior week. Banks & Financial Services sector led the trading volume, accounting for 37.8%, followed by the Consumer Goods and Services sector comprising 21.5% of the overall trading volume. Qatar Oman Investment Company (QOIS) was the top volume traded stock dur-ing the week with total traded volume of 30.2mn shares.
Foreign institutions ended the week with net buying of QR113.1mn vs net buying of QR122.0mn in the prior week. Qatari institutions remained bearish with net selling of QR13.9mn vs net selling of QR40.3mn in the week before. Foreign retail investors turned positive with net buying of QR5.1mn vs net selling of QR11.3mn in the prior week. Qatari retail investors remained bearish with net selling of QR104.3mn vs net selling of QR70.5mn the week before. Foreign institutions have bought (net basis) ~$1.4bn worth of Qatari equities in 2019.
This report expresses the views and opinions of QNB Financial Services Co WLL One Person Company (“QNBFS”) at a given time only. It is not an off er, promotion or recommendation to buy or sell securities or other investments, nor is it intended to constitute legal, tax, accounting, or financial advice. We therefore strongly advise potential investors to seek independent professional advice before making any investment decision. Although the information in this report has been obtained from sources that QNBFS believes to be reliable, we have not independently verified such information and it may not be accurate or complete. Gulf Times and QNBFS hereby disclaim any responsibility or any direct or indirect claim resulting from using this report.
DISCLAIMER
The QE Index closed up by 0.8% from the week before, and closed at the 10,426.37 level. Our thesis has not
changed over the past few weeks, as the Index kept moving inside the corrective
channel and bounced below the strong resistance (around the 10,600 level). We keep our expected weekly-resistance level at 10,800 points and the 9,700 level as our weekly support.
Technical analysis of the QSE index
Definitions of key terms used in technical analysis
Candlestick chart – A candlestick chart is a price chart that displays the high, low, open, and close for a security. The ‘body’ of the chart is portion between the open and close price, while the high and low intraday movements form the ‘shadow’.
The candlestick may represent any time frame. We use a one-day candlestick chart (every candlestick represents one trading day) in our analysis.
Doji candlestick pattern – A Doji candlestick is formed when a security’s open and close are practically equal. The pattern indicates indecisiveness, and based on pre-ceding price actions and future confirmation, may indicate a bullish or bearish trend reversal.
Source: Qatar Exchange (QE)
Source: Bloomberg
Source: Qatar Exchange (QE)
Source: Qatar Exchange (QE)
QSE Index and Volume
Weekly Index Performance
Qatar Stock Exchange
Top Five Gainers
Most Active Shares by Value (QR Million)
Investor Trading Percentage to Total Value Traded
Top Five Decliners
Most Active Shares by Volume (Million)
Net Traded Value by Nationality (QR Million)
BUSINESS5Gulf Times
Sunday, December 29, 2019
BUSINESS11Gulf Times
Sunday, December 29, 2019
Nasdaqretreats after ten straightall-time highs
AFPNew York
Wall Street had a mixed finish to a quiet week on Fri-
day, with the Dow edging to a fresh record, but the Nasdaq retreating after 10 straight all-time highs.
The muted session in New York came after European bourses edged higher after two straight holidays, while the dol-lar pulled back.
The Nasdaq dipped 0.2% but still fi nished above 9,000 at 9,006.62 after fi rst topping the benchmark on Thursday.
Analysts have attributed the latest run of records to upbeat investor sentiment based on a lower risk of recession in the immediate future, a mellowing of US-China trade tensions and accommodative monetary policy.
Stocks have followed a nearly unbroken line upward since early October, drifting higher much of this week amid low trading volumes in the period between the Christmas and New Year’s holidays.
“It’s a market that’s gotten used to the fact that a lot of the things that were concern-ing last year feel better this year,” said Art Hogan, chief market strategist at National Securities.
Still, some market watchers expect a pullback in the fore-seeable future in light of the market’s nearly unbroken run higher.
Stocks have risen to higher-than-normal valuations as a re-sult of the run.
Analysts say such a retreat would be natural due to technical trading factors, though it could also be sparked by an unexpect-ed negative news event, such as a sharpening of US-China trade tensions.
European stock markets, which were open for the fi rst time since the Christmas holi-day, edged higher.
London’s blue chip FTSE 100 ended the day up 0.2%, Frank-furt’s DAX 30 rose 0.3% and the CAC 40 in Paris edged 0.1% higher.
Asian stock markets closed mixed, with Hong Kong the ma-jor winner, adding 1.3%.
Elsewhere on Friday, both main oil contracts climbed on US-China trade hopes and sustained demand, while a weekly US oil inventory re-port showed lower stockpiles of crude.
“Optimism about trade helped the outlook for global growth and with it the demand for oil while the US consumer is show-ing few signs of tightening their purse strings, which is positive for oil also,” said Stephen Innes, chief Asia market strategist at AxiTrader.
In New York, the Dow closed up 0.1% to 28,645.26 points; New York — S&P 500 ended fl at at 3,240.02 points and New York — Nasdaq closed down 0.2% to 9,006.62 points on Friday.
The year in stocks ending just like it beganBloombergNew York
For stock traders, the middle months of 2019 got crazy enough that one veteran called them weirder than the financial crisis. The beginning and end, on the other hand, have featured tranquility with few precedents in financial markets.The S&P 500 started the year by rising in nine of the first 10 weeks. Now it’s closing it out with gains in 11 out of the past 12, a feat of concerted advances that occurred only once before since 1985. The Nasdaq Composite Index just missed climbing for a 12 straight day, the most in a decade, and, up 12.7%, is
on pace for its best fourth quarter since 2004.While a category of Wall Street wags starts panicking when gains come this easy, people who heeded warnings about euphoria after the Nasdaq surged 16.5% in the first quarter missed a 16.7% jump since it ended. Gains don’t always beget losses in the stock market - ask everyone who has watched the Faang stocks triple after they sold them in 2013.Stocks ended on Friday mixed as traders assessed a rally that’s added more than $5tn to equities this year, but the S&P 500 notched a fifth straight weekly advance and the Nasdaq Composite jumped above 9,000 for the first time. Blue-chip companies led the Dow
Jones Industrial Average to a record high. The dollar slid against most of its major peers. Treasuries rose. Oil rebounded from Friday’s lows as a government report showed US crude inventories sank.While it’s been a big December melt-up for the S&P 500, technical warning signs of a climax may be brewing. The index is edging ever closer to the upper band of its trading envelope, while its GTI Global Strength Indicator – a measure of upward and downward movements of successive closing prices – reveals the deepest overbought territory in all of 2019.“There’s almost no identifiable news/events that would derail the rally over the next few days,” according to Tom Essaye, a former Merrill Lynch trader
who founded “The Sevens Report” newsletter. Still, nearly “all of the December gains have come on almost no material news – and that should temper the optimism a bit,” he wrote.Earlier Friday, equities got a lift from reports of strong holiday-season revenue, with e-commerce sales jumping, which reassured traders that American consumers are feeling confident. A solid rebound for industrial profits in China also buoyed sentiment, with investors now looking to the initial trade deal with the US to sustain gains in the new year.These are some of the main moves in markets:Stocks: The S&P 500 Index was little changed in New York.
The Stoxx Europe 600 Index advanced 0.2%. The MSCI Asia Pacific Index jumped 0.5%.Currencies: The Bloomberg Dollar Spot Index sank 0.4%. The euro jumped 0.7% to $1.1176.The Japanese yen strengthened 0.2% to 109.43 per dollar.Bonds: The yield on 10-year Treasuries dipped two basis points to 1.87%.Germany’s 10-year yield fell one basis point to -0.26%.Britain’s 10-year yield declined one basis point to 0.755%.Commodities: The Bloomberg Commodity Index increased 0.1%.West Texas Intermediate crude was little changed.Gold prices climbed 0.1% to $1,515.20 an ounce.
The ‘fi re and ice’ decade that changed everything on Wall StBloombergLondon
It started with animal spirits left for dead by the fi nancial crisis. It’s set to fi nish with stocks near records,
volatility vanquished and the credit su-percycle on steroids.
This is the tale of global markets over a decade of “fi re and ice.”
In the 2010s, traders braved every-thing from the sovereign meltdown in Europe and populist rage to “Vol-mageddon” and the shale revolution. Political earthquakes, shaky corporate earnings and credit shocks all came for the bull market. Central banks saved the day.
Meanwhile, Donald Trump began the era as a reality TV star and will fi n-ish it as president and Tariff Man, with his America First agenda whipsawing billions of dollars in investment fl ows around the world. It all leaves inves-tors dodging political bombs, recession fears and disappearing yields even as they close out the decade with some of best gains in a generation.
Seeking clues on what lies ahead, Bloomberg reporters chronicle here how the past 10 years has transformed the major asset classes.
Bonds: Return-free riskFrom risk-free return to return-free
risk: The world of fi xed income got turned upside down as bears went into extinction and every sell-off proved lit-tle more than a head-fake.
At its peak a record $17tn stockpile of negative-yielding securities roiled global markets in 2019 – spurring capi-tal gains for holders while saddling the likes of pension funds with loss-mak-ing investments down the road.
Benchmark 10-year Treasury yields are a shadow of their former selves, with those in Germany and Japan at epic lows. Thank demographics, growth angst, vanishing infl ation, or monetary interventions. Whatever your worldview, the takeaway is the same: Interest rates failed to wake up from the crisis slumber. “These yields echo that the ghost of the Great Re-cession is still continuing to circulate through global capital markets,” said Jack Malvey, a debt veteran and former chief global fi xed-income strategist at
Lehman Brothers Holdings. “With lit-tle room left for return in bonds, the big question for the 2020s is when does the mean reversion come?”
The Bloomberg Barclays Global Ag-gregate Treasuries index has returned some 5% in 2019 alone through late December. It’s gained more than 19% since the start of 2010. Today coupons are paltry, if they exist at all. Further price gains look unlikely given the fi erce starting point for valuations at the close of 2019.
Yet the risks couldn’t be greater. Du-ration, a gauge of how much prices de-cline as yields rise, is near record levels while outstanding stock has exploded by trillions of dollars.
Key takeaways: Yields tumbled to multi-decade lows, the easy money has been made, and portfolios laced with near record rate risk.
Foreign exchange: King dollarThe biggest danger in global fi nance
this decade landed with the euro-area crisis, which threatened to wipe out the most ambitious currency project in his-tory. High levels of government debt, soaring bond yields and a collapse in con-fi dence pushed nations in Europe’s pe-riphery to the brink of bankruptcy. Greek
yields soared past 40% at one point in 2012 while those on Italian, Portuguese and Spanish securities also surged.
It took a massive restructuring pack-age and the famous “whatever it takes” declaration from then European Cen-tral Bank President Mario Draghi to stave off disaster.
But big institutional frailties remain, like the conspicuous lack of a fi scal framework and full banking union. With high debt levels across much of the region and interest rates already at historic lows, the threat of another cri-sis remains very real.
By contrast the dollar’s status as the world’s premier reserve currency looks as strong as ever, defying post-crisis fears that the centre of monetary grav-ity would shift from America to China. The greenback accounts for some 60% of global foreign exchange reserves, around the same as late 2009 though below 2015 levels.
That’s little solace for traders who rely on price swings to make money. While the global currency market has grown by more than a third to $6.6tn since 2010, volatility has plummeted as central banks dance to a dovish beat in concert. “It was pretty much a decade
of fi re and ice,” said Ned Rumpeltin, European head of foreign-exchange strategy at Toronto Dominion Bank. “We spent so much of the last 10 years lurching from crisis to crisis, but those episodes were interspersed with long periods of low vol.”
There were fl are-ups: Flash crashes hit currencies including the British pound and the South African rand, prompting the Bank for International Settlements to warn of danger ahead when volatility roars back to life.
And that’s not the only hurdle the market will have to clear, as automation comes for Wall Street jobs and newfan-gled technologies like blockchain chal-lenge the established order.
Key takeaways: King dollar reigns supreme, day-to-day vola-tility is dying, and automation risks Wall Street jobs.
Stocks: Unstoppable bullEvents like the 2015 yuan devaluation
and the 2018 risk rout gave stock bulls a scare, but in the fi rst decade to dodge a US recession since records began it wasn’t enough to break them.
“People can overreact to some of that news fl ow, which would undermine their ability to capture what’s been a
clearly very strong 10-year growth cy-cle,” said Luke Barrs, EMEA head of fundamental equity client portfolio management at Goldman Sachs Asset Management.
American stocks were ground zero for animal spirits, trouncing devel-oped-market competitors. Adjusted for volatility risk, gains in the S&P 500 index since December 31, 2009 look poised to be the highest of any decade since at least the 1950s.
In dollar terms the Stoxx Europe 600 has posted only a third of the S&P 500’s total returns of more than 250% this decade. The region’s large exposure to beleaguered value shares, political risk from Brexit to Italian populism, and the absence of hot tech companies all played a role.
Europe has suff ered the biggest out-fl ows among major markets, losing about $100bn this year alone.
Famously, public equity markets have been shrinking this decade thanks to corporate buybacks, private equity funds taking companies off the market and initial public off erings dwindling. Volumes have also been falling as a re-sult. Meanwhile a number of leading Democratic candidates for the 2020 US election are proposing higher corporate taxes, further threatening equity re-turns in the years ahead.
Key takeaways: Bears crushed as US stocks made history, markets shrank, and Europe hit by outfl ows.
Credit: Leverage monsterGlobal corporate debt has nearly
doubled this past decade, defying the oil-price crash and memories of the credit crisis. It became a seller’s mar-ket like never before: Negative-yield-ing corporate bonds surpassed $1tn in 2019, companies sold longer-duration debt and issuers dispensed with clauses to protect investors.
Corporate bond buyers today are getting vanishing premiums, close to record interest-rate risk and hefty lev-erage to boot. Anyone investing $100 in US junk bonds on the last day of 2009, however, is sitting on more than dou-ble the amount. Europe has produced similar returns.
Key takeaways: Borrowing is crazy cheap even for deadbeats, QE has killed price discovery, and no margin for error for next recession.
BUSINESSSunday, December 29, 2019
GULF TIMES
QNB expects ‘modest acceleration’ of global GDP to 3.4% in 2020Driven by “easier” monetary policy
around the world, in particular the
Fed’s dovish pivot to cutting inter-
est rates, a “modest acceleration” of
global GDP growth to around 3.4%
is expected in 2020, QNB has said in
its weekly economic commentary.
That is despite the ongoing US-
China trade war, global manufactur-
ing recession and other risks to the
outlook, QNB said.
However, QNB is concerned that the
world has become too depend-
ent on monetary policy, which is
becoming less eff ective. There is
also a growing risk that low global
interest rates are inflating debt and
asset price bubbles.
Therefore, it is important that fiscal
policy can respond to any substan-
tial negative shocks that hit the
global economy.
In this week’s article, QNB first as-
sessed the current fiscal stance (i.e.,
whether fiscal policy is a headwind
or tailwind for the economy). It has
then considered three key con-
straints on fiscal policy. The need to
ensure government debt sustain-
ability and the diff iculties arising
from both political polarisation and
vested interests.
The 2008 global financial crisis
was so severe that both monetary
policy and fiscal policy were forced
to respond with significant stimulus.
Monetary policy has remained
very loose, but a period of fiscal
austerity, particularly in the Euro
area, was required to maintain debt
sustainability.
The IMF’s latest estimates indicated
that the fiscal stance is providing
modest stimulus to the global
economy in 2019; whereas their
forecast for global growth to ac-
celerate from 3% in 2019 to 3.4% in
2020 is based on an assumption of
neutral fiscal policy.
Government debt sustainability is
an important prerequisite for a sta-
ble economic outlook. Government
bonds are one of the least risky and
liquid assets in a country.
The level and sustainability of
government debt depends on
three main factors. The strength
of nominal GDP growth, the ef-
fective interest rate and the fiscal
balance.
The IMF expects nominal GDP
growth of around 3% in advanced
economies and 6% in emerging
markets over the next 5 years.
Eff ective interest rates are falling
towards zero in advanced econo-
mies and falling in many emerging
markets. Finally, most countries are
running manageable fiscal deficits.
Put together these factors mean
that the IMF projects government
debt in advanced economies to be
broadly stable at a little above 100%
of GDP and a modest increase from
a little over 50% to a little over 60%
for emerging markets.
“In short, government debt is high,
but in most cases sustainable as
long as interest rates remain low,”
QNB said.
A number of countries, particularly
Germany, China and other Asian Ti-
gers, have considerable fiscal space
and would be able to undertake
significant fiscal stimulus.
Whereas others, such as the US,
the UK and Japan, have suff icient
credibility to undertake growth-
enhancing fiscal stimulus whilst
their eff ective interest rates remain
close to zero. Therefore, from a
technical perspective there is room
for significant fiscal stimulus, which
leaves us with political constraints.
Globalisation and technological
progress have together lifted many
people out of poverty across the
world. However, there they have
contributed to increased inequality
in many countries, with rich owners
of capital benefiting more than low-
skilled workers.
This in turn has fuelled increasing
political polarisation with populist
politicians appealing to voters with
more extreme left-wing or right-
wing than centralist policies. This
makes it more diff icult for govern-
ments to agree on sensible policies,
making government spending and
any stimulus less eff ective and
more ineff icient.
Another diff iculty that governments
face when designing good fiscal
policy and stimulus comes from
vested interests. Specific groups
lobby politicians and governments
in support of policies that increase
their wealth, jobs and/or profits.
“We expect global interest rates
to remain low for at least the
next few years, which will help
to maintain government debt
sustainability. That will allow fiscal
policy to respond to any substan-
tial negative shocks that hit the
global economy. “However, political
polarisation and vested interests
will undermine both the eff iciency
and eff ectiveness of fiscal stimulus.
Taken together these constraints
mean that fiscal policy can help
mitigate some of the downside risks
to global growth, but we caution
against viewing fiscal stimulus as a
panacea,” QNB said.
Foreign investment-friendly laws bolster Qatar’s real estate growth in 2019: ValuStratBy Pratap JohnBusiness Editor
The introduction of foreign investment-friendly laws such as legalisation of for-
eign ownership for various asset classes in some 10 locations has benefi ted Qatar’s real estate sector in 2019, a new report has shown.
Granting automatically renew-able residence permit for a period of fi ve years for expatriate owners and benefi ciaries of real estate was also instrumental in bolstering the sector, research and consul-tancy fi rm ValuStrat said.
The 2019 housing market has been one of increasing supply, high demand and falling rents — particularly on the premium end of the market. Majority addition of apartment supply was seen in The Pearl, Lusail and Musheireb. In addition, residential com-pounds were added in peripheral areas of Al Rayyan (Abu Sidra, Abu Hamour, Al Wajba and Baaya), Al Wakrah (Al Wukair) Umm Salal and Al Khor.
Due to oversupply in some areas, landlords reduced rents to maxim-ise occupancy, ValuStrat noted.
Citywide rental values de-creased by 7% annually in addi-tion to a 5% annual drop in capital values as per ValuStrat Price Index (VPI). Secondary locations expe-rienced steeper annual declines up to 13% compared to prime lo-cations such as The Pearl, West Bay and Lusail, which saw asking rental declines of 8% YoY.
As per ValuStrat research, oc-cupancy in The Pearl increased as a result of declining rents as well
as various incentives being of-fered.
Pawel Banach, ValuStrat gen-eral manager, said, “2019 has been an instrumental year for real es-tate of Qatar as a result of intro-duction of foreign investment-friendly laws such as a legalisation of foreign ownership for various asset classes in 10 locations and granting automatically renewable residence permit for a period of 5 years for expatriate owners and benefi ciaries of real estate.
By November, real estate trans-actions reached 3,518 with a total value of QR21.2bn. In addition to
improvement in the legal frame-work, falling mortgage rates and capital values made buying prop-erty for non-Qatari households easier than before.”
New offi ce stock was added in Lusail, Mushiereb Downtown, Al Sadd, Old Al Ghanim, Old Salata, Fereej Bin Mahmoud and Fereej Bin Omran. Falling rents in West Bay forced secondary locations such as Al Sadd and Grand Hamad Avenue to experience highest an-nual fall in rents of up to 20%.
In addition, existing oversup-ply and the persistent infl ux of new commercial offi ce spaces in
Lusail, induced asking rents to fall by 18% YoY. An estimated stock of 750,000 sq m out of 2.1mn sqm GLA offi ce spaces were vacant in Lusail and West Bay.
With the completion of Al Waddan Mall in Mesaieed and The Galleria and Department Store in Musheireb Downtown, organised retail supply totalled 1.89mn sq m GLA (Gross Leasable Area) this year.
Amid competition from newly opened and expected super-regional malls, relatively older shopping centres have reduced asking rents by an estimated 5% YoY and off ering various incen-
tives in order to maintain the ten-ancy. Average occupancy across malls was estimated at 80%.
As of September 2019, Qatar had some 26,778 hotel rooms and hotel apartments within 128 es-tablishments.
A total of 1.49mn international guests (compared to 1.32mn last year) stayed an average of 3.47 nights per stay and spent an Aver-age Daily Rate (ADR) of QR369.
“The fi rst nine months saw oc-cupancy rates averaging at 64% which is 5% higher than last year, though, ADR declined by 4%,” ValuStrat said.
The Al Waab district is seen illuminated at night on the city skyline in Doha (file). The 2019 housing market in Qatar has been one of increasing supply, high demand and falling rents — particularly on the premium end of the market, ValuStrat says.
Qatar’s trade balance records QR12bn surplus in November
QNADoha
The State of Qatar’s trade balance (the diff erence between total exports and imports) recorded a surplus of QR12.5bn in November this year, registering a decrease of QR3.5bn, or 21.8% compared to the same month in the previous year 2018, and an increase of approximately QR0.8bn or 6.8%, compared to October 2019.A statement issued by the Planning and Statistics Authority (PSA) yesterday indicated that the total value of Qatari exports (including exports of local goods and re-exports) reached last November QR22.2bn, a decrease of 13.0% compared to November of 2018, and an increase of 10.6% compared to October 2019.According to the statement, the value of merchandise imports increased during November 2019 to reach about QR 9.7bn, an increase of 1.7% compared to November 2018, and an increase of 15.8% compared to October 2019.In comparison with November 2018, the value of exports of “other oil gases and other gaseous hydrocarbons” representing (LNG, condensate, propane, butane, etc) decreased to about QR14.1bn, by 8.8%, and the value of “oils and oils of ores of continental mineral raw materials” decreased 2.7% to reach about QR4.3bn and the value of exports of “oils and oils obtained from
non-continental mineral materials” decreased 47.0% to reach about QR1.1bn.In terms of exports, Japan ranked first among the destination countries in relation to the exports of the State of Qatar during November 2019, with a value of approximately QR 4.7bn, or 21.3% of the total value of Qatari exports, followed by China with a value of approximately QR 3.3bn, or 15.0% of the total value of exports, then South Korea worth nearly QR 3.2bn, or 14.6%.During November 2019, the group of “cars and other vehicles designed mainly to transport people” came on top of the list of merchandise imports, amounting to approximately QR0.4bn — an increase of 9.3% compared to November 2018 — followed by the group “parts of regular aircraft and helicopters” with about QR0.4bn — an increase of 28.4%, followed by the group of “electrical appliances for telephone or telegraph wires, including devices that transmit the network, and its parts, “to approximately QR0.3bn — an increase of 40.4%.”On the level of imports according to the main countries of origin, the United States of America ranked first in terms of imports for the State of Qatar during November 2019 with a value of approximately QR2.1bn, or 21.7% of the total value of merchandise imports, then China with a value of QR1.2bn, or 12.0%, followed by the United Kingdom with a value of QR1.0bn, or 9.9%.
Turkey tweaks rules for banksin boost for official reservesBloombergIstanbul
The Turkish central bank raised reserve requirement ratios for foreign currency deposits and participation funds by 200 basis points in a step that will mop up foreign currency liquidity from the market.Reserve requirement ratios for foreign currency deposits at notice, with no fixed term and for maturities ranging from one month to a year, were raised to 19% from 17%, according to a ruling published by the nation’s off icial gazette yesterday. Ratios were raised to 15% from 13% for foreign currency deposits dated more than a year.Treasury and Finance Minister Berat Albayrak previously hinted that policy makers might make tweaks to the latest regulations on reserve requirements by the end of the year, in a meeting with economists last week. About $2.9bn of foreign-currency liquidity is expected to be withdrawn from the market as a result of the measure, according to a central bank statement.The central bank aims to support lira liquidity and wants to take advantage of a positive environment to increase its reserves, Ozlem Derici Sengul, founder of
Spinn Consulting in Istanbul, said by phone. “The bank has already been trying to support the lira through the swap market. Meanwhile, the Treasury has a high amount of redemptions coming up early in 2020. So the reserve requirement ratio hike serves both liquidity and reserve purposes.”The central bank said it will keep ratios unchanged for banks that comply with lira real loan growth conditions to ensure that such banks are not aff ected by the increase. In August, it linked the amount of cash banks must put aside as reserves with how much credit they extend, as policy makers have been striving to boost the economy through faster lending growth.The move is seen as largely intended to boost off icial reserves and comes a day after the IMF warned policy makers that their external buff ers remain low and foreign financing needs are high. The monetary authority came under criticism earlier this year for adopting a foreign-exchange swap mechanism that allowed it to boost reserves with borrowed money. Total gross reserves stood at $78.3bn as of December 20.Meanwhile, the monthly maximum interest rate for credit card borrowings in Turkey has been cut to 1.40% from 1.60% for Turkish lira, Reuters reported, citing the nation’s Off icial Gazette.
Opec+ cuts can’t last forever,says Russia’s energy ministerBloombergMoscow
Opec+ output cuts have stabilised the global oil market but can’t last forever, Russia said as uncertainty
persists over the future of the agreement beyond March.
“Oil-production cuts can’t be eternal; we will gradually need to make a decision on exiting” the accord, Energy Minis-ter Alexander Novak said in an interview with state television channel Rossiya24. As one of the architects of the Opec+ deal, Russia’s view is key, though the na-tion’s oil producers have long pushed for a relaxation of output curbs.
Russia needs to defend its market share and let its oil companies develop new projects, Novak said. The minister didn’t specify when the country may decide to withdraw from the agreement, but said he expects to discuss the matter with his
Opec+ counterparts next year. Global oil demand may surge as soon as next sum-mer, he said.
Russia, which helped to cement the original deal between the Organization of Petroleum Exporting Countries and its partners back in 2016, has shown this year that it’s getting weary of limiting supply.
The nation has consistently failed to comply with its quota, overshooting its target for eight months so far in 2019, ac-cording to Bloomberg calculations based on offi cial statistics.
That trend has continued in December, with Russia pumping 11.252mn barrels a day so far this month, about 62,000 a day above target, according to offi cial data seen by Bloomberg.
The country has come up with vari-ous explanations for its lack of compli-ance — from the limitations of a harsh climate to technical issues resulting from the Druzhba oil-contamination crisis.
The nation’s largest oil producer, Rosneft PJSC, has criticised the Opec+ deal, say-ing it serves the interests of the de facto leader of Opec — and the US.
In a revision to the deal in early Decem-ber, Russia and its Opec+ partners agreed to deepen their curbs in the fi rst quarter of 2020 to 1.7mn barrels a day. Russia is set to enlarge its cuts by 70,000 barrels a day to about 300,000 a day.
Nevertheless, the nation request-ed that condensate be excluded from its target. Novak has denied that the change is a loophole allowing Russia to pump more oil and claim compliance. While Russia’s official statistics don’t provide a breakdown for crude and con-densate, the Energy Ministry will regu-larly inform analysts, the media and Opec about the composition of its out-put, Novak said.
Opec+ will meet in early March to dis-cuss options for future co-operation on supply.