Saudi Arabia, Bloomberg, World Saudi Crown discussed on Biz 1190 Overnight featuring Bloomberg Radio
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 full that we did see that was down to its relationship with Saudi Arabia. Of course, my son has an his vision to fund which is on the radio was going to invest in. That's got some investors scared that SoftBank could is you end up falling shy of the stated goal of that. One hundred billion dollars is perhaps other entrance that don't actually put in the money that they were going to because of this Saudi and US spat to the moment taking place. Look at some of those movies here as we went into lunch break here in China, these energy Stokes moving to the upside down to the oil price, that's helping them and also refinery margins being seen as being higher particularly in sign it like moving to those coal companies. We're going to be 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 of it having been helping to buoy up the market, generally speaking, I here in Hong Kong for the time being at least when mixed racial a little bit mixed on that front. Let's get into some of the other corporate themes specifically on what's happening with Chinese airline stocks down today. What's driving that? Horrible time for spring allies. Eighty four percent down. We've got to two point six percent full bag for China Eastern. Mogo Sunday coming out 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, but don't forget we've had this declined for the you want to and as a result the prices of their biggest fix. I said fuel prices is likely to go up, and that's actually eat into their earnings results. They've downgraded 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 ratio. Let's get back to our top story. This part of the world Saudi Crown prince Mohammad bin some men's economic strategy set to make investment in the kingdom's main engine of economic growth rotter, then government spending. But this appearance of the Saudi journalists Jamaica kashogi could of course, frustrate these ambitious here to discuss the latest development in more detail or hockey the head of Meena research. Bloomberg's economics chief at Middle East economists. Thank you both. Have you told me start with you? And the initial reaction we saw in equity markets, and so the other asset class we have a fabulous chart in our chart library go for our clients that shows what's been happening with Saudi all twelve months forwards, which is an excellent metric force 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? 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 it. This look at the CDS birds, and if we look at the five year CDS spreads again after 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 were flexing risk aversion on the part of fixed income investors in particular, not generally. Is a is a very good proxy city. Generally is a proxy for country risk. Yeah. And I came back to form came back to life. Yes. We could stay with us. Let's welcome dude. Into the conversation. You wrote a piece overnight Ziauddin you focused on two critical. Parts of the story for Saudi Arabia. One is FDI which was battered last year. Would you also talk about investment spending you latest thinking because it doesn't look good. Sure. So the main idea of this the transformation plan is to replace government spending with investment because the government can no longer funnest is investment 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, and they can get caught up in another anti corruption affair we've had the spat with Canada and Germany. Associated foreign invest have their own nationality might be shut out of investments in Saudi Arabia. And we have the latest episode which presents some former petitional risks for foreign companies. And that's why we're seeing them pulling out of the feature investment initiative conference next week. As far as you're concerned. 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 an outlook piece on Thursday last week, highlighting why we think actually growth is going to accelerate in the kingdom this year next year and the two drivers for that. High oil production and more government spending. Now, the the vision twenty thirty of course, was looking at boosting FDI as a way of generating jobs 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 full costs for the next twelve to eighteen months because we had not assumed any significant inflow in FDI in that short term period. But Secondly from a medium-term perspective any events or developments that puts that drive to attract after guy into the kingdom at risk is then going to affect the long-term growth prospects of becoming secretary wants the facts was actually see the FDI come in. You have very hard numbers in terms of the distance between. What was the Embiid? I think I called it a ground economic plan. I think I can't contagion ball vision. Twenty thirty of course, some targets for twenty twenty. He's got how many jobs to create? Hi, dependent is it on FDI. Well, let's talk about FDI I declined significantly in two thousand and Santa coordinator story, exactly. And according to data and the perception mentioned that then to 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 be projections of the crown prince, correct? And that will go up to two point seven percent. That's much. Two point seven billion dollars over three thousand eight hundred thus much lower than the level in two thousand and sixteen to seven point five miles away from eighteen point seven billion dollars the aim to get by twenty twenty. I mean is the European 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. He absolutely so from prospective foreign investors. If you want to invest in Saudi Arabia Pugh previously had to contend with issues like restricted labor relations the business environment stagnant economic growth after two thousand fourteen but today, you have more you have to worry about your local partner. Whether they're going to get caught up and another risk of an episode. You have to worry about, you know, again geopolitical spat with with country, and then you have to worry about your popular backlash if the allegations. I 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, you know, the worst case scenario in terms of growth continue the happy was seventy to eighty dollars aren't they worries? They're fiscal break. Even at the moment. Is it getting better 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. We now estimates backup to close to seventy five eighty dollars a barrel. Which is kind of where we are. We are still expecting a small deficit in two thousand eighteen even with oil prices where they are you look at the average for the year, it's closer to seventy five eighty five but going ahead. Absolutely. A high 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 on its own budget given significantly higher revenues that perhaps they had expected a year ago. So this has provided a bit of breathing room. But what we're saying is the the the recovery that we're expecting in terms of GDP growth for Saudi Arabia is now 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 sexy. 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. The economy is going to continue to grow government spending coming in there is an equity available to invest domestically frenetic 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. You do make the point that they known or actor has improved two point one percent for one and a half percent. But it's. Nowhere near the level that you would probably maintain they need. Thank you very much. Great conversation. Bloomberg economic chief Middle East, economists continue Huck, of course, it stays with us on the show. More get from cotija coming.