Global Investing

Moscow is not Cairo. Time to buy shares?

The speed of the backlash building against Russia’s paramount leader Vladimir Putin following this week’s parliamentary elections has taken investors by surprise and sent the country’s shares and rouble down sharply lower.

Comparisons to the Arab Spring may be tempting, given that the demonstrations in Russia are also spearheaded by Internet-savvy youth organising via social networks.

But Russia’s economic and demographic profiles suggest quite different outcomes from those in the Middle East and North Africa. The gathering unrest may, in fact, signal a reversal of fortunes for the stock market, down 18 percent this year, argue  Renaissance Capital analysts Ivan Tchakarov, Mert Yildiz and Mert Yildiz.

First of all, Russia’s youth unemployment rate is relatively low at 14 percent, compared to Syria’s 18 and 30 percent in Tunisia.

Secondly, the percentage of young men as part of its rapidly ageing population is low — those aged 15-29 account for 11 percent in 2009 versus a range of 13-17 percent in its fellow oil-exporting peers in the Middle East. This is particularly significant since the relationship between a country’s political stability and its proportion of angry young men has been well elucidated.

Is end-game approaching for Turkey’s policy experiment?

In less than two months, Turkey will mark the first anniversary of the start of an unusual monetary policy experiment, and it may well do so by calling it off.  The experiment hinged on cutting interest rates while raising banks’ reserve ratio requirements, and as recently as August, the central bank was hoping  it would be able to slow a local credit boom a bit but still protect exports by keeping the currency cheap.  Instead, an investor exodus from emerging markets has put the lira to the sword, fuelling at one point a 20 percent collapse in its value against the dollar.  That has forced the central bank to roll back some of the reserve ratio hikes and last week it jacked up overnight lending rates in an attempt to boost the currency. It has also sold vast quantities of dollars and is promising  to unveil more  measures on Wednesday.

But what the market really wants to see is an increase in Turkey’s main interest rate.  ”Not sure that ‘measures’ short of rate hikes will help,” RBS analyst Tim Ash writes.

Given Turkey’s massive current account deficit of almost 10 percent of GDP, an interest rate of 5.75 percent will provide little protection to the lira if emerging markets come under serious pressure again. Even if the lira stabilises at current levels, an inflation spike to double-digits looks inevitable.  Meanwhile the central bank’s hard currency reserves are vanishing at an alarming rate — just last week it spent $2.7 billion. That’s a lot given Turkish reserves are just $86 billion, or  four months of imports.  Current central bank policy is  ”an open door to reserve depletion,” Societe Generale strategist Guillaume Salomon says,  noting that despite the massive dollar sales,  the lira is not far off record lows hit earlier this month.

from MacroScope:

The promise of middle age

The wave of popular discontent now sweeping the Middle East and North Africa has been driven by the region's youth, frustrated by chronic umemployment and enraged by widespread corruption.

In a special report entitled 'Youth bulges and equities', Deutsche Bank argues that the proportion of angry young men to the general population is not only a gauge of socio-political stability but also a key indicator of market performance.

The 'youth bulge' -- the ratio of males between 15-29 versus those aged 30-59 -- came in at an average of 106 percent in the 251 conflicts seen around the world between 1950 and 2006. Two-thirds of countries that suffered social upheaval had a young-to-old men ratio of above 100 percent compared to the current 45-55 percent average seen in developed countries.

from FaithWorld:

France opts for legislative juggling to allow Islamic finance

assemblee-nationaleEager to attract Middle East investment but uneasy about linking faith and finance, the French parliament has opted for some legislative sleight-of-hand to pass a law allowing the issuance of interest-free Islamic "sukuk" bonds. The move is part of France's two-year drive to create a new European hub for Islamic finance, whose value globally is estimated at $1 trillion. But instead of introducing a separate bill, which would attract attention to it, the governing UMP party tucked the proposed change of French trust law into a larger bill on financing reform for small and medium-sized companies. And it chose to do this by introducing it as an amendment in the second reading of the bill -- the one that usually gets fewer headlines. (Photo: French National Assembly, 15 Sept 2009/Charles Platiau)

Sounds confusing? That seems to be exactly what the legislators wanted. As my colleague Tamora Vidaillet wrote here in an earlier post entitled "France courts Islamic finance, as long as it’s not too obvious," bankers, politicians and goverment officials are clearly uneasy about promoting Islamic finance in France. "There is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible," she wrote. "Many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides."

The opposition Socialist Party opposed and attacked the change. "We are introducing Islamic law into the French legal framework. This deeply shocks us, it is unacceptable." said Socialist MP Henri Emmanuelli. "When Muslims are rich, we try to attract them. When they're poor, we expel them."

from FaithWorld:

France courts Islamic finance, as long as it’s not too obvious

eiffel-towerIn researching an article on what lay behind government plans to develop France as a European hub for Islamic finance, I was struck by the uneasy atmosphere surrounding the subject. On the one hand, the government sees it as a way to attract Middle Eastern money and wants to push the idea. But on the other, there is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité -- the strict separation of church and state -- tries to keep anything religious out of the public sphere as much as possible. (Photo: Eiffel Tower in Paris, 20 Nov 2007/Mal Langsdon)

The bankers, lawyers, government officials and Islamic finance specialists trying to get Islamic finance off the ground in France speak publicly about the bright prospects they see for the market. France has the biggest Muslim population in Europe at over five million. The government is pushing the idea hard. There is a huge need for financing of future projects.

But privately, many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides. Ever since the French Revolution, France has upheld the idea that its people are all individual and equal citizens and not members of regional, ethnic or religious minorities. Stressing membership in a sub-group is considered divisive. The French frequently point to the multicultural approach taken in Britain and the United States as the source of political and social problems -- such as ethnic or religious "ghettoisation" and "identity politics" -- that they want to avoid.

from Funds Hub:

Western investors fear Dubai’s Wild East reputation

By Jason Benham

Glitzy Dubai's property market is in trouble, there's no doubt about that. Just take a look at the hundreds of motionless cranes, unfinished projects and the expats who are leaving in droves as they lose their jobs.

Dubai's future cloudedAnd prices and rents which soared during a six-year boom have crashed since late last year. According to one resident who recently moved in the City, it now costs 150,000 dirhams to rent a three-bedroom flat on the Palm, a man-made island off the coast of the emirate, around the same it would have cost to rent a one-bedroom appartment there a year ago.

It's not just the global downturn thats the concern for Dubai's once-booming property market, but also the lack of transparency and need for greater regulation. And that's what's going to keep the western investor from splashing the cash.

from UK News:

Walking the risk-reward tightrope in Iraq

It's fair to say that investing in Iraq is not for the faint-hearted.

Just last week more than 200 people were killed in suicide bombings across the country, while kidnapping and armed assault remain commonplace.

That said, more than 600 delegates still turned up to the Invest Iraq 2009 conference held in London this week, eager to find out what opportunities there might be in the oil, construction, petrochemicals, engineering, agriculture, transport and tourism industries, to name a few.

From City of London bankers to executives from Shell and Chevron, bosses from energy service companies and airport construction firms, management training specialists and security advisers, they were all there, milling around a west London hotel in their smartest suits, seeing what business they might be able to do.

The best of both worlds?

Combined Shariah and ethical/SRI products could be the way forwards for Islamic finance investing, according to Dr Humayon Dar, CEO at BMB Islamic, the Shariah consultancy at BMG Group.

Speaking at the Reuters Islamic Finance Summit today, Dar highlighted the development of an upcoming F&C fund that will meet both ethical and Shariah investing criteria, and can be sold to both Muslims and non-Muslims. “I see this as the way forward in markets such as Malaysia, where a significant proportion of the population is non-Muslim,” he said, adding that once such products have established a track record, it should appeal to a broader audience, and encourage other launches.

Marrying the Western and Islamic traditions of investing could help Shariah surmount a number of hurdles that have so far limited its appeal. A recent Oliver Wyman survey found that only half of the 1.4 billion Muslims worldwide would opt for Islamic finance if given a competitive alternative to conventional products. Dar said he had conducted his own survey which found that no more than 25 percent of UK Muslims was interested in Islamic banking and finance. “The vast majority prefer competitive quotes from non-Shariah providers,” he said – this is particularly the case in the mortgage sector.

Banks: what price freedom?

What price freedom? Or at least freedom from government interference?

Barclays needs to answer that question after selling big stakes to Middle East investors rather than tap taxpayer funds. The bank is effectively paying 13 percent annual interest for at least a decade, whereas it could have paid the UK Treasury 12 percent for a few years. Add in a whopping 300 million pounds in fees and the deal could cost shareholders as much as 3.2 billion pounds extra, Merrill Lynch reckons.

 

Barclays shares have lost almost 20 percent in two days and many investors aren’t happy about the cost and the bank riding roughshod over shareholders.

 

But it looks like a price worth paying. Sure, it’s more than Barclays had expected to pay, but sovereign wealth funds are in the box seat. All banks want SWF money so the investors can get good long-term deals. “Long-term” works both ways as well, and the deal should leave Barclays with a commercial advantage over rivals. Not constrained by government it can poach top staff, pick-up asset bargains and lend how and where it wants. Shareholders should start getting dividends by Q3 2009, long before semi-nationalised rivals.