Saudi Arabia, Bloomberg, China discussed on BTV Simulcast
Takeda pharmaceutical one stop moving to the as well there. We have self Bank to two thirds of one percent up after yesterday's seven percent or thereabouts full that we did see that was to its relationship with Saudi Arabia. Of course, your son has an his vision to fund which Saudi Arabia was gonna 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. I don't actually put in the money that they were going to because of the Saudi and US to the moment taking place. Let's look at some of those movies here as we went into that 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 up like moving to those coal companies. We're gonna have at those because we have a research report out suggesting that we will be seeing a bit of robust price action Fulco as a result of having been helping to buoy the market generally speaking, I here in Hong Kong for the time being these remakes 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? The horrible time for spring is four percent down. We've got a two point six percent fullback for China Eastern Moga Stanley 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 to and as a result the prices of their biggest fix asset. I e fuel prices is likely to go up, and that's actually eat into their earnings as a result. 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 ratio. 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 rather than government spending. But the disappearance of the Saudi journalists Jamaica show G could of course, frustrate these ambitions here to discuss the latest developments in more detail or could feature honky head of Meena research and Bloomberg's economics chief at Middle East. Economists would thank you both. Let me start with you. And the initial reaction we saw in equity markets, and so the other asset class, we fabulous chart in our chart library GT go for our clients that chose what's been happening with Saudi we all twelve months four, which 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 that's 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 look at the CDS birds, 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 fixing investors in particular. Not generally is a is a very good proxy CVS January is a proxy for country risk. And I came back to form came back to life. Yes, we could teach you stay with us. Let's welcome dude into 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, which also talk about investment spending you latest thinking because it doesn't look good. Sure. So the main idea of decided transformation plan is to replace government spending with investment because the government can no longer funnest is investments. Spending spending with with all prices. The issue is FDA has been declining 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 they can get caught up in another anti corruption affair we've had the spat with Canada and Germany such a foreign investor only have their own nationality mardi shutout of investments in Saudi Arabia. And we have the latest episode which presents some former petition risks for foreign companies. And that's why we're seeing them pulling out of the feature finished 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 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 and diversifying the economy. But we haven't built that into short short-term forecasts, that's very much a medium-term plan. So at this stage, we don't see any reason to downgrade outgrowth forecast 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 try to attract FDI into the kingdom at risk is is then gonna affect the long term growth prospects of the teacher 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 think contagion ball was 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 Gordon to your story. Exactly. And according to data and the perception you mentioned that into your Bloomberg. But he also mentioned that he expects that to go by ninety percent in two thousand eighteen now 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 in that will go up to two point seven percent that's much two point seven billion dollars thus much lower than the level in two thousand and sixteen or seven point five miles away from eighteen point seven billion dollar the aim to get by twenty twenty. I mean, 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. Yeah. Absolutely. So from perspective foreign investors if he wanted. Invest in Saudi Arabia Pugh. Previously had to contend with issues like restricted labor relations business environment stagnant economic growth after two thousand fourteen but today, you have Morris you have to worry about your local partner. They're going to get caught up and another risk of 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 what does that from an economic point of view put off the worst case scenario in terms of growth Katiba the happy with seventy to eighty dollars, whereas they're fiscal break. Even at the moment is it getting better is slipping a bit. So when they have the cuts to the budget in two thousand sixteen we saw the break even price full 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 extremely 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 had 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 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 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. The economy is going to continue to grow government spending coming in there is an 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 happen. Yes. In data. You do make the point that no known was actor has improved two point one percent up for one and a half. But it's nowhere near the level that you would probably maintain they need. Thank you very much. Great conversation. Our Bloomberg economic chief Middle East, economists Katina Huck, of course, it stays with us on the show. More to get from cotija coming up on the show. The.