Dubai: The Gulf region is expected to witness a flurry of activity in fundraising this year by both government related entities and corporates and refinancing debt will not be a big problem for many of these entities, David Karsbol, chief economist at Saxo Bank, told Gulf News in an interview.
"Markets are now open for Gulf companies to raise funds. I don't see any big problem for most companies to raise funds through bond market and banking channels. Financial services and real estate sectors are likely to face some difficulties in the short to medium term," said Karsbol.
Gulf based companies have more than $60 billion (Dh220.34 billion) refinancing requirements in the next 12 to 18 months, according to a recent estimate by Royal Bank of Scotland. HSBC has projected fund raising by regional entities to hit more than $30 billion this year.
Private sector lending
Saxo Bank economist said lending to government and government related entities in the region have picked up substantially over the past few months and with the improving liquidity situation, private sector lending is likely to pick up in the second half of the year.
"We do not see threat of corporate defaults rising in the region. On the contrary, as the confidence improves, we expect to see significant improvement in lending to the private sector," he said.
Investment banks such as Credit Suisse and Shuaa Capital have projected lending to the private sector to pick up by about 9 per cent in the second half of the year against 4 per cent last year.
Commenting on the UAE stock market performance, he said the local markets are significantly undervalued.
"Dubai Financial Market is indeed very cheap and has sound dividend yield with low price earnings multiples. If some has to invest on this market and has the patience to wait for next three to five years, it will be very hard not to make money here," said Karsbol.
Flipside
Saxo Bank, the online trading and investment specialist, in its yearly Financial Outlook believes 2011 will be a promising year for recovery. However, the flipside is that earnings surprises will likely be fewer and farther between by the second half of 2011 as companies struggle to maintain margins in an environment where end demand and revenue growth are still sluggish while input costs have spiked.
The bank chief economist said Africa and the Middle East will be the next big frontier of global economic growth.
The Copenhagen-based bank predicts that overall growth in the US economy will accelerate and end the year with a growth rate of 2.7 per cent. The Chinese economy will likely slow down and realise an 8 per cent year-on-year growth, falling short of widely prevalent 10 per cent predictions.
The bank fears that Spain could be the next big trouble spot should Portuguese debt come under attack. Finally, 2011 will be a year of stagnation for the UK, although the economy will bounce back in the long term, but perhaps not until 2012.
Saxo Bank expects volatility to go nowhere but up, especially considering the tense dynamics of the global macroeconomic picture.
Saxo Ten point rules
- All bank assets need to be marked to market. If some assets are illiquid, a tenth of the position should be sold in the market and the resultant price should be used to mark the rest.
- Banks revealed to be insolvent should either be closed down via a bankruptcy process or be taken over by government.
- All government guarantees on behalf of the financial sector should be discontinued.
- The board of banks should be made personally liable if the bank is becoming insolvent.
- All government budgets should as a minimum be balanced immediately via spending cuts.
- Governments should set out to cut taxes.
- Central banks should tighten monetary policy to stimulate savings and discourage debt financing.
- Interest rate expenses should not be tax-deductible so as to not encourage excess debt financing.
- Deflation should be welcomed to achieve cheaper products and restore export markets.
- Wages should be allowed to drop since the unit labour costs are too high in the West.
