A Liquidity Crisis Where?
One of the reasons I favoured the Gulf stock markets at the beginning of this year, when the rest of the world was crashing and burning, was that they had the one thing the rest of the world was lacking: liquidity. Accordingly, as G20 and mainstream EM financial institutions were gasping for air, most of the G.C.C. markets saw substantial upside, before finally succumbing to global negative sentiment in Q2. However, lately, Risk Watchdog has been hearing more and more about the Gulf’s own credit crunch.
Hard to believe, with oil prices still well over US$100/bbl, but it looks like local currency financing in the world’s wealthiest region just got expensive. There is now little or no price advantage to borrowing in riyals or dinars or dirhams, because local deposit rates have skyrocketed. Saudi Arabia’s benchmark interbank offered rate SAIBOR has jumped to 4.1% from a low of around 2.1% in May, taking 3-month forward points to -13, compared with -400 at the height of the revaluation speculation. Other G.C.C. markets have followed suit.
(Speaking of revaluation, I am pretty sure it’s not going to happen now, particularly as these higher interest rates, apparently slowing money supply growth, a stronger dollar and moderating oil prices come into play.)
Going back to the so-called Gulf credit crunch, though, I see it more as a problem of success than an indication of any systemic weaknesses in the financial sector: demand for financing is just too high. As Doha Bank found out last month, you can’t even sell a sukuk these days (remember two years ago, when these instruments were so rare there wasn’t even a secondary market – once you bought, you held on). I bet UAE Central Bank Governor Sultan bin Nasser al-Suwaidi sees the silver lining as well: higher interest rates are what he has only been able to dream about over the last couple of years. (Charitably overlooking the time he publicly questioned the link between monetary policy and money supply, I suspect that al-Suwaidi has been deeply frustrated by his policy options, or lack of, over the last few years.)
Meanwhile, Risk Watchdog does not like to blow her own trumpet, but check out this Israeli shekel chart! On Monday, I wrote on Business Monitor Online that I thought the doom-mongers (including Deutsche Bank, the Israeli press and the Bank of Israel itself) were being too hasty in calling the end of the bull-run, and reiterated my out-of-consensus constructive view. Now with the dollar having sold off a bit, the shekel has come back sharply. I’m still reluctant to get bearish. Don’t forget, only a month ago, it was costing the BoI US$100mn a day to weaken this currency, and a rate hike next week is a distinct possibility… Still, as usual, we watch US$/EUR for clues: a greenback resurgence could send the shekel towards support at ILS3.55-60/US$.
Exchange Rate, ILS/US$
August 22nd, 2008 at 10:50 pm
Wohhh. Wohhh. Wohhh! I thought riskwatchdog was a fella and now I find out it/she’s a girl/woman. What’s going on here? It’s as if you have multiple personalities or sumthin