Saudi Arabia, Bloomberg, Twenty Twenty discussed on Biz 1190 Overnight featuring Bloomberg Radio
On air and take talk on Twitter, powered by more than twenty seven hundred journalists and Allison more than one hundred twenty countries. I'm deborah. This is Bloomberg get over to recite Salamat now for a look at the markets rish. Thanks ever looking. What's happening that we turned to that makes headed into the lunch break right here at home going to sing currently a decline just as we went into that of about a half of one percent. But elsewhere the sense that coming online just about forty five minutes ago up about seven tenths of one percent Singapore's a bit down New Zealand close that with the four tenths of one percent full-back that just generally speaking. It's a day where we've had very little movement won the currency markets in particular. Don't see that much on the foreign exchanges. Yen still holding another one hundred twelve handle. That Nikkei and a bit more detail as it's just up about one third of one percent. We will up much higher than look at some of the constituent movers that Takeda pharmaceutical one stop moving to the upside as well there we have it self Bank to two thirds of one percent up after yesterday's seven percent or thereabouts fool that we did see that was down to its relationship with Saudi Arabia. Of course, my son has an vision to fund which was going to invest in. That's got some investors scared that SoftBank could end up falling shy of the stated goal of that. One hundred billion dollars is perhaps other entrance. Put in the money that they were going to because of this how the US spat to the moment taking place. Look at some of those movies here as we went into that lunch break here in China. These energy Stokes moving to the the game. This is down to the oil price. That's helping them and also refinery margins being seen as being higher particularly in sign up moving to those coal companies. We're going to have the best because we have a research report out suggesting that we will be seeing a bit of robust price action Fulco as a result. That'd be having been helping to buoy up the market, generally speaking, I here in Hong Kong. There. We have it for the time being these mixed racial. A little bit mixed on that front. Let's get into some of the other corporate themes and specifically on what's happening with Chinese airline stocks down today. What's driving that? Horrible time for spring at four percent down. We've got a two point six percent fullback for China Eastern. Moga Sunday coming out early on with a note saying that these companies are going to be hit with a double whammy, not only are they being here with the high parts with don't forget, we've had this declined for the you one to and as a result, the prices of the biggest fix. I said I e fuel prices is likely to go up, and that's actually eat into their earnings results. They've downgraded the innings forecasts. And indeed also downgraded the share price targets as well for these companies. And and here's the result in the red. Thank you very much for that. Over your show. Let's get back to our top story. This part of the world Saudi Crown prince Mohammad bin Salman, economic strategy set to make investment in the kingdom's main engine of economic growth rotter, then government spending. But the disappearance of the Saudi journalists Jamaica show, she could of course, frustrate these bishops here to discuss the latest development in more detail or each hockey, the head of Meena research Bloomberg's economics chief at Middle East economists zero thank you both generally start with you. And the initial reaction we saw in equity markets, and so the other asset class we have a fabulous charts in our chart library GDP gopher our clients that shows what's been happening with Saudi twelve months forwards, which is an excellent metric risk perception beyond traditional equity and bond markets, exceeded spike, spike to a level that we haven't seen in about two years. How do we quantify the damage this being done to foreign investor confidence? Look it's very difficult to quantify because. There's still a lot of uncertainty about how this is going to play out. But one of the easiest ways to look at this look at the CDS spreads. And if we look at the five year CDS spreads again after a really nice rally in September. We've seen a spike up to over one hundred basis points in the last couple of days it's come back a bit to about ninety but it's still significantly higher than it was at the end of September. And that really reflecting risk aversion on the part of fixed income investors in particular, not generally is a is a very good proxy Citius January is a proxy for country risk. Yeah. And I came back to form came back to life. Yes. We could teach you say, let's welcome dude into conversation. You wrote a piece overnight Ziauddin you focus on two critical. Parts of the story for Saudi Arabia. One is FDI which was battered last year, which also talk about investment spending your latest thinking because it doesn't look good. Sure. So the main idea of this added transformation plan is to replace government spending with investment because the government can no longer funnest is investments. Spending is spending with with all prices. The issue is deal has been declining in recent years. And we have the multiple episodes of things are happening, which will impact the foreign investors. Confidence in Saudi Arabia. We've had the risk episode, which if you're a foreign investor you need a local partner, he don't have. They can get caught up in another anti-corruption affair we've had the spat with Canada and Germany Societa foreign invest have their own nationality might be shut out of investments in Saudi Arabia. And we have the latest episode which presents some form reputational risk for foreign companies. And that's why we're seeing them pulling out of the feature investment initiative comprehensively up next week. As far as you're concerned. I mean, yes, we're seeing the reaction for example in some of the bond yields as well in Saudi Arabia. You're not seeing necessarily a change in the wider outlook for economic growth. I mean, that's what you research points. That's right. So we actually just published now clue piece on Thursday last week, highlighting why we think actually growth is going accelerates in the kingdom this year and next year and the two drivers for that. High oil production and more government spending. Now, the vision twenty thirty of course, was looking at boosting FDI as a way of generating jobs and and diversifying the economy. But we haven't built that into our short-term forecast, that's very much a medium-term plan. So at this stage, we don't see any reason to downgrade outgrowth forecasts for the next twelve to eighteen months because we had not assumed any significant inflow in FDI in that short term period. But certainly from a medium-term perspective any events or developments that puts that drive to attract FDI into the kingdom at risk is then gonna affect the long term growth prospects. Be secretary wants the fact she was actually see the FDI come in. You have very hard numbers in terms of the distance between what was the ambition. I think I called it a ground economic plan. I think I can't contagious ball vision. Twenty thirty of course, some targets for twenty twenty. He's got how many jobs to create an? How dependent is it on FDI? Well. Well, let's talk about FDI I declined significantly in two thousand and new story. Exactly. And according to data and the crown perception you mentioned that in the Bloomberg. But he also mentioned that he expects that to go by ninety percent in two thousand eighteen now if something comes down by eighty percent and goes up by ninety percent is still a lot in this down. So we expect to even the predictions of the crown prince are, correct. And that will go up to two points that sent the much two point seven billion dollars. The much lower than the level in two thousand and sixteen to seven point five miles away from eighteen point seven billion dollars that they aim to get by twenty twenty. I mean, Europeans also talks about to new risks for foreign investors. One is being caught up in a anti corruption probe domestically. And then the other would be that the country falls out with another country would major ramifications for investors. Yeah. Absolutely. So from prospective foreign investors. If you want to invest in Saudi Arabia. You previously had to contend with issues like restricted labor relations business environment stagnant economic growth after two thousand fourteen but today have Morris you have to worry about your local partner, and what they're going to get caught up and another risk cult in episode. You have to worry about again geopolitical spat with with country, and then you have to worry about your popular backlash if the allegations against shop job, proven, correct? There's the stock of issues that Mohammed bin Salman has got to deal with for you from the economic point of view. They are being helped a great deal by the price of oil. Does that from an economic point of view put off? The the worst case scenario in terms of the happy with seventy eighty dollars aren't worries they're fiscal break. Even at the moment. Is it getting better? This is slipping slipping a bit. So when they had the cuts to the budget in two thousand sixteen we saw the break even price four to probably the mid sixties now estimates backup to close seventy five eighty dollars a barrel, which is kind of where we are. We are still expecting small deficit in two thousand eighteen even with oil prices where they are when you look at the average for the year, it's closer to seventy five eighty five but going ahead. Absolutely. A higher. Oil price reduces a lot of the short term impact for government spending and for the economy. So if you have weaker than expected foreign direct investment in two thousand nineteen there is room for the government to increase spending from its own budget given significantly higher revenues than perhaps they had expected a year ago. So this has provided a bit of breathing room. But what we're saying is the recovery that we're expecting in terms of GDP growth for Saudi Arabia is now a cyclical oil driven recovery. It's not reflecting a structural change in the drivers of growth and. Ultimately that is the aim of the vision twenty thirty s to actually move away from oil is being the main driver of the economy to investment and the non oil sector, and we haven't seen any indication of that yet. And so yes, you know, you can look at the short term African say, regardless of foreign direct investment. This economy is going to continue to grow government spending coming in there isn't equity available to invest domestically from the kingdom itself. But when you look beyond that, you're still vulnerable to oil price shocks, and those are going to continues to happen. Yes. In data, and you do make the point that they know or sector has improved two point one percent up for one and a half percent, but nowhere near the level that you would probably maintain they need. Thank you very much. Great conversation. Economic chief Middle East, a communist Katina Huck. Of course stays with us on the show. More to get from cotija coming up on the show, the UAE bats on.