Dubai and its state-owned firms used the recent favourable global economic conditions to refinance existing debt and make fresh issues. Bloomberg News
Dubai and its state-owned firms used the recent favourable global economic conditions to refinance existing debt and make fresh issues. Bloomberg News
Dubai and its state-owned firms used the recent favourable global economic conditions to refinance existing debt and make fresh issues. Bloomberg News
Dubai and its state-owned firms used the recent favourable global economic conditions to refinance existing debt and make fresh issues. Bloomberg News

Middle East will feel effect as Federal Reserve turns off the tap


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As the United States Federal Reserve gets ready to gradually ease off its fire hoses, governments and businesses in the Middle East and North Africa are hoping it won't lead to an outbreak of financial wildfires.
The signal from the central bank's chairman Ben Bernanke earlier this month that the Fed may start to taper off quantitative easing (QE) this year, triggered a sell-off across equities, government bonds and emerging market assets. The Middle East and North Africa (Mena) region was no exception. The general index of the Dubai Financial Market slumped the most in a year and yields on UAE credit spiked to their highest in 18 months.
While the Fed has said the stimulus withdrawal depends on the performance of the US economy, the prospect of an end to almost five years of cheap money sloshing around the global financial system is enough to strike fear into the hearts of investors.
In the Mena region those markets most vulnerable to the tapering are those that have benefited the most from the asset purchasing.
"QE tapering likely hurts the outperforming regional equity markets which have benefited from easier liquidity and foreign funds inflow, like Dubai, as opposed to those that have underperformed like Saudi [Arabia] and Qatar," says Hasnain Malik of Frontier Alpha Research, a Dubai-based financial research company.
Dubai and its corporations used the more favourable global economic climate of the past 18 months to set about refinancing existing debt and make fresh issues. The Dubai Financial Market General Index also surged by nearly 13 per cent in the first quarter compared with the previous quarter.
"Less favourable global liquidity conditions or emerging market risk appetite would mean greater scrutiny of credit risk in the Dubai Inc space," writes Jean-Michel Saliba, an economist covering Eastern Europe, the Middle East and Africa at Bank of America Merrill Lynch, in a research report.
Dubai and its stable of companies have an estimated US$60 billion of debt falling due between this year and 2017, estimates the IMF.
The withdrawal of cheap cash and the gradual setting in of a risk sentiment is likely to make capital less abundant than before and investors more selective.
The other loser from the QE tapering could be Egypt.
The Fed's announcement, together with fresh political tensions and delays to a US$4.8 billion loan deal have contributed to a sell-off in Egyptian assets. The benchmark stock market has tumbled by 22 per cent since its peak at the start of the year and bond yields have reached a post-Arab Spring high.
The government had been pinning its hopes on the securing of an IMF loan deal to tempt back foreign investors. But the end of QE could threaten those aspirations.
"For those who are more dependent on capital inflows, such as North Africa and especially Egypt, the reliance on foreign aid becomes more pressing," said John Sfakianakis,the chief investment strategist of the Riyadh-based investment firm, Masic.
But analysts say the regional impact of an end to QE will be uneven and not all negative.
Longer term, as the Fed starts to move interest rates higher, economies in the GCC with pegs to the US dollar will start to do the same.
"The single biggest operational impact of QE tapering in Mena is that GCC banks gradually benefit from margin expansion as local rates ultimately follow US rates higher," says Mr Malik.
A spike in the US dollar in the wake of the Fed's announcement will also have a regional impact through the fixed currency systems. A higher dollar helps to moderate the cost of imports to the region.
"GCC pegs would consequently imply stronger trade-weighted expectations amid the gradual credit recovery," writes Mr Saliba.
Other impacts are likely to be more contained.
During previous rounds of QE, oil prices have tended to rise before falling back once the purchases came to an end.
This time around there had been no visible boost to prices, according to a Capital Economics research note, released last week.
Ultimately, the pace the Fed turns off its fire hoses, together with the outlook in the regional and global economy, will determine the scale of the impact on the Mena.
 
tarnold@thenational.ae

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UAE currency: the story behind the money in your pockets
MOUNTAINHEAD REVIEW

Starring: Ramy Youssef, Steve Carell, Jason Schwartzman

Director: Jesse Armstrong

Rating: 3.5/5

Some of Darwish's last words

"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008

His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.

The specs

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Dust and sand storms compared

Sand storm

  • Particle size: Larger, heavier sand grains
  • Visibility: Often dramatic with thick "walls" of sand
  • Duration: Short-lived, typically localised
  • Travel distance: Limited 
  • Source: Open desert areas with strong winds

Dust storm

  • Particle size: Much finer, lightweight particles
  • Visibility: Hazy skies but less intense
  • Duration: Can linger for days
  • Travel distance: Long-range, up to thousands of kilometres
  • Source: Can be carried from distant regions
The specs: 2019 Mini Cooper

Price, base: Dh141,740 (three-door) / Dh165,900 (five-door)
Engine: 1.5-litre four-cylinder (Cooper) / 2.0-litre four-cylinder (Cooper S)
Power: 136hp @ 4,500rpm (Cooper) / 192hp @ 5,000rpm (Cooper S)
Torque: 220Nm @ 1,480rpm (Cooper) / 280Nm @ 1,350rpm (Cooper S)
Transmission: Seven-speed automatic
Fuel consumption, combined: 4.8L to 5.4L / 100km

The specs: 2018 Mazda CX-5

Price, base / as tested: Dh89,000 / Dh130,000
Engine: 2.5-litre four-cylinder
Power: 188hp @ 6,000rpm
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While you're here
UAE v United States, T20 International Series

Both matches at ICC Academy, Dubai. Admission is free.

1st match: Friday, 2pm

2nd match: Saturday, 2pm

UAE squad: Mohammed Naveed (captain), Rohan Mustafa, Ashfaq Ahmed, Shaiman Anwar, Rameez Shahzad, Amjad Gul, CP Rizwan, Mohammed Boota, Abdul Shakoor, Ahmed Raza, Imran Haider, Sultan Ahmed, Zahoor Khan, Amir Hayat

USA squad: Saurabh Netravalkar (captain), Jaskaran Malhotra, Elmore Hutchinson, Aaron Jones, Nosthush Kenjige, Ali Khan, Jannisar Khan, Xavier Marshall, Monank Patel, Timil Patel, Roy Silva, Jessy Singh, Steven Taylor, Hayden Walsh

MATCH INFO

Watford 2 (Sarr 50', Deeney 54' pen)

Manchester United 0

The years Ramadan fell in May

1987

1954

1921

1888

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UK-EU trade at a glance

EU fishing vessels guaranteed access to UK waters for 12 years

Co-operation on security initiatives and procurement of defence products

Youth experience scheme to work, study or volunteer in UK and EU countries

Smoother border management with use of e-gates

Cutting red tape on import and export of food