tv Best Of Bloomberg Markets Middle East Bloomberg January 6, 2017 7:00pm-8:01pm EST
♪ yousef: welcome to best of bloomberg markets: middle east. here are the major stories. gulf countries embrace for impact from the dollar which could affect businesses ranging from tourism to real estate. obex deal to cut output took effect. the rising crude prices are ready seems to be improving sentiment across the region. things got worse for turkey after another terrorist attack took lies and hit the economy hard.
investors from international investors to upgrade its oil infrastructure. froms get to our interview the officer at standard and poor's who talks to us about the risks facing the region. >> if you look at the u.s. economy, it looks like it is in fairly good shape. you have over the years, employment gains, a good but slow recovery. much better than what we are seeing in europe. in that sense, it is not a surprise that we are seeing this convergence in the monetary trends in the u.s. and europe and in japan. all of this is to be seen in the context of the change of the helm of the white house and the new administration coming in with a fiscal expansion being one of the hallmarks of the policy of agenda as it seems to be shaping up. if you have a fiscal expansion,
fiscal stimulus and an environment where you might think that you're getting close to balance and full employment, this of course is something that puts the central bank on guard. not a surprise at all. is that you thing are talking about it being a bifurcated world with a spread between the various bond yields. ultimately, do they get to a point where all alarm bells will go off? what is that point and what are the implications of it? of years haveuple been extraordinary also for the government bond arctic, the biggest asset class in the world. look at some of the evaluations in the government want market and you can only conclude that the prices and yields you observe there are not driven by policyntals but by positions that have been extraordinarily accommodative
over a number of years. accommodations are received and the fed is taking the lead on that and probably may bet g3 central-bank the ecb sometime down the road and the german cpi numbers this might be happening sooner than is currently the consensus. then you will really see some reality of what the real costs are in investors minds of holding government bonds. yousef: and the strength of the u.s. dollar. this chart shows the fundamentals. the u.s. japan real yield. you can pull this up on your bloomberg. and the dollar-yen rate. technicals are suggesting that the dollar bull run still has a way to go. you have not seen anything get as to the dollar strength in 2017. given the state of the
greenback, how much can the federal reserve really hike and given the amount of fiscal stimulus that will come in? >> they are not constrained by the exchange rate. the u.s. economy is a pretty close to economy. it is large and it does not trade that much with the rest of the world. the fed is more independent than most other central banks in setting rates. maybe not as independent as it was decades ago but it still is. -- exchange rate movement what it does is that it hurts exactly those sectors and regions that have been attracted to the donald trump program. for example.elt it is losing competitiveness if the dollar strengthens too much. this is almost an ironic side effect of the donald trump victory that we are seeing a strengthening dollar. yousef: the pre-campaign
rhetoric from donald trump makes it too early to understand the impact on emerging markets. and then you said that the impact may not be that much or as much as people think. as you see the administration coming together under donald trump and where growth is in emerging markets, what does 2017 look like? >> the biggest risk we have to gauge is protectionism. or the the nominations appointments that donald trump has been suggesting is that this is the real risk. we need to remember the update u.s. is a system with a lot of checks and balances. while the republicans hold the majority in both houses, and in the senate as well, it is not -- the president can not to create any sort of policy. even in a republican dominated congress, there needs to be some negotiation with the white house on where things are going. clearly what we are seeing emerging is that much of the a
gender that has been presented during the campaign regarding trade seems to be playing a centerpiece of the donald trump presidency and of course southeast asia in particular, that is a trading region that is very oh and. -- that is very open. if we were to be moving gradually toward a more protectionist environment, these economies will suffer. rishaad: this is it -- we have a huge change going on when it comes to the world. this is the issue. we have a move towards fiscal policy from monetary policy. inflation from deflation. geopolitical risks and protectionism. none of these things are good. how do you deal with them as someone who is reading individual countries and the globe as a whole? recognizee have to that this change of government or presidency in the u.s. probably comes with more
uncertainty than any other change in the presidency in our living memory. i would venture to say that. this comes with a lot of risks. it may come with opportunities also. but as credit analysts, we would focus on the risks. on way we deal with this is a case-by-case basis. if you take it all together and you see where the vulnerabilities lie, you will see that if you look at the outlooks of the sovereign ratings which indicate where the ratings may be going in the next year or so, you will see that the negative outlooks suggesting downgrades may be happening outnumbered positive outlooks by a margin of 4:1. overall, a negative trajectory for sovereign ratings. function livesf as an indication of where analysts around the world think the price of oil will be. looking at the median, $52 a barrel.
up to about $58 a barrel in the fourth quarter. where do you see oil prices? >> we see similar prices. that is our house view as well. over the medium term. somewhere in that range. $55 or $60 and oscillating. i think the caps are real. much beyond that, supply reactions will kick in. yousef: the other way this ties in is how it affects the budgets. saudi arabia just passed a series of reforms and have announced a new budget. how convinced are you that the imminenthey have made, reforms when it comes to taxes on energy drinks and tobacco. are they doing enough to offset the fact that they are still quite a bit away from the grid -- from the break even oil price? to recognize that
saudi arabia is making great efforts to deal with this challenge. and we need to give them credit for what they have done. on the other hand, the budget is very dependent, not only the budget but the economy is very dependent on oil. and this diversification drive is a long-term strategy. this will not happen overnight or even in a decade. it will take a long time. the challenge for the saudi authorities will be while you are just the budget to try to reduce the budget deficit, they will still have a sizable budget deficit for a long time to come. you have to do it in a way that secures the social cohesion of society. and this is a real challenge. the ample revenue and the social peace you could buy with that to a much more austere environment. this is a difficult balancing
yousef: welcome back to best of bloomberg markets: middle east. the u.s. dollar rally has resulted in many investors ditching emerging-market equities. we spoke with the chief executive officer of renaissance capital on the impact it is having on golf stocks. f stocks. >> the currencies are pegged at the end of the day. because you have a pegged currency, you will not see a significant impact. one thing that will be interesting is that if you have another great hike, a lot of people will be looking at the
saudi banks. uae banks as well. but apart from that, in the wider gcc, i do not think there will be an impact. uae.f: speaking of the people are excited they are opening up to the world. this is what it looks like in terms of group ranked returns. in 2016.ow it looked inergy, petrochemical shares outperformed. someook at the downside, of the hotel shares and retail and consumer stocks muddling around in the middle. as you look to 2017, what are you telling your clients are about positioning? >> it is the opposite in 2017. ofthe end of 2000 -- the end 2016, petrochemical stocks -- we were expecting oil to rally and it did not happen but that is priced into the stocks now. consumerxpecting
spending power to be lower because oil prices are lower. that will change now. expecting oil prices to go up and consumer purchasing power to pick up in 2017. i think consumer stocks will be outperforming which i think most people may not agree with. i think that will be the case. rishaad: you touched on this slightly. what does 100 basis points mean for that part of the world, in the gulf? >> i am not an economist but if you look at it in simplest terms, you have picked currencies. currencies, in the morning, you would see all of react.ks you may have some tightening in lending but i do not think it will be significant. rishaad: it could be beneficial for the banks. --what would you avoid
in the emirates to begin with? at the uaeook market, it is mainly banks and real estate. if we were just talking about the fed, you would be interested in the banks and the real estate would follow the banks. in terms of of avoiding, i think the you a you will be interesting. bei think the uae will interesting. i think we will see an upside in real estate and banks. yousef: where is growth going to come from? we're looking at the source markets for tourism. china, the u.k., and even egypt. they are all suffering from the stronger dollar. they cannot afford to come here. happened for new year's eve, it was not the same crowd as last year. >> the gray market is very important in egypt. arguing with clients in the last few months. the purchasing power is always
of effective by the gray market. in egyptuntaxed income allowing consumers to spend more. i think there were way more egypt and's in dubai than i thought. yousef: the dollar will not cloud uae in 2017. >> not that much. yousef: i know you feel strongly about egypt. the local currency. i brought up this chart which tells the story of two devaluations. this one right here which i have highlighted in red. the second evaluation comes in with the big pop in november. monthllow line is the 12 going forward. how investors think the currency will trade a year from now. you say the currency is way too weak. >> we have to go back to supply and demand and see why it is to week now and how long it will
remain weak. it is all about outflows and inflows. investors have underestimated the outflows that need to go out. day, you havethe about four or five years of capital controls in that market. you as an investor were not able to get your money in and out freely. had this thatu people did not expect in the short-term. how quickly can we get the outflows. yousef: that is the key. you can see the egyptian pound compared to the other currencies. in the last three months, it has lost almost 50% of its value. is it going to happen fast enough in terms of the dollar liquidity returning to the market? it has been slow coming. it has not picked up as fast as a lot of experts would have hoped. it goes back to the reforms.
how quickly is the government willing to do the reforms. the political will is there but how quickly can the implement it and that is the challenge. that is one thing that needs to happen. the second thing is that you have to look at the egyptian economy. it is mainly tourism and the suez canal. you do not have a black market anymore so you can transfer your money through the system at a fair rates. that is fine. when it comes to the suez canal, it depends on the global trade great and that is still weak. tourism needs to come back. that is the key. egypt is not in industrial economy. but in the short term, you need tourism to come back. you need suez canal revenues. and the stock market inflows which i think have improved a lot. yousef: up next on best of bloomberg markets: middle east, you might data -- pmi data.
yousef: welcome back to best of bloomberg markets: middle east. the rise in oil prices after the opec deal to cut output seemed to have improved sentiment in the united arab emirates and saudi arabia. saw oilcountries private sector growth suggesting businesses think that this -- the impact of austerity may be wearing off. it was a strong finish for 2016. we saw the uae emi at a four-month high and the saudi arabia pmi at a five-month high. the summer was quite challenging for the gulf countries particularly with oil prices. we are starting to see some of that fall into the base setting
a strong state for 2017. situationat about the when it comes to saudi arabia very much in focus. we just had the budget announcement. a lot of reforms and changes. there are price pressures building. us ae pmi data showed decline in non-oil activity in to 2015.tive slower growth really. there is still expansion. there was a fiscal consolidation last year which was quite significant. looking at total spending, it was about 5% lower than 2015. what is encouraging going forward with the budget numbers that have been announced is that they will not make significant further cuts. we are expecting a slight increase in spending in saudi arabia in 2017. not enough to drive increasing growth but not anything that should prove a fervor -- prove a
further headwind. rishaad: what about the pmi numbers in uae and what are they telling us about growth? >> growth last year based on pmi was slower than 2050 it was not as bad as what a lot of people expected it to be given the sharp decline in oil prices and oil revenues. part of that is because the uae's economy is more diversified than any other in the gulf. we did have an impact on government spending to some extent but it was not as significant as it has been in other gulf states. in 2017, we think things are looking pretty good. with announced a budget small deficit focusing on increased infrastructure investment. we think those sorts of things will drive the economy and growth in 2017 so we are quite optimistic. we are looking for a slight acceleration in growth to about 3.4% from an estimated 3%. yousef: marked reduction in
output. -- it is slowing down. where is the silver lining? >> the export orders improved significantly from november. but it is still marginally negative. on average we are still seeing export orders decline but the pace of decline has been improved since november. we are seeing the impact of the devaluation on the export demand that the problem with egypt is that it does not have a big export sector and the key export is tourism. there are other factors that would drive tourism. hoping will we are improve in the first quarter of this year. we expect russia to lift the ban on flights to egypt which should provide a big boost to the tourism sector. we would like to see more evidence of the devaluation starting to have an impact on demand extern late and starting to drive improvements to the
economic activity in egypt and that is not yet evident. in egypt, the further devaluation will not help necessarily with that. >> the central bank in the last few weeks is trying to stabilize the foreign exchange rate around 18 or 19 to the dollar. i think that we would want to see some stability so market participants can plan for the coming months and years. i think we have seen significant devaluation. the gap between the official exchange rate in the black market rate has declined significantly. it is very tight now and that should hopefully, once we have stabilized around these levels, divide some confidence for importers and exporters as to how they can plan for 2017. yousef: next, on best of bloomberg markets: middle east underrkish lira crushed
the weight of terrorist attacks and the strength of the dollar. >> there is potential room for it to continue strengthening. and the more the risks pick up on a global level. ♪ with the xfinity tv app, anything with a screen is a tv. stream 130 live channels. plus 40,000 on demand tv shows and movies, all on the go. you can even download from your x1 dvr and watch it offline. only xfinity gives you more to stream to any screen. download the xfinity tv app today. i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business.
of bloomberg markets. lire dropped after the islamic state claimed it was behind the istanbul nightclub attack that killed 39 people in the early hours of the new year. >> a manhunt is underway in istanbul as police conduct raids across the city. 12 people have been arrested. unknown but they have released new pictures of him. the islamic state has claimed
responsibility for this attack which killed 39 people on new year's eve. some of the dead are foreign. this might club was extremely popular with turks and tourists alike. the militaryto operation in syria. more than 1004 hundred people have died in terror related attacks. changed today.a not only does turkey have to deal with the uncertainty around the terrorism that is unfolding but it has to do with deteriorating situation. that is going to bring about any bright spots they can cling on
to. believe it will accelerate on an annual basis in december. that is in line with government and central-bank forecasts. the lire weakens against the dollar. some predict we could see double-digit inflation numbers over the next few months. the lire has depreciated 80% against the dollar in 2016. it is the second worst performer. let's talk about the u.s. dollar. it has quite a performance. that has major implications.
then you have your monetary implications with the credit reserve continuing. let's take more meat to the conversation. you back on the show. >> the u.s. dollar trading higher. a strong start for the greenback. how much further does this have to go? you have not seen anything. >> there are so many components to it. the more it strengthens, the more the risk will start. it is bad for u.s. exporters. from a global exporter to a domestic company, the exporters
are going to struggle. the strong dollar is hurting us here. we are feeling it. it is hurting emerging markets. the strength of the dollar has its risks. scarlet: i put up this chart -- yousef: i put up this chart. this is the magic number. all the way to the latest data point we have. you can see how this goes on the u.s. dollar. >> to be honest i think the game of predictions is a good one. >> the direction seems to be good for the next 20 days. the key event we are watching for his they will he won't heat scenario. -- will he won't he scenario.
if the fed continues this thing could go may be another 45%. that is pretty dangerous. >> how far do we go? the markets do tend to overshoot. have we got to that point already? where else are you going to look at your safe haven? the swiss franc, we already think it has gone too far. or are you going to go for the euro. it is a bit about where else do you go? that is part of the problem.
there is no alternative at the moment from a safety perspective. that is driving some of that trade. strange toeen quite see how the eurozone has been able to hold above water. some were predicting parody but that has not come to pass. >> it is a directional play. it has ended up towards parity. well break parity . it is not unseen for that to take place. we have a couple of events this year for the eu. take thets seem to referendum a little too lightly. i'm a bit concerned about that. i think we could break that parody.
>> from our studios in new york, this is "charlie rose." you were concert yousef: oil prices fell. there were all of these reformist. you are not convinced that you're going to be will to deliver on these promises. has always been the oil tankard. you need to move these slowly and carefully. even with a new plan how quickly can you affect it? how well do these come into the perspective? some of these, from an execution perspective, it tells you there is positive hope and ability to
execute but on the other hand, oman, they blew it out. they are going to have a lower deficit. i feel nervous whether they make reforms to actually bring the deficit into control. yousef: what is going to be the bright spot? which asset class are you keen on? is it maybe egypt? uae it you look at the is a wonderful economy in the middle east. they continued to do things to get themselves up again and keep themselves competitive. the story is on the dead side at the moment. good.f the issue is quite we don't want to see too much too fast. we a little bit nervous.
a bit nervous about some of the other markets they are issuing. i think that is a topic for domestically cash reserves. that is part of creating a curve for their corporate sector. a few things to watch. yousef: are those under pressure in your view? how do they defend them? parcel of it. and >> it is one of those things that everybody talks about. frankly i dismiss it. when you have so much of your revenue and so much of your cost base, denominated both in dollars, what is the point of the devaluation?
this is one of the things i see change. i would love to see more manufacturing on the ground. unless you are making things, what is the point of a devaluation? they have to repatriate it and they need the dollars. what is the point? yousef: coming up, why i ran is looking for $100 million in investment. this is bloomberg. ♪
our middle east reporter has more. the trump presidency is going to be a big issue for 2017 for a lot of sectors. specifically for iran. in the campaign leading up his election he was critical of the iran deal the obama administration made just about a year ago. there is a lot of push in the u.s. for additional sanctions over things like terrorism financing. how that shapes up is going to be a big issue. is ancretary of state oilman. he has not been a fan of sanctions. we will have to see once he gets into office and has sanctions as a tool how he decides to use that. trump has been critical of the fact u.s. companies can invest
in iran while foreigners are able to. asian companies, russian companies. there is going to be a lot of moving parts. bemp is not going to favorable to that deal and he won't encourage investment. there is a lot you can do without trashing the deal though make it harder for people to invest in iran. that is going to be a hurdle going forward. >> what is this list of names tells about the company? challenge fore the industry. the same a lot of things we have seen signing elementary contracts. there are some russian producers.
we see a lot of japanese companies and chinese companies. asia is a big market for iran. those companies have a lot to invest in. they study fields. those are not firm deals yet. thosekinds of deals give companies time. >> they are iranians have been trying to get the oil production back to pre-sanctions level. that is according to bloomberg data. barrelse agreed to take
out of the system. how is that going to work out? they really ramped up oil production as prices were coming towards the end of 2016. in that deal that they reached, iran was not asked to cut. they were able to increase production ever so slightly in under 90,000 barrels a day. tose deals that iran plans tend to now, we are looking at projects that will bring oil back onto the market. we haven't had investment in the last 2-3 years in the oil industry. that has taken a lot of potential supply we are going to need as demand does increase. looking to demand
-- compared to the global market as a whole. you see the trend continuing where in the early part of last be a 2016 was going to rough year. they fought the trend. we expect it to continue. of 2017.ay to q2 the reliance on malaysia in the a prediction of hundred billion. it is close to $20 billion of bonds.
theideas put the asset in partnership with other firms. the french lender is part of that. we know it is in the throes of a huge merger. it is trying to expand abu dhabi's reach. the new offshore financial toter, if it enables it partner with more international investors then this essentially broadens reach to the international financial community at a time where it is trying to build up its reputation as such. >> what is the latest on the merger? that is the big news here. the merger between them.
at the time there was talk that it could be completed by the end of 2016 given the sheer size of the numbers involved. we are talking an entity that will have $125 billion worth of assets. that deadline was always going to be a bit realistic. next bit of news on that front is going to be the new name of the combined entity. merger onreally a that front. i am cheering for them to be the new name. that is it for this best of bloomberg markets middle east. we will become frank earnings season across the region.
>> coming up from bloomberg best, the stories that shaped the week in business or around the world. confronting carmakers to dismantling obamacare. the trump transition gathers speed as inauguration day approaches. >> we see a more positive manufacturing investment -- environment under president trump. >> we are trying to protect the insurance coverage americans have today. >> diplomatic discord shapes up the brexit team and all signs point to further tightening at the fed. >> this is a