Interpreting Middle East Economic News and Analyzing Market Trends

Category: Commentary & Analysis

Is the emerging markets party over?

Chart foriShares MSCI Emerging Markets Index (EEM)

Source: Yahoo Finance EEM: iShares MSCI Emerging Markets  –  PEMPX: Pimco Emerging Markets Bonds  –  PNMA: PowerShares MENA Frontier Countries

  

Since the Financial Crisis of 2008, emerging markets have been pushed and promoted as the world’s new growth engine.  As bond yields in developed markets dropped closer and closer to zero, institutional investors circled the globe in search of higher yields.  Fresh billions flowed into emerging markets, which lead to a dramatic drop in bond yields as investors piled in (see our earlier posts here and here) making it cheaper and cheaper for these markets to borrow.  So they borrowed, borrowed and borrowed some more.  Now it appears that emerging markets have lost steam.  From the chart above you can see that both emerging market bonds and stocks underperformed the S&P 500 over the past two years.

 

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Dubai property market heats up again, apartment sales rise 17% and rents are up 12% in one year. Talks revived for underwater hotel, but will it stay under water?

Source: Gulf Business

Dubai property is hot once again, both sales and rents are up double-digits over the past year.  The pace of the recent rise suggests that there is more momentum behind it, so much so that developers are considering bringing back some of their crazy projects, which were cancelled during the last downturn.  Will these projects make it this time?  How much more can Dubai property rise when the number of challenges facing the world economy keeps growing?

 

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The next financial crisis will wipe out the lagest financial institutions. How will Islamic financial institutions fare?

http://www.novares.com/gfs_images/656_m1.jpg

 

The headline in Forbes from this past March reads “Risk is Back.”  Financial institutions today are riskier and have more derivative exposure than they had prior to the Lehman failure in 2008.  More specifically, a handful of banks carry over 95% of the estimated $250 trillion global derivative exposure.  This is trillion with a ‘T’ and not billion with a ‘B’.  To put this in perspective, the total US GDP in 2012 was about $16 trillion.  It’s already a foregone conclusion that the next financial crisis will wipe out these mega-institutions as they will be too-big-to-save.  What will happen to Islamic banks and financial institutions as the dominoes begin to fall?

 

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Are oil and GDP related? The answer is in the charts

http://gailtheactuary.files.wordpress.com/2012/07/world-oil-supply-growth-compared-to-world-gdp-growth-v2.png

Source: Ourfiniteworld.com

Does the supply of oil affect GDP growth?  The chart above suggests so.  It also suggests that new oil supplies are not coming to the market fast enough to replace declining fields.  We have been blind-sided by news cheering for the rise in US shale oil production.  Headlines have already appeared suggesting the US is on it’s way to become an oil exporter.  Unfortunately, the much talked about shale revolution is an over-hyped story by Wall Street bankers looking to cash in before the game is over.

 

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What’s really behind the protest in Turkey

Protests in Turkey, which began as a protest against government plans to develop a city park, have now engulfed the country into nationwide protests.  It’s no longer about a park, or even stricter laws on alcohol sales as some have suggested.  The police clamp-down on park protesters was merely the spark that set everything thing else off.  It was the tipping point.

 

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