News & Views

• Quantitative measures can only go so far. After six hikes in 2010, the reserve requirement ratio, for example – currently at 18.5 per cent for big banks – is fast approaching its theoretical cap of 25 per cent (the banking regulator’s loan-to-deposit requirement is 75 per cent). And while planned credit growth of 15 per cent in 2011 may be enough of a deceleration to keep prices in check, China should not count on it: a much steeper decline from 32 per cent in 2009 to 19 per cent in 2010 is apparently failing to do so.

• Ten-year Greek bond yields are now over 12%, more than double what they were at the beginning of the year. Greece
• The Kingdom and Malaysia are the two largest markets by far for Islamic investment funds, both in terms of net asset value (NAV) and number of funds.
• THE best Islamic Finance principle to base the much-awaited Saudi mortgage law should be sukuk-based with a Shariah-compliant set of guidelines
• Drake — a contractor which specializes in mechanical, engineering and plumbing (MEP) businesses and listed on the Dubai Financial Market in March -- has been rapidly expanding operations outside Dubai, where house prices have plunged some 60 percent since their peaks in 2008, and billions of dollars worth of projects have been put on hold or canceled.They are currently involved in 170M$ deal 
• Brazil's President Luiz Inacio Lula da Silva, right, raises his Chief of Staff Dilma Rousseff's arm during and anouncing 877bil$investment plan

EUR/USD	1.3111	-0.0052
USD/JPY	82.3850	-0.4100

30December2010

• The Karachi stock market crossed the psychological level of 12,000 points due to foreign interest in oil and gas, bank and fertilizer scrips,
• Commodity prices beat gains in stocks, bonds and the dollar this year as China, the biggest user of everything from cotton to copper to soybeans, led the recovery from the first global recession since World War II
• YEAR 2009 2010 The Thomson Reuters/Jefferies CRB index, a gauge of 19 raw materials, jumped 15 percent since the end of 2009 through yesterday. The MSCI All Country World Index of stocks rose 13 percent after accounting for reinvested dividends. Global bonds returned 4.7 percent as measured by Bank of America Merrill Lynch’s Global Broad Market Index. The U.S. Dollar Index, which tracks the currency against six counterparts, added 2.1 percent. 
• Japanese bonds, the biggest debt market, returned 2.4 percent in 2010 as the central bank cut its benchmark interest rate to “virtually zero.” Greece and Ireland, which sought financial bailouts this year, had the worst-performing bonds among the 26 sovereign markets compiled by the European Federation of Financial Analysts Societies and Bloomberg.
• INSIDE TRADING:Jiau, arrested Dec. 28 in Fremont, California, was accused of selling data on Nvidia Corp. andMarvell Technology Group Ltd., makers of computer components, to portfolio managers at three unidentified hedge funds through Primary Global, according to a filing in Manhattanfederal court. The hedge funds paid Jiau $200,000 through the networking firm, prosecutors said.
• US:Applications for unemployment assistance decreased by 34,000 to 388,000 in the week ended Dec. 25, breaking the 400,000 level for the first time since July 2008, according to Labor Department figures today in Washington.
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• Bond: US M1 Rose $13.7B In Dec 20 Week; M2 Rose $4.9B

• COUPON (%)	COUNTRY	MATURITY	YIELD (%)	LATEST SPREAD OVER TREASURYS*	PREVIOUS YIELD (%)
  * In basis points
  Source: Thomson Reuters
  See all Global Government Bonds
  4.500	Australia	10	5.565	220.2	5.605
  2.500	France	10	3.357	-0.6	3.427
  2.500	Germany	10	2.954	-40.9	3.018
  1.200	Japan	10	1.117	-224.6	1.162
  4.750	U.K.	10	3.464	10.1	3.569
  2.625	U.S.	10	3.363	...	3.339

• Forex: The dollar couldn't sustain its early momentum after a batch of strong economic reports and slipped to a seven-week low against the yen and a record low against the Swiss franc.
• Commodities: Oil less than 90$, Silver & Palladium is record high!!gold slips
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UK VS US

Mantra of the day:
Great depression for UK was not as big as it was for US

Mikhail Khodorkovsky Timeline

• 1963 - Born in Moscow, son of chemical engineers
• 1981 - Enters Medeleyev Chemistry Institute, Moscow
• 1980s - Sets up computer software business with fellow students
• 1987 - Founds Menatep bank
• 1994 - Buys Apatit fertiliser company at auction
• 1995 - Buys Yukos for $350m, with Menatep assuming $2bn in debt
• 2003 - Arrested for tax evasion, embezzlement and fraud
• 2004 - First court case begins
• 2005 - Found guilty on six of seven charges, jailed for eight years
• 2007 - Yukos declared bankrupt
• March 2009 - Second court case starts in Moscow
• December 2010 - Convicted of embezzlement and money laundering

News & Views

28th december 2010

• China has increased interest rates 25 basis point resulting an increase to 5.81% and depository benchmark to 2.75%

IMPACT

•  DOW down 0.15%S&P 500 up 0.08%NASDAQ up 0.10%
• Europe followed suit, and while London was closed, the German DAX was down 1.23% and the French CAC down 0.98%.
• US crude peaked at close to $92 but fell back to about $91 a barrel. Brent crude eased $1 to about $93.50.
• Oil prices tumbled by 4% when China last raised interest rates in mid-October.
• This shows inter linkage of global markets

"Compared to rate hikes in the beginning of next year, a rate hike before year-end will have a more tightening impact, as the interest rates on the medium- and long-term loans and deposits are reset at the beginning of each year according to the base rates."

• China has also officially increased banks' required reserve requirements six times this year and restricted lending by them.
• Volatile currencies and low interest rates will drive gold even higher in 2011
• 1995 300$/ounce, 2008 700$/Ounce, 2010  1375$/ounce

OTHER

• China is now Africa's largest trading partner, strings or no strings attached, and that bilateral trade grew more than 43 percent to nearly $115 billion in 2010. At the same time, Chinese direct investment in Africa has jumped from a meager $0.5 billion in 2003 to a healthy $9 billion in 2009.Chine also plans to control Europe after it helped greece. Also, Chinese can use a two pronged policy for their surpluses - supporting the euro zone by purchasing euro bonds through the European Financial Stability Facility (EFSF), while at the same time establishing deeper trade and FDI bilateral flows.
• Kenneth R. Feinberg, President Obama’s former pay czar, received a lukewarm reception from Wall Street this year when he suggested that firms adopt a so-called brake provision that would allow employee compensation agreements at big banks to be broken if the government were forced to step and bail them out.
• Japan is thinking how to tackle inside trading which allows the investors to sell of the new securities and than buy back them at discounted price to cover their position and impacts long term shareholder.  However, they believe right issues can solve this as the entitlement for new shares is to existing share holders
• Saudi Arabia is the single largest automotive market in the Gulf region and of the 4.5 million passenger cars in the GCC over 2 million are in the Kingdom whose buoyant new vehicle market exists alongside a thriving pre-owned market of 46 percent of pre-owned vehicles.
• Saudi Arabian Mining Co. (Maaden) will boost exploration in the vast Arabian Shield region and develop new mines in a bid to double gold resources to 20 million ounces by 2020, its chairman said
• The Saudi British Bank (SABB) launched "SABB Advance," a Shariah-compliant program, which provides customers with privileged services within Saudi Arabia and abroad.The launch of the new program is in line with the bank's continuous endeavors to promote Islamic banking and to expand Shariah-compliant products and solutions for retail, corporate, treasury and investment segments as well as Takaful insurance.
• The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.

Basel III

BASEL III (sometimes "Basel 3") refers to a new update to the Basel Accords that is under development. The Bank for International Settlements (BIS) itself began referring to this new international regulatory framework for banks as "Basel III" in September 2010. The Basel Committee of banking supervision’s idea is to strengthen global capital and liquidity regulations with goal of promoting resilient banking sector

The draft Basel III regulations include:
1. "tighter definitions of Common Equity; banks must hold 4.5% by January 2015, then a further 2.5%, totaling 7%.
2. the introduction of a leverage ratio,
3. a framework for counter-cyclical capital buffers,
4. measures to limit counterparty credit risk,
5. and short and medium-term quantitative liquidity ratios."

Summary of Changes Proposed in Basel III
1 First, the quality, consistency, and transparency of the capital base will be raised.
Tier 1 capital: the predominant form of Tier 1 capital must be common shares and retained earnings
Tier 2 capital instruments will be harmonized
Tier 3 capital will be eliminated.
2 Second, the risk coverage of the capital framework will be strengthened. Strengthen the capital requirements for counterparty credit exposures arising from banks’ derivatives, repo and securities financing transactions. Raise the capital buffers backing these exposures, reduce procyclicality and provide additional incentives to move OTC derivative contracts to central counterparties (probably clearing houses). Provide incentives to strengthen the risk management of counterparty credit exposures
3 Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework.
The Committee therefore is introducing a leverage ratio requirement that is intended to achieve the following objectives:
a. Put a floor under the build-up of leverage in the banking sector
b. Introduce additional safeguards against model risk and measurement error by supplementing the risk based measure with a simpler measure that is based on gross exposures.
4 Fourth, the Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress ("Reducing procyclicality and promoting countercyclical buffers").
The Committee is introducing a series of measures to address procyclicality:
Dampen any excess cyclicality of the minimum capital requirement;
a. Promote more forward looking provisions;
b. Conserve capital to build buffers at individual banks and the banking sector that can be used in stress; and
c. Achieve the broader macro prudential goal of protecting the banking sector from periods of excess credit growth.
d. Requirement to use long term data horizons to estimate probabilities of default,
e. downturn loss-given-default estimates, recommended in Basel II, to become mandatory
f. Improved calibration of the risk functions, which convert loss estimates into regulatory capital requirements.
g. Banks must conduct stress tests that include widening credit spreads in recessionary scenarios.
h. Promoting stronger provisioning practices (forward looking provisioning):
i. Advocating a change in the accounting standards towards an expected loss (EL) approach (usually, EL amount := LGD*PD*EAD).

5 Fifth, the Committee is introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.
The Committee also is reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions.

NCB

NCB Capital has said that it will continue its plan to expand its asset management and brokerage services throughout 2011. NCB is the largest investment bank in the Kingdom and it plans  to increase its market share in the Arab world’s largest economy. 
NCB is not listed on tadawul. They plan to increase their services and position itself as Kingdom’s most advanced on-line brokerage trading system, offering new portfolio analysis tools and features which have not yet been seen in Saudi Arabia before.
They were the first one to launch US denominated, Shariah compliant Sukuk fund in KSA this february. There clients and investments are in primarily less volatile as others as its clientelle is in Europe and US. They also provide market research to foreign countries.

Oil, Gold & Dollar

Today,owing to decrease in US crude oil reserves, oil prices increase to 90$ globally!!

In its weekly petroleum report, the Energy Department's Energy Information Administration said crude supplies dropped by 5.3 million barrels last week from the week before. That's more than twice the decline expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos. 

In Quito earlier this month, OPEC Secretary-General Abdulla El-Badri said OPEC would base any change in policy on fundamentals of supply and demand, rather than price alone.

"If it goes to $100 due to speculation, OPEC will not move," EL-Badri said.

It has also impacted gold price which has risen as it provide means for alternative investment. Thus shortage of oil , resulted in hiking of oil prices and people shifting towards more stable com-oddities as gold and silver.
The rate of demand growth next year has been pegged at 1.5 million bpd, a Reuters poll showed, only half the 2004 peak, according to data from the International Energy Agency, of 3 million bpd.