Transcripts For BLOOMBERG Bloomberg Markets Middle East 2016

Buying inen a lot of the stock market over the period , and this is great news for egypt because you could already see the reaction of the government quite quickly to the policies they have taken. The market has reacted quite positively and it has been great for the country. Where does the road over here from egypt . Unlock someosed to of the liquidity that has been missing in the system. A kind of growth are you expecting . That thist thing is is just one of many steps, so you could even see it when they took the decision. I am sure that you know how difficult this is from associate political point of view to undertake such difficult decisions. We hope to see a continuation of those reforms going forward. Aboutare a lot of talks selling stakes publicly and publicly held companies. The government is very serious about going forward. You mention some of the public companies. What kind of ipos might we be looking at . Given the confidential nature , i cant really talk about specific companies. There are several names that are being thrown out there, some of them on the petro chem and history that petro Chem Industry that the government would like to increase or take public, others in the Banking Sector. We believe the Banking Sector is quite attractive. It has seen a lot of growth in egypt. Unfortunately, there is not enough representation on the market. Other than civ, which is widely held by everyone, what they are offering in terms of inkling banking paper is quite limited in egypt. Therter in terms of region, where the bright spots . How many ipos are you helping out with, what kind of projects are you excited about . We are always excited about the ue. We believe the government is quite pragmatic. The only issue we have is from a captive markets perspective, the amount of paper for investors to trade in his limited. You can see there has been. Ppetite with Foreign Ownership think theely, i dont Foreign Investors have enough to invest in, and i think more ipos are needed in the ue. The numbers,lose but we have a number of ipos coming to the ue in 2017. Reporter is that going to stay around or is that something you could sell as well . We made a decision sometime ago that our decision is to exit. We have already exited almost 49 of what we own. Our intention is to try to dispose of the remaining stake. It is quite a good bank, but it does not really fit within the strategy anymore. Reporter wendy expect to close that just went do you expect to close that . Hopefully in the first half of 2017. Reporter what do you plan to do with the money . Part of it will be returned to shareholders, but a lot of it will go into reinvestment. We are very bullish about the Growth Prospects we have at efg. We are in the stages of acquiring a Brokerage House in pakistan, another market we are quite excited about. You heard some of your panelists today talk about the Growth Prospects of that market. We have established an office and are in the final stage of licensing our office in new york. We are looking at a number of markets in sub sahara that we believe we can offer strategy going forward. Reporter donald trump has caused quite a bit of speculative euphoria and some of the markets, dramatic ups and downs. What does that mean for the middle east, his election . I think it is too early. He is president elect. We dont have a full view of his policies regarding the middle east. He is creating relationships with leaders. We are waiting to see how it fits into policy, but it is too early. Reporter in 2017, what worries you the most in terms of setting your goals . And has been a very difficult year in general, 2016. We enter 2017 much more optimistic. There are so many factors, whether it is geopolitical, within our region, or as you pointed out, the policies that will be set by the u. S. I think from a business centric perspective, what worries us is where the fed is going to take their Interest Rates and the impact this will have on emerging markets. Reporter where do you see the fed going . Do you see them hiking more than once next year . Im not sure this is going to happen, and im not sure the hikes are going to be met. This is why i remain optimistic that emerging markets are going to continue, even with the fed hike. Ceoef that was efc harm as hermes at the bloomberg most influential summit. Oil was a big topic. Tracy spoke to a senior officer for jpmorgan about how low oil prices have weighed on gulf countries. I want to remind people that lower prices are good thing for the world. The transfer of wealth from producers to spenders or to consumers. It is something that underpins a lot of markets, including europe and india. It has also created a big gap in the region. 19 Million Barrels produced every day, 50 less or more is 5 billion less for producers. A big gap. As you have seen, the National Markets have played a Critical Role in filling that. The countries are working on reducing those deficits, and they have been able to pick up the money from the international market. It has done a lot over the last years. Reporter this leads to my next question in terms of the Building Blocks of capital markets, is there still work that needs to be done here in terms of developing those, making them more appealing to International Investors . Where is everything sort of in place now . We are talking about a number of Different Things. When i think about this region and its need to attract capital, three different ways one is foreign direct investment. The second one is the local equity markets. The third is the International Debt capital markets. The interNational Markets, it is more about being consistent around issuing, communicating with investors, really making the effort to continue to connect with investors. And the local equity market, there is also summer to do to make sure Foreign Investors can have better access. Reporter lets focus on debt markets for one second. One of the big scenes of the year has been bumper issuance from the region, bumper dollar issuance in particular. Do you see that continuing next year . I do. , therelook at this year is about 60 billion of issuance from the middle east, two thirds of that was accounted for by the sovereigns. Reporter very well received. Very well received. I think, despite the decline in oil, we are dealing with a wealthy region still. Countries with an enormous amount of potential. Four debt investors particularly , it is a unique opportunity to pick up exposure on an effective level. Reporter lets contrast with equity markets. When it comes to equities, we have seen trading volumes fall back a bit this year. What is the discrepancy here . Why are bonds going bonanza and equity is falling behind . That is very true, equity markets have been negligible this year. If you look at equity issuance in the region, it is a few billion dollars. A few years ago, it was as much as 15 billion. International and local investors first want to see what the new baseline for the region is in terms of consumption and spending. I think they are getting comfortable that we are reaching those levels, but for the last two years, they wanted to see how the demand for spending was. When you buy debts, you want your money back. When you buy equity, you want the upside. Today, we are in a better position to assess whether stocks are good value and what the upside is. Yousef that was jpmorgan speaking to us at the Bloomberg Markets most influential summit. Still to come, we will look at what has been driving markets across the gulf. The leading independent Asset Management firm. Stay tuned. Yousef this saudi bond issuance and opecs agreement have pushed gulf stocks higher this year. The ceo of qatars leading independent Asset Management firm thinks the regions macro picture will continue to improve. ,his valuation story in the gcc it has been transformed. I brought up the charge to give our viewers context. This is how much gold stocks are trading. You are looking at multiples. Take a look at how that developed through 2016, the line in red being the qatar stocks, purple the dubai stocks. For official context, we put the emerging market benchmark as well. You can see it is in the middle. Stocks are no longer cheap, especially in qatar. You are right. Post saudiallied bond issuance and the opec announcement on oil. But at think in the context of emerging markets and global markets, what is interesting about the gcc markets is the yield story. They have a much higher yield. If you look at the dividends yield of the world, it is about 2. 54, the em is 2. 55 and the gccm is about 3. 78. Investors look at it as a dividend play, given that there is still a lot more in terms of what they can get out versus losses. Reporter we have got the oil price stabilizing around 50 a barrel. What you expect on that front and how is that going to affect your Stock Selection going into 2017 . There seems to be an optimism by both the nigerian and ue minister that things will probably work out, but i could not help to hear the comments of your previous person this morning, and the proof is in the pudding. Enforceability and expecting those cutbacks is going to be very important, and that is what the market is going to be watching. Reporter stabilization in oil prices, as you said. We are seeing an improved macro picture. How is that going to affect private equity in the gcc . Has ahink private equity big role to play in the gcc. I would like to see more of it, for the next few years. For example, we are considering setting up a private equity fund focusing on smes the need Growth Capital and qatar, the ue , and saudi arabia. Given the Banking Sector no longer is willing to lend to these companies, so we hope that well see more equity profits, more activity in the next 12 months. Obviously, opportunities for evaluation from a evaluation point of view are more interesting. Reporter are there sectors that interest you more for your investors than others . Ooh. It sounds like you are health care is interesting. We are looking at health care, but not from the asset side, more from the technology side. We like transportation and logistics sector. We are definitely looking at other sort of opportunistic opportunities within pe selectively in the gcc region. Reporter i have pulled up the member rent returns function year to date. These are the stocks that have performed well versus lacked. For one quite a few insurance stocks on the upside. Pressure on the commercial bank of dubai. As you look at the dubais story, which has been really fascinating and 2016, given that it has been more diversified than its peers 2017, what happens . Generally the funny part is that even though we have had a tremendous turnaround story, tremendous resilience, we are still trading cheaper than qatar, still cheaper than smsci emerging markets. Some of the stocks you mention, we would not invest in given that they lack corporate governance, transparency. We dont know visibility in the earnings in 2017 and beyond. That is going to be very important for us. Company like that is a bellwether company, a gateway into the uae market. Be forward to guidance from these companies is going to be very important for us to understand how investors seabees opportunities. That is something companies do a better job explaining how the environment is, the challenges they face, and one of a doing. Thatrday, it was mentioned he was looking at cost efficiency. He was not specific, which is fine, but at least we understand he is addressing that and it is a welcome comment. Reporter the probability function on the bloomberg, percolating 100 likelihood of a rate hike in december, so that is baked in. But that means that is going to translate and push into this part of the world as well. What does the rate hike mean for the gcc . Is there some risk here . I think a combination of two things. Wilbanks bid up for deposits . I think they will. I think you are going to see that in the next four weeks when you do the end of your window dressing. But potentially the other effect is how will they rerate or reprice their loans . It is how management of these banks will address some of these challenges. I think clearly some banks will be able to do it in the countries they operate and others will not. Reporter as we look to 2017, what about the saudi story and stories outside qatar and the uae is there anything on your radar that is interesting . We think saudi arabia being the biggest economy in the region with the largest market cap is the most interesting from a diverse vacation point of io, liquidity point of view. We do like qatar. We think qatar has some interesting stories. Defensively positioned companies. Defensive posturing, where we want a strong management, good cash flow, and obviously growth opportunities, given that folks will see a more stable price of oil versus this year. Yousef plenty still ahead, including plans to expand the Worlds Largest indoor theme park. We hear from the ceo next. The worldsowner of largest indoor theme park, roads of adventure, is setting some big growth target. Img plans to open one major attraction every year for the next five years. We spoke to the ceo about those plans. We are going to look at to financing options. One is to find it out of equity, the existing revenue coming out of img world. The other will be linked to debt. We will be taking steps to be able to find a multibilliondollar project. We are open to other financing options, which we have been looking at. Reporter we understand from sources that you have begun working with the coordinator on the transaction. Is there a time or date for this deal . This is a contingency stage. We are looking at many financing options. The ipo is just a rumor. We are open to a multitude of options. Yousef you are exploring that actively. Any topline figure as to how much you would need to raise . How much capital would you like to drive that expansion . The park will be a multibillion dollar proposition, so the first part was a billiondollar plus project. We are growing the proposition by another 25 , so it will become multibillion dollar. Reporter leonard, you said it is still rumor stage. But lets practice your roadshow presentation. You have got your Foreign Investors who are watching here. What would make img worlds of adventure so palatable for any portfolio . I think we Just Launched one of the Largest Global initiatives with a multitude of different brands coming under one roof. Now with the second park humming into the proposition, we have to, destination for entertainment in the region, bringing in such a Large International portfolio of they are competing brands flourishing under the same destination. We will have a wide variety of different rides and attractions. There will be retail concepts, driving a new sector of tourism to dubai. We are leading the way on that front. Reporter break down the numbers for us here. How much is local, how much is international when it comes to visitors . Year, 5050 split between the residents and tourists, but we have seen the tourist markets taking over, growing to about 60 and 40 on the resident side. We are opening new tourism sectors with Dubai Tourism and Emirates Airlines to attract more. Yousef we have got the bloomberg dollar index at a record high. The Federal Reserve about to embark on another rate hike, the first rate hike of the year, in december. It is going to mean the dollar, in the short run, is going to strengthen. This means that visitors coming here are going to struggle in terms of converting that currency into the rooms. How is that going to affect your revenue . Are you worried people are going to say, this is too expensive for me . I think the numbers are growing. Dubai is diversifying its tourist market, also becoming more of an affordable destination for the entire family. Our park leans toward the family market, making it affordable for everyone to travel to the emirates, experience theme parks of this scale. Today, if you want to experience having of a similar scale, you have to travel to the far used or west to be able to experience a largescale theme park. People do travel to theme parks, growing industry. We are attracting the wider yousef this is Bloomberg Markets middle east. Mostup, the markets influential summit made its way to the region on wednesday. Blackrock managing director how middle east investors are reacting to what is happening in the United States. Head of the official Institutions Group at blackrock, the Worlds Largest money manager. You are here in the middle east in the gulf region visiting some of blackrocks most important clients. Sovereign institutions. What have you learned in these meetings . I guess the principal thing region investors in the are welcoming the changes in washington. I would just say that supporters are,nald trump globally right now, projecting their greatest hopes into the future, and detractors are projecting their greatest fears. There is an interplay between those fears and hopes. Surprisingly, i think since we have arrived, there have been more people that are hopeful about the fiscal, which blackrock has been calling for. The lessening of reliance on Monetary Policy globally. There is brought optimism, i would say. Reporter does the optimism surprise you . If you were to sample opinion either in new york city, perhaps san francisco, you might not come to a similar point of view. No, you wouldnt. I find it surprising, i would think, that International Investors in particular International Investors abroad looking at the Chem Industry<\/a> that the government would like to increase or take public, others in the Banking Sector<\/a>. We believe the Banking Sector<\/a> is quite attractive. It has seen a lot of growth in egypt. Unfortunately, there is not enough representation on the market. Other than civ, which is widely held by everyone, what they are offering in terms of inkling banking paper is quite limited in egypt. Therter in terms of region, where the bright spots . How many ipos are you helping out with, what kind of projects are you excited about . We are always excited about the ue. We believe the government is quite pragmatic. The only issue we have is from a captive markets perspective, the amount of paper for investors to trade in his limited. You can see there has been. Ppetite with Foreign Ownership<\/a> think theely, i dont Foreign Investors<\/a> have enough to invest in, and i think more ipos are needed in the ue. The numbers,lose but we have a number of ipos coming to the ue in 2017. Reporter is that going to stay around or is that something you could sell as well . We made a decision sometime ago that our decision is to exit. We have already exited almost 49 of what we own. Our intention is to try to dispose of the remaining stake. It is quite a good bank, but it does not really fit within the strategy anymore. Reporter wendy expect to close that just went do you expect to close that . Hopefully in the first half of 2017. Reporter what do you plan to do with the money . Part of it will be returned to shareholders, but a lot of it will go into reinvestment. We are very bullish about the Growth Prospects<\/a> we have at efg. We are in the stages of acquiring a Brokerage House<\/a> in pakistan, another market we are quite excited about. You heard some of your panelists today talk about the Growth Prospects<\/a> of that market. We have established an office and are in the final stage of licensing our office in new york. We are looking at a number of markets in sub sahara that we believe we can offer strategy going forward. Reporter donald trump has caused quite a bit of speculative euphoria and some of the markets, dramatic ups and downs. What does that mean for the middle east, his election . I think it is too early. He is president elect. We dont have a full view of his policies regarding the middle east. He is creating relationships with leaders. We are waiting to see how it fits into policy, but it is too early. Reporter in 2017, what worries you the most in terms of setting your goals . And has been a very difficult year in general, 2016. We enter 2017 much more optimistic. There are so many factors, whether it is geopolitical, within our region, or as you pointed out, the policies that will be set by the u. S. I think from a business centric perspective, what worries us is where the fed is going to take their Interest Rates<\/a> and the impact this will have on emerging markets. Reporter where do you see the fed going . Do you see them hiking more than once next year . Im not sure this is going to happen, and im not sure the hikes are going to be met. This is why i remain optimistic that emerging markets are going to continue, even with the fed hike. Ceoef that was efc harm as hermes at the bloomberg most influential summit. Oil was a big topic. Tracy spoke to a senior officer for jpmorgan about how low oil prices have weighed on gulf countries. I want to remind people that lower prices are good thing for the world. The transfer of wealth from producers to spenders or to consumers. It is something that underpins a lot of markets, including europe and india. It has also created a big gap in the region. 19 Million Barrels<\/a> produced every day, 50 less or more is 5 billion less for producers. A big gap. As you have seen, the National Markets<\/a> have played a Critical Role<\/a> in filling that. The countries are working on reducing those deficits, and they have been able to pick up the money from the international market. It has done a lot over the last years. Reporter this leads to my next question in terms of the Building Blocks<\/a> of capital markets, is there still work that needs to be done here in terms of developing those, making them more appealing to International Investors<\/a> . Where is everything sort of in place now . We are talking about a number of Different Things<\/a>. When i think about this region and its need to attract capital, three different ways one is foreign direct investment. The second one is the local equity markets. The third is the International Debt<\/a> capital markets. The interNational Markets<\/a>, it is more about being consistent around issuing, communicating with investors, really making the effort to continue to connect with investors. And the local equity market, there is also summer to do to make sure Foreign Investors<\/a> can have better access. Reporter lets focus on debt markets for one second. One of the big scenes of the year has been bumper issuance from the region, bumper dollar issuance in particular. Do you see that continuing next year . I do. , therelook at this year is about 60 billion of issuance from the middle east, two thirds of that was accounted for by the sovereigns. Reporter very well received. Very well received. I think, despite the decline in oil, we are dealing with a wealthy region still. Countries with an enormous amount of potential. Four debt investors particularly , it is a unique opportunity to pick up exposure on an effective level. Reporter lets contrast with equity markets. When it comes to equities, we have seen trading volumes fall back a bit this year. What is the discrepancy here . Why are bonds going bonanza and equity is falling behind . That is very true, equity markets have been negligible this year. If you look at equity issuance in the region, it is a few billion dollars. A few years ago, it was as much as 15 billion. International and local investors first want to see what the new baseline for the region is in terms of consumption and spending. I think they are getting comfortable that we are reaching those levels, but for the last two years, they wanted to see how the demand for spending was. When you buy debts, you want your money back. When you buy equity, you want the upside. Today, we are in a better position to assess whether stocks are good value and what the upside is. Yousef that was jpmorgan speaking to us at the Bloomberg Markets<\/a> most influential summit. Still to come, we will look at what has been driving markets across the gulf. The leading independent Asset Management<\/a> firm. Stay tuned. Yousef this saudi bond issuance and opecs agreement have pushed gulf stocks higher this year. The ceo of qatars leading independent Asset Management<\/a> firm thinks the regions macro picture will continue to improve. ,his valuation story in the gcc it has been transformed. I brought up the charge to give our viewers context. This is how much gold stocks are trading. You are looking at multiples. Take a look at how that developed through 2016, the line in red being the qatar stocks, purple the dubai stocks. For official context, we put the emerging market benchmark as well. You can see it is in the middle. Stocks are no longer cheap, especially in qatar. You are right. Post saudiallied bond issuance and the opec announcement on oil. But at think in the context of emerging markets and global markets, what is interesting about the gcc markets is the yield story. They have a much higher yield. If you look at the dividends yield of the world, it is about 2. 54, the em is 2. 55 and the gccm is about 3. 78. Investors look at it as a dividend play, given that there is still a lot more in terms of what they can get out versus losses. Reporter we have got the oil price stabilizing around 50 a barrel. What you expect on that front and how is that going to affect your Stock Selection<\/a> going into 2017 . There seems to be an optimism by both the nigerian and ue minister that things will probably work out, but i could not help to hear the comments of your previous person this morning, and the proof is in the pudding. Enforceability and expecting those cutbacks is going to be very important, and that is what the market is going to be watching. Reporter stabilization in oil prices, as you said. We are seeing an improved macro picture. How is that going to affect private equity in the gcc . Has ahink private equity big role to play in the gcc. I would like to see more of it, for the next few years. For example, we are considering setting up a private equity fund focusing on smes the need Growth Capital<\/a> and qatar, the ue , and saudi arabia. Given the Banking Sector<\/a> no longer is willing to lend to these companies, so we hope that well see more equity profits, more activity in the next 12 months. Obviously, opportunities for evaluation from a evaluation point of view are more interesting. Reporter are there sectors that interest you more for your investors than others . Ooh. It sounds like you are health care is interesting. We are looking at health care, but not from the asset side, more from the technology side. We like transportation and logistics sector. We are definitely looking at other sort of opportunistic opportunities within pe selectively in the gcc region. Reporter i have pulled up the member rent returns function year to date. These are the stocks that have performed well versus lacked. For one quite a few insurance stocks on the upside. Pressure on the commercial bank of dubai. As you look at the dubais story, which has been really fascinating and 2016, given that it has been more diversified than its peers 2017, what happens . Generally the funny part is that even though we have had a tremendous turnaround story, tremendous resilience, we are still trading cheaper than qatar, still cheaper than smsci emerging markets. Some of the stocks you mention, we would not invest in given that they lack corporate governance, transparency. We dont know visibility in the earnings in 2017 and beyond. That is going to be very important for us. Company like that is a bellwether company, a gateway into the uae market. Be forward to guidance from these companies is going to be very important for us to understand how investors seabees opportunities. That is something companies do a better job explaining how the environment is, the challenges they face, and one of a doing. Thatrday, it was mentioned he was looking at cost efficiency. He was not specific, which is fine, but at least we understand he is addressing that and it is a welcome comment. Reporter the probability function on the bloomberg, percolating 100 likelihood of a rate hike in december, so that is baked in. But that means that is going to translate and push into this part of the world as well. What does the rate hike mean for the gcc . Is there some risk here . I think a combination of two things. Wilbanks bid up for deposits . I think they will. I think you are going to see that in the next four weeks when you do the end of your window dressing. But potentially the other effect is how will they rerate or reprice their loans . It is how management of these banks will address some of these challenges. I think clearly some banks will be able to do it in the countries they operate and others will not. Reporter as we look to 2017, what about the saudi story and stories outside qatar and the uae is there anything on your radar that is interesting . We think saudi arabia being the biggest economy in the region with the largest market cap is the most interesting from a diverse vacation point of io, liquidity point of view. We do like qatar. We think qatar has some interesting stories. Defensively positioned companies. Defensive posturing, where we want a strong management, good cash flow, and obviously growth opportunities, given that folks will see a more stable price of oil versus this year. Yousef plenty still ahead, including plans to expand the Worlds Largest<\/a> indoor theme park. We hear from the ceo next. The worldsowner of largest indoor theme park, roads of adventure, is setting some big growth target. Img plans to open one major attraction every year for the next five years. We spoke to the ceo about those plans. We are going to look at to financing options. One is to find it out of equity, the existing revenue coming out of img world. The other will be linked to debt. We will be taking steps to be able to find a multibilliondollar project. We are open to other financing options, which we have been looking at. Reporter we understand from sources that you have begun working with the coordinator on the transaction. Is there a time or date for this deal . This is a contingency stage. We are looking at many financing options. The ipo is just a rumor. We are open to a multitude of options. Yousef you are exploring that actively. Any topline figure as to how much you would need to raise . How much capital would you like to drive that expansion . The park will be a multibillion dollar proposition, so the first part was a billiondollar plus project. We are growing the proposition by another 25 , so it will become multibillion dollar. Reporter leonard, you said it is still rumor stage. But lets practice your roadshow presentation. You have got your Foreign Investors<\/a> who are watching here. What would make img worlds of adventure so palatable for any portfolio . I think we Just Launched<\/a> one of the Largest Global<\/a> initiatives with a multitude of different brands coming under one roof. Now with the second park humming into the proposition, we have to, destination for entertainment in the region, bringing in such a Large International<\/a> portfolio of they are competing brands flourishing under the same destination. We will have a wide variety of different rides and attractions. There will be retail concepts, driving a new sector of tourism to dubai. We are leading the way on that front. Reporter break down the numbers for us here. How much is local, how much is international when it comes to visitors . Year, 5050 split between the residents and tourists, but we have seen the tourist markets taking over, growing to about 60 and 40 on the resident side. We are opening new tourism sectors with Dubai Tourism<\/a> and Emirates Airlines<\/a> to attract more. Yousef we have got the bloomberg dollar index at a record high. The Federal Reserve<\/a> about to embark on another rate hike, the first rate hike of the year, in december. It is going to mean the dollar, in the short run, is going to strengthen. This means that visitors coming here are going to struggle in terms of converting that currency into the rooms. How is that going to affect your revenue . Are you worried people are going to say, this is too expensive for me . I think the numbers are growing. Dubai is diversifying its tourist market, also becoming more of an affordable destination for the entire family. Our park leans toward the family market, making it affordable for everyone to travel to the emirates, experience theme parks of this scale. Today, if you want to experience having of a similar scale, you have to travel to the far used or west to be able to experience a largescale theme park. People do travel to theme parks, growing industry. We are attracting the wider yousef this is Bloomberg Markets<\/a> middle east. Mostup, the markets influential summit made its way to the region on wednesday. Blackrock managing director how middle east investors are reacting to what is happening in the United States<\/a>. Head of the official Institutions Group<\/a> at blackrock, the Worlds Largest<\/a> money manager. You are here in the middle east in the gulf region visiting some of blackrocks most important clients. Sovereign institutions. What have you learned in these meetings . I guess the principal thing region investors in the are welcoming the changes in washington. I would just say that supporters are,nald trump globally right now, projecting their greatest hopes into the future, and detractors are projecting their greatest fears. There is an interplay between those fears and hopes. Surprisingly, i think since we have arrived, there have been more people that are hopeful about the fiscal, which blackrock has been calling for. The lessening of reliance on Monetary Policy<\/a> globally. There is brought optimism, i would say. Reporter does the optimism surprise you . If you were to sample opinion either in new york city, perhaps san francisco, you might not come to a similar point of view. No, you wouldnt. I find it surprising, i would think, that International Investors<\/a> in particular International Investors<\/a> abroad looking at the United States<\/a> seem willing to be supporters or give the Incoming Administration<\/a> the benefit of the doubt with regard to new changes. That is not what is being felt at home. Reporter i heard the same thing in saudi arabia three weeks ago, the same thing in mexico city. Including mexicos richest man. There is a difference, obviously, between optimism and expectation. As talk about expectations. When you meet with sovereign wealth funds and institutions, what kinds of expectations they have for the performance of the Global Economy<\/a> and Financial Markets<\/a> . There is a broad expectation and realization that in actual fact, the overreliance on monetary i think we have to go back 10 months, the beginning of the year. We were concerned about global deflation, a messy devaluation of the chinese remedy. Oil prices were going towards 20. That is not where we are at today. We seem to be romancing the idea of a reflationary environment, a genuine fiscal stimulus, clarity with regard to the tax regime Corporate Tax<\/a> regime in United States<\/a>, which is broadly favorable for u. S. Assets, certainly for the u. S. Dollar. And i think that certainty, that increased certainty, in United States<\/a> is particularly welcome. Reporter so these institutions are beginning to invest with an anticipation that Global Growth<\/a> is going to pick up and we are going to see returns favoring, say, equities over bonds . I would put it differently. I think a lot of investors came into the year with a lot of cash, there he scared at the beginning of the year. There was a story i read that donald trump sold all of the stocks in july. A lot of investors are underinvested, way too much cash. The market move has been relatively painful and unexpected. Reporter these investors we are talking about, have too much cash . I would say i dont like to talk generically about the whole segment. It is very different from institution to institution, country to country. But broadly speaking, there is a sense of relief here in the gulf with Oil Prices Back<\/a> into the 50s. A realization that, for example in the case of the saudis, that they can tap the debt markets if they want. One critical advantage this region has had as they are pivoting and worrying about their reliance on oil, they are starting with federal Balance Sheets<\/a> that are virtually pristine. ,hey have the ability to borrow the ability to tap huge reserves. That is what they are for. Of course, that is what they have been doing. Saudi reserves have come down 20 billion in last two years. Nevertheless, a big difference compared with what is happening in russia. Russia has very different circumstances. Reporter just to draw the contrast. To your point, oil is back into the 50s. But it is still half of where was in 2014. Over the longer term, how has that dropped it is still a drop by 50 in oil prices changed the way these institutions are investing in committing capital . I think it is very clear that a number of countries that are oilbased have had to liquefy assets, put them into more usable form for precautionary purposes. That has led a number of Central Banks<\/a> in the gulf to increase their reserves. Reserves are very important policy tool. They allow institutions to act very quickly. There has been a move toward look with occasion in some cases. I would say a move toward liquid occasion in some cases. They have the benefit of longerterm investing and are now trying to ask a couple of dm, emergingem vs markets versus developing markets. What does a stronger dollar and the future path of Interest Rate<\/a> increases by the fed portend for repricing assets all across the Capital Stock<\/a> and globally . Ratesare going to raise to 50 basis points are 100 basis points, that is one thing. Basisis moving to 200 points, john taylor said yesterday he thought the fund should already be at one and a half. If we are going to move to 1. 5 quickly, we are to have to reprice a lot of assets globally. Reporter how does that were not change the investing mandate . If you have a longerterm horizon, you are willing to take symbolically we see a normalized environment. Financial repression, which has dominated since the financial crisis, does seem to be ending. One thing that is clearly ending that has already ended unceremoniously is the 30 year boom market in bonds. It is down 14 United States<\/a> since the end of september. Reporter i hate to break into, you are not the first person to call the end of the bond market. I was not trying to be reporter and these meetings with the sovereign institutions, how much concern is there or not about what appears to be the resurgence of populism in western economies . Im not just talking about trump. Im talking about france, germany. I think there is recognition of that problem, genuine concern , but there is just as much concern about the possible removal of United States<\/a> in terms of leadership from the global stage, which Many International<\/a> actors see others more than willing to fill that vacuum china. There is a great desire on behalf of particularly golf members to see the United States<\/a> not lose its assertiveness and not lose its position of power and influence. Reporter but they have to have a plan b. What is it . I think it is to seek out investments in foreign territories. Blackrock has done a great deal of work on the infrastructure publicprivate partnership. Infrastructure is one of the more attractive classes from both a global macro standpoint and an investor standpoint. Reporter you expect to see flows out of Public Markets<\/a> and into private investments such as infrastructure or commercial real estate . I already have. Commercial real estate is a . Mark. On if you purchase a lease on a building, effectively making up 2 or 4 yields and those riskfree rates are going back to 1. 5, too, that commercial real estate is overvalued. Not every single asset class should be treated similarly. Private equity, infrastructure there is more promise. Reporter again speaking of the sovereign wealth funds in this region, flows out of Public Markets<\/a> into private equity into infrastructure. But within Public Markets<\/a>, will those assets moved out of active vehicles and into passive . I think the passive active debate is interesting and important. I think there is a clear case to be made to pay that from passive to active in the environment were going into. Understand the steepening of the yield curve means a lot of sectors that have been long despised dust banks, financials are suddenly being loved. Deutsche bank stock up 10 . There is a believe not just for u. S. Banks but for global banks, the steeper yield curve is good news. Come, financeto takes a shine to Gold Investments<\/a> for the first time. We will look at how sharia compliance rules for trading or playing out. This is bloomberg. Yousef you are watching Bloomberg Markets<\/a> middle east. Gold has become an acceptable investment in islamic finance for the first time. The accounting and Auditing Organization<\/a> for islamic Financial Institutions<\/a> adopted sharia compliance rules for trading the metal. Tracy alloway tells us why. Reporter at issue is the complex way in which the islamic tradition treats gold as an asset class. That has limited its development as an investable product. Muslims are allowed to own gold jewelry, they are allowed to use gold coins. There has been some scholarly debate on whether the metal qualifies as a currency or commodity, which has made other types of investments somewhat mark obligated. The aim of these rules is to create a unifying standard that will allow easier access for slightly more confiscated investment products. We are already seeing talk that , the biggest trust owner of gold bullion, was Something Like<\/a> 32 billion worth goldsets that the spdr trust will qualify, and that is a change to what we have seen in the past. How much is this expected to boost demand . You one bitt gave member, 32 billion worth of assets for the gold trust. There are some others i could verio. There are 2 trillion worth of assets in the islamic finance business, Something Like<\/a> billions of muslims around the world. It could be a significant source of new demand. That said, i have not seen a lot of analysts really getting excited about this news. It could be there waiting to see how many companies, financial providers, actually start to offer new products aimed at this growing new investor base. One of the more interesting things i have heard is the idea that islamic banks might now be able to use gold as a way to meet requirements to hold highquality liquid assets under new financial roles. That could be us in the vegan source of demand. I think it is worth reiterating that gold could use all the demand it can get. We have seen a fall about 10 since the end of october, thanks mostly to the stronger u. S. Dollar. That. Thanks so much for lets stay with commodities here. With us is bloombergs top forecaster, jason shanker, president and chief economist at prestige economics. He joins us from austin, texas. It is turning out to be a little party when it comes to the commodity space. What is really underpinning all of this . Two things. On the metal side, what has happened is we have seen fundamental improvements in chinese manufacturing, the pmi that comes out every month has been significant a more positive in showing expansions in recent months after having been below 50 for quite some time over a year and a half. What that shows us is maybe that manufacturing recession in china is over, and that is boosting metal demand. On the oil side, it is all about opec. Angie all about opec, but it is boosting prices. What we have seen is that lower gas prices, Lower Oil Prices<\/a> have actually shrunk supply, but with the shrinking of supply now boosting the price of oil, do you think we are going to see an inverse of what we are seeing in 2016 year seeing in 2016 next year . Well we have seen oil prices in places like United States<\/a>, a mandate from banking regulators. They have been mandated to paul that credit for linde gas drilling. What we also see is there is a seasonality for demand, dependent on the driving season in the u. S. We expect prices are likely to be bolstered once we get into those trading months, once we role. St the wti contract we see the demand for u. S. Summer season next year pulling prices up. Between now and then, i think opecs announcement i was on the email last week when they announced the Production Cut<\/a> with nonopec members as well and i think that was that has helped to support markets in a time of year when you typically see a reduction in demand from refineries. Yousef jason, the election of donald trump has put a fire under a lot of commodities, speculative enthusiasm driving them to highs we have not seen before in recent history. Give me a contrarian play that might materialize. A couple of things. Part of the reason you have seen these prices rise if you look at copper, that price was racing was rising before the election driven by improvements in the chinese manufacturing index. If we look at aluminum, that has been rising on trend all year long, so a lot of these metals have already been moving higher. I think that for the election of donald trump, the implication is there could be more inflation. What we are seeing is some of the money is rolling out of bonds. You are seeing a selloff of the bond market, one of the region one of the reasons you see the yield curve rising so quickly. Money is going elsewhere, into equities and commodities, which have already been rising because of chinese manufacturing. Breaking through Technical Support<\/a> and setting the price even higher. Four commodities and equities. Yousef Bloomberg Markets<\/a> most influential, major key decisionmakers here. Sheila patel is one of those people. She has had a very interesting view on emerging markets and some of the rebounds we have seen. Her take as well on what it all means for the region. We have the recovering oil prices and improving sentiment. The reality is that she is telling clients but money to work in this part of the world. That include saudi arabia and other markets on the back of the improving outlook, so we look at the perspective now. Sheila patel, ceo of the International Goldman<\/a> sachs management. We are here in abu dhabi. You are upbeat about this part of the world. I think there is a lot to be upbeat about. There will be challenges to the em environment in this region, but when you look at the trends, the opening of the markets in saudi, and also some of the developments here in the emirates, there are interesting investments. Yousef how can we learn more about saudi arabia . Earlier, i mentioned how people had almost written off the kingdom, and now remarkable turnaround. 26 this quarter in terms of saudi equities. What are you telling your clients about the transformation story . Wasince vision 2030 announced, many people are turning their eyes to saudi. When you look at what is happening with Institutional Investors<\/a> globally, it is reform, opening of markets, and mci inclusion. As long as we continue to have progress on the kind of things that will develop in msci inclusion, like more free flow access to the markets, that will bode well for the region. It is the big market and needs to be opened. Yousef what about the rest of the middle east . The egypt story, the egyptian pound. Is that a win for us . I think egypt is of interest, people continues look at the political situation and be a bit concerned. Here in the emirates, theres quite a bit to be interested about. Continuing investment and diversifying away from oil. Many people look at this region and see just oil. When they get more educated, they get more excited. Chinese tourism is growing by leaps and bounds, in concurrence with the growth of the middle class in china. You are starting to see that in india as well. In abu dhabi, chinese tourism has gone up 300 in the last three years. Yousef how realistic is it that this transformation is going to be quick . A lot of the analysts are telling us it is not going to be. It is going to be painful, going to take time. What are the risks as you try to move away from dependence on oil this does not happen overnight. You have dabbled and big plans, but it takes years. Absolutely, it takes time. What we have seen over and over again is that every emerging market or every developing economy is that fits and starts, from changes in policy and reform. The more you look at this region and around the world india when the pace of reform is clear, when investors feel they know what the opportunities are and how it will be judged, when they feel the market is fair, they come. The question will be, what are the opportunities . Tourism, that is one. Syntax is another. You see the region investing in that. Yousef you have voiced some concern about this rising tide of antiglobalization. We have seen it with donald trump. You are caught off guard by that, as a lot of other people. Now the politics in a lot of mainland europe is continuing in that trend. How do we quantify Political Risk<\/a> as we draw 2016 to a close . Political risk is one of the hardest to judge. What we have to do is look at the probability set of things that might happen versus reality. We found good Trading Opportunities<\/a> even around brexit and the u. S. Elections, despite the fact that most prognosticators were wrong about those outcomes. That is because there is miss pricing caused by these surprises. We believe in 2017, you will see more dispersion and the emerging markets. Selectivity is key, figuring out where there is domestically oriented stories that will emerge with emerging market economies. Yousef you also have the strengthening u. S. Dollar, which might cut into any dramatic euphoria you might have for the emerging market space. Where do you see the Dollar Strength<\/a> going . I think we will continue Dollar Strength<\/a>. If you look at the last 10 years, most of the performances from e. M. Have come from earnings growth, not from fx. When you look at e. M. And you consider what is going on in the u. S. , there are a few factors. U. S. Exports are not as big a concern for emerging markets as a whole as people receive. As people perceive. They are about 10 . Europe comes into play, and that is a concern. Secondly, there are some industries and businesses within e. M. That are more or less exposed. If you do those things, we think selection by selection there are opportunities. Yousef next on Bloomberg Markets<\/a> middle east, if 2016 brought surprises, just wait for next year. We look at the bloomberg pessimists guide. Trumps chances of being elected were pretty slim, according to most of the people looking at it. Obviously, they misread what they should have been looking at. What we are trying to do is look at a whole lot of Different Things<\/a> that could happen in 2017, not a prediction, sort of tongueincheek, but a lot of it looks pretty scary. Yousef this is Bloomberg Markets<\/a> middle east. If you think 2016 has been bad, brace yourself for the coming months. Bloomberg has compiled the 2017 and itguide to looks like there could be just as much chaos. David has the story. Reporter trumps chances of being elected were pretty slim, according to most of the people looking at it. Obviously, they misread what they should have been looking at. What we have tried to do is look at a whole lot of Different Things<\/a> that could happen in 2017, a lot of predictions. It is sort of tongueincheek, but a lot of it looks pretty scary. I want to start by looking at what could happen in the u. S. We talk about what could happen if there was a trade war between china and the u. S. Because that is something that is a very realistic prospect. Lets consider what could potentially happen in United States<\/a>. You could have a situation where trump becomes incredibly popular in the first months of his presidency. Ofmight pass a whole lot stimulus measures, big fiscal stimulus measures. That could be useful that could cause a surge. At the same time, he might repeal all of Barack Obamas<\/a> legacy with some special orders. That could lead to social unrest on the street. How would a Trump Presidency<\/a> be expected to battle that . Maybe it would battle that, and that is the risk. Maybe we would see curfews in american cities, maybe we see the National Guard<\/a> out there. Those are some things to look out for in the u. S. , a big split in the domestic area. You have got the crystal ball. What is missing from this list . I reckon one of the things i would have added is the possibility of actually having a Nuclear Arms Race<\/a> in asia. We have touched upon the idea that trump might allow japan and maybe saudi arabia to get Nuclear Weapons<\/a>. Im also interested in what could happen in asia, because you have this possibility that south korea also gets Nuclear Weapons<\/a>, then you have got japan and south korea with them. How would china react i reckon china would try to beef up its nuclear arsenal. How would india, with a border dispute with china, react to china with more Nuclear Weapons<\/a> . Probably do the same thing, try arsenal. Their nuclear pakistan, looking at india with more Nuclear Weapons<\/a> i dont think so. These are some of the things that could play out. These are the unintended consequences of policy that is not properly thoughtout. Yousef that is it for this special edition of Bloomberg Markets<\/a> middle east. A busy week ahead in the region. We will speak with the chairman of bp world about his plans for 2017. We will be right here for the start of the trading week in the gulf monday morning at 8 00 a. M. In the uae we on bloomberg television. This is bloomberg. The following is a paid advertisement for time lifes video collection. [doorbell] hi, dean. Hi there. [laughter] bob. Announcer from the battlefield to the white house, from hollywood to the heartlands, americas entertainer was bob hope. Oh, this room is so dull and depressing tonight. 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