tv Bloomberg Markets Middle East Bloomberg June 20, 2016 12:00am-1:01am EDT
it is all about the currencies. the rupee has weekend on the imminent up archer of the r.b.i. governor -- departure of the r.b.i. governor. the pound is rising as brexit chances fade. >> exports decline for an eighth consecutive month. the stronger yen has seen a slump. dhabi stocks climbed for the most in 18 months as two of the biggest banks confirmed
merger talks to create the middle east's largest lender. russia may sail some of its corporate crown jewel. president putin seeks to plug a spending blackhole. manus: it is 8:00 a.m. across the emirates, 5:00 a.m. in london. i am manus cranny in dubai. >> welcome to "bloomberg markets: middle east." there is no doubt about it, affects is front and center, whether it's the yen prism, the rupee, all of which we will cross throughout the show. we want to show you the pound. the odds of brexit have gone from 40% in the middle of last week to 30%. this, of course, the first set of polls we have had coming out over the past several days. the campaign is back. the politicians are back.
the pound is having a sense of reprieve. it's up 1.78% on dollar-sterling, the first rally since the start of the month. jpmorgan volatility, back at 2011 lows. fx traders and analysts, everyone is grasping for some kind of historical context. a lot of people are referring back to 21 years ago in 1992. rates went from 10% to 12% to 15%. that is when sterling got bounced out of the erm, although if you look at the volatility trades, they are not reflecting anything like a lehman-esque moment. rish: volatility is the watchword. our guest sees it going in that direction if we get a brexit
coming out on friday morning when we get those results. that is what we're looking at the moment as the yen is being seen as a haven. getting to what is happening in the equity session in the asia-pacific, so far, so good. here is david. with: let me get started india. that is the big market story. i think the initial reaction to the bank of india governor not continuing on was more of a knee-jerk one. markets opened up 0.5% underwater. you can see it with the nifty. it has clawed back most if not all of that. the banks are still down about 0.33%. telcos, 9/10 of 1%. across telcos and consumer statement -- staples, not one is higher. don't be surprised if the overall benchmark does mirror what we are seeing across the region. dollar-rupee opened much weaker.
as you can see, we have managed to claw back a lot of those earlier losses. 1%.re down about 6/10 of the dollar is gaining against the rupee, 6/10 of 1%. 67.46, basically flat. equity markets, looking like this across the region. between a difference the nifty and the 10 sex. taiex. rish: david inglis for us. manus? manus: thank you very much. shares in other dobby's top banks shored -- abu dhabi's top banks soared. it would create the largest lender by assets middle east. executive editor for bloomberg
markets tracy alloway is in abu dhabi. a timely position for you to be on the ground. talk me through the market reaction to this deal. it really did rock our local markets higher. nbad and first gulf both reacted positively. tracy: that is exactly right, and you thought it was going to be a quite ramadan in gulf markets. that is not what we saw yesterday. we saw some fireworks in abu dhabi. we saw shares of nbad raising 15%. you can't get any better than that. 11%.w shares of sgb up the abu dhabi market had its best one-day game since december 2014. people are starting to get enthusiastic about the idea that this potential merger between two banks could be the first in a wave of consolidation in the
uae. this is an industry notoriously fragmented. we have something like 50 banks for a country of 9 million and population. there is a lot of potential for consolidation. the reason it hasn't happened before is because these financial institutions tend to be government-owned. owned byinstance, is 65% of the abu dhabi investment counsel. council. rish: you started off talking in your reply to manus' question, nobody thought it was going to be this noisy when it comes to ramadan. everything is normally very quiet. is there anything significant when it comes to the timing? why now? tracy: that is a question. we have seen a lot of arguments about synergy between these
banks, the idea of expanding the syndicated loan business. you could argue blame make a lot of those arguments two or three years ago. the thing that has changed now, i would say, and some analysts would hopefully agree with me, would be the lower oil prices. those have put pressure not only on the region's government but also the banking system. the lower the prices weigh on government and state-owned companies, and they end up retracting some deposits from the banking system. what we could be seeing now is a change in government attitudes or attitudes amongst of the regions power holders towards consolidation in the banking industry given those pressures and the pressures of lower oil prices.
rish: you touched on it just now and in your first answer. can we expect this further consolidation, and at the end of the day, why is there this impetus and urge to merge? tracy: urge to merge, that's right. this is the $1 million question. will there be further consolidation? the historical precedent everyone is reaching for is the creation of emirates nbd in 2007, almost a decade ago. that was the uae's last regional bank merger, and back then, we had a similar wave of enthusiasm . lots of people thought there would be more mergers. that didn't end up happening because we had the financial crisis that hit dubai very hard in 2008, but we also had this age-old reluctance on the part of government shareholders to cede control in big financial institutions. this is the thing we have to watch out for.
does this merger happen? are attitudes changing? reaction, that market it seems expectations are very high. rish: thanks a lot for that, tracy alloway in abu dhabi for us. discussoining us to this potential merger, we've got the managing director and head of equity research at our can capital. you are with me last week. we were talking about a variety of issues. what we've got is your fa function, the financial analytics function. we've got the market cap in yellow and the book equity value. , and this isad the rub and the issue. this is where value is created. chart, youok at the can see the price has fallen off a cliff over the last few years. it used to trade at a massive premium.
it's actually lost the premium. you canck even further, see the price in 2009 and 2010. it's an historical low. manus: going back, this is a fg be. who is indone is on takin the driver's seat? it's going to be first gulf? >> ftb has overtaken the market capitalization. it's more or less in line with the size of the bank. it's not overtaken it. it's about 30% higher than that of nbad even though it's the bigger bank. manus: alex came in in the first week, and he struck me as a man on the mission to build a bank.
i'm wondering where the tussle for power will come within first gulf and nbad. >> there might be a tesla power, but we think sgb is in the what is inat given place. the merits are very strong. if they do it at the current market price, i think it will ac rete for the shareholders. fgb has to pay a premium. manus: how much more premium is there in the price? the top line of your note said there was a 24% upside. what is left? >> a lot is left. we expect a shortfall for 115. --eryone .15 shares of [indiscernible] tell me this. every single bank deal that has ever been done has never been
done without synergies and job losses and repercussions. this one is not going to scapegoat those terms. there have to be synergies, and that will come in terms of front office, back office? >> the biggest synergies are the funding costs for fgb. nbad's funding costs are about one third lower. we do expect some synergies at the tune of about 8%. manus: the other dynamic is this lifts of the lid. we haven't had a deal like this since back in 2007. we're almost shifting the paradigm. 9 million people, 50 banks. will this open a box of other deals to come? >> we think so. an easy target could be union national bank, which has been eroding its market share. they are not competitive.
they also haven't paid out dividends. the stock is been undervalued at the 0.6 times price of the book. that's an interesting target for the bank like abcb. manus:manus: you say this is positive for the emerging market index. why is that, and very quickly, can this market ticker rights issue to fund this deal? >> we think the combination will be bigger than the current weight. part of that is a reflection of the low valuation. there will be about 18 basis points. we don't think it will be a cash deal. we disagree with that. we think it will only be a swap deal. if fgb wants to sweeten the deal, they can pay 25% in cash. if they do a cash offer, it has to be a rights issue. given all the liquidity
concerns, what do you think? >> it's going to be too complicated to do it like this. we would prefer a swap option. manus: thank you very much. that is punching it to the point in terms of the potential for the nbad deal with fgb. rish: coming up later, attracting investment. we're looking at what iran is doing to sell its steel. we'll find out why japan's former vice finance minister says the bank of japan may act to support the yen. ♪
we've got japan's former vice saying minister intervention as possible of the currency breaks 100 against the dollar. >> it's not necessarily the target, but that is my prediction. it's now about 100 for today -- 104 today. gradual appreciation of the currency is taking place. by the end of the year, it is wouldlikely that the yen break 100. kuroda took over in march of 2013, i think the yen-dollar rate was 1.93. it is heading towards that kind of trade at the moment. there iny quickly, is your view a kind of line in the sand? 100, it breaks
intervention is possible, but in order to intervene, you have to get an agreement from the united states. i don't think the u.s. would agree with japan to intervene in the markets. if it breaks 100 and heads towards 90, it is possible. rish: it's the former japanese vice finance minister talking to me earlier. let's go to sydney. you heard what he was talking about. 100, is this going to be the crucial level if we actually get there? >> i guess i'm not seeing the intervention risk as so much about levels as much as event risk. i don't think it's a case of the dollar-yen grinding towards 100 and then japan requesting intervention. i think it is far more imminent.
it's about, what do we see on friday? we will see the results of the u.k. vote on eu membership, and if there is a vote for exit, i think there is a good chance japan intervenes regardless of the level going into that outcome. i think the volatility will be such that they feel it's justifiable in terms of calming markets down and proving liquidity, making it more two-way, which would be similar to what we saw when we had the earthquake. that's the last on the intervened in terms of reacting to market turmoil. manus: good morning. in terms of perhaps the most vicious volatility we have seen, it's actually been of the sterling-yen relative to the dollar-yen. i know the dollar-yen is the indicator. if the intervention comes, do you think they will wait for a see where the to
volatility takes us in the event of a brexit, and if there is a , what about the stock volatility? >> they may want to give it a little bit of time. the results are going to take some time to come in. i don't think they will rush into it. it would be more of a case of seeing how the markets respond. does the dollar-and slide towards 100? it could cascade upon itself. they could see how it trades into the weekend, again standing by for monday if they need to, and if it is that close or in the case of a brexit win, i think the volatility would persist for some time.
rish: aside from the event risk is theking longer-term, path of least resistance for the dollar the downside? until we get some clarity happening monetary policy-wise? >> it's pretty amazing we've got the semiannual testimony to congress from fed chair yellen, and everyone is looking straight past it. it's been brought forward to july because of the u.s. president shall election. is close to the fmoc meeting. that takes a little bit of the heat out of it. i think there are risks that the u.s. dollar is under pressure. there is probably not going to be great relief for japanese policymakers in terms of dollar-yet given that the next is hike does look as if it some way off. the risks are for yet another delay if the u.s. economy
manus: welcome back. you are watching "bloomberg markets: middle east." odds checker in the u.k. has gone from 40% for a briggs it to 30%. what does it mean for foreign exchange markets? let's welcome sean callow, the senior fx strategist at westpac. what i've got for our viewers is cable in terms of the the turnaround. in other words, the odds checker has gone from 40% to 30%. sterling is having a small
reprieve. my question is, isn't the event of brexit -- i was looking at where the biggest beater is in your part of the world -- what you think in terms of the ring around the korean won and the rupee in the event we vote to leave the eu? good question, manus. i guess it's the equity-sensitive currencies in particular. the korean won comes to mind as one that has a history of trading very poorly when global risk aversion increases. the ringgit, to an extent, as well. equity-sensitive currencies bu't other issues. less so, the philippines, thailand. i think they are reasonably well insulated. i think korea and malaysia are
the ones you might look at most. keep an eye on indonesia. rish: you did touch on the indian rupee. with the governor not seeking another term at the reserve bank of india, lots of politics running this, did he jump, or was he pushed -- we need to clear up, who is going to take over when his term officially ends, and that is going to be important to bring more stability to what has been going on with the rupee today. >> absolutely. you have seen the negative reaction in the stock market, and i think there could be more to come. there is a bit of caution obviously in the markets as we wait to see -- is there any talk about who the replacement will be? there are very qualified candidates who can take over. there is no doubt investors have been positive on the modi and r
ajan combination. you have seen strong inflows into india's equity and debt markets. be uneasy andll taking a little bit of the gloss off the rupee. while there could be another strong candidate, it's hard to see anyone who is as popular in financial markets as rajan. manus: yellen is going to be speaking this week. she referred to the new normal. where are we in the great dollar cycle? how many rates have you got for the rest of the year? where are we in the dollar cycle? you've got 20 seconds. >> we've got one of this year. it is in september at the moment. you could make the case for december, as well. further tightening next year. we are looking for rates to increase in the states once every six months over the next couple years. ultimately, some support for the u.s. dollar. manus: you can come back. you answer questions in short,
brexit at 30%. the, slightly weaker. manus: the rupee has fallen the most since january after the r.b.i. governor confirmed his decision to step down in december. the currency is asia's second-worst performer this year after the yuan. economist imf chief strengthen the rupee and cut its swings by more than half. rish: shares in the national bank of abu dhabi and first gulf soared after they confirmed talks on a potential merger. senior executives are reviewing the structural and legal aspects of the merger. it would be the biggest in the middle east. the adx index, surging the most in 18 months. 12:30 in hong kong and in singapore. i'm a shot salon it.
manus: i am manus cranny. >> good morning. let's talk about what is coming trading day.ropean the campaigning is back on in the eu referendum. slightly more muted tones. , soiament has been recalled mps can make tribute to the late mp joe cox who was murdered last thursday. . ameron accused the leave side of deceiving voters. he invoked winston churchill, saying churchill didn't quit on europe. lead campaign is for the leave side spent his time distancing himself from nigel farage, the sometimes controversial u.k. independence party figure. nigel farage unveiled a campaign
last week which was seen by some as controversial. does not putll remain ahead, and that is crucial in terms of the market perception, 3%. the odds have adjusted accordingly. manus: this is where one begins to look at some of the volatility. odds checker, it's live. we are back at 30%. this is a self of filling his prophecy. there was so much reaction in terms of the brexit pulling. that fed the odds checker, and here we are back at 30%. i wonder, that level of volatility in pulling -- pol ling, is it reliable? >> the pollsters will be learning a lot from this experience and have a lot of questions to answer if the polls
turn out to be not reliable. they argue they are not try to predict the result. they are telling what people would vote on that day when they were asked. that conversation will no doubt continue. down, 31% or come so according to odds checker. hithis redline, marking the suspension of campaigning. that surge in the pound and the move away from elevated levers on the odds checker probability, that was starting to happen before we saw the tragic events of last thursday. this puts in context the move we saw in the pound. elsewhere, you can see the effects of the changing polls with a slightly better performance by remain. you can see that were large over various asset classes. the pound is higher, as we have said.
away from the foreign exchange markets, also getting a boost, touching one-week highs. nna, thank you very much. it is something you and i may pick up on during our show on "countdown." there's an article, nobel prize winners writing in "the guardian," 10 of them lobbying on the side of the remain. we can talk about that. the u.s.,nomists from france, greece, and britain. the leave campaign will have something different to say about that. see you shortly in 25 minutes. let's discuss all of the global issues. great to have you with me, fall be a -- fabio. what i've got for you with this pound and odds checker chart,
the pound has been one of the most volatile x -- aspects of the campaign. as someone who comes from oman, how much risk to think sovereign wealth funds will look at the u.k. with even if we remain? >> what i would say is this. the brexit would inject a dose of uncertainty in the investment outlook in the u.k. before the dust settles, the funds and inlth general other large asset managers would see what is going to happen. you have a negotiation that will continue for years. you have a status that needs to be redefined between the u.k. and the eu. be a wait and see attitude for the foreseeable future. that is reasonable.
rish: investors love to fret about these things, of course, too. even if britain does remain, they set up a precedent, don't they? that is that other european electorates are going to be looking at it closely. maybe we need a voice to see if and howin the bloc, does that enter the thinking? >> i have somehow an odd opinion on this matter. what i think -- i'm convinced, pro-european, pro-europe -- what i think is that the european union needs to go forward on the path for closer political union. the u.k. has been dragging its feet on this issue, and it has created an atmosphere that is not conducive to a closer union. in my view, a brexit would not
be a political disaster. it would set things in a frame of clarity. if this convinces other countries to leave the eu, countries that don't want to go closer political union, so be it. rish: what you are suggesting is it could be a good thing for the eu. many of the criticisms we had when we had the grexit debate was, you can have a single european currency without having fiscal and monetary union, and that necessarily means greater political union, does it not? >> it is certainly true, and in fact, and monetary union without a central fiscal authority is an oddity. it was set up this way because the treaty was supposed to take
care of the fiscal framework. that framework has largely failed because there are no enforcement mechanisms that are credible. therefore, one needs to have an eu finance minister that has authority over the budgets of and setsidual states the tone for the fiscal policy throughout the eu and more so throughout the monetary union. peace we've got a daily that comes out called "daybreak," and this is the front today. resumes."ide part of the influx of capital during this time of volatility in markets is money has been going into government bonds, record lows in bond yields. i want to get your perspective on the u.k. haven. , 27%gn ownership of gilts
of the british market is owned by overseas investors. that is going to come under pressure. phuket government owns 10 times the amount they owned in 1995. you have a direct link and insight into sovereign wealth funds. what happens in the event of a potential brexit? gilt hold the same value in terms of haven for you as it did historically? securitiesnvest in that have a 10-year maturity, you want to know what is going to happen over 10 years. clearly, the weakening of general economic conditions in the u.k. as a result of the brexit would not be an encouraging factor for any investor in yields or any other pound-denominated
security. there would be a big question on anything that has to do with the u.k. economy. the framework will be negotiated. manus: the imf says there is the risk of inflation in the u.k. would you agree with that? >> i deftly would agree. i cannot place a number on the probability, but definitely the risk is consistent and cannot be ignored. manus: thank you so much, fabio. chief economist at the oman investment fund. rish: let's have a look at some of the other stories making headlines around the world. here is haidi. haidi: apple is facing a legal hurdle in china, slept with the patent violation on iphones in favor of the local rival. beijing's into actual property often says the iphone 6 and 6 plus infringes on rights because of similar carries to the 100c model. appeal,s filed an
which has been accepted. no date has been set for the hearing. japan's exports fell for the eighth consecutive month in may. the u.s. and europe slumped as exports declined at 11.3% from a year earlier. the median estimate was a 10% decline. imports fell almost 14%, leaving japan with the deficit equivalent to $389 million. sources are telling bloomberg that valle is in talks with several asian miners to sell a minority stock and it brazilian iron ore assets. -- in its brazilian iron ore assets. vale says it wants to raise about $10 billion through 2017. last year come it reported its first annual loss in 19 years. powered by over 2400 journalists
rish: you are back with "bloomberg markets: middle east ." we have a look at some of the main stories from that part of the world. tehran is saying iran has signed an agreement to buy 100 planes from boeing. the do will be boeing's first in the country since u.s. sections were lifted. it follows iran's agreement to buy 118 planes. iran says more details will be revealed once washington gives its approval. credit suisse says it has placed five employees on leave
while it conducts an internal investigation into its newspaper. desk.worked on the israel a report says the probe is linked to possible breaches of u.s. tax law by israelis. the bank refused to comment besides confirming staff had been placed on leave. rish: the united nations is warning of a human at terry and disaster in fallujah as thousands of civilians attempt to escape the fighting. the iraqi army has declared it liberated. the u.n. is saying more than 80,000 have fled since the operation began, 10,000 in the past three days. is northern city of mosul the only urban area under islamic state control. sources are telling us russia is considering selling part of rosneft to help fund budget shortfalls, which have been made worse by cheap oil.
this could be russia's biggest ever privatize asian. -- privatization. the deal could raise as much as $11 billion, which would be a record for russia. on china and india as two strategic partners, but they are looking at a joint to. could russia -- both russia and india said there would be interest in buying part of rosneft. rish: nearly 20%. regarding ants came joint deal. russia's relationship with europe and the u.s. haven't been so good since 2014, since its incursion in ukraine, and sanctions were put on russia. of course, it's natural to pivot asia, because russia is looking at china and india as two of the fastest-growing economies in asia. in the past, it has been focusing on china.
of course, china has been the biggest consumer in the region. with itses sense, economy surging past china at this current point, and also because consumption of oil in india is projected to increase a fair bit in the coming years. the international energy agency says india will consume 4.2 million barrels per day this year, and that is more than japan. rish: thank you very much, indeed. that is rosalind chin. manus: still with us is our guest, chief economist at oman investment fund. i was relieved i got the italian name right. i know you were, too. for an irishman and italian, we don't do too badly. i've got wti and brent up here. where youf the world work, it's important that this
rally sustains itself. lastestion is, since we met, we have had a number of moves. we are up above $48. i think this is a dollar trade i don't think this is a supply trade. >> you are absolutely right. the path towards recovery in the oil price will be not a lenient one. it will have a number of ups and downs. the longh-term outlook favors te suppliers. in between, you can have short-term elements like weather conditions, security issues, militants and other -- other elements that could derail this rebound. the issue is whether the frackers in the u.s. will get enough money to continue their operations.
manus: herein lies the argument i would put to you. a couple fractures have come back. the amount of capital that the frackerse led to the has fundamentally changed. i think there is a cap in the return of the fracker that is mys. personal opinion. i think your cap doubt in terms of the frackers who come back. what is the ability to get to $80 or $90? >> i think in the long run, that is the kind of equivalent price. manus: that is the equivalent price everybody would like. >> that's the case. manus: given the reality of your model -- >> the reality is that the marginal wealth that will ensure enough supply to keep the world economy going is around that level. frackers who are more efficient, but there are other fields in
-- thatrussia that was won't sustain a price at $50 or $60. they might into her the bad times, but reality at some point will prevail. manus: reality is prevailing with mr. putin, isn't it? he wants to go to the chinese. if you can't go west, turn east, young men. what do you make of this story that ros and rish were just talking about, roz left that putin wants to consider selling a near 20% stake? the money says everything, doesn't it? how real is the probability of that, and how peeved with the west be? is towardsal shift asia. russia and whoever else would be foolish to ignore it. they are selling something that the indians and chinese are very
interested in. wouldinevitable that they runsat putin or whoever the russian oil sector would look east. will see the largest increase in consumption over the next few years. that is a natural market for russia. ivatization -- they call makesvatization -- it sense in that russia needs to diversify its economy. it needs cash to fund its budget deficit. it's a good time. it's a strategic decision. thatan alignment of stars has prompted this turn of events. manus: the other big story we've got going is rajan's resignation
in india. he pulled a fast one on the indians. what does that mean for the rupee, and what does that mean for india? >> i have a particular attachment to rajan because he is a professor at my alma mater. we have some good connection. you see, the central bank needs to be credible, especially an independent central bank. rajan is one of the top economists in the world. he's an expert on the banking and the financial sector. he provided an enormous amount of credibility to the monetary authority in india. with that credibility gone, the answers are sinking in. we see the effect on the rupee. i hope this will not affect the rest of the indian economy. manus: thank you so much. it's always worth that five-hour
iran is looking to rebuild industry after years of international sanctions. one of the country's biggest producers is looking for trading. what does the safer broader industry in iran? >> this was an attempt to block yesterday. it's one of the biggest in iran's history. interestingly, there were no buyers. in iran, like in many countries, the industry is quite depressed at the moment. here, it has been exacerbated by low oil prices, which has meant
the government has been unable to spend as much as normally on infrastructure and construction, and the company we were looking at yesterday is particularly sensitive to that. it's the biggest producer of beams and girders. it's an interesting picture. they are looking for foreign buyers to bring in that much-needed investment. how big is this? is iran an important producer? >> it is. it's the second-biggest steel producer in the middle east. after turkey. excluding turkey, it's the biggest. it is one ofclaims the largest in the region as a whole, potentially in the world. we are out of time, i'm