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Arab markets bit by Greek crisis in Q2 September 1, 2010

Posted by Yilan in Arab, Yunanistan.
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Arab stock markets plunged in the second quarter of 2010 because of Greece’s debt crisis to reverse an upward trend they had recorded over the previous four quarters, an official study showed on Wednesday.The decline hit most regional bourses in terms of market capitalisation, share index and turnover while most of they generally recorded an improvement in initial public offerings (IPOs), showed the study by the Arab Stocks Data Base at the Abu Dhabi-based Arab Monetary Fund (AMF).

The depression illustrated the growing inter-action between the Arab stock exchanges and global markets as they tracked most other emerging markets which were influenced by global market uncertainty following the Greek crisis.

“Most Arab markets recorded a marked decline during the second quarter of this year to reverse a gradual recovery and improvement they had witnessed since the second quarter of 2009,” the AMF said in its quarterly bulletin.

“The decline was mainly a result of the state of instability that hit global markets due to fears from the Greek debt crisis, which has created a state of uncertainty among regional investors and their market outlook….the Arab markets have also been affected by the fall in the profits and dividends by some companies.”

The report said Arab markets suffered from a decline despite projections about a better outlook for the economic performance of regional countries.

“This shows how close the Arab markets have become to global markets although this varies from one market to another, depending on the ability of each market to attract foreign capital…there is no doubt the Arab markets which have more foreign investment are naturally more influenced by global crises.”

The report showed a complex index introduced by the AMF a few years ago to track regional bourses dipped by nearly 8.8 per cent in the second quarter of 2010 against an increase of 6.8 per cent in the first quarter.
It said the decline in the index tracked a similar trend in emerging and global markets, most of which recorded a drop in their index in the second quarter.

“The majority of Arab stock markets recorded a decline in the second quarter except those of Morocco, Palestine and Sudan,” the report said.

A breakdown sowed Abu Dhabi suffered from the largest drop of around 13.8 per cent in the second quarter, followed by Oman’s Muscat bourse, which shrank by nearly 11.5 per cent. Bahrain and Kuwait slumped by about 10.7 per cent while there was a decline of around 9.9 per cent in Egypt, and between 7.8 and 9.1 per cent in the markets of Saudi Arabia, Jordan and Lebanon.

The report showed the combined Arab market capitalisation plunged by around 10.1 per cent to $869.9 billion at the end of the second quarter of 2010 from about $967.8 billion at the end of the first quarter.
“The level is far below the capitalization before the global crisis, when it stood at as high as $1,390 billion at the end of June 2008,” the AMF said.

As for turnover, the value of traded shares, the report showed there was a decline of around 18.2 per cent in the combined Arab market turnover in the second quarter, when it stood at around $120.8 billion.

But the report noticed an improvement in IPOs in the region, with the value of the total 16 IPOs issued by the listed firms standing at $1,204 billion in the first half of 2010. This compares with 17 issues worth $2,144 billion through 2009.

“There was a gradual improvement in the IPO activity in the Arab countries in the first half of this year, mainly in the second quarter,” the AMF said.

“A noticeable development in this year’s issues is that the average IPO subscription reached 9.7 times compared with only 4.9 times last year.”

According to the report, IPOs in the Arab region climbed to an all-time high of 71 issues with a total value of $14.4 billion.

“As for foreign investments, a large number of Arab stock markets recorded a relative improvement in foreign capital inflow in the first few months of 2010…available data showed the share purchase deals by most foreigners largely surpassed their sale deals,” it said.

European Bank Stocks Soar on EU Package to Halt Greek Crisis July 5, 2010

Posted by Yilan in EU, European Union, Yunanistan.
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European banks jumped the most in 20 months after the European Union unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases seeking to halt Greece’s debt crisis from spreading.

The Bloomberg Europe Banks and Financial Services Index added 10.93, or 11 percent, to 110.73 at 9:42 a.m. central European time, led by Spanish, Portuguese, Greek and French banks. That represents the steepest gain since Sept. 19, 2008.

Jolted by last week’s slide in the euro and soaring bond yields in Portugal and Spain, the governments of the 16 euro nations agreed to lend as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt.

“Together, these measures should be sufficient to get rid of the liquidity risk that threatened to cut Portugal and Spain off from the capital market,” Johan Javeus, an analyst at SEB AB in Stockholm, said. “The lower liquidity risk is positive for more illiquid and risky assets such as shares.”

Banco Santander SA, Spain’s largest bank, jumped 17 percent to 9.05 euros while Banco Bilbao Vizcaya Argentaria SA soared 16 percent to 9.305 euros. National Bank of Greece SA advanced 16 percent to 11.99 euros while Portugal’s Banco Comercial Portugues SA jumped 13 percent to 0.707 euro. BNP Paribas SA, France’s largest bank, gained 17 percent to 51.31 euros. Italy’s UniCredit SpA advanced 15 percent to 1.879 euros.

Barclays Plc, the U.K.’s third-largest bank by assets, led British banks higher. The lender surged 12 percent to 319 pence, while HSBC Holdings Plc, Europe’s biggest bank, gained 6.9 percent to 673.2 pence. Royal Bank of Scotland Group Plc, the U.K.’s largest government-owned bank, climbed 8.6 percent to 49.41 pence.

“This truly is overwhelming force and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” Marco Annunziata, chief economist at UniCredit Group in London, said in a note.

Greek crisis gives Asia central banks cause to pause May 10, 2010

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The global fallout from Greece’s debt crisis is likely to put monetary policy tightening in Asia on hold, at least until central banks see clear signs that European demand for exports will not be affected.

Asia’s central banks have led the world in raising policy rates as the region recovered faster than elsewhere from the global economic downturn.

But those prospects, combined with the region’s relative fiscal health compared with a debt-heavy developed world, raises the risk of a pick up in portfolio investment that could provoke policymakers into imposing more capital controls before the end of 2010.

A USD 1 trillion emergency package hatched by EU finance ministers, central bankers and the IMF to calm financial markets and ensure the stability of the euro, will help prevent a repeat of 2008’s mad rush for US dollar funding after the collapse of Lehman Brothers.

Still, Asia’s policymakers have consistently erred on the side of high-speed growth. So in the face of nagging uncertainty about the solvency of countries like Greece and Portugal, they will maintain a loose stance, even if it means higher inflation and asset prices.

“Central banks that haven’t started their tightening cycle by now are unlikely to start it in the near future, probably the rest of the year,” said Glenn Maguire, chief Asia economist with Societe Generale in Hong Kong.

“There will be extreme caution displayed by Asian central banks in terms of removing emergency settings of policy that were put in place during the subprime-Lehman crisis,” he said.

The Malaysian central bank will be first test case when it reviews policy on Thursday. After it surprised markets in March by raising rates for the first time since the global downturn, some money had bet on another rate rise this month.

Those expectations have been whittled down and some economists said the chances Bank Negara Malaysia will carry out a second interest rate increase in the current cycle have fallen significantly.

Rate hikes are off the table for now in China, which has raised bank reserves requirements three times this year, and a shift in yuan policy is likely delayed.

India, which raised policy rates twice this year, may have to tolerate higher inflation and South Korea, on hold since February last year, is unlikely to move at all this year.

A policy freeze will keep the average GDP-weighted policy rate in emerging Asia around 4.1%, or 261 basis points below pre-Lehman levels, JPMorgan data showed. The ECB rate is 1%.

The nagging worry for emerging Asia’s policymakers is that Europe’s export demand could take a hit if fiscal spending has to be significantly cut as euro zone governments try to get their budget deficits back to the bloc’s 3 percent limit.

China’s exports to Greece, Ireland, Italy, Portugal and Spain only account for 3.5% of total exports. However, shipments to the European Union make up 20% of the total for China, 13 percent for New Zealand and 12% for both South Korea and Japan.

“It’s early days, but the risk is that there could be more contagion and it could cause slower growth in Europe. We know that even with good fundamentals Asia is very much inter-linked with Europe and the United States,” said Rob Subbaraman, chief Asia economist at Nomura in Hong Kong.

Indeed, for all the talk of regional integration, Asia is still highly dependent on external demand and economic activity. In every Asia ex-Japan economy, the value of goods and services imported from outside of the region for export production exceeds the OECD average, a paper from the IMF said in April.

Haven in Asia

Once the dust settles on the series of policies set in place in the past week to support Europe and the euro, portfolio flows may resume in earnest to emerging Asia, which is unencumbered by heavy borrowing and whose long-term growth prospects are bright.

Indeed, rather than running public deficits as a ratio of GDP, Asia ex-Japan economies ran an average surplus of 4.1% in 2009 and are expected to have a healthy surplus of 2.9% this year.

Economists at Bank of America-Merrill Lynch found that emerging Asia’s vulnerability to financial shock has declined in the last year.

South Korea, Indonesia and Malaysia are the three most susceptible to external macro shocks, on the basis of foreign exchange reserves-to-short term debt.

However, all three have seen their reserves rise and debt shrink since the credit crunch began in 2007.

Commercial banks in Europe are also unlikely to cut their credit flows to the Asia Pacific region if the Greek debt crisis escalates.

As of last year, European lenders had increased their lending to emerging markets, including Asia, by double digits compared with the five-year average, but cut lending to developed countries, Bank for International Settlements data showed.

Asia will continue to behave more like a low beta, or haven for assets, in the wake of the Greek debt crisis, analysts said.

As a result, Manu Bhaskaran, chief executive of consultancy Centennial Asia Advisors in Singapore, believes Taiwan, India and China will add to existing measures to control the flow of incoming capital.

The deflected money flows may then try to head to other Asian countries, pressuring policymakers to enact more administrative measures to prevent overheating in assets like property.

“You hope to deter capital by having restrictions in favoured asset classes,” said Bhaskaran, who has advised the Singaporean government on economic matters.

Such controls are finding some acceptance globally. The International Monetary Fund said in a report in April that capital controls or tighter fiscal policy were options to curb capital inflows.

Robert Prior-Wandesforde, senior Asian economist with HSBC in Hong Kong, said after the exchange rate volatility of the past week, policymakers may allow their currencies to gain several percentage points against the dollar before intervening to curb the strength.

Intervention would be just to ease the pain on exporters, though.

“It’s a wall of money that they face. They can’t in my view stop appreciation through intervention, they can only slow it,” he said.