tv Bloomberg Markets Middle East Bloomberg August 12, 2016 12:00am-1:01am EDT
>> noon in hong kong. factory output in retail sales as well as investment all slowing down. it does highlight problems for beijing. may risky it undermining financial stability or even curb expansion with the economy there. the deal valuing a film distributor at one and a half million dollars. they declined to comment on
financial deals of that detail. and the highs dropping back but on the way up. china approving the taiwanese company. profits fell by 31%. global news 24 hours a day. -- journalistss and analysts working in 120 countries. composite just maintaining its move up beyond the 3000 level. time for the best of bloomberg markets.
>> welcome to the best of bloomberg markets. the major stories driving headlines from the region this week. turkey has attempted to overcome international questions over its response to july's sales coup by building its relationship with russia. president erdogan met vladimir putin in saint petersburg on tuesday, the first meeting since turkey shot down a russian aircraft last year. opec announced it would meet next month. members of the cartel are continuing to look for ways to stabilize the market. our energy reporter looks ahead to what the talks may yield. going to be inre out syria for meeting of the international energy or an that is a gathering of countries from opec as well as non-opec member states. they might as well speak while
is the opecre president said in his statement yesterday, the countries are always having informal discussions. ecuadorian solve the opec governor was meeting with the new secretary-general yesterday. and the venezuelans have said they have been in discussions as well with the secretary-general about doing something. this cop talks going on so it does make sense for them to speak when they gather. the reason behind that has to be this roughly $10 drop we've seen it oil prices over the last couple of weeks. as opec is trying to talk to the things andsignal push sentiment to get prices back up to where they are more comfortable, around $50 perhaps. that's where they were when opec seemed a bit more comfortable with the way things were going in the market.
they also included positive views on where the oil prices are headed. what are they suggesting? june after the last official opec meeting, the next one is coming up again in november. they said they saw the market bouncing, that was going to happen for the second half of this year. they kept with that kind of statement, sois they are still remaining positive about the markets, and saying this latest price drop is temporary. ,peaking with people yesterday people are telling us that it seems like a are trying to get some positivity going in the markets that will bring the price back up and give the market more time to bounce, give them this kind of additional price don't through the end of the year. it doesn't look like there were be any firm decision coming up
now in distant -- in september. yousef: we're joined by robin mills for more on this. robin, what do you make of these latest developments in terms of the informal talks announced here? >> we had the talks in doha earlier in the year, and this time that's why they're going for informal meetings, low-profile in less risk. if it doesn't work out, there's no result and no big commitment, it can be a chance to talk inc. through and get a feel of the market and just some hope that -- the talks are taking place will give a bit of a bounce. that's a fascinating bit of this story that the talks don't have to necessarily succeed to have an impact on oil prices. that with a lovely
you getrth reading when a chance, for the sake of meeting to keep crisis at a certain level. >> it's kind of remarkable how it works every time. every time there's talks there's hopes that something good will come out of it. yousef: has anything changed materially from the june meeting and the informal talks earlier in the year in terms of eight russia stand? is there a possibility we might see something tangible this time around? iran is getting close to its pre-sanction production levels. iran can say we can join a freeze because were comfortable with the level were at, later in the year they may be. oil prices have risen somewhat and been supported by losses of production libya, nigeria and
also canada. prices have fallen quite sharply for that concentrates the mind's i think on russia. was burned at the last meeting. i think he will be much more cautious in backing anything now. secretary-general is in a technical and it position. he's designed to lead in research and internal functioning, he's not a policy maker. i think that is more a technocratic change rather than policy which is still determined by the big players. up, a run finds
yousef: iran stands to lose a large person of its -- portion of its sales to its rival margaret. shift awaythem to from iranian supplies? when the supply deal comes up , they have a big supply with them. one of the first to be back that would be the iranian crude. that's part of a larger move we've seen in india, investing deeper into russia.
other producers there have bought more than $4 billion worth of stakes in some of the fields that were offered in siberia. india, and from elsewhere, and pushing back some of the iranian stuff which has been rising sensations were lifted. rishaad: how dependent is india on iranian oil and vice versa? >> for india, since the sanctions were lifted and the boost of export from iran, iran is probably the fourth business -- biggest supplier to india. asn is dependent on india second-largest. the second-biggest these days is now india. thatweird way he could say
iran depends more on india than india depends on iran. what more can they do in the wider eurasian theater? in aey have an investment smaller company that intends to invest a few billion dollars to expand refineries. ,lsewhere if you turn to china its biggest market, it's already selling a lot of oil. china has allowed a lot of smaller independent refineries to start ringing in their own oil. in that way the iranians are trying to find a road in. crude and then they will sell it on to the independent refiners. egypt is stepping up its fight against the black market being blamed for the shortage of hard currency. economy remains in
focus. joining us is the head of asset management for the national investor. ongoing.oes are i pulled up a chart for our viewers to get a sense of the latest numbers in terms of foreign currency reserves, down to the lowest level since march 2015. 11.45% drop in the month of july, $2 billion straight off the top. as egypt continues to negotiate with the imf, how does it find a way out of what appears to be a growing crisis? right, egypt doesn't have the luxury to wait any longer. they're under pressure as the local currency is trading with a discount on the black market. official rate. as you have mentioned, the foreign reserves have reached five point billion -- $5 billion in july which means the total
import is now below the critical level. tourists are a key provider of hard currency. they are still avoiding the country and they might lose $4 billion of tourist revenues this year. >> that may be the case, but if you look at egyptian equities they arehey perform, still the leading index in the middle east. how do you reconcile that perhaps there's a view that egypt is on the cusp of a turnaround, if they do come to an agreement with the imf? can you buy into that view? >> we have seen a lot of local investors taking some positions recently, but the figure you mentioned is in local currency. if you look in dollars, it would not look as good as you have mentioned.
we know that some sectors might benefit a lot from the devaluation. i'm thinking for instance of real estate. a lot of investors might benefit from the devaluation. yousef: up next, the problems are piling up for iran's president. months after the lifting of sanctions, the economic benefits are barely apparent. this is bloomberg. ♪
>> there is a victory that carried -- came about from a poll that was carried out in june. part of the reason is that expectations were set so high for the results of the nuclear deal, and six months into the sanctions being lifted we're seeing that the targets a government had set are far from being reached in terms of the level of direct investment and the number of contracts actually being finalized and being adopted. result, the question that is rising now within the population, what impact is that having in my life? three force of the people who were interviewed said they saw no change in their life. the question of what is this president do for us?
iran is rejoining the global community and so on, but what does it mean for me? rishaad: these things do take time and there is no material difference in the moment perhaps and that's how they are looking at it, but we have this election in may. i guess rouhani is hoping things are better there. the question is, couldn't threaten his election or his reelection? >> in some ways it should be seen as a challenge, but what's happening right now is the sense of discontent is giving ammunition to his rivals. the politicians who had always questioned the need to actually have a dialogue or negotiations, in particularly with the west and the u.s.. it is providing ammunition for these people to step in and say we had warned of that. the supreme leader is the highest authority in iran, also
questioning the benefits that came from this deal and in some way starting to dissociate himself. so it is definitely going to be a challenge for rouhani if things stay as they are right now. yousef: no pay, no work, and sometimes no food. that's the current situation for many blue-collar workers sprouted in -- stranded in saudi arabia. suffering as are big companies are feeling the .inch of lower oil prices is the worst still ahead? >> i think we are still going to see some of the headwinds unfolding. it's unfortunate what is happening, but the kingdom has seen so many foreign workers and especially construction workers coming into the country to help in its development. now the contractors are not being paid.
there is a backlog, there is a delay and some projects have been postponed, so that is the problem created in saudi arabia and of course the labor market has to reflect that. yousef: as we look closer at the numbers that come across bloomberg, including the latest back -- batch of saudi interbank rates which are up 45% so far this year, is it another signal of stress and in this case the financial system? we understand that saudi arabia -- as a person who's been considerable time in the banking sector, what is your read on the help of saudi banks. >> overall the banking sector is healthy. the main challenges liquidity. liquidity is the main governmentive of spending, less money in the due to, less investments
low oil prices. when saudi arabia in its heyday of 2003 all the way to 2014 where it is spending a lot of money, there was a lot of liquidity. now liquidity has become more challenged. the central bank has to step in recently. in order to create confidence and short-term liquidity, the main issue courses government spending, the government paying its debts to the private sector and contractors, and of course if oil prices recover, that would be a confidence booster. for the time being, liquidity is the challenge. thingd: liquidity is one and of course as you are mentioning, we get the lower oil price playing into all this. the is really concerning
something that could have a much more disruptive effect. it exaggerates and exacerbates the problem. >> absolutely, no doubt. i would add that it's not just a liquidity challenge but a growth challenge. how are you going to grow an economy that in the case of the imf is predicting it will grow by 2.5%.and possibly that doesn't create enough jobs. yes, it's more optimistic that we have a national preservation plan but again, the growth , thect is still to be seen investment side has to come in either from the government or the private sector, and that is still to be seen and observed in saudi arabia today. perhaps to launch it
now is awful timing. if it had been five years ago, perhaps it would've had a better chance of getting off the ground and accomplishing its goals here. what are your thoughts on that? >> absolutely i agree with you, it should have been done five or 10 years ago. however it's better to do it now than never. we've seen recently that as of the oil revenue bid is going to be increasing. on added some price increase expatriate visas and all of that. if they failed to reform the economy will stagnate. .e all know what that means it's very bad for saudi arabia. the most crucial element is at the end of reforming, even if
30% of what they announce is accomplished, it's definitely a bonus for saudi arabia. imfef: you mentioned the meeting with the chief tommy said he was very happy with the progress being made in terms of fiscal adjustment. when does the this -- fiscal ajustment become too much in low oil prices environment that you cut into economic growth and put that in jeopardy? >> absolutely. in a low growth economy, if you increases -- if you increase taxes, we know there's a threshold. to bethat you're going creating unnecessary obstacles for the private sector. remember that the private sector is being asked to contribute the bulk of these investments. tax instead of 5% becomes
15% in one year, maybe 2018, that will be a definite problem for the region and for the economy. remember that in times of low economic growth, taxation is often not the best recipe, especially for the private sector, so you are absolutely right. so where is the opportunity for anybody looking to put money to work? >> the opportunity is definitely that you have a $30 million economy of young people who continue to consume health care, ,ducation, food, transportation these are definite yes is for the economy. in certain areas, retro chemicals, so consumers are going to still be very vibrant in saudi arabia. it's a middle income consumer society, it not just the luxury element.
but of course it has to be in a performing cycle. a lot of things with privatized so the private sector will look verythat, and that is important. what is important is for the government to continue to be , and for confidence. the only way he can boost confidence in saudi arabia today is by paying a lot of these contractors and construction workers. tiptoes ont, turkey status asf junk president erdogan speaks to show he still has international allies. that is the head. this is bloomberg. ♪
rishaad: factory output, retail sales and investment all slowed. boosting growth to achieve credit, may risk curbing debt expansion. at least four people have been killed in a wave of almonds across thailand, three of which were in popular tourists destinations. inther exposure came friday et. cat -- in phuck
scott morrison saying national security was the sole reason or rejecting china's bid. american swimmer michael phelps is the most successful swimmer ever, breaking a 2000 year old record. .is 22nd overall metal this is bloomberg. has a taste of investor sentiment. a little bitng uncertain when it comes to this rally we are seeing.
record-setting closes from the three major u.s. benchmarks. here in the asian region were looking at a different picture. we've given back all the gains we saw earlier on on the back of that disappointing slew of chinese data. the aussie dollar also falling. gains in new zealand up just .2%. elsewhere we're seeing japanese shares looking very strong coming back from yesterday's public holiday. taiwan stocks a little bit lower, disappointing earnings weighing on the tech sector in particular. the real action is here and call on. ,he hang seng up .8% potentially the highs november. this is being driven by number of energy stocks. a are gaining three times as much as any other industry
group, surging the most since may. some weakness coming from. these asia. china shares holding up a quarter of 1%. yousef: welcome back to the best of bloomberg markets middle east. next up, political turmoil in turkey's continuing to take its as a countryconomy faces possible junk status. pricingkets are already turkish debt below investment grade. our middle east managing editor has the latest. came out on friday and the traitors in turkey were all staying in their offices late, waiting for the announcement from movies because
this is an important decision for turkey. movies came out and said were going to take our time and come up with an answer within 90 days of the july 18 announcement. there is a lot at stake for turkey with this decision by moody's and it goes way beyond just the credit rating. >> the main issue is that turkey , for some funds they need to credit ratings to have it at an investment grade rating. --movies goes to job, turkey some funds may be forced to pull out the money from turkey just that time when turkey really needs more money to come in rather than go out. they had some success at the beginning of the year pulling more money in. this is a threat to that on top of the uncertainty that came with the coup and what went before. yousef: have we heard anything from turkish authorities of what they think of how movies is viewing the situation?
>> they are not happy with the rating agencies. s&p was already below investment grade. the turk is government reacted furiously to that decision, calling it unfair and even unethical. movies saying we will wait and see my be more in keeping with what the turkish government is asking the prime minister told us he thinks they should just wait and see until they have a chance to assess the measures that the turkish government is taking. so what comes next for turkey as they await that decision by moody's? >> the government wants to institute a lot of measures and take a lot of steps towards growth. the first step is to end uncertainty of the purges that have been going on. every time people think they are dying off, there's another push,
saying they are purging from all aspects of turkish society. then they say they're going to take measures and roll the turquoise carpet for investors so investors will be waiting to see what those measures are. then hopefully they can convince moody's and the other rating agencies that this is enough to keep turkey stable and an attractive target for investors. yousef: turkey and russia have repaired relations that were disrupted. dark shadowst a over traditionally close ties. is not cooperation limited only to energy and gas and power plants. it's quite multifaceted. engineering, the metal industry, trade. today we talk a lot about resuming agricultural supplies.
we will do everything in the work of the plants we laid down today. yousef: joining us is our moscow editor. this meeting was very important for both leaders. how did it really go? >> we don't know exactly what happened inside the room but it was a key chance to demonstrate to their public into the west that they are not isolated and that they had economic and political opportunities despite pressure from capitalist in washington and across europe. on the economic front, that seemed to be where most of the progress happened. there were talks through the day between the leaders directly as well as the broader delegations in the later meeting with business leaders. there was a lot of talk about returning to business as usual which had been interrupted by the downing of the russian plane by turkish forces in november. yousef: economic leaders talked about business returning to
usual. how realistically is that going to happen? >> that is not entirely clear. there was rhetoric about resuming trade ties. trade flows dropped sharply after russian imposed sanctions after the downing of the bomber. the russians have not committed to exactly when those things -- trade will be resumed. we heard some indications that agricultural products may return to the russian market by the end of the year. that's an important article for the turkish economy and another big area is tourism. russian tourist circuit -- a key component of the market in turkey. yousef: syria has been an integral part of the disagreements that have occurred the last few months. is there any sign of progress on that front? >> publicly it looked like the
leaders agreed to disagree on that. they had different positions on it and left issue for later talks in the evening. turkey has been a supporter of removing president assad in syria. russia intervened last year to do just the opposite. it seems like the tensions there are likely to remain. yousef: thanks for stopping by on the program. this chart shows the credit risk forult swaps have narrowed a lot of the fears of turkey and turkey itself. you can see the spike in the chart when the coup happened. where do you stand now and how much difference is the movie's decision going to make here? to what extent is that already priced into markets?
>> i think a lot of it is -- as youiced on the mention, the last two week, the price has been going down. turkey.ifically to investors are still feeling comfortable about the fundamental story of turkey but they're obviously still going toward the decision of movies which might have a little further impact. but nothing really dramatic. if moody's ultimately decides to downgrade turkey to junk status, obviously that goes along to say that the global price is for similar peers of turkey and much ther levels and most of risk is already priced in, i would say.
moving --e do get movies coming out with a negative move on turkey, then we might see a lot of capital flight because some are not going to invest in the lower grade investment grade products. what would happen then? >> you are absolutely right. we may see a spike at the beginning of the movie's decision but at the same time, we do expect a lot of high yield investors to jump into turkish assets because obviously turkey will then fall into a high-yield asset class and the demand from the high yield investors will .omehow offset any impact we're seeing the same happening with russia when the sanctions were imposed in russia. it was downgraded from high-yield status and after a couple of months of intense volatility, russian assets have recovered, mainly because of the
inflows from a different investor class. the same also happened in brazil. i do expect similar trend from turkey, assuming of course that the political environment remains fairly stable we don't have any repeat of any sort of germanic events, which at that point will deter a lot of both high-yield as well as investment grade investors to fly out of turkish assets. how do you hedge your gains if you're already an investor and you don't need to actually pull your money out? >> can you repeat the question please? hedged: how do you against the currency risk if we do see capital flight? trend, there's not much of a risk at this stage
when we've seen the prices of turkey come at this stage i don't expect any significant capital outflows out of turkey. what about vulnerability in terms of turkish banks? you've had quite a few ideas here and you're saying they're one of the most vulnerable industries in turkey. just run us through your thoughts there. >> turkey has a significant amount of external debt and that is one of the major reasons that particularly the banking sector -- turkish banks have turned to the external market to fund a large portion of their needs, mainly because of the federal rates and that can expose them to liquidity risk if external markets close completely. in that regard in the short-term
turkish banks as well as the government do have some reserves. the turkish banking sector has about $70 billion of liquidity that can be used in an emergency case. however if that continues for a long time, then obviously turkish banks are going to face significant challenges. yousef: what about the central bank of turkey? they moved quickly after the coup attempt. you expect more measures going forward? >> for the time being the central bank turkey will keep up its emergency liquidity measures. longer-term there will be a need for something more dramatic. up, liquidity banking sector while lenders are leaning toward more international bond sales. this is bloomberg. ♪
yousef: welcome back. liquidity is tightening for lenders in the region. here's a look at the implications for the banking sector in this part of the world. a continuedn tightening of liquidity in the first half of the gear and that's reflected in the continued rising of the interbank rates. the critical point is that the pace of tightening has moderated from the second half of the year. it is still tightening, but not at the same pace, a bit more comfortable. yousef: would you say that the road ahead is going to be turbulent? is the stress level one to grow before things start getting better? >> we still see it as a tight
liquidity environment going forward. as you mentioned, much of it has to do with the low oil prices. we've seen downside pressure on the low oil prices. it's still very much the same story. one improvement in the second quarter of the year, when you break down the data, is the changes in government deposits. deposits have increased since the middle of last year. you've seen borrowing from the banking sector stable and that can be the result of two things. we had the sovereign issuance in april but it also could be an acknowledgment of the tightening in liquidity. the critical point remains that credit growth continues to outstrip deposit growth. we see that across the region. yousef: we've seen some central banks provide short-term temporary liquidity scenarios,
if you will. is that enough, or do you expect more going forward? >> definitely, we expect a couple of things. we think the regulatory ceiling will likely have to be increased. we also believe that other reforms could be taken, the reduction in the reserve requirement ratio is something else we could see. but a critical point is also the sovereign issues we are expecting from saudi arabia. that could boost short-term liquidity if some of the bonds raised are deposited in the banking sector. over $6 billion went into deposits in the banking sector, based on the data available. rishaad: you mentioned credit
growth outstripping that of deposit growth. asking if the authorities would step in a bridge the gap. the thing is, you cannot keep on going back, authorities cannot effectively keep on doing this. at what point do they have to draw the line and let the banks do that for themselves? >> i think it's going to be a number of things. if we look at the loan to deposit ceiling, there is growth for further regulatory loosening. also you're going to see banks look to different forms of funding. as you discussed earlier in the program, you will likely see a number of banks turning to the international debt capital markets to raise funding. i think it's a response it has to come from both sides.
yousef: this is the best of bloomberg markets middle east. iran has confirmed the execution of a scientist accused of working for the u.s. he was hanged for spying for what tehran calls the great satan. storyhave to put this against the backdrop of what happened a few years ago, which a that, it goes back to
when the program was full steam on and he was at the height of it. the u.s. and its allies were accusing iran of developing a nuclear weapon. it goes back to a time where targetedcientists were , there were cyber attacks directed against iran's nuclear program. against that act drop, now it is quite shocking because the deal went through a few months ago. yousef: what do we know about him at this point? >> we know that he had been involved with the iran nuclear program and he had some level of information. the judiciary said he had given information. had a trip toe
saudi arabia in 2009 and he disappeared from there and reemerged over a year later in the u.s., saying he had been abducted and held in the u.s. against his will. there is no way to know exactly what happened there, but at that time, the u.s. refuted the claim and said he had been free to go and reports emerged that he actually had cooperated of his own will. yousef: so what are the consequences from this latest development? there's been quite a lot of back-and-forth between the u.s. and iran on this. does this leave any open wounds when it comes to iran's to mastic or foreign policy? >> it's difficult to say, but we are seeing right now some of the hardliners taking actions against the iranian president. rouhani's policy has been about approchement with the u.s.
the way it's happening right now, it's difficult to say that we've seen the number of executions going up and the number of arrests, and some analysts say that perhaps this hurt rouhanider to who will be standing for election next year in may. yousef: that's it. a busy read -- busy week ahead in the region. we will also have an interview a financial group ceo, plus the world's largest indoor theme park throws open its doors to the public in dubai. the world ofere at adventure. and of course we will be right here for the start of the trading week in the gulf sunday morning at 8:00 on uae