Kuwait revalues (again)
And this time it let the dinar rise by a bit more than in the past. 1.7% is a lot more than the dinar moved the last two times (0.4% and 0.7%). Monica Malik of EFG-Hermes:
“They're revaluing because of the weakness of the dollar against other major currencies. The revaluation last time was just too small.''
The cumulative move is still small, but at least the trend is in the right direction. I increasingly wonder which GCC country will break next. There is no good fundamental case for further GCC currency depreciation when oil is above $70. Goldman wrote this morning:
We believe that the UAE and to a lesser extent Qatar are likely to follow Kuwait's example and allow for greater exchange rate flexibility, in time. Both economies are suffering from serious inflation problems, reinforced by imperfect sterilisation of inflows and rising food prices. The ultimate remedy to the inflation problem in both countries will have to be a fiscal one. But the oil bonanza continues and there is no sign of meaningful fiscal adjustment on the horizon. Under the circumstance, currency appreciation could help at least check imported inflation coming through trade weighted USD weakness and provide some relief.
The combination of US interest rates and high inflation rates means that real interest rates are now very very negative in several Gulf countries, especially Qatar and the UAE.
A part of me wonders if the Gulf's investment funds — which increasingly seem to want Asian and European equities rather than US dollar bonds — are contributing to the dollar's slide, and thus to some of the difficulties confronting GCC central banks (and expats). Check out Henny Sender's brilliant profile of Qatar's Investment Authority — which clearly fancies buying companies, not just shares in companies. And at least for now, it isn't trying to buy a US company.
First !!!!
Off-topic,
Asia Times Online reports that the past surge in US Dollar purchases of US mortgage bonds comes from Chinese corporations, not the Chinese PBoC Central Bank
http://www.atimes.com/atimes/China_Business/IG26Cb02.html
Yi Xianrong, a senior economist and finance professor with the Chinese Academy of Social Sciences, a central government think-tank, attributed the previous surge of mortgage-backed securities bought by Chinese companies to inexperience in conducting risk assessments and their miscalculation of the US property market.
“After seeing how the property prices in China kept soaring, these Chinese companies never thought of the US property market as having problems and they bought a lot of mortgage-backed securities, particularly in the past two years,” Yi told Asia Times Online. “Apart from underestimating the level of risk, the better returns offered by MBS over US Treasury bonds also made the Chinese investors unable to judge the high risk of the US mortgage market.”
definitely off-topic, but sort of interesting — are Chinese banks (using funds raised through swaps with the PBoC) among those who bought MBS?
Professor Yi is a bit confused since Ginnie Maes, Freddie Macs, and Fannie Maes don’t have any subprime component in them. Also, I don’t see how any non-financial Chinese corporation can get the approval from SAFE to buy MBS’s.
Also, not only do the GSE’s not do subprime mortgages, they also insure their securities against defaults by the mortgagee. If someone defaults on their home loans, then Freddie Mac, Fannie Mae, and Ginnie Mae guarantee payment. In the case of Ginnie Mae, those gurantees are backed by the “full faith and credit” of the United States. In the case of the other two, they have credit lines with the Federal government.
twofish — the us survey data and the tic data both do indicate that someone in china has been buying corporate debt, a category in the us data that includes MBS that lack an agency guarantee. and all the anecdotes suggest chinese names have been buying so called private MBS (tho i always assumed they were buying the higher rated tranches). it must be SAFE, the banks or some other financial institution.
re: MBS
If you bought straightforward MBS loan pools, even the subprime ones didn’t do so badly. Around Feb/Mar meltdown time the discount on whole loans were about 3-4% depending on the originators. If you bought lesser tranches of CDOs with leverage, OTOH, we all know what happened to the Bear funds when creditors came calling.