EM Morning Roundup

ISIS Declares New Islamic State, Dubai Slumps Again

June 30, 2014

Barron's - EM Daily Blog

Iraq:

The Iraq next year may be a lot smaller than the Iraq today. The ISIS has declared theterritories it controls in Iraq and Syria a caliphate, or a pan-Islamic state led by a supreme religious leader known as the caliph. ISIS leader Abu Bakr al-Baghdadi declared himself the caliph and as such all other Islamic organizations are void and under his control. Think of him as the new Pope.

The new caliphate is all the more contentious, as it was declared at the start of the holy month of Ramadan. The historical Sunni Shiite divide ultimately went down to who would lead the caliphate after the Prophet passed away without an apparent heir.

Russian experts have arrived to help the Iraqi army, run mostly by Shiites, to get the 12 new Russian warplanes into the fight against the Sunni militants.

United Arab of Emirates:

Shares in construction contractor Arabtec (ARTC-DFM) fell by its daily limit of 10% in early trading. Other construction companies followed suit. Union Properties (UPP-DFM) fell 9.6%.Drake & Scull International (DSI-DFM) also hit the daily limit.

The Dubai DFM General Index slumped another 4.4%. The iShares MSCI UAE Capped ETF(UAE) has lost 15.1% this month. The WisdomTree Middle East Dividend Fund (GULF) is down 9.8%.

Concerns over Dubai’s property market certainly has much to do with the sell-off, but geopolitical risk in Iraq also sours sentiments in the Gulf. Qatar QE Index was down 1.7%.

Russia:

The MICEX Index fell 1% as investors wait to see how the Ukraine situation resolves. Germany, France, Ukraine and Russia are to hold more talks, and Ukraine is urged to extend a ceasefire deadline – due to end today – for a second time. The truce remains fragile. Gazprom listed in London fell 2.2%. The ruble dropped 0.7% trading at 33.988 per dollar. The Market Vectors Russia ETF (RSX) recovered 23% since its late April low.

China:

The most actively traded Chinese companies in the U.S. are on pace to report the smallest profits in two years. Analysts have cut their revenue forecast by 7.9% in the last 11 weeks and expect an average 41% decline in profits from 2013.

China’s housing prices fell in June for the second straight month. Average new home prices fell 0.5% from May.

The Hong Kong Hang Seng Index fell 0.1%. The Shanghai Composite Index gained 0.6%.

India:

Brent crude dropped to $112.6 per barrel despite the conflict in Iraq. Most of the oil production is in southern Iraq, still controlled by the Iraqi government. The S&P BSE SENSEX Indexgained 1.3%.

Narendra Modi is pushing for the first labor reform in decades to create jobs. Reuters reports:

India has a forest of labor laws, including anachronisms such as providing spittoons in the work place, and are so complex that most firms choose to stay small. In 2009, 84 percent of India’s manufacturers employed fewer than 50 workers, compared to 25 percent in China, according to a study this year by consultancy firm McKinsey & Co.

The World Bank said in a 2014 report that India has one of the most rigid labor markets in the world and “although the regulations are meant to enhance the welfare of workers, they often have the opposite effect by encouraging firms to stay small and thus circumvent labor laws”.

Indonesia:

Presidential hopeful Joko Widodo, whose lead has been eroded as Indonesians head for the voting booths next week, is lauded as a reformer. Wall Street Journal examined his record as the Governor of Jakarta, and concluded he had trouble getting big projects done. The Jakarta Composite Index gained 0.7%.

Tags: china, emerging markets, india, indonesia, investment, iraq
Posted in Global, Consulting