NCB Private Banking, NCB Capital joint forums discuss global financial crisis and impact on local market

The forums featured presentations to a select audience of NCB Private Banking and NCB Capital clients, investors, traders, brokerage customers and institutional clients at events held in Riyadh, Dammam and Jeddah. The number of attendees at the three events exceeded expectations and there was keen audience interaction in the question and answer sessions that followed the presentations.

The agenda included speeches and presentations from Dr. Jarmo Kotilaine, Chief Economist of NCBC, whose presentation was titled "Whither the Global Economy?"; Dr. Said Al-Shaikh, Chief Economist of NCB, who gave a presentation on "The Global Financial Crisis and it's Implications on the Saudi Economy"; and Mr. Bryan D'Aguiar, Head of Equity Research at NCBC, whose presentation was titled "Saudi Equity Markets - Sow the seeds for a rich harvest".

Dr. Kotilaine in his presentation discussed the future of global economy, and the causes behind the continuing economic turbulence. He suggested that no quick turnaround was in sight as the credit crunch turns into a broader and increasingly global downturn.

He said:

"We can write off the rest of 2008, and a great deal more needs to be done before situation is stabilized."

He added that this is complicated by the fragile sentiment caused by the exceptional magnitude of the economic challenges.

"The only thing we have to fear is fear itself" quoted Dr. Kotilaine, the 1933 inaugural address of President Roosevelt, "Ultimately, the crisis was likely to significantly transform the financial system - with increased regulation and risks-aversion - as well as the global balance of economic power," he added.

Dr. Al-Shaikh in his presentation went into detail concerning the cause of the global financial crisis, itemizing the stages that took the economy from bubble to burst - beginning with cheap and easy money, increased appetite for risk, new forms of financial engineering, increased capacity for leverage and rising house prices, to distrust of new forms of finance, reduced appetite for risk, reduced capacity for leverage, falling house prices and slowing economy.

Moving on to the effect on oil prices, Dr. Al-Shaikh said that as the economic recession spreads beyond the US to the Euro Zone, Japan, and even to the emerging economies, demand for oil is expected to weaken in 2009 with a resulting decline in prices.

"However, even with the decrease in oil prices, the Saudi government budget for 2009 is likely to be conservatively balanced at a price lower than the expected price in 2009 and it is projected that there will be a fiscal surplus for the year of SR298bn," continued Dr. Al Shaikh, adding in conclusion that "SR940bn in reserves will enable the Saudi government to move on with its investment plans."

Dr. Al Shaikh demonstrated that Saudi Stocks Index "Tadawul" sharp retreat was due to contagious effects, despite the good profits levels. As for banking sector, Dr. Al Shaikh mentioned that Saudi Banks' commitments to sound risk management made banks raise its lose provisions, which contributed in retreating its profits in Q3 2008. He also drew attention to that fact of the rise of the value of mega projects announced by 180% during the past 29 months to reach $556bn.

Discussing pending projects, Dr. Al Shaikh said that the value of those awarded and in the invitation to bid stage are estimated at about $272bn, but foreign financers setback and local limited financing may push government to rearrange priorities.

Bringing an upbeat note to the forums, Mr. Bryan D'Aguiar in his presentation, "Saudi Equity markets - Sow the seeds for rich harvest", drew attention to the fact that the last time Saudi equities were so inexpensive was almost a decade ago in Q1-1999 when oil was trading at less than $10 per barrel. Mr. D'Aguiar expressed that valuations in local equity markets were compelling and that the medium term outlook was positive. He also suggested a number of investment strategies that investors could adopt in such an environment and called on them to focus on high quality investment ideas.