Analysts say that the sell-off in commodities and related equity markets is being driven not by supply-demand fundamentals, but by the unwinding of hedge funds hit by the widening credit crunch. Highly leveraged, the hedge funds are forced to liquidate cash positions if capital gains don't allow them to meet interest payments. So any sudden shift in the funding environment could trigger a broad sell-off by hedge funds that contradicts the macroeconomic reality. The drop by the pound and euro against the dollar in recent weeks ? the pound has fallen 10 per cent in the last month ? is apparently one catalyst behind the latest retreat by hedge funds and one that has hit emerging market equities very hard.
Notice that I didn't refer to this as the dollar's rally, even though the dollar rallied sharply in response to the US government's takeover of Fannie Mae and Freddie Mac. Rallies most often imply positive developments. But economists point out that the dollar's rise is more an expression of the fact that the rest of the developed economies now appear to be sliding along with the US into recession than any new appraisal of America's near-term prospects. In fact, it now appears that the focus of concern in global markets may shift away from the US ? where things really can't seem to get any worse ? to Europe, where the most certainly could. Europe's consumers appear to be succumbing for the first time in a decade to concerns that their economies are likely already in recession and are spending less.
Thanks to the world's twin addictions to driving and the much more essential chore of eating, however, economists say the fundamental argument in favor of commodities remains and that in both food and fuel, supplies are tight and vulnerable to supply shocks like force 5 hurricanes. So while stagflation has faded as an investment strategy for the time being, it may yet return, with the appetite for emerging market equities favoring commodities producers and countries with strong current account balances. Countering this will be fears that the developed world slowdown will have a greater-than-forecast impact on global growth. If developing world growth fell lower than, say, 6-7 per cent, it would be disastrous. Real growth would be largely negative and unemployment would rise rapidly. Amid high inflation, this would be a recipe for civil unrest and political upheaval.
This has helped tighten liquidity in the Gulf, a region where oil revenues and government spending are supposed to be creating loose liquidity. But hedge funds aren't the only reason, according to bankers and financial executives.
Part of the problem is a simple question of competition: with funding costs and interest-rate spreads rising everywhere, borrowers everywhere have to pay more and investors tend to move capital where the returns are highest and the risk lowest. The Gulf's own investors and sovereign funds have a world of choice for their capital and don't have to keep it here if returns are not competitive. And the risk is clearly high. Not only is there the ever-present political risk, but there is regulatory risk, as well as inflation risk and operational risk, the kind that translates into things like paying thousands of dollars a month for flats that don't have running water or reliable plumbing. As the real-estate analysts here in the UAE say, quality is becoming the primary issue.
The other problem is the peg. Investors moved a pile of money into the region earlier this year speculating that central banks would allow their currencies to move upward against the dollar to help fight inflation and reflect their growing, oil-driven trade surpluses. That they haven't means that not only is inflation likely to remain in double-digits, eroding any earned profits, but that investments here have to be treated as dollar-denominated. Despite the dollar's rally last night, most people still believe the dollar is likely to remain under pressure and last night's seizure of Fannie and Freddie provides new evidence as to why. Buying up whatever new shares the two mortgage giants need to issue to offset the red ink they'll be ingesting as they buy up mortgage-backed securities will cost the US government plenty, some estimate up to $25 billion. In the meantime, the dollar appears to be rallying on hopes that the rescue will help end the housing slump.
Then there are other local risks, in particular the increasingly rickety property market. While bankers and property executives are quick to point out the prudential lending standards here remain high, the 1) absence of a robust credit bureau, combined with 2) a perception that the regulator ? i.e. the central bank ? lacks sufficient resources to adequately enforce those standards and that 3) breaches are common and pervasive, leads many to believe the potential for widespread losses should property prices falter is high. Recent investigations into alleged fraud in Dubai's property sector are not building confidence in asset quality.
Add to this that Gulf borrowers have an estimated $60 billion in debts they need to refinance in the next year. Many in the financial industry fear that the cost of rolling this debt over in the current credit environment is going to be higher than most people think.
warnold@thenational.ae
COMPANY%20PROFILE
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Wicked
Director: Jon M Chu
Stars: Cynthia Erivo, Ariana Grande, Jonathan Bailey
Central%20Bank's%20push%20for%20a%20robust%20financial%20infrastructure
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Disclaimer
Director: Alfonso Cuaron
Stars: Cate Blanchett, Kevin Kline, Lesley Manville
Rating: 4/5
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
Company%20Profile
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COMPANY%20PROFILE
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Fire and Fury
By Michael Wolff,
Henry Holt
LOVE%20AGAIN
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
Company%20Profile
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Five%20calorie-packed%20Ramadan%20drinks
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Shipping%20and%20banking%20
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Electoral College Victory
Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate.
Popular Vote Tally
The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.
FORSPOKEN
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Company%20of%20Heroes%203
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Star%20Wars%20Jedi%3A%20Survivor
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Final%20Fantasy%20XVI
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Street%20Fighter%206
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Diablo%20IV
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Baldur's%20Gate%203
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The%20Legend%20of%20Zelda%3A%20Tears%20of%20The%20Kingdom
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Marvel's%20Spider-Man%202
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Assassin's%20Creed%20Mirage
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Starfield
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The specs
Engine: 5.2-litre V10
Power: 640hp at 8,000rpm
Torque: 565Nm at 6,500rpm
Transmission: 7-speed dual-clutch auto
Price: From Dh1 million
On sale: Q3 or Q4 2022
Where can I submit a sample?
Volunteers can now submit DNA samples at a number of centres across Abu Dhabi. The programme is open to all ages.
Collection centres in Abu Dhabi include:
- Abu Dhabi National Exhibition Centre (ADNEC)
- Biogenix Labs in Masdar City
- Al Towayya in Al Ain
- NMC Royal Hospital in Khalifa City
- Bareen International Hospital
- NMC Specialty Hospital, Al Ain
- NMC Royal Medical Centre - Abu Dhabi
- NMC Royal Women’s Hospital.
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
SPECS
Engine: 4-litre V8 twin-turbo
Power: 630hp
Torque: 850Nm
Transmission: 8-speed Tiptronic automatic
Price: From Dh599,000
On sale: Now
Read more from Mina Al-Oraibi
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Kill%20
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Seemar’s top six for the Dubai World Cup Carnival:
1. Reynaldothewizard
2. North America
3. Raven’s Corner
4. Hawkesbury
5. New Maharajah
6. Secret Ambition
Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5