Transcripts For BLOOMBERG Best Of Bloomberg Markets Middle East 20170715

They soared 7 . We spoke about the outlook for gulf finance. We dont have a plan for the end of the year from 6 to 8 , we dont see changes from those levels. As you know, qnb is a very well diversified institution. We have businesses in third world countries. Our diversification is really working to overcome any crisis. Yousef last time we spoke, you were very bullish when it came to your expansion in asia and africa. Was the gulf crisis an additional incentive for you to be more aggressive, to push harder into those markets . Our 2020 strategy is to become a top player among middle east, africa, and southeast asia. We do not see any change in that strategy Going Forward. To recap, the strategy is built around two pillars, net organic growth and levying the network. As well as levering the network. Net organic growth, we are very fortunate. Were not looking for acquisitions as we speak but we are very opportunistic. In terms of the second pillar, which is levering leveraging the existing network, we will take spending in the existing geography in an organic fashion. We will be out building two , opening one more branch in kuwait. At the end of this month, we will be establishing our business as a fullfledged branch in india. We also will apply for a license in hong kong. In china, we are changing our position there. We will continue this strategy. Yousef you focused on your strategy and say little has changed. But you have reality on the ground in saudi arabia and egypt in the latest political dispute. How are you going to reallocate resources or reprioritize a little bit, refine your strategy to adjust to what is happening there . This presents less than 5 of our Balance Sheet. The impact we see is very little, if any, for our strategy Going Forward. You know, we are going to be pushing more into east asia, but into southeast asia, but even if the situation continues forever, to diversify 5 is so easy, and it does not take so much. Yousef what are your funding or financing plans for the remainder of the year . See some of the interbank rates move higher not only in qatar but across the region. How does that change funding strategy for the bank . There was a hike as a result of the fed rate increase. It started last year and this year. Going back to our numbers, our first half numbers on Interest Income showed growth of 5 of dilution of the egyptian currency itself. We are continuing to grow. We are repricing our assets at the same speed as liabilities. Again, we are diversified, dont have a concentration of funding anywhere. We get our funding from qatar, mainly, from u. S. , from europe, from asia, the middle east. Much diversified and we dont have a concentration and we dont see any abnormalities. Let me remind you in this, qnb is a highly rated institution, a aa institution. The story, they love the qatar story and continue to do so. Yousef i am going to jump in here. You dont have any plans to tap the International Debt market . We have a program, 17. 5 billion, and we have only used half of this at this stage. We still have big room to move in this area. Yousef qnb is the biggest lender in this part of the world. I do want to again capitalize on that and get your topline thoughts on how confident you are that this crisis will be resolved anytime soon. This is not for me to comment on, but i can tell you one thing, qnb is very strong and we are prepared to work even on a standalone basis. Qatar is a very strong economy. It is the richest economy in the world. Huge reserves, 340 billion of foreign reserves. At qnb, as i said, we have a very strong story in terms of qatar on one side and being diversified on the other side. We have a very strong and bright future. Yousef coming up, tillersons gulf diplomatic tour yields no breakthrough on qatar. We get Standard Chartereds take on the implications next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The u. S. Secretary of state tried some shuttle diplomacy this week in a bid to shake opposing sides lose from their position. But no quarter was given. We asked Standard Chartered for his take on the standoff. It is true the sentiment has been effective somewhat but not affected somewhat, but not dramatically so. What we are seeing in terms of flows is we have seen some recycling of liquidity back into saudi arabia and into the uae, and i think that would explain the performance of the uae and saudi bonds in the middle of all these situations. Qatar has been affected. Qatar is slightly wider than it used to be, but considering the expense and the seriousness of the blockade, if you compare Market Performance to that seriousness, i think Market Performance in qatar has been relatively performing quite well considering the seriousness of the situation. We have to bear in mind that we are talking about incredibly wealthy countries with Strong Reserve situations, and that has limited the Market Impact of the political standoff. Tracy i think those reserves are helping qatar, but we have seen a parallel emerging and trading at a weaker rate. How big is the pressure on the currency and will there be a time frame when qatar will have will eventually have to give up the dollar paid if this continues . No, i dont think there is any pressure on the dollar peg. If they want to sustain the peg, they can sustain the peg. It is a very small economy. It is a small country with a small local population, and a Strong Reserve situations area Strong Reserve situation. They can also use other measures to sustain the peg. The last thing they would want to do is have an additional source of uncertainty regarding the regime position. I think the peg is sustainable. There are two questions there. Can they keep the peg and do they want to . I think the answer to both of these crucial questions are yes. They can keep it, and absolutely they would want to keep it in the middle of this uncertainty. Shery lets talk a little bit about what janet yellen said. There was not much change, a little bit on the emphasis on inflation outlook. Nothing really on the timing of the Balance Sheet readjustment. Anything that caught your eye, anything that you thought was particularly interesting this time around . I think there was nothing really new from Janet Yellens comments, and that is good news and that is to be expected. Unemployment is falling. It should eventually lead to higher inflation, but we are not really seeing inflationary pressures right now. So, her comments have left her with a lot of room to decide how fast she is going to be hiking later on. So, the fed has left the option entirely open. I think the fed will be hiking more nextyear and year. Anotherll probably be probably be another three in total. I think it is clear that emerging markets can take this pace of hikes, and i think thats why emerging markets are reacting positively to the comments. Nothing new, but she is confirming a careful and gradual pace of hiking. What is important for emerging markets is not just what the fed does, it is also what longterm Interest Rates are doing. And i dont see a reason why we will see a spike in longterm Interest Rates. And for that reason, i think emerging markets will be meaning will be remaining being supported Going Forward. Yousef it has been a tough year for the u. S. Dollar. And the latest comments from janet yellen did little to help. I am looking at the index. Yeartodate declines of 6. 7 . Where does where do they go from here . I dont think we will see much more strength coming for the u. S. Dollar. They had a fantastic year in the past, it was driven by divergence of interestrate policy from major central banks. That has been already priced in. To see much further appreciation in the dollar, we need to see a shock from the fed, we need to see the fed hiking much more than what the markets think, and we need to see longterm Interest Rate yields in the u. S. Rising much more aggressively. Im not convinced we will see any of this, and for this reason, i expect the dollar to remain mostly range bound, and i dont expect to see another wave of dollar strength. That is fantastic news for the u. S. , and it is fantastic news for the fed because the fed is hiking, but financial conditions are not tightening. And they are not tightening because longterm Interest Rates are not really rising and the dollar is not strengthening. That makes it easier for janet yellen to deliver the hikes. Yousef what is unclear is what they will do in terms of fiscal reform and how that will impact the overall economy. I know you have strong views on crude oil. Is the market getting ahead of itself in terms of bearish momentum . Is that perhaps a misinterpretation of the reality of supply and demand out there . We think so, but at the same time, you have to of knowledge the prevailing sentiment and you cannot go against it for a very long time. At the moment, there is a very strong bearish sentiment on the oil market globally. What is happening is that this sentiment is dominating fundamentals. When we look at fundamentals, despite comments from opec that suggest we have hoped for better we have hope for better compliance, when you look at the inventory data, from the u. S. It is bullish but being ignored. That means we might keep seeing bullish data, or sing bullish or see bullish data for the market to get out of this bearish sentiment right now. Shery how much will the potential reduction caps for libya and nigeria help in reducing this glut . They can help, but the point i want to make is that despite this glut, inventories are declining. If the market wanted to focus on something positive for oil, it is already there. Inventories have been declining for sometime now, so that is the bullish fundamental for the oil market. I think the caps could help. If we see better compliance from opec, that would be an additional fundamentals that could come into the equation, but we are seeing a somewhat of a divergence between prices and sentiments on one hand and the fundamental situation on the other. Yousef lets look at the bloomberg briefly. It shows you the opec daily production and how it has increased recently. And on the other hand, you have u. S. Crude supplies that have come down in the last few weeks. If you were opec, would you do some policy adaptation here . Maybe it is antiquated for you to put policy in stone and leave it like that and expect the market to work around that. I think the challenge for opec, and it is something weve seen from previous meetings, when people were discussing the possibility for further cuts, many members were saying never mind cuts, lets comply to the cuts we agreed on. I think the key for opec right now is to show strong compliance and show the market they are actually delivering on what they said they would deliver. That is a key challenge for opec, i think that is what they will try to achieve, and if they achieved that at a time when inventories are declining, they should eventually come into price action, as well. Yousef up next, the take on the crisis in the gulf. Find out which assets stand to win or lose in the longterm. With no signs of the diplomatic standoff dying down. This is bloomberg. Yousef welcome back. With the gulf diplomatic dispute in its second month, what have Institutional Investors been doing with qatari assets . We spoke to a middle eastern asset manager. The doha market fell about a thousand points from the 10,000 point level when the news came out about a month ago. It seems to have stabilized over recent days. I think until there is greater clarity on the outlook for the Current Situation, it is very difficult for investors to get excited about buying or indeed selling of these levels, because it clearly they are depressed relative to a few weeks ago. Angie so far, qatar seems to be able to weather the impact from the isolation, theyre getting food imports. From iran and turkey. How sustainable is this . It depends on how long the situation is maintained. Businesses have been hit across the region. Clearly in qatar, businesses have suffered, but also more generally across the region, exports into qatar from neighboring countries have suffered. Businesses have lost opportunities. So, i think from a macro perspective, the Current Situation is not great, and hopefully it will be resolved shortly. Yousef as look at the saudi story. On the set here, you were impressed initially by the commitments to those reforms. Now the reversal on some of these reforms, how does that change your view on where the saudi economy, especially with additional measures . Im still impressed with the reforms or at least the plan to reform. Vision 2030 is something that needed to be done and will be implemented. My concern is that the time lag between the announcement and implementation and also, the effectiveness of the execution. Those factors make me somewhat cautious for the next year, lets say, because there is inevitably going to be a difference and a time lag between what is wished for and what actually happens. Yousef it makes it tricky for investors to get their heads around not just the economic story but the corporate story. In terms of qatar and some of the key industries. I can show this to you all my on my bloomberg. This is a period of one month and you can see how foods and staples have outperformed. Have performed. Banks are up, as well. In terms of what sets the tone for the quarter that we are now in the early part of, where do you expect story to go in light of what we just discussed am the where the economy is and where the reforms are . I think consumers will be very cautious because we had salary cuts and benefits with withdrawn last year. Those have been reversed. I think the psychology has changed. Consumers are now aware these maybe taken away or they may have to save for the increases coming through. I think, notwithstanding the reversal in that particular policy, there is a little more caution from the investment Corporate Capital investment and consumer spending. I am somewhat cautious as we get to the year end. I think weve seen anecdotal evidence in terms of retail sales and property transactions recently which give us reason to be a little more careful about investing at current levels. Angie as a 90 day volatility, it has spiked to the highest level since february. Quite a different picture from when we talk to last time, about when we talked to you last time, about a month ago. Is this heightened volatility the new normal or just a reaction to the latest developments concerning the inclusion into the e. M. Watchlist and the Political Development . I think it is both. I think that you have a situation where clearly over the last month, there has been increasing geopolitical tensions, oil prices have fallen about 10 from their yeartodate average. Youre seeing Foreign Exchange reserves decline, seeing Economic Growth stalling, corporate profit outlook is clouded, Interest Rates have been rising. So, you have a number of factors which frankly have deteriorated over the past four to six weeks, and that inevitably will lead to higher volatility, greater uncertainty and probably a trend down as we probably get to the yearend. Angie we have a new crown prince. We know that his foreignpolicy has been pretty aggressive, he has been fighting a proxy war with iran. In yemen, we have the qatar situation, how does that about the outlook for the kingdom . As i said, it adds to the uncertainty. I think more generally for investors looking into the region, into the wider region, this kind of geopolitical news does cause unease. I think that it can be offset by economic developments, but as we discussed with yousef, those are not likely to be seen this year. To that extent, it is difficult to get motivated about buying into the region at current levels and in the current environment. Yousef we see a lot of Downside Pressure on crude oil, which is he still which is key still to the saudi ecostory. 2017 forecast, nine dollars per barrel to 51 per barrel. Where you see the crude traded where do you see the crude trading go . We went positive on oil prices in january 2016 when prices went through the floor. Our expectation is that prices would rebound to 60. That has not happened. We got into the 50s and we have come off sharply since. The market is telling us what is what tracy alluded to earlier, and that is that there are now alternative sources of energy. The electric revolution is worrying some investors. We saw out of volvo recently, they intend to be all electric by 2019. Daimler, toyota, volkswagen are all accelerating their programs to electric vehicles. That and other reasons are playing into the oil story at the moment. Yousef next, turkey speaks out over the treatment of qatar. Deputy the deputy Prime Minister tells us how far the entourage is willing to go. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Yousef welcome back to the best of Bloomberg Markets middle east. Im yousef gamal eldin. This weeks marks a year since the failed coup in turkey. We set down with the deputy Prime Minister at the worlds Petroleum Congress in istanbul, where he weighed in on the situation in a qatar. The failed coup attempt was a big shock for turkey, the turkish economy, the turkish people. But looking at how fast, how strong the recovery has been in every single sense suggests that the turkish people are resilient, the economy is resilient, and i think the fundamentals were strong. Let me give you perspective. The economy is back on 5 growth trajectory, which is very strong. It is one of the strongest growth among these countries. We are experiencing a reshaped recovery. A very strong recovery. This will create significantly higher numbers of jobs, possibly one and a half million jobs could be created. This is good news. As far as politics is concerned, of course i believe that turkish democracy is stronger because people stood up for their future, for the legitimate government, and i think if you look back and history will write turkish people have shown an amazing example of how people who believe in their own future can prevent rogue elements within the army, disrupting democracy, destroying rule of law. That is also good news, but we dont stop there. We have done a lot of reforms. We have improved civilian oversight of the army. We have done institutional reforms. I think turkish democracy is now stronger. Finally, Political Uncertainty has largely diminished in the sense that the question marks about the system has been settled. Turkey has had a referendum. That is likely to ensure stability in the administration and fairness in presentation, and that is also good news in the long run in terms of investment and growth prospects. In the aftermath of the failed coup, almost 150,000 purges took place. Some critics would say that this is a step back for civil liberties. What is your reaction to that . The turkish case is so complicated. I can understand when you look from abroad, from outside, unless you are a turkey expert, it is hard to understand. This was a unique, unique attempt to grab power illegitimately. Had this been an ordinary, classic coup attempt you would go after rogue Army Officers and that would be it. Going only after smoking guns. But in the case of turkey, remember, you are talking about a religious cult that turned into a criminal network. You are talking about a religious cult from the 1970s onwards, recruit eating from people from early ages, trained them, infiltrated various government sectors, and grabbed the power increasingly in judiciary, police, and the army. On july 15 last year, they tried to take over the country illegitimately. This is a criminal network. This criminal network has vast media outlets. It has massive infiltration into government agencies. It has a business empire. That is why turkeys handling of the aftermath of the coup attempt is complicated. From our side, it is hard to understand how to explain. But i really think that turkey should be given the benefit of the doubt. The traditional system will work, that people have reports ofthe International Court human rights. Importantly, that democracy is stronger because we are going after these rogue elements. It is not it was not an ordinary coup. Therefore, the response has not been limited in fashion. That is why you have such a growth in separation from the state and the efforts in the aftermath. So, i think once you understand that, even if you are not going to show solidarity or empathy, you need to give the benefit of the doubt that turkey will get it right. Turkey is getting it right. How do you think investors feel about turkey in a climate where people are being arrested and detained pretty easily . Especially with the sense of urgency . You need to understand that purges,arrests, all the are only limited to the militants of these terrorist was behind this coup that cost 250 peoples lives. They aimed at destroying democracy and rule of law. The turkish Economic Outlook is stronger on the back of this. Turkey is recovering. The 13th largest economy in the world. 18 million people. I dont think investors can afford to ignore turkey. Shortterm i can understand some question marks. As we go along, as the recovery reformsace, as our become more visible, as turkey gets it right, i believe people will understand and go beyond giving turkey the benefit of the doubt. Growth is recovery. Turkey is on the verge of another major reform push. We have this rebuild opportunity to get things right, to do right things. And i think this will ultimately help persuade investors. You have narrowed the gap between reality and perception. Turkeys reality is not as good as we would like it to be, but it is much better than the perception. Yousef coming up on the best of Bloomberg Markets middle east, the new york signal widens its footprint in the middle east. We hear from the Health Insurance president for International Markets about plans for the region. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. New york listed Health Insurance insurer cigna has widened its footprint in the middle east with the acquisition of zurichs regional business. We talked about the deal with cignas president. The middle east is one of our go to regions for us. What we are seeing in terms of the trends in the region mean we are very excited. This a critical milestone for us in terms of enabling us to further grow our presence across the middle east. Yousef how much did you pay . Do you have a valuation . Unfortunately, i cant disclose that. We went through due process, and this now gives us licenses here onthe uae and kuwait and him and we are very excited about what this enables us to do. Lets talk about the breakdown of where your revenue is coming from. If you take a look at the Financial Analysis function on the bloomberg, you can see 39 billion of revenue, most comes from the united states. Billion,onally, 3. 6 3. 7 billion. How much of that comes from the middle east . We have been serving customers through local relationships for the past 15 years. Particularly in the last few years, we have seen strong doubledigit growth. We have High Expectations in terms of the middle east becoming a bigger part of our international portfolio. Given the uae is one of your largest markets, how is the acquisition of Zurich Insurance middle east going to help boost your market share in the region . It is really important for us. This is going to enable us to offer a range of products and services with the cigna brand. What all the dynamics in terms of what is going on in the region in terms of the health space, we are really excited about this. Yousef lets dig deeper into saudi arabia. The more interesting market by virtue of size and scale. How are you going to tackle the saudi story . Again, the saudi market, the developments there but clearly very interesting. We got a local partnership there. We see a lot of opportunity for growth. The Health Agenda now is something that basically all of the governments has as a high priority. Accessing Affordable Health care top ofthe region is on everyones agenda. Yousef part of the value of the gulf was the gulf was one entity, seen as one entity. Much of the valuations would have traded along those lines. Along the lines of the gulf crisis, how does that weigh in your broader plans . How worried are you youre going have to separate in your plans you are trying to expand any in a region that is splitting up. A key part of our strategy is what we call go local. Our ability to offer local solutions that meet the needs of individuals in the local markets. It is critical, and critical to that is leveraging the local talents. The middle east is a range of different markets. But we believe with our long history here we are positioned wellpositioned to meet the needs. The markets though in the gulf are very fragmented. Just in the uae, you have more than 60 players in the markets. Howd you differentiate yourself in order to compete there . Cigna is not just another Health Insurance company. Our mission is to improve their health, and sense of security. Health, wellbeing, and sense of security. We spend as much time and resources keeping people healthy, keeping them away from having to visit the doctor. But at the same time, we give them peace of mind that should they fall ill, they can have access to Quality Health care anywhere around the region or around the world. We have a network of some Million Health care professionals that can help our customers. Of course asia has been a big , priority for cigna. We are seeing changing demographics is helping boost your business. What are the prospects for your business here in the region, especially china, which is the biggest market . We have had a presence in china for close to 15 years. We have a joint venture with china merchants bank. That is a very important part of our portfolio. Again, the fundamentals there, the growing middle class, we are diseasesse of chronic all mean that we are wellpositioned to take full advantage of that market opportunity. Yousef we have talked about the middle east. We have done a little bit of asia. Globalyou look at the map outside the u. S. Borders, what are the other highlights that is going to drive a lot of cignas attention and revenue . Particularly it is the fundamentals, the aging populations, the rise of chronic diseases. Diabetes particularly. India has the highest proportion of individuals with diabetes. That means a company like sigma like cigna with its focused on health and wellness is well positioned to take advantage of those opportunities. You mention those opportunities come with partners. Are you looking for new partnerships right now . We already have a comprehensive footprint outside the u. S. Weve got some wellestablished partnerships. Obviously on the back of this acquisition, we are very excited about the opportunity that lays in front of us here in the middle east. We are wellpositioned to take full advantage of that. Yousef you have a muscled up in this part of the region. Is that going to be the model Going Forward. Organic growth of side, we are going to buy up more. And i up where . We had a meeting yesterday. We shared with investors, coming from a position of capital strength. We have 7 billion to 14 billion of capital. The International Markets outside of the u. S. Is one of those areas we are targeting for investment. Yousef africa, very briefly. How does that figure in . Weve got a partnership in africa with a local insurer which gives us the ability to offer our products and services across the africa region. Again, another market we are excited about. Is up and coming up next on best of Bloomberg Markets middle east, plans to invest in egypt. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Big data is changing the way businesses compete and operate with investors piling into the evolving technology. Client era has been looking to fend off competition by focusing more on artificial intelligence, Machine Learning and advanced analytics. We spoke to the cofounder and chief technology officer. It is an advantage we are not affiliated with any of these big ones like amazon or alibaba or google. It is an advantage for us. These advanced techniques, they will be solving problems very fundamental to insurance companies, banks, agriculture companies, manufacturing companies, and even governments. In many ways, these organizations dont want to be dependent on just one big vendor like amazon who might jump into their business at any point in time. Our platform is portable across all of these environments. The same logic, the same Machine Learning items you implement in one environment will run in the other environments. That is number one, it is portable. And number two, our platform is open, it is open source. You can get to see the internals of this evidence, your own intellectual property, which makes sure amazon just cant jump into your business. Playing devils advocate though, what a lot of analysts are saying is that hyper skill vendors can bundle Data Processing into their Cloud Platforms at a much lower cost. Does that mean that you will need to rethink your Market Pricing . No. I dont expect us to rethink our Market Pricing at all. We are priced competitively. Compared to these vendors. But more importantly, our platform is richer than what they have. For example amazon has 1000 , Different Services they provide. We provide just one service, how to have the best platform for Machine Learning and ai. Big Companies Like mastercard or british telecom, that depend on us, they realize the value that we have that provides the enterprise features like security, governance and so one for Machine Learning that amazon doesnt have. Be the what are going to key business drivers for revenue Going Forward . I think the reason why you have these analysts making such ratings, the enormous size of the opportunity in front of us. If you look at the reports and they expect this market will be more than 200 billion u. S. Dollars. The reason why the expectation is for this market to grow so big, two key trends. The first one is the internet of things trends, which is leading to everything around us being instrumented. Lights in the street, even trees and agricultural fields will be instrumented. That is leading to massive amounts of data. Second, we are on the cusp of a major evolution, which is the ai revolution. Which is how we are going to use data to replicate the decisions humans make. Replicate how lawyers review legal documents, replicate how doctors assess and diagnose diseases. That allow us to have the skill better than we have today. Yousef earlier she was bullish on egypt. She says this is a turning you point. Have been an investor in egypt with the startups there. How do you treat the egyptian recovery story at the moment . This is my personal attachment, so they investments are coming from me and not cla oudera. I have been in the u. S. For 20 years. I go back to egypt every year because my parents are there. Startup system in egypt is showing early signs of what i have seen in the Silicon Valley in the u. S. Lots of very passionate, very very talented young and more experienced individuals trying to solve real problems in new and innovative ways. I am very bullish about the markets. They are not just solving local problems for the country. Some of them, one of my investments in the region is solving problems worldwide and selling way outside of egypt. Yousef that is it for this best of Bloomberg Markets middle east. We have a busy week ahead. We will be for the start of the gulf trading week. Join me then. This is bloomberg. Coming up on bloomberg best, the stories that shaped the week in business around the world. And email trail raises questions for the white house. Janet yellen takes questions on capitol hill. Big banks with earnings reports. It is almost an embarrassment listening to the stupid we have to deal with in this country. Central Bank Officials share exclusive insights into monetary policy. At that low level you would have seen more inflation pressures. We are not. We will implement the