Dubai’s Diluted Safe Haven Potion

UAE shares rallied toward the plus column as trade, tourism and banking deposits were diverted from elsewhere in the region to lift non-oil GDP growth to 4 percent despite continued Dubai debt wariness. Federal support is expected as a backstop even as an initial restructuring facility expires, with the budget break-even price for petroleum exports at $80/barrel. However Eurozone lending to the GCC, which has been cautious since the 2009 repayment moratorium, has shown further signs of caution on big infrastructure projects with French banks in particular less active in Qatar and Saudi Arabia energy ventures and requesting further collateral as overall Mideast quarterly cross-border credit totals dip below $10 billion. A refinancing for DP World’s port unit commanded a margin at double the previous arrangement, while the emirates’ sovereign wealth fund also saw the cost of a $3 billion package rise to 350 basis points over Libor. Bond yields on the HSBC-Nasdaq benchmark index jumped to 5.5 percent in October. The national airline has turned to local rather than foreign banks and Chinese official providers have also entered the mix. The NPL ratio will increase to 3 percent next year, according to leading local institutions including Emirates NBD, which recently took over the bad assets of rescued Dubai Bank after its own chief executive was replaced in a ruling family shakeup. Government spending cannot serve to stoke domestic demand and pre-empt popular disquiet as in the Saudi and Qatari cases, where salaries and subsidies have climbed sharply. The two are also the main sources of $10 billion in medium-term assistance to Bahrain and Oman as they struggle to overcome political and economic regime challenges. Oil producers in the MENA area generally, including Algeria, Iraq and Kuwait, have boosted outlays approximately 7.5 percent of GDP since the troubles and the fiscal scope may narrow next year as commodity revenues taper and foreign asset holdings in the developed world show shrinking returns.

OPEC policy is further complicated in 2012 by Iran’s presidency, with its oil minister the former head of the commercial arm of the Revolutionary Guards which controls top companies on the stock exchange. Capitalization has doubled to $120 billion over the past year as a string of state enterprise sales sustains an upward trend despite diplomatic squabbles over the alleged nuclear bomb program and terrorist backing. Over the counter and online trading alternatives are available, and despite a scandal in the sector which has implicated the President’s allies, another bank IPO recently took place to enthusiastic retail and institutional subscription, although the line between state and private control has essentially vanished in the internal war for deposits and power.

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