I recently read an article titled, “Foreign banks eye Kuwait’s $104bn plan” which stipulates that the Kuwaiti government’s KD30 billion development plan interests not only local investors, but also foreign banks.

The plan, which was proposed in April of this year, aims to start a stream of investments in major infrastructure projects such as building new ports and cities and investing to raise oil and natural gas production. The government will finance 50% of the projects and the rest will be financed by the private sector. The government gave the approval for the plan to be financed by the Kuwaiti banks, however foreign banks operating in Kuwait came in and are keen to have a share in the financing.

Financing the world’s fourth largest oil exporter in an unhealthy financial environment is a good deal, as it will decrease NPLs and provisions. I’m not sure how much share each bank will be given, but I would guess that it would be according to competitiveness. If that is the case, foreign banks will have much more room to give lower rates than local banks as benchmark rates in the US and Europe are much lower than Kuwait.

The Euro showed some weakness after the euro debt crisis as it lost 20% of its value relative to the Dollar in the first half of the year. However, just before the summer vacation began, the Euro recovered 10% of its losses on the back of the general positive sentiment in Europe. The Fibonacci retracement analysis indicates that this rally wasn’t a definite recovery as there has been a recent change in trend and the Euro fell by 3.5% this week.

 The question is, will travel expenses be cheaper in Europe next year?

This is a rebased graph that showed how much the markets moved during the summer (June 1^st to date). The top gainer was the Dow Jones index (blue), followed by Saudi’s Tadawul index (Red). The Qatari market (Green) was flat over that period. The DFM (Orange) was the biggest loser, followed by Kuwait SE (Black) then Abu Dhabi (Purple).

Aldar Properties PJSC (ALDAR:UH), Abu Dhabi’s largest property developer, was downgraded by S&P to non-investment grade (junk). Their rating was lowered by six notches, from A- to BB-, and it has a negative long term outlook. S&P cited that the reason for their downgrade was the declining profits and real estate prices.

Aldar was severely affected by the global financial crises and had a difficult couple of quarters as it reported a third consecutive quarterly loss of AED475.3 million while the consensus estimates were AED210 million.

The share price fell 74% from this year’s high of 5.2 to 2.39. Their sukuk are trading 7.5% lower from their highs in January; however, their yields, currently at 9.94% have surged by 141%.

The Middle East was considered one of the hottest markets globally and it was attracting a vast amount of foreign investments in the past decade. However, due to the tightening of credit and the deterioration in the global economy, Middle East’s foreign direct investments (FDI) were pulled back by nearly a quarter.

A recent report by the United Nations Conference on Trade and Development (UNCTAD) stated that inflows of FDI to the region dropped by 24 percent reaching USD68 billion in 2009 after six years of growth.

On a country to country basis some countries had different fate from the others; for example, in 2009 Qatar had an increase of FDI inflows of 112 percent and Lebanon had an increase of 11 percent, while the UAE was hit the most and the FDI inflows decreased by 71 percent. Saudi Arabia remained the largest receiver of foreign investments, with inflows reaching USD36 billion, 52 percent of the middle east’s total FDI inflows.

Although the FDI inflows were hit hard in 2009, the FDI outflows were hit harder- they decreased by 36 percent, reaching USD23 billion. This decrease was mainly attributed to the UAE as their FDI outflows fell from USD16 billion to USD3 billion. Saudi Arabia FDI outflows increased the most, from USD1.5 billion to USD 6.5 billion. Kuwait was the largest investor, with USD9 billion in outflows.

Yesterday the Kuwait SE price index reached its five year low of 6,328 points, closing lower than the January ’09 levels of 6,380 points. However, the weighted index was much more merciful as it is still above its one year low of 373 points. This is a classic example that shows how our price index is not a good indicator of our economy as most of the large caps didn’t fall as much and did not have the same fate as some of the small caps.

Below is a chart of the price and weighted index.

In the past year some GCC markets showed some growth and others showed large declines. The Tadawul index increased the most (15%), followed by the Qatari index (11%). The Kuwait SE was the largest decliner, where it decreased 18% in the past year. Both UAE’s markets, DFM and ADX, where very volatile this year due to Dubai Wolrd debt issues, however the ADX managed to maintain its value while the DFM lost 15%.

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost. Wikipedia.

In our GCC markets we have some arbitrage opportunities in some stocks with dual listings. Some might have a marginal profit opportunity; others might almost make you double your investment. Global Investment House, which is listed both in the KSE and the DFM is traded at KD0.058 and KD0.103 respectively, indicating an arbitrage opportunity of almost 77% whereby you can buy Global stock in the KSE and sell it in the DFM. GFH, which is listed in the KSE, DFM and BSE can also provide you with a risk-free return. The difference between GFH’s price in KSE (KD0.039) and DFM (KD 0.040) is 2%, however, in the BSE it’s priced at KD0.108, thus potentially tripling your money.

The graph below shows the mispricing in Global’s stock in the KSE and DFM.

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As people are shifting their demands from the Dollar and the Euro and seeking Gold as a safe haven, Gold prices have reached an all time high of USD1,258. The Euro plunged 14% against the Dollar as a result of the increase in concerns over the Euro zone debt crises, as opposed to that, Gold has increased 13% and its estimated that Gold prices still have some room to increase.

The chart below depicts the negative correlation between Gold and equities represented by the Dow Jones Index.

Kuwait Investment Authority owns 1.75% of BP, which means that they have an unrealized loss of $1.2 billion.