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.

Kingdom of Saudia Arabia Budget 2011

SaudiaArabis's 2011 budget serves as demonstration reflecting show's states prowess to stir up economic growth and reduced overspending. Recent budget unveils to be SAR 580 bln  of state expenditure, which is 7.4 % more than the last budget. Morever, KSA economy accounts for 45% of Gulf Area and 25% of MENA
However, despite spending last year, SA has been successful in reducing domestic debt by 26%. 
Revenues SAR 540 bln 2010  470 bln 2009
(based on conservative oil assumption $58/barrel of WTI & production of 8.7mbpd)
(Recorded surplus in 2010 SAR 108.5 bln due to higher oil prices estimate from 62$ to 79$)
Expenditure SAR 580 bln 2010 SAR 540 bln 2009
Education, Health, Training, Social Development accounts for 46% of budget.
Provision of SAR 250 bln Provision for financing on going projects
Public debt in 2010 reduced from SAR 225 to 167 bln
(Saudi debtis held by i-State Pension Fund ii-General organization for Social Insurance & Public Pension Agency
Reduction of debt has been due to Foreign Assets held by SAMA at SAR 1611 billion($434.7Bln)
Private Sector Real GDP growth 3.7% 2010 Private sector contributed 47.8% to real GDP
GDP 3.8% 2010
GDP  2010 SAR 1.63 trillion 2009 1.41 trillion
Current Account Balance trippled SAR 260.9 billion because of oil

As of 2010-"Oil Revenues rose to SAR 762.1 billion, up to 24.6%, while non oil revenues climbed 13.7% to SAR 124.2 Billion"

IFRS

Tomorrow, i have training on IFRS. This is compilation of my understanding on the training i will be attending


International Financial Reporting Standards (IFRS) are Standards, Interpretations and the Framework Full text of the Framework adopted by the International Accounting Standards Board (IASB).

International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989)[1] adopted by the International Accounting Standards Board (IASB).

HISTORY: Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting StandardsThe IASB has continued to develop standards calling the new standards IFRS.

Structure of IFR: IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments.

International Financial Reporting Standards comprise: International Financial Reporting Standards (IFRS)—standards issued after 2001,International Accounting Standards (IAS)—standards issued before 2001,Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC)—issued after 2001,Standing Interpretations Committee (SIC)—issued before 2001,Framework for the Preparation and Presentation of Financial Statements (1989)

Framework: The Framework for the Preparation and Presentation of Financial Statements states basic principles for IFRS.The IASB and FASB Frameworks are in the process of being updated and converged. The Joint Conceptual Framework project aims to update and refine the existing concepts to reflect the changes in markets, business practices and the economic environment that have occurred in the two or more decades since the concepts were first developed.

Underlying assumptionsIFRS authorize two basic accounting models:

I. Financial capital maintenance in nominal monetary units, i.e., Historical cost accounting during low inflation and deflation (see the Framework, Par 104 (a)).

II. Financial capital maintenance in units of constant purchasing power, i.e., Constant Item Purchasing Power Accounting - CIPPA - during low inflation and deflation  and Constant Purchasing Power Accounting - CPPA - during hyperinflation. The following are the four underlying assumptions in IFRS:

1. Accrual basis: the effect of transactions and other events are recognized when they occur, not as cash is gained or paid.2. Going concern: an entity will continue for the foreseeable future.3. Stable measuring unit assumption: financial capital maintenance in nominal monetary units or traditional Historical cost accounting4. Units of constant purchasing power: financial capital maintenance in units of constant purchasing power during low inflation and deflation;

Qualitative characteristics of financial statements

Qualitative characteristics of financial statements include: Understandability, Reliability, Comparability, Relevance, True and Fair View/Fair Presentation

Consolidated financial statements

Acquisition accounting and goodwill

Joint ventures, associates and other investments a-proportionate consolidation b-equity method

Investments other than subsidiaries

Inventory (stock)

Receivables (debtors) and payables (creditors)

Borrowing

Provisions

Revenue

Employee costs

Share-based payment

Income taxes

Cash flow statements

Leasing (accounting by lessees)

Leases are classified in IFRS:a-Finance lease b-operating lease

Fair value

Amortised cost

IFRS VS GAAP

• Under IFRS, accounting is done for all assets including hidden intangibles at fair value. As the assets are recognized at fair value, amortization of these assets will reduce future year profits under IFRS.
• IFRS requires expensing of acquisition-related costs, whereas the practice under Indian GAAP is to capitalize such expenses as cost of investment. 
• Performance-related consideration paid to the acquiree, known as contingent consideration, is accounted at fair value under IFRS, with subsequent changes included in the profit and loss (P&L) account. Under Indian GAAP, the impact of contingent consideration is generally included in the cost of investment.
• Many Indian companies, for legal or operational reasons, operate through structured entities known as special purpose entities (SPEs). SPEs are common in securitization transaction, land acquisitions, outsourcing and sub-contracting arrangements. Many of these arrangements are not consolidated under Indian GAAP as they do not meet the definition of a subsidiary under the Companies Act. Under IFRS, many such SPEs may have to be consolidated as these entities are in substance controlled through an auto-pilot mechanism or through legal/contractual provisions determined at inception. The consolidation of SPEs under IFRS may have a substantial impact on the P&L account, net asset and gearing position, and also certain key ratios such as debt-equity.
• Under IFRS, ESOPs are accounted using the fair value method, which results in a P&L charge. In contrast, Indian GAAP permits ESOPs to be accounted for using either the intrinsic value method or the fair value method, and most entities follow the intrinsic method. The intrinsic method does not result in a P&L charge unless the ESOPs are priced at a discount over the intrinsic price. Compared to Indian GAAP, IFRS will result in lower profits for companies that use ESOPs for remunerating employees.
• IFRS requires a financial instrument to be classified as a liability or equity in accordance with its substance. For example, mandatorily redeemable preference shares are treated as a liability and the preference dividend is recognized as interest cost. Under Indian GAAP, classification is normally based on form rather than substance. Thus, these shares are recorded as equity and the preference dividend as dividend rather than as interest cost. Compared to Indian GAAP, IFRS will show the firm as more geared and profits would be lower as a result of preference dividends being treated as interest.
• Many Indian companies use foreign currency convertible bonds (FCCBs) for their funding requirements. Under Indian GAAP, the redemption premium is charged to the securities premium, and the conversion option is not accounted for. Consequently, for many companies FCCBs result in minimal or no charge to the P&L account.
• Under IFRS, FCCBs are split into two components—the loan liability and the conversion option. The loan liability accretes interest at market rates and is also adjusted for exchange rate movements. Thus, the charge to profits under IFRS are higher than under Indian GAAP. The conversion option is marked to market at each reporting date, and the impact is recognized in the P&L account. This will have a significant impact on the volatility of profits under IFRS. If the fair value of the underlying shares rises, mark to market of the conversion option would lead to losses in the P&L and vice-versa.
• Under Indian GAAP, companies may not have fair-valued derivatives and embedded derivatives on their books as there are no mandatory standards. Many that have fair-valued derivatives have not recognized losses as they claim those to be for hedging purposes. Under IFRS, all derivatives and embedded derivatives are fair-valued, and hedging is permitted only where stringent criteria relating to documentation and effectiveness are fulfilled. Therefore, in practice, many Indian companies may not be able to apply hedge accounting unless they develop appropriate systems to be able to do so. Consequently, these companies are likely to experience significant volatility arising out of gains and losses on the derivative portfolio.
• Under Indian GAAP, sales made on deferred payment terms are recognized at the nominal value of consideration. Under IFRS, they are accounted as a combination of financing and operating activity. The fair value of the revenue is recognized in the period of sale whereas the imputed interest amount is recognized as interest income over the credit term. Compared to Indian GAAP, revenue under IFRS will be lower, and earnings before interest, tax, depreciation and amortization will also be lower, as the financing component will be recognized as interest income.

Developing the Enterprise

Development of Industrial sector is Panacea for the ailing economies of the world. Owing to the fact that every country today is caught in this quagmire recession, amiable business environment, reduction in taxes, cheap factors of production, neoteric technology, availability of capital, lesser trade and fiscal deficits, propitious friendly conditions are some factors that can bolster dwindling economies of the world.

Industrial sector of Pakistan is severely maimed and requires immediate steps by government to outdo ongoing Global crunch. The stats say that today Pakistan has 3.3 million economic establishments comprising of 90% sole proprietorships, 2% Partnerships, 8% Corporations. Out of 3.3 million establishments, 95% employ less than 5 workers, 4% employ between 6-50 workers, 1% more than 50 workers insinuating that Pakistan has dearth of jobs. Currently, large part of our economy is dominated by 90% of small and medium enterprises (SME) contributing 30% to GDP and employing 78% of non agricultural workforce. Still, this sector is somewhat neglected by the listless attitude of our government. Moreover, 50% of the enterprises are in retail and wholesale and only 20% (660,000) of them are in manufacturing sector implying that Pakistan lags significantly in manufacturing industry. Older enterprises most of them in Sindh, being more lucrative then new enterprises all over the country also suggests that new enterprises lapse in technological advancement, which is one of the reason of their pitfall.

Pakistan’s government should develop industrial policy to foster our enfeebled economy and the very first step being development of its enterprises. Government should help SME’s built better linkages with transnational corporations and promote vendor industry to solve aforementioned conundrum. 
Wrote on March7,2009

Musharraf Resigns?

Wrote it 4 years back!!Provoked by Friend;)




There is a very thin line betwen nescient and cognizant
what you been mincing others are hollering!!!its not new or is it?
i srtrongly defend wat mush did in his 9years reign?i dont say "no corruption" but i say "less corruption"
spilling about truth @ lal masjid mush didnot had the liberty other than2combat!!but still diz iz one mistake i think he did
the recent turmoil or slumping pakistan economy has nothin to do with mush!!itz due to global hiking of oil prices!!itz more to do vid the speculations world wide den nything else!!the whole globe is experiencin repercussions of it!!look at china india(13%inflation highest in 11years). America and so on!!
lastly operations in northern areas of pakistan? i am damn sure the any govt whoever it be vud b doin the same. bet it!!!
allegations vud b allegations 4ever unless u prove it!! v vant facts not crap!!
in short he is "Better among the worst"

Kingdom of Saudia Arabia Budget2010

28dec09 : KSA, today unveiled, largest budget in Kingdom history,  which it sets out to be SAR 540bn showing 14% increased visa a vis 2009. Deficit of SAR 70bn. is foretasted to foster, unforeseen  growth in the history.
Revenue (SAR 540 bln)
Expenditure (SAR 470 bln)
1/4th was on Education (SAR 137 bln)
2/4th was on welfare (SAR 260 bln)
GDP2009 SAR 1.38 trln

Oil Indicators