This is an easing cycle after record high borrowing, it attracted 20 billion of local currency debt. Tracy alloway and i got more on the chief economist. I was expecting a bigger cut, i know that seems like a lot in the context of emerging markets. Remember, rates were raised 700 basis points from the time of the devaluation up until last week. This is the first step of a very long journey to go. To be perfectly honest, i dont look too deeply into the Monetary Policy statements out of the central bank of egypt these days. When it comes to insight that it can provide on the future course of policy, i found them somewhat lacking. Tracy you are phrasing every diplomatically. I am trying to be diplomatic. From my perspective, it is a big cut, it is encouraging, it shows there is confidence. Remember, 100 points is only half of the surprise hike we saw in july of 2017 when they raise they raised rates 200 points when everyone thought the hike tightening cycle was over. We have a long way to go before we are anywhere near normalization. Tracy if you take a look at egypts foreign reserves, i put them on the chart behind me. You can see they are now at a record. They really took off after the november 2016 devaluation. Does egypt have a hot money problem, given the inflow from Foreign Investors . If egypt begins cutting rates at a time when the u. S. Is raising rates, surely some of those investors will exit. When you are an emerging market coming out of a balancing payments crisis, there is no such thing as a money problem to problem. Hot money, slow money, it does not matter, you are just trying to find that deficit. It seems to be a bit of a concern for some people, if they cut rates too aggressively, they will not be able to attract inflow. Reserves are at a record high, they are hitting record highs month after month. I do not think the top local is top level is necessarily an indication of any kind of health in the economy at this stage. We need to look away from looking at the reserve figures. They have attracted a record amount of shortterm portfolio capital. They do not need anymore. They need to start reducing Interest Rates and they can simulate business lending. Yousef quick question on oil. It will have much more an impact on the gulf accounts. Over the weekend we had news that there are supergroups are looking for new ways to measure inventory. This sounds like an organization getting ready for another round in what has been a long fight with u. S. Shale. If you are not going to bring the shale producers and to that mega group or whatever they want to call it, it does not matter. Shale are the new players in the game. If you are not incorporated if you were not incorporating them into any discussions i do , not think it matters for the longterm. Even if you look at the nongcc Oil Production targets over the longterm, there are some very aggressive longterm targets in this region. Even if you want to have a discussion about what happens with the shortterm opec agreement, almost every economy in the region is still looking to oil for their future. That should show you something about what happens beyond 2018 and beyond opec agreements. Tracy what are the risks that countries here in the region start to take their foot off the pedal when it comes to reform . It is a very big risk. Is you are concerned about the longterm macro outlook on that you do not want oil prices at 65 per barrel. You do not want it at 70 per barrel. You want them to stay at 50 per barrel so that the momentum pushes. People talk that saudi arabia, oman have done too much too quickly. I do not believe that is the case. They have made some minor performs, but in terms of overhauling the economy, making them less reliant on oil, i dont think we have seen that. Yousef meanwhile, we had an update on saudi arabia, the inclusion in the msci emerging markets index. They said 32 of the Nations Companies could make it. It would make it the thirdlargest member after south africa and russia. Dubai is mostly dominated by real estate and banks. There is a lot of cheap banks out there. There is a turnaround story. You look at emirates, the turkish acquisition could unlock a lot of value either in cash or shares. Insurance, they will probably be increasing. There is a lot of value in this. In dubai. Egypt is all about recovery, that is happening. Investors are willing to pay earnings two years out. Theave been overweight in banks in egypt. Last year was all about higher margins for the banks, this year is about recovery. Lower Interest Rates, investment picking up. Mostly, it is one year out. Looking one year out, people are waiting to pay Single Digits forward. The results of which, when you look at currency, 11 times. Yousef what you just said about the uae, banks are at a bargain. Assets and Balance Sheets are strong compared to peers, but there is an issue of sentiment here. That is why the dubai index has underperformed in this region, also Global Equity markets. Are those still names you are willing to recommend in spite of that sentiment, that would that a cloud over any of us. 2017 was a lackluster year, still, if you look at the model portfolio, you were able to make 35 35 return in flat markets. The gcc was lackluster in terms of emerging markets. The growth was not there, the emerging markets are picking up in terms of momentum. The money was flowing elsewhere. Now we are starting to see improved momentum. Youck split proving see the stock improving your today. People are looking at those stories, there is a real turnaround story. Everybody is looking at it, that is because of the fol, there are investors trying to get in. If that goes, stop will fly at 20 , 30 , 40 . Yousef how much more momentum do you expect to build into the egypt reform story . In terms of investor interest from around the world, because the treasury story in terms of yield have given investors some of the best returns in the world, in terms of equity markets, are you seeing a lot more inflow than a lot more requests to allocate assets . A lot. We had our egyptian conference in south africa. Stocks. Of the best stories out there we thought were very strong. From local Distribution Companies have all done very well. There is a lot of appetite for egypt at the moment. Yousef up next, south africas president sees a new dollar a new dawn after the ouster of the president we discuss that, next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The South African president has a flaggingrevive economy and crackdown on corruption under his predecessor. Asked aloway and i chief economist whether investors will now start coming on board. There is reason for optimism in the south African Investment the rest of 2018 with this new leader. South african politics have never just been about one single person. We are talking about the anc which is a party very deeply divided in terms of economic policy. I think that is the real pouncing at that the new leader has to take in 2018. It is between the hardcore of the party that is clamoring for stronger fiscal spending, free Higher Education with the desire of investors that want to see a lot less rhetoric on issues such as land reclamation. While i positive on the south am african story, just because zuma has left, it is one person. The broader anc, the Political Party is still facing general election. That is the key question about how they are going to target their base going into the elections. What kind of policies are we going to see . Will he have any support for his reforms . Tracy if you look at South African assets, Government Bond yields thinking lower. The rand is surging. It feels like people forget that he was zumas deputy. How much is is going to change . It is a great question. It strikes to the heart of what have seen in recent years, whether we talk about country specific reform stories, or is this just broader em appetite. Any kind of higheryielding assets. Egypt issued a dollar debt over the past week. Tracy nigeria as well. Nigeria and finance ministers always come out and say this is a vote of confidence and a reform story. I dont know if that is the case. I think it is investors chasing a slightly higher yield at this stage. Global monetary conditions, Global Financial conditions are still incredibly loose. That plays into the entire em complex. When you have this idiosyncratic story with this leader wanting to push ahead with reform, that is a given that South African assets will outperform in the shortterm. Yousef you mentioned the emerging markets, we are looking at the yield for junk bonds fall below their u. S. Counterparts. For additional context, it did not last long. What is read on this chart, also some of the other calls when it comes to the likes of turkey . It is an interesting chart. It shows the music is still playing, so while it does, you have to get up and dance. The tide has not yet gone out. That is what that is building up in turkey poses quite an interesting counterpoint to south africa. Growth is still quite strong, around 5 , whereas around south africa it is anemic. In turkey, you have little reform momentum. If anything, reforms are going in the opposite direction of what a lot of investors want to see. In south africa, it is the opposite case, there is a lot of optimism. In turkey, we are seeing growth driven by loose fiscal policy, loose Monetary Policy, there is another idiosyncratic reasons. They are benefiting from russian tourists in the country. They are benefiting from what is going on in this region more locally with the blockade on quatar. They are seeing more transit passenger traffic in their airports. They are seeing more higher degrees of trade with the qatari economy. All things are shaping up for turkey for the first half of the year. Tracy what knocks that rampant appetite for em assets . In the recent selloff, we saw outflows for sure, we are already back to inflows, it has been two weeks . It is a washington, d. C. , jerome powell, the new fed. It is the big risk to emerging markets since forever. It is higher Interest Rates in a moreted states, aggressive tightening cycle than consensus expects. There is volatility that knocked a lot of em;s off their pegs. There are more than three rate hikes. That is going to be quite negative for a lot of these markets. Dubai up next, if property prices continue to struggle, we are looking at real estate for the advisory. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The dubai property slump is showing no signs of abating. A combination of oversupply and weak demand growth are to blame. I got more insight with the managing director of the real estate advisory firm. When you look at the numbers in aggregate for supply and demand, there is not really a problem, there is a slight oversupply which is manageable and healthy for a market. The problem comes when you by income and quality, and the oversupply is in the premium market which is the most competitive sector for development. Execute i to want to ask you this point. When i go to dubai, i see these cranes building luxury apartments in office buildings. I want to scream, why are you building this . A bunch of stuff is sitting empty. Why do people continue to build . Because people continue to buy. Investors continue to buy, and they forget that the Median Income in dubai is estimated at 6000 euros per month. That is completely incongruous which is being developed. Yousef to what extent has this been an overreach in terms of profit . It is difficult to roll back. All of the commitments that have been made and the investors have been brought on board. Whatever is plan to be built, they have already been decided on 23 years ago. This has to be pushed through. Typical in dubai, they just slow down construction schedules. That is probably what will happen again. You see a lot of projects taken projects taking up to 10 years to complete really. Tracy one interesting thing in your report, you suggest of the correlation between oil and the Real Estate Market has been breaking down recently. What accounts for that . It is more complex than that. In dubai, there is the rating index. It is a combination of oil price, u. S. Dollar exchange rates, and also the gdp growth rates in key foreign buyer markets like india, great britain, pakistan, etc. It is a confluence of those factors that are leading to a decline in Real Estate Investment demand. But also, there is a lag effect between oil and the economy and the impact on real estate. There is a twoyear lag affect between economic recovery in dubai and the impact on real estate. Yousef what about the tightening liquidity conditions around the world . We look at what the Central Banks are doing, that is having a knock on the value chain. Ultimately on markets like dubai as well, especially when you are dependent on foreign capital as well. Precisely, that is a bit of a hindrance for the market. We are pegged to the dollar, so we dont have the same monetary rules. We are going to see an Interest Rate when we shouldnt be doing tracy have you seen any impact from the geopolitical tension in the region, for instance the qatar blockade, has been taken out a portion of the buyers who were in the market . I dont think it has taken out a stark proportion of buyers, i think it has adjusted their risk assessment. That is one thing going forward, one reason why we think the market is overvalued. It is not just rent is declining prices should track those declines, it is also that rates or yields are too low right now. I really want to see that apartment growth yield closer to 8 . That is typical in a highrisk environment or a greater uncertainty environment. 5 plus for villas, that is where it should be. Yousef that is absolutely critical. You are saying it is over valued. Are you recommending clients not to step into the dubai property story at the moment and wait until it comes down . For typical pricing, yes. You always find sales to come out of the what work as we go forward in the year or two. Yousef there was more evidence of saudi arabias attempts to attract foreign investment. The kingdom approved bankruptcy legislation, which includes measures for financial restructuring and settlement procedures. Laws are notptcy in the economy, making it difficult for companies to restructure debt. I asked the founder and ceo how these most factor into saudi arabia. This is particularly directed at the business sector. Bankruptcy law encourages entrepreneurship. It also encourages, as you mentioned, better credit standards and general lending by the banks. It creates a framework for putting companies into bankruptcy, repossessing their assets. Whether thisrms of is going to help unlock more capital inflows, what are some of the investors been telling you that you have been speaking to, in terms of appetite and putting money to work, if equity for fixed income . The perception of the saudi Reform Program is quite positive. Particularly from outside of the region. The attitude is also cautious in terms of investors are expecting shortterm pain, particularly by the consumer sector. Of course on the medium and longterm gains. Investors are watching saudi very carefully for their be more selective and how they place their bets on equity. Yousef how is the gulf Credit Holding up . It is a changing Global Environment. The fomc or fed could be raising rates even faster. For some of the yields and is what is your projection part of the world . Generally, credit markets globally are quite expensive on the back of the extreme liquidity that we have had in the last, multiple years. Regional credit offers a more longterm value, obviously, it is exposed to the fed rate hikes and the geopolitical view. The geopolitical risks. Yousef what will be deter directory for some of the sovereigns in this world . The yields are going up. They are offering good value. Yousef are we going to see more issuances from some of these sovereigns . The chatter at the beginning of the year was the environment is changing, it may cost them a little bit more down the line. Are you still subscribing to the view . I think regardless of where rates are going, sovereigns are still going to issue debt that to issue more debt. I would expect strong issuance. Is israel signing a 15 billion deal with egyptian relationship between the former regional rivals. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Partners in israels largest gas field, this week, signed a 15 billion agreement to export supplies to egypt. They will supply natural gas for a 10 year period. The Tel Aviv Stock Exchange oil and gas index rose. That is the most on record. The minister hailed the deal as good news. I talked to the chief economist from abu dhabi bank, how it bank whether it changes how she looks at the economy. I think far more important to Egypt Economy is the development and the gas market. Already we are seeing increased gas production, which is reducing imports into egypt, and in the second half of the year we are going to see far more exports from its gas production. That is going to be a key driver of economic improvement, of improvement in the external accounts and current accounts. That is also going to support the pickup in economic language in economic momentum. We are seeing from inflation coming down and moving to lower Interest Rates as well. We feel that we are seeing a number of positive developments, this should give solid tailwinds to the egyptian economy. Yousef monica, i am looking at comments from the ceo, he said this paves the way for further deals and cements egypt as a Regional Energy hub. This will be an engine for both the israeli and egyptian economy. Again, what are some of the risks to this new venture with israel, that you would Say Something to look out for, as much as a turning went as you turning point as he would say it could be for the egyptian Economic Activity . We all have seen closer ties between egypt and israel. This has been in the medium term. The trend is for closer ties. As you see the economic momentum pickup, we see the outlook is positive. Yousef in terms of the environment around the world where you have tightening liquidity, you have rising bond yields, the Egyptian Government treasury play has been popular with Foreign Investors. Would you say egypt is more at in the emerging markets space in the event of another selloff, in the event of additional withdrawals . I think any withdrawal of liquidity should be contained. We are seeing a shift to Central Banks exiting qe programs, this will be a change going forward. Even though egypt is moving an easing cycle, we believe that towards that measures should be contained and are looking to take portfolios very much into account. As things stand at the moment, the Interest Rate differential is still very supported. We have seen a leveling off already of portfolio inflows with expectations of this cycle. At the same time, we have egypt increasingly looking to borrow overseas and in europe. The flows from that will support capital inflows and fx reserves as well. They will definitely balance it. We think the easing cycle will be relatively gradual. Including the cut last week. We expect it to be between 300 and 400 points. This is compared to 700 points of hikes from 2016. We feel the differential will be positive. All of the beneficiaries so far, it has been a short time, the egyptian stocks and sectors, with industrials and banks off the back of that rate cut, where does that leave your projection for the egyptian pound, which has been trading in a tight range . We expect broad stability, perhaps some weakening. Nothing that is going to cause a spike in inflation or Impact Capital inflow. Again, we feel the external position will remain supportive, which will be very positive for the egyptian pound yield, we will see tourism Gain Momentum as you have flights returning from russia. That has allowed an extra boost the tourists inside, tourism side, which is an important component as well. As i mentioned earlier, we expect to see capital inflows as well as the government borrows externally. Ive believe all of these factors will be positive. It is also important to note, in the case of egypt, a lot of the portfolio inflow such as what has been going into egypt are from the reserve account. If you see some outflows on that, that will not really be up reflected to a large degree in the countries fx reserve. That should provide some stability. Yousef what is your read on this change of tone when it comes to saudi arabia and its oil policy . We have seen this now, since the beginning of last year. They wanted to support oil prices instead of trying to capture the market. The focus is on rebalancing the oil market and bring in global and bringing global inventory levels down. What we have seen with the latest comments coming out of saudi arabia, they are 20 to they are not willing to exit the deal prematurely, but they want to make sure that the oil market is rebalanced. There is more debate going around on what does rebalancing mean. This is very much focused on the fact that saudi arabias economy is in the midst of a large Transformation Plan. We are relatively still at the beginning of it. For the diversification of the economy, you do need a higher oil price. You need increased investment, fdi coming in as well. This is all part of a Economic Program that is underway. Yousef that is a key issue. When you have a shift in policy like that or a slight shift in tone. What you are signaling is you are willing to take this fight to the next level, that means there could be more volatility, that means there could be a lot of uncertainty around oil prices. That feeds into any anxiety about deploying capital into the saudi stock market. I think msci inclusion will be based on other factors. We have seen a number of rules taken by policymakers that really supports confidence, the inclusion will happen. I think the developments in oil policy would be more secondary or tertiary to that position. I think it is a continuation of the policy we saw coming into 2016. They went from looking to capture the market and dominate the market and drive prices down to really rebalance the oil market, albeit without the key players such as russia. Looking forward, i think the inclusion will be very positive, a very positive signal. You also need to see momentum developing with the Transformation Plan with a pick up in investment. For that, we believe the sale of aramco will be very important to give the capital injection to really mobilize investment. If you see a big mobilization inactivity, that will be an important trigger for further fdi coming into the country. Australias oil search confirms their output target and announces earnings. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Higher Energy Prices have Given Oil Search a threefold increase in oil profit. Are aiming to more than double exports from papa new guinea. I spoke to the companys managing director. Obviously, 2017 results were very much driven by our record production. So, that is a good start. Driven by a significant increase in gas and oil prices 24 up on the previous year. That gives us a very strong position financially and operationally, and a great platform to further expand our business concentrated in public in papua new guinea. It will also deal to bring our alaskan oil assets into development. Yousef i am looking at some of the details on the recent corporation. How is this coming along, which along, and when are we going to see some of the gas come to market . Look, we have a very strong relationships built over many years with exxon mobil, exxon mobil has done an outstanding job bringing that to market. In recent times, sitting with the companies, we have been discussing the concepts for a for further lng expansion. We announced today that concept involves the development of two trains on behalf of the companies. There will also be a volume that is going to have a third train totaling three trains and 8 million tons. That concept will be taken to our respective joint Venture Partners in the next few weeks. Then to the png government were government where we anticipate sitting down with them and finalized agreements, the fiscal issues, etc. That can lead to a potential decision at the end of this year. Yousef a lot of your projects are built around very long time horizons. The oil market and the Global Environment is at an inflection point. Where do you see oil and gas prices going this year . Look, we have seen very Strong Demand for lng in our region over the last 12 months or so. The business has fundamentally changed over the past two years. Given the volume of energy that is available, this is a connected market around the world. It is a very competitive provider of lng into our region. It seems to be a very high. As far as we see, the oversupply of this into the asia pac and around the world with capacities is now winding into the market. We also see with demand, that oversupply situation will go the other way. We hope that there will be more lng projects sanctioned in the next year. Longterm, pricing needs to be balanced with supply and demand. That is good for us. We are at the bottom end of the cost curve. Projects that are marginal should not be sanctioned. At the end of the day, we play the game like everybody else. Oil and gas is very much a volatile market. Yousef up next, tunnel vision. We look at the innovation that could shake up transportation as we know it. This is bloomberg. Welcome back to the best of Bloomberg Markets middle east Virgin Hyperloop one, a start up trying to create a futuristic tubebased Transportation System revealed what they called the first plant in the world in dubai. The Company Earned a 50 my gun dollars lifeline in december from to foreign backers. Lets find out what is next with the ceo. We have been collaborative been collaborating with the road and transport authorities to answer that question. What are the best routes to start that first leg of the hyperloop . Then continue it on. The work so far has culminated the first phase of our collaboration, which has been very productive. We are launching that today with this first dubai pod. The public will be able to see what it really feels like inside the hyperloop as we continue to plan in the future that. Yousef what would that could cost . It is less than a highspeed rail. It is two to three times the speed. Remembering we could come right into a city center. We really change the journey time from the airport to the the metro station. We are to complement that investments are being made in infrastructure. Yousef how involved has Richard Branson been in these conversations in dubai . He has been active in this, it has been a week of firsts. We disconfirm india where we announced a huge project with the government to build a 140 kilometer hyperloop. Richard branson signed that agreement in front of the prime minister. He is spending time here in the emirates, in dubai. He is helping around the world. His engagement, his excitement, with this company has been palpable. We are very lucky to have him as our chairman. Yousef what do you make of some of the plans of elon musk to get into this business . Elon musk can speak about his plans. He is focusing on tunneling. Our focus is on a technology that will go above ground or below ground. The route here between abu dhabi and dubai, most of that would be above ground because the ground is flat and level. Some of that would be bonita be it ground if we went to the city center. I think his plan is mostly to dig tunnels and then have some form of electric vehicle under the city. Yousef last december, you got a cash injection of 50 million, that will last you so long. What is the longer term plan in terms of being able to generate enough cash flow to keep this project going . We have had absolutely tremendous support from our largest investor, dp world. That partnership has been in place for over a year. The company is extremely wellfinanced right now. We are looking at this momentum that we are seeing here in dubai. The momentum in india. We find another in the city of ohio. I am not worried about investors. I am not worried about funding the company. I am excited by the growing momentum, a week of firsts and as usual we are actually thrilled to be here in dubai on another important first. What kind of burn rate are you enduring for the kind of experiment in tests you are doing . When you look at the burn rate of a company, there is a capital phase of that. Stage of the research commercializing technology. We have governments around the world approaching us today. They are interested in the huge Economic Impact that this technology delivers. The jobs that will be created, the Indian Government is thrilled about the fact that the project we announced this week and signed, it will create thousands of direct jobs. Tens of thousands of indirect jobs. In terms of funding that development, partnering with governments, attracting investors, we have a great formula, and the credibility Richard Branson has brought us as a chairman, it has brought us a tremendous amount of momentum. Yousef i want to get back to where we started off with the dubai abu dhabi link. In terms of how the financing would work, would this be paid for by the government . How would the financing work . I think the financing we are examining for many of our projects are more in the nature of the Public Private partnership. Private equity, pension funds, as well as the government participating in providing the service. It has to deliver economic value and impact. Right now we have a new mode of transport evolving, it is called hyperloop. The countries and regions that take advantage of that will attract hundreds of thousands of jobs. We saw a major announcement yesterday in saudi arabia where the Educational Foundation of the crown prince actually is beginning a program to train young engineers, working with our cofounder in california, then coming back and having the hyperloop come to saudi arabia. Yousef that is only have for this edition of the best of Bloomberg Markets middle east we have a easy week ahead in the region. Be right here for the start of the trading week in the gulf, sunday morning. Im yousef gamal eldin. Join me then. This is bloomberg. We use our phones and computers the same way these days. So why do we pay to have a phone connected when were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. From new york city, im Jonathan Ferro with 30 minutes dedicated to fixed income. This is bloomberg real yield. Coming up, mnuchin sends a message to the markets, dont worry about the debt, dont worry about inflation. The market absorbs 10 year yields sticking your for your highs and the Federal Reserve optimistic about growth. Investors wait to hear from chairman powell. We begin with a big issue, a big week of treasury supply. This blowout in the deficit in the u. S. , from 3 to