Transcripts For BLOOMBERG Bloomberg Markets Middle East 20170109

Questions about the undue influence scandal. Yousef it is 8 00 a. M. Across the emirates. I am yousef gamal eldin. I am shery and in hong kong. Welcome to Bloomberg Markets middle east. A lot to watch out for, including oil snapping a threeday rally, but also movement in the metals space. Is growing concern about valuations when it comes to u. S. Equities and other markets around the world. Let me show you what is wait to the we at confirmation hearings. That blue run like there is used in catalytic converters to curb emissions. Up 60 , the stronger dollar putting downward pressure on the metals and commodities complex, but the story of palladium is a story of stabilizing u. S. Auto sales of the growing cars in china. What did you looking at . Shery pretty interesting to see those moves and metals. In thet see a correction equities rally, so where will the money go. Lets get a quick check of the a mixed play, a bit of picture across asia, lacking clear direction with the hang seng unchanged right now after three consecutive gains, and staying at the highest level in a month. Shanghai composite up. 6 , a lot of focus is on where the chinese currency goes as it extends its losses and the pboc lowers their fixing by the most in six months. , on ax 200 gaining. 9 tear, gaining every single day this year. Japan on holiday, coming of age day in japan, but the japanese yen right now losing. 3 against the dollar. Yousef in this part of the world, two hours away from the opening of the emirates market. This is what happened in the last trading day. You saw broadly positive picture, dubai up, insurance stocks in focus and a theme throughout the program, down side against petro chem. Egypt,record highs in Foreign Investors taking a breather. Theh what is happening on turkish lira, still close to record lows as the government struggles with Economic Reforms and politically as well. Check in now with first word headlines from around the world. An agreement as early to sell 80 of operations in china for mcdonalds. Citigroup will take a 52 , and oflyle 28 , 20 years franchise rights, valuing the business at 2 billion. Will retain a 20 stake. To a new record after posting its best operating profit in three years, writing buoyant demand for semiconductors from china. Two Senior Executives due to be questioned over the influence peddling scandal over president park. The Prosecutors Office says charges may change. Theresa may told sky news that getting the right relationship, not keeping bits of membership. She said she will gamble in return for greater sovereignty. President elect donald trump facing pushback against his America First policy, putting in mexicon carmakers and bringing them back home. She will not says change plans because the tycoons sends critical tweets. It has shifted compact suv production to mexico from ontario. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Thanks, Senior Republicans have warned president elect donald trump that he must make moscow pay for the hacking of the 2016 u. S. President ial campaign or face a risk with members of his own party. ,oining us more from washington what are these tensions in the republican camp, talk us through them. Yes, we have republican seniorrs, today, two seen it senators, Lindsey Graham and john mccain. Lindsey graham said they will propose stronger sanctions against russia for its hacking into the 2016 president ial campaign. They want to get russia and the financial and energy sectors, hit them where they are weak. They want to see a strong response from incoming president donald trump. From trumpwe heard on twitter again saying that warmer relations with russia will be a good thing, and that he thinks under his administration that there will be more positive relations with president vladimir putin, but we are hearing from republican lawmakers that they are giving trump the benefit of the doubt that he will respond to the russian hacking to deter other people and other countries fro m doing similarly. Senator graham said categorically that if policy towards russia does not change, president elect trump, that could cause a rift between his administration and congress, so they are counting on him to taking the strong response they think is necessary against russia for the hacking into the 2016 president ial election, but we continue to hear from donald trump and his public skepticism for the intelligence that is backing this claim that russia hacked into the u. S. President ial election, so there could be some tensions if republican lawmakers, senior republican lawmakers on capitol hill dont see the Incoming Administration taking the response they think is necessary to send a message to russia. This does not bode well for donald trump either. He has his cabinet picks on the line in congress this week. Is he going to face challenges there . Yes, and russia will come up in these hearings, monday through friday. One big one will be wednesday with former exxon ceo rex tillerson, facing the Senate Foreign relations committee, and the same Senior Republicans and others have said they will press him on about his many years of friendly business dealings with putin, the personal relationship, and whether he will be able to separate that from his role as secretary of state. We heard from senator Lindsey Graham and senator john mccain, both Senior Republicans, saying they still have concerns, even though they have met with want his, but say they confirmation, that he will tell them that he agrees that putin has been undermining democracy in their minds and see him as a Disruptive Force to u. S. Interests around the world. Thank you very much. Warned itslia has miners that the party for commodities will come to an end of this year. Joining us for more is our metals and mining reporter, david stringer. Earnings from commodity exports hit a record this year, but what is the forecast when it comes to prices . Thats absolutely right. Australia sees a huge rally last year and Commodity Prices is likely to push its earnings from energy and resources exports to a record 204 billion or strain dollars by the end of june. That will be a peak. Price ands of key materials are expect to soften from here on in. Whether it is chinas Residential Construction sector in theting, a limit demand first deal and still making ingredients, and also some of the supply disruptions we saw last year, it sees those is likely to prove to be temporary and expects some of those markets to recover on the so even as volumes from australia are increasing, it sees the value of its exports is likely to decline in retreat to 202 billion or strain dollars. Yousef i have been looking at the calls when it comes to iron ore prices in 2017, and wow, what a disparity. Some see downside pressure, other see a continuation of the rally to what is the outlook from australia . That is quite right. The market was confounded last year. Forecasters and producers got the price is wrong. Australia is a key voice, the largest exporter of iron ore, and it needs prices to remain flat, and certainly average lower than the prices seeing currently, then sees prices to decline in 2018, and the reason for that is that it sees more lowcost suppliers getting into , and also, brazil from australia. It also expects demand to remain subdued. Australia expects lower prices, but there is a wide range of views and no one seemed to get it right last year. Yousef david stringer joining , so letsom melbourne get the latest from the markets and see what is happening there. A lackluster start to the trading week. Im looking at the msci index without japan, some weakness from commodities players, but oil and gas trading off what we saw during fridays session with the crude price, despite we have seen crude in the Asian Session come off that 54 mark. Health care getting a good buy, defensive stocks look good, and upside to financials. Of individual markets, australia is the front runner, and absolute run the asx has been on, up. 9 in late trade in a may 20 15 hi, and the asx 200 has been higher every day so far in 2017. Good gains in shanghai, up by 6 10 of 1 . We had that fix come through, but nothing really to rattle investor sentiment. Some flat movement on the overall hang seng index. Looking at south these asian markets, mostly in the red, some ,pside from the Straits Times and that big movement and Samsung Electronics keeping the kospi above water. Petrochina in hong kong, woodside in australia, still doing well, trading on the back of that oil rally. Thanks. Lets get you a preview of what is to come on the program. The hunt for dividends is on, which stocks are driving dubais gains. Up next, we are live at the ubs Greater China conference. This is bloomberg. Welcome back to Bloomberg Markets middle east live on bloomberg tv and radio. I am yousef gamal eldin. I am shery and in hong kong. How willing is beijing to let its reserves dwindle to stabilize the emaar . . The yuan lets ask tom mackenzie. Take it away. I am joined by the former managing director of the imf zhu min and former governing Council Member of the pboc, talking about Foreign Exchange reserves dip to just over that 3 trillion mark for december. When you are looking at that and the timeframe china has as it muddles through in the way it is handling the yuan, whether intervention, capital controls, or burning through fx reserves, how much longer has china got . I and the former deputy managing director of the imf. My apologies. Thank you for giving me a big title. Yes, foreign reserves have downsized. Is a way to gradually reflects the market, the capital flow, and all those things. Ismaintain the stability it gradually containing expectations are well received. Two points are very important, the first issue is that 3 trillion is not a lien number. If the research drop, you may be facing a crisis situation, but if you compare, it is different. Chinas external debt is very low. I think that is very important. And also, the Interest Rates are still not increasing against all the things, so maintaining the domestic macro policy. Chinas reserve move is different from what we observed in the past 30 years. In that sense, we should not link the reserve movements to the crisis situation. There was what many people perceive to be some kind of market moves last week, particularly when we saw the interbank rates paid up offshore , many sayingnbi that pboc was involved in that. If that is the case and these further interventions we have seen, how much is that a step back for the liberalization of Capital Markets in china . On the medium and longterm horizons, the liberalizing of Exchange Rates are still to go. Basketst 2015, and the management of the basket system, that is a proper way to move. Thecurrent situation, dollar getting stronger and stronger, number one. Number two bank, when the dollar is getting stronger, the basket of currencies is getting lower, right . The market sometimes aterpretative it as depreciation, but these are two different things. The central bank tried to manage the floating rate and maintain the stability to a certain degree, so then you see what happened. Thatit seems to be policymakers are deemphasizing the focus on growth target. Int states can they take order to deem risk and move credit from this system whilst maintaining stability . The growth is a great thing. By the a,eason you may use more resources. China is facing structural change, and growth is always potentially on the downside. If youre looking to boost the growth, number one, continue rebalancing. Meanwhile, the real concern is on the financial structure, rebalancing happening. The Financial Sector is supposed to go through a deleveraging process, but what we observed that it is a leveraging process getting up and the debt increase. , moving awayes from the Banking Sector to the shadow sector, and particularly with the internet Banking Sector , transparency is not there. Everything isk, linked to each other, so the risk to the sector is accumulating. Insights. Nating we will be getting more insights from you. Do stick around. Some of the risks, particularly the Financial Sector and internet sector, shadow banking, more from him, particularly on donald trump after the break. This is bloomberg. Tom this is Bloomberg Markets live fromt coming to the ubs Greater China conference in shanghai. Is still with us. Is a bailout of chinas Financial System and inevitability . Technical and nontechnically , in todays situation, there are so many financial companies. They fail, they should let them go. Tom another key topic is trump. Of talked about the benefits trumps economics. Why are you so bullish . About trumpn i talk and his economics, his policy is a proper reaction. Trends. E some secular before the crisis, the services 78 , so to bring manufacturing back the United States has failed. The capacity used to be 90 30 years ago, dropping to 75. 5 . Investments are lower. Lost a significant percentage of investment. Itsu. S. Economy is losing dynamism. Labor mobility has dropped dramatically. 22 mobility,e today 12 . Total dropped from 24 today and manufacturing as well. Companies hire more 90 , so people tend to stay in those mature companies, so that is a big issue. Tom he will address some of those issues with fiscal stimulus, but a big risk is a trade war with china. The fiscal and Monetary Policy makes sense, but his trade war does not make any sense. The trade for will not solve the middle class income issue. Tom thank you very much, zhu min. Back to you. Inhaad it is 12 30 p. M. Singapore and beijing. Signing that agreement is so 80 of its operations in china and hong kong, mcdonalds. Andc group will take 52 , 20 . Le it ferries the business at just over 2 billion. Four Israeli Soldiers and a dozen wounded as a truck driver rammed his vehicle into a patrol insed jerusalem eastern jerusalem. Prime minister netanyahu said the driver supported the socalled Islamic State militant group, the Hamas Movement in gaza applauded the attack without taking responsibility. President elect Donald Trumps team says neither he nor any transition official were to meet the taiwanese leader as she passed through houston on route central america, however she met the Texas Governor greg abbott and senator ted cruz. China had called on washington to bar tsai. Latest installment in Disney Star Wars saga topping chinas madeffice, rogue one has 30 million in china since friday. Thanis about a third less last years the force awakens on its first weekend. Rogue one features prominent roles for two chinese characters , but faces tough competition from the romantic comedy some like it hot. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Dubai stocks led gains in the gulf as investors hunt for dividends. Joining us is our markets reporter. July,ngest rally since what is going on here . Well, we can clearly see that investors are very bullish in this year. S so far in every single day of trade, we have seen the index go up. Yesterday was a good day. Emaar properties driving those gains. That was clearly some good excitement with the name. The a lot of trade with insurance sector, and also some caps. You just mentioned the insurance sector. We have seen that rally, so what is behind it . We have seen a lot of speculation and rumor since last week about a potential merger. Also, future acquisitions or consolidation within the sector, and there has been a lot of trade done on top of that, mostly retail investors. Three of the biggest insurers in dubai were up close 15 before closing close to 5 yesterday. We had the reclassification of stocks and saudi arabia. That is notunctions only useful, but also beautiful, the breakdown of different industry groups. How does this give saudi arabia closer to where was to be with the msci classification . Sure, saudi arabia has been implementing different measures to get closer to International Standards for stock trade. This is a way for them to basically show more transparency and to be part of a bigger group of investors to become closer to the standards used by Asset Managers globally, and that makes it easier for whoever is buying or selling stocks, brokerages, institutional investors, to analyze stocks and compare them to different markets, so a step in the right direction. Yousef always great having you on the program. Lets widen out the conversation and put some more flesh on the bones as it were. The managing director and head of research, great to have you on Bloomberg Markets middle east as we look forward to the earnings season for saudi arabia , interesting moves, the saudi budget, moves from the tadawul. What you looking for . Banks, the provisions in the Fourth Quarter will be quite heavy. Be ing forward, we will this situation where earnings can grow yearoveryear versus earnings this year. It is important to realize that Higher Oil Prices are really important. If you look at the fiscal deficit last year and saudi, assuming drop to 7. 6 , oil prices are above 50 or 55, so it could undershoot this. Outlook from a macro point of view is looking better than a year ago when oil prices were 35 lower than the current prices. Liquidity condition has been a concern on the back of oil prices. This chart, what we have done is , that isnterbank rates the blue line right there, threemonth there, and you can see what happens from late october around the bond issuance and the steps the saudi government took. What is your analysis on what banks are facing at the moment and what earnings will be like this time around. Took awayc issuance 1. 3 of deposits, so a big drainage of liquidity. Since then, the spread has narrowed substantially. We expect that spread to narrow going forward, even though libor will move upwards. Issue,liquidity a key and given we are expecting a u. S. Rate hike this year, if they revise faster than expected, how will that impact the region, and how can the region counteract this with a better financing mix . The financing mix is crucial, some more International Bond issuance is paramount. It is better than other emerging markets, the public leverage is low, so that does not have spillover of facts on the fiscal side of things. Markets have lower foreign in ownership, c1 not see the big withdrawals affecting valuations. Valuations are not out of whack with the 10 year average despite the msci in collusions, and also we start to see fiscal headwinds substantially reduced. If you look at the measures , a 9 cut ofen gdp, only 3 is left, so the gcc should whether this better than other emerging markets. Relief will that provide for gdp growth going for this year . Will still be some headwinds. It is amazing, real gdp growth has been holding up well. The private sector growth and saudi was close to zero last year, the real gdp number may still be negative this year, mainly because of the Lower Oil Production affecting this, but nominal gdp growth could be up to high Single Digits because of higher oil, so things are looking better from Higher Oil Prices on average for 2017. Yousef outside of the bank sector, there is the insurance story. We looked at some of the movements in the stocks. They have been all over the place. What is happening with them . It is the mergers and acquisitions, the speculations, isnt it . Another reason for this is the pricing. There has been a price war in the past eroding capital positions, similar to saudi, so youare influencing, dont need to consolidation. In our model portfolios, they have been playing the saudi insurance sector quite aggressively, selectively of course, but aggressively as well, one of the biggest contributors to our portfolio. The sector is one to watch because of an improvement in technical results rather than the mergers and acquisitions stories. Yousef what about oil prices. The recovering oil prices is helping the evaluations and helping the government with its budgetary position. What are you expecting from crude oil in terms of compliance and prices . Our scenario is that it will overightly under 60, not because shale oil will be increasing, as we are already seeing. Push is no willingness to prices over 60, but slightly under or hitting the 60 levels. That means reducing the fiscal headwinds. Oman, only 6 needs to be cut, and bahrain 5 . There doesnt have to be a lot of reforms left. For saudihere is room , thecrease in the budget budget is moving up substantially. Improvingpenditure is the structure of the economy again. Yousef we will see how it all plays out. Come on the program, indias government has less than itsnth to finish preparing 2017 budget, but it may need to fly blind. We will be live in mumbai for the story next. Stay tuned for that. This is bloomberg. Shery welcome back. I am shery ahn in hong kong. I am yousef gamal eldin. Kuwaits finance ministry is considering proposals from three local banks and could hire four more. Lets get the latest with Tracy Alloway from abu dhabi. We have been expecting kuwait to issue this bond for some time now. What has been the holdup . Good morning. That is right. It has been delayed. There has been some Political Drama in kuwait, including the dissolving of parliament in october. That said, the government can still use executive power to issue debt. The Thing Holding up that debt successmost likely the of other debt sales, in particular saudi arabia issuing that 17. 5 billion mega bond in a tober. In october. It seems like a weight was coordinating with saudi in order to avoid over supplying the market with new golf debt. Success, quite a bumper year in bond issuance, but what is the outlook for 2017 then . Thats right. Ulfhad a record year for g debt last year with new players, oman selling 4 billion last year, and abu dhabi as well. The question is whether that continues in the 2017. We have seen some indications, oman considering selling more International Bonds. Saudi arabia saying it will tap the local debt market, and is considering going to International Investors again. The big wild card is what happens with u. S. Interest rates , the federal reserve, the dollar, whether tightening of financial conditions starts to knock appetite for emergingmarket debt. That said, even though emergingmarket assets have not been the favored securities as gulfter 2017, that said, debt could be the best of a bad bunch. We have seen the pickup and oil prices. That should feed into sentiment. F bond look at gul spreads, they continue to compress, which means demand is still out there. Shery thank you so much. Tracy alloway reporting from abu dhabi. Lets head over to india, the country now expects growth to slow to a threeyear low in the 12 months through march, expanding at 7. 1 , down from 7. 7 may be the crackdown on notes. Nomination rupee do we know the impact of the cash ban on the economy . Know, we dont. That is the problem. The latest data for the full , against year, 7. 1 7. 7 earlier. Lower than the last financial year. This does not however capture the impact of the demonetization drive announced in december. To put this into context, Prime Minister modi announced the withdrawal of 500 and 1000 rupee notes, 86 of cash in circulation out of the system. The stated objective was to squeeze out fake currency, counterfeit notes, out of the the system to make more accountable and pull out black money. We do not know what the impact will be, but has resulted whether measures have been successful or not. Ande have been job losses has impacted the economy, not to , soion the inconvenience long story short, the impact of the move has yet to be seen. Been looking at the latest notes from goldman sachs. They are seeing a recovery for some of the nontraditional bri cs plays. Chart. Put this up on a you can follow right here. Your topline figure is your line , and the blueiyal line is the ruble. In purple,r rupee and the chinese yuan in white. How does all of this affect indias budget announcement in february . Announcement has multiple challenges. For the first time ever, the government will be announcing the budget on the first of february, going against tradition of the last day of february. The second aspect as i mentioned, the numbers are still uncertain. Whatill do not know numbers the government will be working with, whether the demonetization drive has achieved its objective, whether this will yield higher tax revenues, it is unknown. There have been reports that the government is perhaps towing with the idea of a system as a mitigating measure after demonetization. These are early days. Second, whether the government will be moving away from the and known fiscal prudence sticking to the budget deficits, that will define the trajectory of the larger economic, Macro Economic come indicators, and particularly the trajectory of the rupee. Yousef thank you. All right, still to come on the program, the legacy of rafsanjani and the impact his passing will have on the nations political direction in the trump era. We will get to that story next. This is bloomberg. Shery welcome back. Im sure he and in hong kong. Hasef Hashemi Rafsanjani died at 82. He was involved in the founding of the Islamic Republic. He wanted to free the economy from state control. Me on the line is the president of the national iranianamerican council. Give us a sense of the implications of the passing of mr. Rafsanjani. Has been a towering figure in the iranian system, one of the original people around ah khomeini. Me a this time, he has had a moderating influence, and particularly in the latter years, he cited with the reform agenda and was a big backer of the current president. Again, you said he was a moderating influence. To what extent did he play an active political role in the last few years in in posing that againof moderation, and with his passing, what does that tell us about the road ahead for the iranian political scene . In 2013, he once again stood was rejected but by the guardian council, which was a bizarre development. What ended up happening is that he became a critical player in unifying the reformists and the moderates to back rouhani. It was his influence behind the scene and his urging to come out and vote. Because of those efforts, he managed to help ensure rouhani was elected. With him gone, you have a scenario in which one of the most important figures who could advance a more moderate agenda without paying the price, who could challenge the rules the conservatives have established without paying a price, is gone. There is clear if anyone else who has the capacity to be able to constantly tested the limits of what the Islamic Republic would allow. He was also dubbed commander of reconstruction after an eightyear war. Will that be what he is most remembered for . What is his legacy here . He will have a mixed legacy, because he was involved in a lot of negative things. I think the thing that people tend to remember the most right now is that in 2000 nine when people went and voted for the Reformist Movement and you have this repressive rejection of the voters and the repression on the streets, he came out in support of the reformists and of the Green Movement and objected to the repression. That is the key thing people will remember because it was one buthe acts later in life, probably one of the most courageous ones in which he stood up against the repressive elements of the system. Have the upcoming iranian elections in may. What are we expecting from the political scene there . There is a likelihood that this may give the moderates a bump for this election, but looking down the horizon, it will be tough to continue to push the envelope and challenge the restrictions in the system without having Something Like Hashemi Rafsanjani in the background that can give them alibi and protection. Shery right, and you have also written a book on obama and the diplomatic efforts during his presidency. What will be the highlight of the Trump Administration this year, briefly please. It is unclear, and i dont know if we can call it highlights, but it will be interesting to see how trump deals with the Iranian Nuclear deal. If he picks a fight and challenges that deal, hes picking a fight with china, russia, europe, and most of the International Community that supported it. It would be a foolish move. I suspect he will not do that. Sorry. Shery right, we have to leave it there. Thank you for joining us. The president of the national iranianamerican council and the author of the forthcoming book, losing an enemy. Yousef thats all we have. Stay tuned. This is bloomberg. Shery it is 1 00 p. M. In hong kong and i have an update on the top stories. President elect donald trump is facing pushback against his America First policies, where he wants data industry to stop making once the Auto Industry to stop making cars in mexico and bring the jobs back home. Wont change the industry simply because a tycoon sends a tweet. Chinas demand for semiconductors brought its best operating profit in three years. Two Senior Executives were due to be questioned today over the influence peddling scandal surrounding the president. They are not accused of any wrongdoing