Global investors increasingly attracted by Saudi Arabia’s incredible economic progress, say top officials at Franklin Templeton

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Updated 26 March 2023

Global investors increasingly attracted by Saudi Arabia’s incredible economic progress, say top officials at Franklin Templeton

RIYADH: Driven by giga-projects and economic reforms under the Vision 2030 program, Saudi Arabia has emerged as an attractive destination for investors, said top officials at global asset management firm Franklin Templeton.

Speaking to Arab News in an exclusive interview, Salah Shamma, head of MENA equities for Franklin Templeton’s Emerging Markets Equity group, struck an upbeat tone when discussing the opportunities available in the Kingdom.

“Large-scale projects that are long term in nature and are looking to be driven mainly by the public sector but with large or significant private sector participation have given a boost to the equity market in Saudi Arabia,” he said.

Shamma also pointed to the young demographic of Saudi society, adding: “You’ve got one of the fastest growing populations which is a critical factor when you’re looking at emerging markets in general. What’s more, the Kingdom has one of the highest per capita incomes in the world and a very supportive environment for companies to operate within the consumer space.”




Salah Shamma, head of MENA equities for Franklin Templeton’s Emerging Markets Equity group. (Supplied)
 

His enthusiasm was echoed by Mohieddine Kronfol, chief investment officer, global sukuk and Middle East and North Africa fixed income, at Franklin Templeton.

Kronfol explained that now is a great time to invest in fixed income markets for two reasons.

“One is obviously that yields are today much higher than they were a year ago and so there’s much more income for investors to be able to take advantage of,” he said, adding: “There’s also more protection that fixed income markets can offer. So when you talk about the Saudi fixed income markets, we’re talking about a very high quality, mainly government-sponsored markets, which is a safe place to put your money to work.”

HIGHLIGHT

Large-scale projects that are long term in nature and are looking to be driven mainly by the public sector but with large or significant private sector participation have given a boost to the equity market in Saudi Arabia.

Kronfol went on to say that Franklin Templeton’s outlook for debt in Saudi Arabia and the region in general is “very constructive, very positive.”

“We think that investors would be looking to take advantage of the yields on offer and the security and safety that these government bonds and government issues provide,” he said.

Reflecting on Saudi Arabia’s position in the bond market, Kronfol claimed the Kingdom has made “incredible progress” over the past five years.

“The Kingdom went from really hitting well below its economic weight in terms of its share of the regional bond markets into now being not just a leader in our conventional bonds but also in global Shariah-compliant bonds or sukuk markets,” he said.

Other than Saudi Arabia, Shamma and Krofnol are also positive about opportunities in the UAE which has witnessed significant improvements in its investment and ownership laws. 

“The amount of businesses that are setting up in the UAE and the activity that we’re seeing is all quite positive for corporates that are operating within the country,” Shamma said. 




Mohieddine Kronfol, chief investment officer at Franklin Templeton - MENA. (Supplied)

But that’s not all. He pointed out that, among the other positive developments in Gulf Cooperation Council countries, governments have been expediting their divestment program and selling quality assets and blue-chip assets at attractive valuations. 

“They’ve managed to de-risk a lot of these assets and offer them to the public. So you’re getting these quality, large scale infrastructure-related companies that have a very secure and visible cash flow over a long period of time and coming at an attractive valuation,” Shamma explained.

Strong rebound

Kronfol said that the region has witnessed a strong rebound in economic activities after the COVID-induced slowdowns. 

“As far as our region is concerned, we had a very sound response to the pandemic not only from a public health point of view but also from a reopening point of view,” he pointed out.

“The policies were so good that we actually engineered the same recovery spending one third of what emerging markets were spending, and one sixth of what the developed world spent.”

Kronfol believes it was because of this post-pandemic reopening that the region was able to absorb some of the higher input costs, thanks to relatively well-anchored inflation, positive growth and strong balance sheets. 

“Whatever costs that came through to companies or governments, as far as higher input costs were concerned, they were able to pass that on without too much difficulty,” he continued. “And that’s one of the main reasons why you find that the region has outperformed other emerging markets in many developed markets over the past few years.”

Kronfol added: “Now, going forward, much will depend on the path of interest rates, the dollar and the one area of focus for us which is oil…I know policy makers here are doing what they can to keep oil prices up but there’s some uncertainty attached to that. However, if we continue to have oil above $70 and we have the policy flexibility because of our financial resources, I think the region is well placed.”

Challenges investors face

Asked about the challenges faced by investors, Shamma replied: “What’s happening right now in the world is that, with higher interest rates, the cost of capital in general is increasing. As such, when the cost of capital is increasing, you’ve got different assets that are competing for that capital. 

“So, at this point in time, I think the key challenge that investors need to address is mainly on the asset allocation issue as they need to decide whether it’s time to benefit from higher interest rates which are quite attractive now or to invest in equity markets.”

Shamma added: “Since we are in a higher interest rate environment with tightening monetary policies after years of loose monetary policy as well as lower interest rates, there is a fair amount of volatility that is affecting all asset classes in general.

“Also, our markets are not going to be immune to that volatility, especially now that the participation of foreign investors has increased in our markets.” 

Shamma believes since regional markets have done quite well over the past couple of years and valuations have risen significantly, another key challenge is for corporations to stick to their expansion plans.

“If the corporates are not able to deliver on their growth promises then obviously we will see a fair level of adjustment. That being said, we believe that investors in this type of environment need to be significantly more selective in not just trying to choose the best companies but also the best managers and the best asset classes to invest in given the volatility and level of uncertainty that we have in the global backdrop,” he concluded.

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Respite for oil market amid rate hike worries

Updated 01 June 2023

Respite for oil market amid rate hike worries

  • Oil markets may have been oversold in the last two trading days, says analyst

RIYADH: Oil steadied on Thursday as a potential pause in US interest rate hikes and the passing of a crucial vote on the US debt ceiling bill were offset by a report of rising inventories in the world’s biggest oil consumer.

US Federal Reserve officials on Wednesday suggested interest rates could be kept on hold this month and the US House of Representatives passed a bill suspending the government’s debt ceiling, improving the chance of averting a disastrous default.

Brent crude futures fell 10 cents, or 0.14 percent, to $72.50 a barrel by 1339 GMT while US West Texas Intermediate crude rose 7 cents, or 0.1 percent, to $68.16. Both benchmarks fell on Tuesday and Wednesday.

“Oil markets may have been oversold in the last two trading days,” said CMC Markets analyst Tina Teng. “Sentiment rebounded amid the debt bill’s passage in the House and (the) Fed’s rate hike pause signal.”

HIGHLIGHTS

Market sources citing American Petroleum Institute figures on Wednesday said that US crude inventories rose by about 5.2 million barrels last week.

• Brent crude futures fell 10 cents, or 0.14 percent, to $72.50 a barrel by 1339 GMT while US West Texas Intermediate crude rose 7 cents, or 0.1 percent, to $68.16.

Mixed demand indications from China, the world’s biggest oil importer, have nonetheless weighed on the market, as has industry data showing a rise in US crude inventories.

Market sources citing American Petroleum Institute figures on Wednesday said that US crude inventories rose by about 5.2 million barrels last week.

“The current mood is one of pessimism,” said Tamas Varga of oil broker PVM. “Investors have been pragmatic and risk averse of late.”

Also in focus is the June 4 meeting of the OPEC+ producer group, in which the Organization of the Petroleum Exporting Countries and allies including Russia will discuss whether or not to cut oil production further.

Barclays forecast

British multinational bank Barclays has slashed the average price of its Brent crude forecast for this year from $92 to $87 a barrel. The bank also slashed its price forecast of Brent for 2024 as it cut the average projected price to $87 a barrel from $97. 

Chinese company in Brazil 

China’s CNOOC Ltd. has begun production at the Buzios5 well off the coast of Brazil, the company said in a statement on Thursday. 

The well is the fifth phase of the Buzios oil field off Brazil’s southeast coast. At an average water depth of 1,900 meters to 2,200 meters, the field is the world’s largest deep-water pre-salt oil field, with daily production of 600,000 barrels, the company said. 

CNOOC’s Brazilian subsidiary owns 7.34 percent of the Buzios shared reservoir, which is 88.99 percent owned by Brazilian state-owned oil and gas company Petrobras.  CNOOC paid $1.9 billion to Petrobras last year to secure a 5 percent stake in a production sharing agreement at the field. 


UAE’s in-country value projects driving billions to local firms

Updated 02 June 2023

UAE’s in-country value projects driving billions to local firms

ABU DHABI: More than $27.23 billion has been redirected to the local economy since the UAE Ministry of Industry and Advanced Technology (MoIAT) and ADNOC launched major in-country value programs to support domestic industries.

Speaking at the Make in the Emirates Forum, Abdulla Al-Shamsi, Assistant Undersecretary of MoIAT, said more than $14.43 billion of investment was redirected to the local economy last year alone, an increase of 25 percent year-on-year.

“The National In-Country Value Program is a nationwide program that speaks one language across many different sectors,” Al-Shamsi said. “It’s one methodology and this is something we’re very proud of because it benefits the private sector and when the private sector sees this it helps them prepare, invest, and spend.”

The forum heard how the National ICV Program is “functionating well and accelerating.”

The forum also heard how industrial zones are playing a critical role in the in the country’s sustainable industrial development and broader economic prospects. Local industrial leaders described how they are utilizing alternative energy resources such as solar and hydrogen to reduce their carbon footprint.

The second edition of the Make it in the Emirates Forum concluded on Thursday with the UAE showcasing its unique value proposition to international investors.

Investors were invited to explore opportunities and competitive advantages, with panel discussions focusing on the National In-Country Value (ICV) Program, the role of industrial zones, competitive financing as a key enabler and local talent in the private sector.

The UAE’s industrial exports reached $47.6 billion in 2022, growing 49 on 2021. The industrial sector's contribution to GDP rose to $49.5 billion in 2022, a 38 percent increase on 2020.

The Make it in the Emirates Forum is organized by the Ministry of Industry and Advanced Technology in partnership the Abu Dhabi Department of Economic Development (ADDED) and ADNOC.

On the first day of the forum, the UAE government announced $2.7 billion in industrial offtake agreements, building on the $29.9 billion of offtake agreements announced at the 2022 edition of the forum.

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Pakistan posts record inflation for second consecutive month

Updated 01 June 2023

Pakistan posts record inflation for second consecutive month

  • Inflation of 37.97% in May set national record, adding to problems of balance of payment and risk of sovereign default
  • In April, the bureau said Pakistan's CPI at 36.5% was the highest recorded as well as the highest in South Asia

ISLAMABAD: Pakistan's annual inflation rate rose to 37.97% in May, the statistics bureau said on Thursday, setting a national record for the second month in a row, adding to its problems of a balance of payment crisis and the risk of a sovereign default.

Already in April, the bureau said Pakistan's CPI at 36.5% was the highest recorded, as well as the highest in South Asia, ahead of Sri Lanka, which posted annual inflation of 25.2% in May.

Pakistan's month-on-month rise in May was 1.58%, the bureau said in a statement, adding vegetables, pulses, wheat, wheat flour, rice, eggs and chicken in food items and fuel and gas prices caused the increase.

Inflation has been on an upward trend since early this year after the government took painful measures as part of fiscal adjustments demanded by the International Monetary Fund (IMF) to unlock stalled funding.

The IMF demands include the withdrawal of subsidies, a hike in energy prices, a market-based exchange rate and new taxation to generate extra revenue in a supplementary budget.

Islamabad says it has met the demands, but the IMF has yet to release the $1.1 billion funding stalled since November as part of the $6.5 billion Extended Fund Facility agreed in 2019.

The funding is critical for Pakistan to unlock other bilateral and multilateral financing.


Pakistan’s national currency makes historic recovery against USD in open market — currency dealers

Updated 01 June 2023

Pakistan’s national currency makes historic recovery against USD in open market — currency dealers

  • Appreciation follows central bank’s decision to allow banks to buy dollars from interbank market for credit and debit card payment settlements
  • Rupee was trading at Rs290 in open market during afternoon trading session as compared to Rs315 in the previous day’s trading

KARACHI: Pakistan’s national currency posted historic gains against the United State dollar in the open market on Thursday, following the central bank’s decision to allow banks to buy dollars from the interbank market for credit and debit card payment settlements, currency dealers said.

The rupee was trading at Rs290 in the open market during the afternoon trading session as compared to Rs315 in the previous day’s trading, showing an appreciation of 8 percent, according to dealers. 

“The rupee has appreciated more than Rs25 in the open market and this has happened for the first time in the history of Pakistan,” Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP), told Arab News. 

The currency appreciated in the open market after the central bank on Wednesday allowed authorized dealers, that is banks, to “purchase dollar from the interbank for settlement of the card based cross border transactions with IPS (Instant Payment System),” a notification said.

Prior to the State Bank notification, commercial banks were buying around $15-20 million from the free market per day, putting an excessive burden on it, the key reason for the widening gap between the interbank and open market, according to Bostan. 

“The banks were buying dollars from the open market at Rs315 but they were selling to their customers for the settlement at Rs325,” Bostan said, adding that banks had been buying from the open market but selling to their credit card holders at higher rates which excessively burdened the free market.

“They, Finance Minister Ishaq Dar and Central bank, took the timely decision and allowed them to purchase from the interbank market instead of the exchange companies,” he added.

Bostan’s claims could not be independently verified.

The ECAP chief predicted that the central bank’s decision would lead to further appreciation of the rupee in the open market, to reach close to the interbank rate.

The rupee in the interbank was trading between Rs290 and Rs300 at the end of trading session on Thursday, according to Bostan.

Pakistani analysts said the central bank’s move had eased the pressure on the open market and would also narrow the gap between the open and interbank markets in line with the International Monetary Fund’s conditions.

“The demand for credit and debit card settlement is around $2 billion to $2.5 billion per annum and the central bank’s decision has eased off the pressure from the open market,” Tahir Abbas, Head of the research at Arif Habib Limited, said. “The IMF also wanted to reduce the gap between the exchange rates prevailing in the interbank and open markets.” 

The rupee in the interbank market closed at Rs285.47 against the greenback on Wednesday.


Amid decades-high inflation, Pakistan slashes petrol price by Rs8 per liter

Updated 31 May 2023

Amid decades-high inflation, Pakistan slashes petrol price by Rs8 per liter

  • After revision in prices, petrol will now be sold for Rs262 per liter, says finance minister
  • Pakistan slashes prices of high speed diesel, light diesel oil by Rs5 per liter respectively

ISLAMABAD: Pakistan’s Finance Minister Ishaq Dar announced the government’s decision to slash the price of petrol by Rs8 per liter on Wednesday, as Pakistan attempts to provide relief to the masses amid decades-high inflation. 

Inflation increased to a historic high of 36.4 percent in Pakistan in April 2023, the highest since 1964, after the South Asian country hiked fuel and energy prices to revive a $6.5 billion loan program with the International Monetary Fund (IMF). 

To reduce the burden of inflation from the masses, Pakistan slashed the price of petrol by Rs 12 per liter two weeks ago. The South Asian country revises prices of petroleum products fortnightly. 

In a brief video message on Wednesday, the finance minister said that prices of petroleum products had not reduced drastically over the past 15 days nor had the value of the rupee significantly improved against the US dollar. 

“The maximum that we could reduce the petrol price [a fortnight ago] was Rs12 per liter,” Dar said. “Today, by reducing an additional Rs8 per liter, the price of petrol will reduce by Rs20 per liter in total. So, its price will reduce from Rs270 per liter to Rs262 from June 1,” he added. 

Dar also announced a reduction in the price of high speed diesel by Rs5 per liter and light diesel oil by Rs5 per liter. The price of kerosene oil will remain unchanged, he added.  

The finance minister said after the latest price reduction, high speed diesel, kerosene, and light diesel oil would cost Rs253, Rs164.07, and Rs147.68 per liter respectively.

Pakistan also slashed its oil imports by almost half last month, reducing it by 48 percent to 1.07 million tons during April 2023 as compared to 2.05 million tons during April 2022, a research report by Pakistan’s largest securities brokerage company, Arif Habib Limited, said.