Archive for the ‘frontier markets’ Category »
With banks dropping like flies here in the U.S., one must accept that this shake-up cannot be contained within U.S. borders.
Indeed, banks in Western Europe are already following U.S. institutions into the dark abyss, and now the European Union must decide if some “bailouts” will be allowed. For example, the EU is now reviewing its decision to allow a $7 billion bailout of German bank West LB.
And some regions are looking to preemptively bail out its banks.
Ireland has just announced that it will guarantee all deposits, bonds and debts for the country’s six largest banks for the next two years.
It’s a controversial decision that some say will give these Irish banks - with international branches - an edge over other banks. But it’s also in line with what the European Commission has been wanting… Well, sort of.
The EC wants banks to, in essence, hoard cash. Like a rainy day fund, just for times like these.
According to the Commission, banks should put away more cash in order to be able to cover its riskier investments.
Of course, that makes sense, but I don’t think a lot of banks will be able to pull that off in this type of environment. In fact, this may have a negative effect. If banks take more liquidity out of the markets, there will be less money to lend, and less revenue for the bottom line.
So should governments step in and foot the bill, or should the responsibility rest solely on the shoulders of the financial institutions?
It would seem that a large number of frontier markets are concentrated in the Middle East these days. Iran is a major energy trader with China and Russia; Dubai is opening movie studios in Hollywood; and Iraq is now exporting oil.
And now, Syria is becoming the next hot spot for Middle East opportunities.
President Bashar al-Assad has recently introduced new laws that make it easier for international companies to do business in socialist Syria. Al-Assad is quick to point out that these changes are economic only, and not political in nature, but economics commentator Jihad Yazigi told the BBC that it’s a way for Syria to break its isolation:
“It’s a circle. More investments improve political relations and political relations attract more investment [sic] and more investments.”
More investments like Lafarge (LG:Paris) and Total (TOT:NYSE) teaming up after French President Sarkozy took a trip to Syria in early September. Lafarge will set up two cement factories, making it the largest foreign investor in Syria, and Total would extend its operations at the Deir Ez Zor oil block and sign a gas development deal.
Other European companies are investing in Syria, too. EADS (EAD:Paris) and Alstom (ALO:Paris) both have long-term deals in the country.
Over the past several months, the investment world has turned its ever-roving eye on the Middle East and North Africa.
Since July, four new exchange traded funds have hit the market focusing on these regions. They are the WisdomTree Middle East Dividend Fund (GULF:Nasdaq), the Market Vectors Gulf States Index ETF (MES:NYSE), PowerShares MENA Frontier Countries Portfolio (PMNA:Nasdaq), and the SPDRs S&P Emerging Middle East & Africa ETF (GAF:AMEX).
But the one thing lacking in these ETFs is investments in Iran.
Of course, the U.S. has decreed it will not make investments in Iran, who it considers a state-sponsor of terrorism. That’s nothing to fool around with.
While much of the Western world stands firm by not investing in Iran, other nations, like China and Russia aren’t quite as righteous. Russia has repeatedly stood against strong sanctions in response to Iran’s nuclear program… as has China, but for different reasons. Iran and Russia have a history that goes back to before the Cold War. But China…
Iran is the world’s fourth largest oil exporter, and China, in early December 2007, signed a $2 billion deal with the country to secure oil supplies.
Ever see that show on The Learning Channel called Trading Spaces? It has two neighbors swap houses for a couple days to remodel each other’s rooms. There have been some surprising results, from an all black room (which was not what the owners had in mind) to wonderfully tasteful decor.
That’s why it’ll be interesting when two countries swap sectors: the UK could be the next oil frontier and Dubai could be the next major hotel owner in Europe.
Let’s start with the more unusual of the two…
The UK has been beholden to imported natural gas since 2004, and could be a net importer of oil by 2010 once the North Sea reserves really begin to run dry. North Sea oil accounts for 98.5% of UK production. Onshore oil fields produce only 24,000 barrels of oil a day.
To give you an idea of just how little that amount is, 24,000 barrels of oil is less than two-minute’s worth of U.S. oil consumption.
