tv Best Of Bloomberg Markets Middle East Bloomberg March 10, 2018 6:00am-7:00am EST
♪ welcome to the best of bloomberg markets middle east. here are the major stories driving headlines from the nation this week. saudi arabia and the u.k. target $90 billion of trade and investment deals as the kingdom visits london. theresa may calls that a vote of confidence ahead of exit. -- brexit markets are rattled by president trump's tariffs. gary cohn quits and retaliation is threatened. we have the story. first, the u.k. rolled out the red carpet for saudi arabia
crown prince, and the two countries agreeing to a goal of $90 billion of mutual trade and investment in the coming years. may's office called it a vote of confidence in the economy before britain leaves the european union. i have more details. >> it is key for both governments as theresa may embarking on the post european union, she sees it as a vote of confidence in the u.k. after brexit. the first test on the international scene. can he bring foreign investment into the country as they look at this 2030 vision. yesterday, it was a political day. he first met with the queen of buckingham palace then came to downing street. we saw him in a bunch of ministers joined him entering downing street with recent.
-- theresa may. today is the business day. they are expected to sign 14 deals. interesting to see what companies are involved. today is really the business day. yousef: and there the reality of trying to reconcile the protest on the ground with opposition from government as well from parliament. and then progress being the business of ally and security in the region, isn't it? >> it is a fine line for the u.k. government. they want to continue this political and business support with the kingdom. but at downing street, there were 100 protesters outside the gate, protesting the fact he was here. saudi arabia is britain's second-biggest venue for defense equipment. many were protesting the war in yemen. which has been a big supporter and driver for this campaign in yemen.
many in the opposition of the u.k. government as well as citizens are against this visit. it is quite a fine line theresa may needs to walk. yousef: what about the trade deals? do we have any details about who gets to benefit the flea? -- gets the benefit briefly? >> not just yet but london-based bae is keen on hopefully a deal for them. they had not had a follow-up since 2006 when i have that controversial arms deal. possibly something for bae and hopefully getting some more names today. yousef: the question now is if the deal announced with the u.k. and more from the u.s. will be the beginning of a wave of capital inflows from saudi arabia. i got more on that with vice president of banks in the financial sector. >> the way i look at it is it's very hard to predict in the banking sector in general. up until we know what kind of deals are likely to be signed.
the bigger picture, as we speak at the moment, nothing is likely to change in the banking sector. these deals will happen out of the u.k.. even if some of it will be happening back at home, it will take time for the numbers to trickle down. it is definitely good news for the market. see these kind of news flows coming in and business sentiment has improved on the back of these mutuals. yousef: the trade deals is one thing and then you have sentiment. many see the crown prince of the u.k. and later on in the u.s., what a political alliance reaffirm and strengthen it? it will give investors confidence. the can help with inflows. how much more money could trickle in off the back of this? >> the end of february, you will see intense correction because
of a lot of fundamental reasons. you have seen a big momentum in the markets. it is good news, him visiting the u.k. for more trade deals. yousef: so lenders could benefit but it's unnecessary -- not necessarily the major driver. what about the rising rates? this is giving people like you, a lot of excitement, they can ride the coattails of the rising rates. >> we also have to understand where it is greatly standing at the moment. everybody in the market, let's not forget, it's under pressure. and it actually turned negative.
if it sustains for a couple of quarters, than the margin expansion story could cease to exist. yousef: who will be the likely winner here? >> we will play this more as a technical story for at least 2018. i would look at fundamental stories. and of course, you have flows, a lot of trade flows coming in. it will take a bit of time before we actually see numbers coming in. the index inclusion story, like -- are the ones of that i would actually like. yousef: one of the largest investment banks tells us why he's bullish uncertainty arabia -- on saudi arabia. this is bloomberg. ♪
yousef: welcome back to the best of bloomberg markets middle east. one of the region's largest investment banks has been expanding its frontier as well as emerging markets. they accelerate growth. i spoke to them in dubai and began by asking how things are looking for the company right now. >> we have had our investment banking franchise on top of the tables. egypt on thein public exchange rate. we are very optimistic about the coming period. we hope that we will be able to maintain our positioning.
it takes a lot of hard work, in all honesty. >> is this going to be on regional indexes or in london? >> we believe there is a lot more interest from many institutions that investors in the region going forward -- i think it is any of local exchanges. a lot of the funds are already in the region. yousef: are you expecting more ipos from the region this year? >> yes, we are. it is different in this conference, around 250 institutions coming from all over the world. and looking to invest in increase their exposure.
>> a lot of banks are getting really bullish on saudi arabia. what is your plan to tackle that market? are you going to be hiring more people? how will you flesh it out? >> it is definitely the most important market in the region given the depth and the industries that are there. we have been present in saudi arabia since 2007. is definitely not where we would like it to be. it is a competitive market. we see a lot of important changes taking place this year. most important, it should bring a lot of influence into the market. and again, it is something everyone is bullish about. yousef: and you can use some of the cash you have for
acquisitions to sort of accelerate your expansion plan? >> we are looking at two options. we always look at the growth of the market. we use that cash very wisely. we have grown our non-bank financial institutions, in egypt. having that business a couple of years back. we started our consumer finance might be a couple of months ago. we are also expanding frontier markets for pakistan. and we continue, i think it is important to maintain a liquid balance sheet because it is important to have the cash to utilize it. yousef: you mentioned the frontier markets. do you have any mandates? >> yes, we do. we have a mandate during the first half of frontier markets and ipo. i think this would be a good stepping stone for the frontier
franchise going forward. yousef: what about egypt? what are foreign investors telling you in terms of m&a and ipo? >> we are very bullish about the market. we believe a lot of the structural changes that need to be done, a lot of them have already taken place. and a very strong commitment from the government towards that end. we see the easing of the cycle that will take place during that year. we have high institutions and invest it. the thing that we would like to see more of in egypt going
forward is -- [indiscernible] a lot of institutions come to us today and we say, we love egypt. we love their story. we need more people over there. yousef: you mentioned the central bank and what looks like a broader easing cycle. how will that play into your growth? >> it is positive for the market as a whole. for that cycle, it's very important over that past period. they will see more returns and the stock market as opposed to putting their money and -- in deposits. and more importantly, it will reignite that cycle in egypt as companies start to go back to the banks to build their investment base. we are very bullish about it as well. yousef: i'm looking at the business and thinking along asset management and across the region, you have been at the helm of the business and you seen the ups and downs of the market. how is 2018 going to shape up? compared to previous years? >> we want to grow over the
coming period. it is something we have communicated. and we have already done that through an investment that we've made last year. we've also done a lot of renewable energy plays. i am sure you have seen those. expansions.r and i think growing that only have $5 billion, i think we need to have both. -- to have a lot more. and part of that in my opinion will be coming to the saudi market. global institutions. yousef: up next global banking giant like ubs and jpmorgan are looking into saudi arabia. we discuss why the kingdom is looking so attractive, next.
yousef: welcome back to the best of bloomberg markets middle east. banks like ubs, goldman sachs, and citigroup are pushing ahead with growth plans in saudi arabia to try to capitalize on an evolving outlook. -- and improving outlook. meanwhile, the kingdom itself is expanding and refinancing a multibillion dollar international loan. i got more with managing director and cio and bloomberg news reporter matthew martin. >> on the loan, the king has been able to take an extra $6 billion. it surprised everybody win he -- when he took a $10 million loan a few years ago. now another $6 billion. and given the budgetary shortcomings, this is going to be helpful. the kingdom's diversifying away from just having the bond markets. and also from the banking side,
it's another sign that despite the corruption probe and despite the economic slowdown, the banks are still very keen on supporting this story. they are hiring more, they are bringing more people into the country. they are still interested in winning mandates and doing deals there. despite a few bumps on the road, everyone is very positive about the opportunity. yousef: anybody that doubted that saudi arabia is here to stay, this is evidence contrary to that. this makes them one of the biggest issuers in the emerging markets. >> and the loan is down of course. the government told us they will refinance the loan and will come out with a bond. what we will probably see being done is the banks are going to show the biggest commitment to them in terms of lending to them and they will get the bond mandate as well. they will be playing that relationship card which will be encouraging people to give the saudi's more money.
we will see them in the next week or two. i will not be surprised before the end of march if we see saudi arabia doing another $10 billion trade. yousef: thank you very much, bloomberg's matthew martin. let's bring in managing director and cio. as he listened to the insights from matthew, where are you at with the saudi arabia fixed income play? >> when it comes to the fixed income markets, and we believe it is a big segment in the emerging market. obviously, what is happening is there will be some impact. from the early perspective, the threads have a fixed income and that treasury is still very interesting.
yousef: you say the spread is justified. the spread on some of these bonds, they just -- you know. it should be tighter? >> there is a risk premium that is unjustified. if you look at the region as a whole it is very strong and they believe there is that value in these bonds. in the wake of the global fixed income markets, it is much more challenging. yousef: how important is saudi arabia raising this number from 10 billion to 16 billion? it will be critical for investors to see that there will be enough asset. >> one drawback is lack of supplies. we are more supply and it looks to be counterintuitive on the fixed income markets, there is that supply going up.
it that is the ability. yousef: let me switch across to equities. a bit of a different story playing out there. we saw deep selling, some of the lenders. we've covered some of this toward the end of last week but it is still very much on investors minds. you say this is overstated. the banks have made the provisions. this has been going on for a while. why freak out? >> first, there are very strong capital buffers. there is no penal impact. so getting that impact, and a very important fee. the major policy, we are -- even -- only 11 banks are there. it is a play on rising interest rates. there's almost no cost to it. it goes straight from interest
margins. the saudi banks are major play on the index story because the larger banks are going to take advantage of it. yousef: all right, so lenders is one side you are bullish on. what about the other sectors. if i want to take positions or ahead ofad of -- the emerging market, sort of event driven trade? >> you still need to be very selective. each one will be very challenging. what is also like is the insurance sector. one market in the world where there's the lowest interest products. it you have key headwinds like -- you have key tailwinds like
insurance enforcement. four to 5% of the drivers are not in this stage. there is a new look coming, every three years. you have the woman driving theme. and the markets constitute shorter markets. so we believe that in some plays, it could be double this year. they are interesting stories. yousef: that sentiment is supported by the rebound in oil prices. friday was a positive session and we have news flowing out that shows the u.s., some of the explorers there in terms of targeting u.s. crude, now 800 riggs. up by another rig over the past week which shows you the sheer ferocity, the looming giant that is u.s. steel. you will be talking to some of the shale counterparts. has your view on oil changed
over the last week? >> i think a couple of months ago, there was a lot of net lump position by speculators. probably too much. there is a technical question from that side. yes, the u.s. prediction remains an issue. but on the other hand, you have major ability for oil to go with demand that is to solve. we do not think the out will be challenged. geopolitical risk is also putting some help on the supply side. and it is incentivizing long-term investors to take some position oil. yousef: up next, trump tariffs loomed large over market this week with white house economic adviser gary cohn quitting in protest. we break it down next. this is bloomberg. ♪
yousef: welcome back to the best of bloomberg markets middle east. investor fears about trade fears kept roaring back with donald trump's top economic advisor quitting and failing to convince the president to step back from steep tariffs on steal and aluminum. we also had china threatening retaliatory measures. we had standard chartered as well as judy and stephen. >> he was the only person pushing for business interests. that meant a global trade. he is someone respected by wall street as well as the business community. it is a blow. he is a big advocate of the tax
changes and helped push those that occurred at the end of last year. the president even thanking him on several occasions for that. business comes amid other changes. it's going to be a difficult time. he will be somewhat difficult to replace. yousef: we are hearing the white house might impose more tariffs as punishment for ip theft. what measures are they talking about here? jodi: these are in addition to the tariffs we have been talking about for several days. these would be, in effect, punishment for what the u.s. and trump administration as china's theft of intellectual property rights. and they would be imposing a new set of tariffs, a new set of percentage import on imports across a wide range of products.
things like electronic products, clothing, shoes. and this would, again, take effect along with the other tariffs. some analysts are saying that this could also provoke more retaliation from china on the world stage. yousef: let's bring steve into this conversation. whatever the u.s. comes out with fiery rhetoric or policy action, it would usually be the adult in the room and it would be a fairly contained reaction. have we had any response yet from china? steve: it's as you described, fairly restrained. we have been at the media center for the people's congress, the session of parliament and day -- in day three. we just had the conclusion of the agricultural minister press conference. prior to that, we had the finance minister. neither one of them addressed the trade dispute with the united states or the potential. the finance minister wasn't even asked about it and did not
mention it, nor did we get any other details on china's proposals to open up its sectors like telecom or energy vehicles that they alluded to in the work report. the agricultural minister was asked about it directly. however, he did not even answer it. he deflected the question and talked about something else. when interesting note on the -- one interesting note on the agricultural minister, if i may talk about this. one thing he talked about, corn. he's trying to get chinese farmers to stop planting more corn. it has been incentivized because of the rise in corn and the need for ethanol. he did say start growing more soybeans. they want china to grow more soybeans. guess what country ships a lot of soybeans to china and what could be a tit-for-tat measure? soybeans.
yousef: some great insight stephen engle from beijing. , and thank you to jodi schneider. let's widen this conversation further and get some additional insight from clive mcdonnell, head of strategy at standard chartered bank. anybody looking for this economic adviser is the last backstop to some plans but that is now gone. the market is trying to get its head around all of these developments. how much of an impact will this have? clive: the departure of gary cohn is a disappointment but not a complete surprise. the main issue we need to remain focused on is this is primarily about nafta. president trump trying to have a strong negotiating stance on nafta. the collateral damage is europe and china, unfortunately. while the tariffs in position have a different target, we need to be focused on what the responses from china and from europe.
yousef: doesn't it open a whole new ways of uncertainty? -- new wave of uncertainty? at some point, the market has got to grasp the reality that there's a little bit too much uncertainty. it is difficult to know what will happen tomorrow and that some of the feedback we've been getting from investors. clive: uncertainty is a fact of life and markets. there's no getting around that. gary cohn put together a resignation letter late last year. i don't think that trades uncertainty. and we have known for some time that trump wants to negotiate a better deal or he will drop out. that position has not changed. the increased rhetoric is not unusual for the white house. uncertainty is a fact of life. yousef: you are putting this in context, but there is the fact you have a stock market that has rallied on the prospect of higher earnings growth. the talk of tariffs is likely to put a dent in some of those outlooks, isn't it?
clive: just what is on the table at the moment is unlikely to impact earnings. from the 12% to the start of the year to 19% now, the tax reforms. the 25% and aluminum, 10% on -- the 25% on aluminum, 10% on steel will not have a huge effect on corporate earnings. is the outlook for a bond yields. yousef: put is the bar -- what is the bar for you? is there a question of who will replace gary cohn in the white house is economic advisor or is it the possibility of retaliatory measures from around the world? that this really does escalate? that it does have a real economic impact. clive: that clearly is the risk. we saw the knee-jerk response from harley davidson and bourbon whiskey. that they are sticking with the similar response on steel and
yousef: welcome back to the best of bloomberg markets middle east. the stock exchange has been making aggressive changes to prepare for an ipo and the inclusion in the msci emerging market index. where does that leave regional rivals like kuwait. still looking to sell to an international operator? i put that question to the chairman and managing director of the nation's capital market authority. >> we have a lot of authority.
and the market development last year, the final testing phases of the market and developing space. and it will include markets in kuwait as well as several initiatives -- [indiscernible] yousef: where does that leave us in terms of up potential ipo for kuwait? >> this is very important. -- emergent market status [indiscernible] that coupled with improvements on an occupational level. the market pigmentation to highlight the importance of liquidity. and also -- [indiscernible] and other products that are
essential for market development. and it will be in operation for just over a year and a half. which comes on the back of several years of -- yousef: do you have a date for the ipo? >> we have signed with our advisors. and that current stage is basically market exploration and it will take three months. by the end of april, we have a very impressive landscape and from that, we have a timeline taking us to the ipo. we're hopeful that we can complete that by the end of the season. yousef: you have been moving fast to some of those reforms,
and they are moving very aggressively as well as the rest of the region buying in. they are put to work in this part of the world. what else can you do to bring in more investors? what are your creative innovations? >> the main issue is liquidity. this is where a lot of the initiatives -- [indiscernible] the processes for trading and opening accounts. this is were we have a bit of a bottleneck. and just fixing these issues, they are in better shape. in terms of what i said earlier, we have a very clear map.
over the next 18 to 24 months, a lot of improvements are happening. and we will talk about them in detail today. yousef: closing question on governance. what are you doing to make sure the public listed ones, the ones on the index, actually comply with the rules? >> on that front, we are comfortable. we talk about governance in general. it launched and came in. the compliant level was at the 90% level. the second annual submission. they had a compliance of 99%.
which, in my opinion, in terms of disclosure, it was very following up with issuance. and they are initiating and hopefully will be the first -- -- the first of april this year. in the premium market, we are introducing a mandatory set of earnings. it puts more pressure, i think, on issues, then they already are. yousef: the world's largest oil exporter could become the next big player in the shale revolution, challenging the u.s. dominance in the production of nonconventional natural gas. they are set to explode gas -- exploits gas deposit that is similar in size to america's second-biggest shale basin. i got more with anthony dipaola.
anthony: it is a challenging venture. they are one of the biggest exporters in the world, one of the biggest exporters of oil in the world. most of the natural gas has come out with that oil. because they have a lack of natural gas for their future economic and development plans, they go after specific gas only fields. it's a huge country, so lots to explore. they start to look at shale. it's one area we haven't really seen exploited very much in the middle east. the big challenge on that is water. when companies are fracking, they shoot water and chemicals into break up those rock formations and let the hydrocarbons come out. in the middle east, we are rich on oil but scarce in the water but that has been an issue. we will have to see the workarounds. yousef: another thing we are looking at is how this changes the energy landscape. we have data from the united
states and we can put up charts on the back of that. g #btv 1394. the big move on crew that we saw, it's related to a few stoploss orders, stabilizing as we speak. how does it change the energy landscape? anthony: we see how much of the landscape has changed in the last few years when the u.s. has come up with a much shale. the u.s. being the swing producer and talking about u.s. energy dominance. not just energy independence, but dominance. potentially, this could swing things back toward saudi arabia and we have that huge resource of oil. that was the energy resource of the last century. and now they want to get hugely into gas, which we could say is going to be the energy resource of at least the next half century. if they find and are able to produce economically, natural gas, on the scale that they've
been able to do oil. we will see how that balance shifts. we will see how the global energy usage shifts. our they going to be using less -- are they going to be using less oil? that will all depend. yousef: it should be straightforward. shale will be complicated but within the realm of shale, it will be straightforward. in the global assets around the world, it should be a basic question of transfer from some of the existing apps abroad. -- assets abroad. >> they are talking about potential investments in shale, talking about getting into some potential products. -- projects in russia. it is just at the unveiling of the facility. they are looking around and trying to get some of that technology. the challenges here are vastly different. saudi arabia and the neighbor uae, they are connected by the
vast desert known as the in -- the empty corridor. quarter. they have explored for gas there and the gas that comes out there is high in sulfur. it is a huge challenge to produce that safely. the uae has gone on and built a rail link from the middle of the desert to the ocean to export that sulfur. saudi aramco explored on their side of the border and decided it wasn't economic at the time. lots of challenges going forward. yousef: up next, the first four and ceo of the stock exchange in the near 70 year history. how is richard's plan going? we hear from him next, this is bloomberg. ♪
protection and build a new trading platform. i spoke to him this week about how those plans are shaping up. richard: pakistan has rebounded quite well after that very brief market that we went through last year. let's not forget that long-term, pakistan has been an incredible growth story. it has produced 20% annual return for the past 10 years. it is not the end of the world. yousef: what about working around the problem with more expansion. richard: pakistan is an incredible turnaround and growth opportunity. there are a quarter million on the stock exchange. it is a tiny fraction of the potential that this market has. our challenge is to penetrate the 40 million strong middle-class pakistan market. yousef: and was it been like
working with the chinese exchange? they did buy a stake on a -- a state. -- a state. how are the day-to-day operations going? richard: they represent the board of directors and they have been very supportive. a lot of the reform initiatives that they have bought last year. and i have one chinese national. they have been very supportive. yousef: we understand it is a restructuring underway. some jobs will be part of it. richard: i don't think we will allocate resources, but the objective is to reduce except
in two areas. and we talk about the regulatory division of the exchange. yousef: your carving out the regulatory division. run us through your thinking is behind that. richard: the objective is to bring a more effective and independent organization to pakistan and in the process, allow the exchange to focus on the core business which is operating and growing. it is a very good development. we are very supportive of the initiative to move in that direction. yousef: that is it for the best of bloomberg markets middle east. we have a busy weekend ahead and we will be right here for the start of the trading week in the
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♪ oprah-- michael: coming up on "bloomberg best," the stories that shaped the week in business around the world. the white house steps up its hard line on trade, and gary cohn steps down. >> the president is focused on growth. that is our number one objective. >> having someone like gary cohn was market friendly. it was something the market was on the same page with. oprah: and -- michael: and populist parties gain as italy goes to the polls. central banks send signals on the future of stimulus. >> we needed to remove the explicit reference to the likelihood of an increase in the pace of purchases. michael: