Two very contradictory headlines appeared in a UAE-based financial newspaper late last month. One brought attention to the “20-billion-dirham-losses in the stock market on the tenth day of the global crisis,” while the other called one of the local bourses a “pearl” that “has not been affected by the global crisis.”
Clearly, there is a lack of clarity in terms of where the GCC stands as a financial center in today’s world. But recent developments do show that we are not insulated from the global market crisis. The Gulf stock markets were down this year even before the collapse of Lehman Brothers.
Saudi Arabia started at 11 ,900 in January and has since declined more than 25 per cent, while the Dubai Financial Market ‘corrected” from above 6,200 points to reach 3,900 in the same period. Additionally, the Abu Dhabi exchange was down from a high of 5, 100 in June this year to 3,700.
It is, therefore, intriguing to try to understand what drives the Gulf countries to invest in assets abroad when there are clearly opportunities in their own backyard. Earlier this year, the Kuwait Investment Authority (KIA) invested US$ 5 billion in Merrill Lynch and Citibank, both of which have been starring in the drama The Global Financial Meltdown. In fact, it would be interesting to learn who advised the KIA on these Investment ‘opportunities” in January, several months after the credit crunch started. I suspect it was other investment banks that made their commissions from the transaction. In any case, Kuwait took the unprecedented step in acknowledging a US$ 270 dollar loss in its Citibank investment in September.
The same can be said for the Abu Dhabi Investment Authority (ADIA) bailout package for Citibank, which had unfortunate timing. Citi’s stock was trading above US$ 30 when ADIA pumped US$ 7.5 billion into it. By mid-September, however, the stock was trading at US$ 14, a staggering 55 per cent unrealized loss.
Interestingly, billionaire Prince Al Waleed Bin Talal’s advertising media campaign for the giant Saudi-listed Kingdom Holding has been absent from the Gull media recently. This absence may have been partly influenced by the fact that Prince Al Waleed’s Kingdom Holding is the largest individual investor in Citibank, owning 3.6 per cent of the firm’s equities. When Prince Al Waleed was informed by Citi’s former CEO, Chuck Prince, of the several billion dollars in write-offs, he dismissed it as a “mere hiccup” and expected the bank to recover soon.
That was in October 2007, when the bank was trading at about US$ 47 per share. Not surprisingly, Kingdom Holding’s stock fell from SAR 14 in December 2007 to a little over SAR 6, a 60 per cent drop.
Surprisingly, Forbes magazine’s list of world billionaires, which is updated on an annual basis, did not take into account these losses incurred by Prince Al Waleed. In the same period, according to the list, his fortunes increased by about US$ 700 million to reach US$ 21 billion between August 2007 and May 2008 despite the colossal corrections in both the Saudi stock market and Citibank shares.
CNN Money had, by that time, harshly placed Prince Al Waleed’s purchase of his own Airbus A380 in the “101 Dumbest Moments in Business.” The “flying palace” cost Prince Al Waleed more than US$ 320 million. II will probably come in handy when he and his financial advisors travel to New York for the next Citibank annual general meeting.
The moral of the story: why invest in dumb opportunities abroad when international bankers would be equally happy to advise you on dumb business opportunities in your own backyard?
This article originally appeared in the October 2008 issue of MONEYworks.