Stimulus+: Give People, Not Banks, Wads of Cash

♠ Posted by Emmanuel in at 9/03/2014 01:30:00 AM
Let them eat cash? Marh Blyth elaborates
Once more demonstrating how little understood us IPE scholars are, Yahoo! has an otherwise interesting feature on Scottish "economist" (shouldn't he go by "political economist"?) Mark Blyth talking about his ultimate stimulus plan. The gist of it goes like this: so the US has enacted unprecedented levels of monetary easing and stimulus spending to help the country recover. However, the financial system which intermediates in the process of cash reaching citizens' hands remains most unreliable. So, why not use stimulus more directly by giving it to them and not the unreliable, untrustworthy banks?
In the accompanying video, Mark Blyth, professor of International Political Economy at Brown University, talks about his idea. He says while quantitative easing -- or mass asset purchases -- have cost basically $2.8 trillion dollars so far, if you divide that by the taxpaying population it would come to about $56,000 per household. "Imagine if that had just been given to households," he asks.

"So why not just give them a fraction of that directly, rather than trying to force all of that money through the banking sector altering asset prices, causing asset bubbles and distortions, and hoping that some of it causes real growth," he adds.

What about the consequences, like inflation, as some critics argue would occur? Check out the video to see how he responds.
Unfortunately Yahoo! doesn't have an embed feature so you'll have to visit its site through the link above. (The full article is here.)

UK 'Hypocrisy': Not Punishing UK-Based Russian Oligarchs

♠ Posted by Emmanuel in at 9/02/2014 01:30:00 AM
"Only plebs complain about Vlad, dahling!"
Oh, the times they are a-changing: The gossip among Londoners in the posh parts of town is how usually flamboyant, noveau riche Russian oligarchs are lying low (for now). A few dozen less bottle blondes mixing with the Sloane Rangers and the chatter kicks into overdrive. The vulgar displays of oligarchs, their wives, mistresses, and assorted hangers-on in London has even spawned a trashy TV reality show. For those who experienced it--I did at the tail end while working there for two years--it was quite a parade.

Even if Russians are lying low in London, however, there are still signs of disquiet about how they continue to travel to and fro and conduct business quite freely. All this has raised the ire of anti-Russian voices especially after the events in Ukraine. With new European sanctions on the way, why all this British hypocrisy that allows the likes of Putin crony Roman Abramovich to splurge as much as he wants on Chelsea FC and more?
“Mr Cameron appealed to European governments to freeze accounts of oligarchs close to [President Vladimir] Putin. He can do it himself, with Roman Abramovich,” said Andrei Piontkovsky, a political analyst at the Russian Academy of Sciences, referring to the England-based owner of Chelsea FC. “Abramovich is one of Putin’s closest associates, he is one of those who put Putin in his post in 1999,” Mr Piontkovsky said.

His comments highlighted an apparent contradiction in the UK’s position. Government officials said Britain supported EU sanctions against those Russians who had indirectly helped support Russia’s interference in Ukraine – but Russians in the UK would not, for now, be affected. On Tuesday, Labour MPs called for the Conservatives to return a £160,000 donation from the wife of a former Russian finance minister who won a party fundraising auction to play tennis with the prime minister and Boris Johnson, the London mayor. Lubov Chernukhin, the banker and wife of Vladimir Chernukhin, made the winning bid at this month’s Conservative summer party held at the Hurlingham private members’ club in Fulham, west London.

The role of Russian money in the UK – particularly London – is extensive. Russia’s oligarchs, business people and senior officials have become one of the largest national groups of buyers for London properties worth £10m or more. There are now 113 companies from Russia and the broader CIS region with shares quoted on the London Stock Exchange.
I'll have more soon on the ongoing debates about how Russian buyers are shaking up the market for prime real estate in central London. Meanwhile, the Tories have some explaining to do with this "kick the Russians...except 'our' Russians" behavior. Dahling.

UPDATE: Also see this earlier Foreign Affairs article on this issue. 

Strange Times: al-Qaeda & US Against ISIS

♠ Posted by Emmanuel in at 9/01/2014 01:30:00 AM
There's an excellent article over at the WSJ on how "the enemy of my enemy is my friend" is turning up odd de facto if not de jure partnerships in the Middle East as the so-called Islamic State in Iraq and Syria makes inroads and holds territory there. Just because you don't admit working together doesn't mean you wouldn't welcome mutually desirable outcomes. The United States and Iran having a shared interest in propping up the Shia-dominated Iraqi government to prevent further incursions is novel enough. but try al-Qaeda and the United States fighting ISIS:
Islamic State even has had a falling out with al Qaeda, the group that spawned it. Al Qaeda's official Syrian branch, known as the Nusra Front, is outflanked and mocked by Islamic State. So Nusra has joined the fight against Islamic State, clashing violently on the battlefields of Syria. These countries and movements may be at odds over nearly everything else, but nothing focuses the mind like a mortal threat, say some analysts and former top security officials. Given not only Islamic State's savagery but its potential to overthrow regimes and spill over borders, they all seem to agree on only one thing: It needs to be stopped.
Cue America and al-Qaeda working towards similar ends in stopping ISIS:
"I can tell you who are not bedfellows: Iran and the Assad regime," says Ryan Crocker, former U.S. ambassador to both Iraq and Syria. Mr. Crocker, however, suggests an even more provocative possibility: a de facto alliance with the Nusra Front—the al Qaeda offshoot in Syria (and U.S.-designated terrorist outfit) that is one of the few groups directly battling Islamic State. Nusra already works openly with U.S.-backed rebel groups in Syria, and it maintains communication with U.S.-ally Qatar, which this week helped engineer the release of an American journalist being held by Nusra. Many took this as a signal that Nusra wants to work through the Qataris to be seen as player in any anti-Islamic State configuration.
Things would come to a head if the US decides to bomb Syrian territory where ISIS fighters are. Should it avoid hitting Nusra forces?
Nusra already works openly with U.S.-backed rebel groups in Syria, and it maintains communication with U.S.-ally Qatar, which this week helped engineer the release of an American journalist being held by Nusra. Many took this as a signal that Nusra wants to work through the Qataris to be seen as player in any anti-Islamic State configuration. If the U.S. chooses to launch airstrikes Mr. Obama is considering against Islamic State inside Syria, and Nusra fighters then make inroads battling them, the U.S. would confront "a very interesting decision" on whether to openly include Nusra as part of a larger group willing to help take on Islamic State, Mr. Crocker says.
Strange times, no? When al-Qaeda disowns ISIS for being too bloodthirsty, something really is going on. Some extremists are, er, more extreme than others.

Hong Kong, PRC, Democracy & the 'Sixth Column'

♠ Posted by Emmanuel in at 8/31/2014 01:30:00 AM
Would you like to see Britannia rule again, my friend?
The worrying thing about Chinese President Xi Jinping is that unlike his modernizing predecessors, he appears not to give only lip service to Marxist-Leninist-Maoist rhetoric but may actually believe in that schtick. Once upon a time, before Xi Jinping, Hong Kong's integration was supposed to be based on "one country, two systems." These days, however, more militant residents are calling China on it while choosing who gets to stand during elections. To paraphrase Henry Ford, you can vote for anyone you like--as long as they've been vetted by the Communist Party.

During the Cold War, there was a pervasive fear that Beijing would use its legion of overseas Chinese as a "fifth column" for the infiltration of Communist ideology in freedom-loving lands (or whatever passed for them). Nowadays, Xi Jinping & Co. are inverting this logic: Hong Kong residents are being used by capitalist roaders to pollute the minds of the proletariat. Call it the "sixth column" -
Hong Kong is poised for a showdown with China when the Chinese parliament meets later on Sunday, with the largely rubber-stamp body likely to snuff out hopes for a democratic breakthrough in the regional financial hub at elections due in 2017. Political reform has been a constant source of friction between Hong Kong's pro-democracy movement and the mainland since the former British colony was handed back to Communist Party rulers in 1997...

However, Beijing will tightly curb nominations for the 2017 leadership poll to filter out any candidates it deems unacceptable, said a person with knowledge of the electoral framework. Only two or three "patriotic" candidates will be allowed on the ballot and open nominations will be ruled out. Instead, candidates must be backed by at least 50 percent of a 1,200-person "nominating committee".
Activists are once more intent on turning the financial district into a warzone:
That committee is meant to be "broadly representative" of Hong Kong interests, but will be similar in composition to an existing election committee stacked with pro-Beijing loyalists.
It's a formula that will rile Hong Kong's pro-democracy activists, who plan to blockade the city's Central business district in the coming weeks. On Saturday, Hong Kong's public broadcaster RTHK said 5,000 police will be deployed for the "Occupy Central" protest, heightening the sense of unease. The city's 28,000-strong police force is already on high alert. An initial protest planned for Sunday evening will be the start of what activists and lawmakers have described as a "full-scale, wave after wave" civil disobedience campaign.
To no one's surprise, Xi Jinping is implicated in all this. Gripping Hong Kong with a firmer hand, he hopes to squash pro-democracy irritants he's found more resilient than expected. At a counter-protest, it appears that Communist Party-friendly flunkies were bused in to show "support":
Consolidating his power after almost two years in office, President Xi Jinping has spoken of the need for a firmer hand with Hong Kong, partly out of concern that allowing greater democracy there might lead to demands for the same in other parts of China.
The regime has also been caught off-guard by the strength of the campaign for democracy known as Occupy Hong Kong, which showed its power with a huge march on July 1, the anniversary of the handover. A pro-China rally a few weeks later had a much smaller turnout, and reporters noted signs of Chinese-government organization: people arriving in fleets of buses, large numbers of Mandarin-speakers with mainland connections, and some evidence of participants being paid to attend.
On one hand, it would be nice for China to fulfill the "one country two systems" vow. On the other hand, us folks from rather poorer places on this earth aren't quite sure what the Hong Kong residents are complaining about when their standard of living is so much higher than ours. Go figure; some people complain when they have almost everything--except Western-style "freedom."

UPDATE: In today's no ^@#$ feature, the PRC has restated that all candidates standing for elections in 2017 must be pre-screened by Beijing. 

IMF Conditionalities Don't Matter...If You're 'Ukraine'

♠ Posted by Emmanuel in at 8/30/2014 01:30:00 AM
Shove me the money--and make it quick!
If we go by the Weberian definition of what a state is, "Ukraine" fails on the counts of territorial integrity and having a monopoly on the legitimate use of force. Into this muddled picture comes the IMF. The characterization of the IMF as a Western tool is well-founded and not subject to much debate, at least in IPE circles. Today's case in point is the "country" of Ukraine. While Ukraine as we know it has ceased to exist and so has its economy, the IMF is busy shoveling wads of cash in Kiev's direction and will do so for as long as it doesn't go over to the dark side (Russia). Being broke would hasten that process. If you enjoy Orwellian official-speak, get a load of this IMF press release:
In completing the review, the Executive Board approved waivers of nonobservance of performance criteria related to international reserve accumulation and the cash deficit of the general government on the basis of corrective actions taken. The Board also approved waivers of applicability of performance criteria related to the cash deficit of the general government, the cumulative change in net domestic assets of the central bank and publicly guaranteed debt. In addition, in light of the slight delay in completing the first review of the program, the Board approved the authorities’ request for merging the remaining two reviews scheduled for 2014, while keeping the total financing under the arrangement unchanged.
Reading between the lines--in plain English--let me restate that for you:

Ukraine has met few to no conditionalities because its Eastern half is embroiled in civil war. Its economy is expected to contract by 6% in 2014. The so-called "government" in Kiev has made half-hearted reform gestures that won't work anyway so we'll give them credit even though the country has ceased to exist. Part of it has already been dismembered (Crimea) and another may soon follow (Eastern Ukraine). Because it's a warzone where they shoot down commercial jetliners, IMF officials would rather not visit Ukraine for security reasons. We'll just fork over the money without going through the motions of sending officials to "approve" of Ukraine's actions (which are insufficient anyway but what the hell, keeping "Ukraine" on the West's side is a cost-no-object endeavor). 

They're probably wishing they had Yanukovych back right about now. Christine Lagarde is marginally less obtuse:
The Ukrainian authorities have firmly implemented policies to stabilize the economy and revive growth. This strong policy record despite the much worse-than-expected environment is encouraging in light of the implementation problems that derailed previous programs and thus augurs well for the authorities’ ability to keep the program on track. However, the escalating conflict in the East and ongoing geopolitical tensions have weighed heavily on the economy and society, causing a deeper recession and deviations from program targets in the short term, in particular on the central bank’s net international reserves and the budget and Naftogaz deficits.
Elsewhere there's talk of "downside risks" and other euphemisms. The IPE Zone's refreshing candor on world politics: Don't leave home without it as an old advertising catchphrase used to say.

Morgan Stanley & the Making of Rosneft

♠ Posted by Emmanuel in , at 8/29/2014 01:30:00 AM
Morgan Stanley's John Mack chillin' with Putin back in the day.
The recent (re-)isolation of Russia after coming in from the cold after the end of the Cold War is having interesting repercussions for its Western financiers. From an IPE standpoint, the fate of the giant oil conglomerate Rosneft will be pivotal. Not only is it a gargantuan oil firm, but it is also a creation made possible through Western bankers providing the investment necessary to put it together.

Today's case in point is Morgan Stanley's involvement in the formation of modern-day Rosneft. It remains quite a reward for Igor Sechin's fealty to Vladimir Putin--the world's largest oil company by output is certainly nothing to sneeze at:
Putin and Sechin have a lot more to thank Morgan Stanley for. The American investment bank helped transform state-owned Rosneft from a business the Russian government failed to sell three times in 1998 into the world’s biggest publicly traded oil producer by output. Morgan Stanley played a key role in saving it from being acquired, and Rosneft hired three consecutive chief financial officers from the bank. In 2013, Putin approved Mack’s appointment to Rosneft’s board.

Since the Soviet Union broke up a quarter-century ago, Russia has become so closely entwined with the global economy that doing anything to unwind those ties -- or successfully impose sanctions for misbehavior -- is proving difficult for the U.S. and its allies, and awkward for western businesses that embraced Putin’s Russia. With Sechin and his oil company both under U.S. sanctions, a look at the courtship, marriage, and now separation between Morgan Stanley and Rosneft is a telling microcosm of this turnabout.
Indeed, while American trade relations with Russia are not especially large, chickens notwithstanding, investment is another matter as Western finance being limited to Rosneft and other state-owned firms closely aligned with Putin marks the end of an era:
Under the Putin regime, the line between business and government is often blurred, especially with state-controlled companies. As Rosneft expanded, in part by buying assets that Putin had forced an imprisoned political opponent’s company to sell, it became one of his favorite tools for extending Russian influence abroad.

“Rosneft was obviously not just an ordinary market participant,” said Daniel Treisman, a professor of political science at the University of California at Los Angeles and author of several books on Russia, most recently “The Return: Russia’s Journey from Gorbachev to Medvedev” in 2011.
“Sechin had been President Putin’s sidekick for years,” Treisman said. “This was a company with very good connections that was prepared to use them. I imagine the analysts at Morgan Stanley understood this.”

With the advent of a new Cold War, the U.S. barred Americans from doing business with Sechin in April, citing his “utter loyalty to Vladimir Putin -- a key component to his current standing.” Last month, the U.S. restricted companies from providing long-term debt financing to Rosneft, as Morgan Stanley and other western investment banks used to do.
The rest of the Bloomberg article delves into the nitty-gritty details of the Morgan Stanley-Rosneft relationship. Rest assured that Rosneft in its current form would not exist had it not been for Morgan Stanley providing the cash and legitimacy--both of which Rosneft has in rather short supply nowadays.

Modi's India: Japan or China as Business Muse

♠ Posted by Emmanuel in ,,, at 8/28/2014 01:30:00 AM

Japanese, Chinese want the "Gujarat Model" replicated across India.

The selection of Najendra Modi as India's prime minister is taken as a sign that the rest of the country wishes to follow in the footsteps of Gujarat state that he used to govern--a liberalizing, open-for-business attitude that has seen it attract a considerable amount of foreign investment. The Japanese, in particular, seems excited. Having invested a lot in Gujarat, they look forward to similar liberalization and FDI-friendly measures being put into place nationwide:
Japanese executives at the meeting were also ebullient, praising the business sense and management capabilities of the Gujarat government, which Modi presided over for 13 years. "We don't have a very cordial relationship with China," Japanese attorney Tatsuhiro Kubo said at the Ahmedabad gathering, explaining why Japanese industry likes Gujarat, "so bonding with India is only natural."

More than a year ago, Jetro [Japan Export Trade Organization--Japan's trade promotion body] took the rare step of establishing a regional office in Ahmedabad . Suzuki Motor and Hitachi are among the Japanese companies that have invested in Gujarat. "Nearly 50 Japanese companies are in the process of setting up plants in Gujarat," said Mukesh Patel, president of the Indo-Japan Friendship Association.

In a meeting with Anandiben Patel, who replaced Modi as Gujarat's chief minister, Takeshi Yagi, Japan's ambassador to India, on June 7 expressed support for an exclusive Japanese industrial cluster in Gujarat, saying the number of Japanese companies operating in the state will soon rise from 60 to more than 100. Earlier this month, that industrial cluster began to take shape near Suzuki's existing plant in Gujarat.

Essentially, the elections in May gave Indian voters their first opportunity to say "yea" or "nay" to an economic model. Modi's party, the Bharatiya Janata Party, described what Modi accomplished in Gujarat as an "economic miracle," one that Modi promised to repeat across the country if he were to ascend to the prime minister's post.
Ironically given the Japanese lawyer's comments on their investment partly being based on India simply not being China, the model which Gujarat resembles is the so-called "Shenzen model" according to admiring Chinese (see this China Daily op-ed). Speaking of whom, the Chinese are also looking to invest in India despite historical grievances over border disputes. I guess commerce cannot be ignored:
While there is talk that Japanese investors saw which way the winds were about to blow, Chinese analysts also want to be seen as clairvoyant; they have been saying Modi's Gujarat model was built around China's Shenzhen model of development.

A direct comparision with Shenzhen, or even Guangdong, is somewhat outlandish, but there are a few similarities. During his four visits to China, Modi made inquiries into the country's system of special economic zones, which he considered important tools for rapid industrial development. Now China -- which might be looking for an edge in India -- has been pushing for special economic zones in the country. The Modi government recently gave an "in principal" approval to the request.

The coming months -- as the Modi government deals closely with investors from Japan, China and other countries -- will give a clear picture of the model Modi is working with.
As Jagdish Bhagwati put it, Indians and other Asians seemingly agree with Modi that growth must be created before it can be redistributed.

Will Ebola Stop the African Cup of Nations?

♠ Posted by Emmanuel in , at 8/27/2014 01:30:00 AM
Another Ebola Victim? The 2015 African Cup of Nations.
It's only a game, the refrain goes when people take football too seriously. In Africa, though, it may be a game of life and death. Recently, a player died from being hit by a rock thrown at the end of a match. Now, the outbreak of the deadly Ebola virus for which there is no cure is threatening to stop the continent's most prestigious international tournament, the African Cup of Nations. There always seems to be interesting IPE-ish stuff going on with this tournament. Four years ago, I discussed how China was using "football diplomacy" by building stadiums for Angola to host the 2010 tournament.

For the 2015 tournament in Morocco, things are in disarray, to put it mildly. The proximate cause is safety fears amidst Ebola outbreaks in a number of participating nations. We are currently in the qualifying stages for the tournament. Some nations refuse to play other teams coming from Ebola-hit nations. Conversely, Ebola-hit nations' teams are being turned down when asking for permission to play their qualifying matches elsewhere:
Africa’s football authorities are wrestling with difficult decisions as they try to prevent their sport becoming a vector for spreading the Ebola virus. With the next round of qualifiers for the Africa Cup of Nations fast approaching, some matches have already been moved and others are in limbo while some teams have been punished for refusing to play in locations the African Football Confederation (CAF) deems safe or against teams from Ebola-hit nations.

The problems started for CAF at the end of July when the Ministry of Health in the Seychelles refused to allow the team into the country from Sierra Leone, where the virus has killed at least 374 people, for an Africa Cup of Nations qualifying match. Seychelles forfeited the game and Sierra Leone advanced to the next round. With six rounds of Africa Nations qualifying scheduled between September 5 and November 19, CAF took the initiative. In mid-August it decided to forbid matches in Guinea and Liberia as well as Sierra Leone, where the government had already banned football games.

CAF wrote to its 54 members that despite Ebola it planned to “maintain its calendar of matches across the African continent with the exception of three countries, Guinea, Liberia and Sierra Leone, where there have been a significant number of cases.” The Confederation said it had taken the decision after consultations with the World Health Organisation. CAF asked "the three nations to move their matches to neutral countries."
I've heard of "stateless people"; with Ebola, we have "stateless football teams":
For Liberia the impact of this decision is limited as it has already been eliminated. Guinea and Sierra Leone, on the other hand, face serious problems finding countries prepared to offer their teams a temporary home. Guinea asked Senegal if it could play in Dakar. The Senegalese said no. Last week, after several days of negotiations, Moroccan authorities agreed to let Guinea play their home game against Togo in the Mohammed V stadium in Casablanca on September 5.

For Sierra Leone the situation is more complicated. They are scheduled to travel to Ivory Coast, a country which is not on CAF’s banned list, on 6 September. But last week the Ivorian Sports Ministry announced that it had forbidden all sports competitions in the country. The Ivorian football authorities have not yet said whether they will relocate the match or postpone it.

Sierra Leone, meanwhile, have held talks with Ghana about moving their home matches to Accra. The response has not been encouraging. The Ghana Football Association released a statement saying: "Though keen on offering its support, the GFA are uncertain about the health implications for the country."
Make no mistale: Ebola's outbreak is affecting all sorts of other social phenomena, too.

World's Governments vs Uber: In South Korea, India

♠ Posted by Emmanuel in ,, at 8/26/2014 01:30:00 AM
To Gangnam, man, on the double! (wherever that is.)
Libertarians for the most part tout the ride-sharing service Uber as a way to avoid taxis whose need to be government-regulated allows them to charge exorbitant fares. With Uber, anyone who can afford a smartphone and a data plan can use his or her vehicle as a privateer taxicab. Break the monopoly! Or that's how Uber works in theory. In practice, local governments the world over have taken legal action against the app's developers for skirting regulations on who can offer tax services in their jurisdictions. I do not exaggerate when I say it's Uber against the world's officialdom.

Having come to Asia, Uber is under assault after complaints from taxicab services wary of being marginalized by the app. While Uber has not yet established as large a presence as it has in some Western nations, it's best to beat it up before it establishes a foothold. In tech-savvy Seoul--supposedly the most wired city in the world--the local government seeks a ban on Uber. It also plans to develop an official taxi app to counter it by the end of the year:
The Seoul city government said Monday it would seek a ban on a car-hailing smartphone app from Uber Technologies Inc., joining a global battle by municipalities and traditional taxi services against the service.

The local authority said in a statement that Uber is illegal under South Korean law, which forbids fee-paying transport services using private or rented motor vehicles unregistered with the authorities. The city added that it will launch in December an app that will provide similar features to Uber for official taxis, such as geo-location data on cabs nearby, information about them and their drivers, as well as ratings.
In India, Uber has come up against an even more formidable foe: the central bank. Because Uber's payments are handled by an offshore entity, the Reserve Bank of India is using a stipulation that payments-handling mechanisms must be locally based to effectively render Uber illegal:
Credit card rules, another road block for [Uber] which has been described as illegal by city authorities. And what's India done to put the brakes on? Well, the one stepping on the brakes is the RBI [Reserve Bank of India], the central bank.

It's closed a loophole. All actions made on India-issued credit cards have to go through a two-step procedure. For Uber users that means one additional step to the payment system and if they want to comply with the new rules, it would have to change its app or adopt a different model totally.

The actions are free [of obtaining a taxi license] with pretty much with Indian rivals have to do. This is what local taxi companies have been complaining about. [All Uber] payments are collected and transferred to a Dutch bank and the procedure goes against India's [foreign exchange control] regulations and in a way, this is what the RBI is trying to address. 
To be more specific, the RBI regulations in question concern limiting capital flight emanating from foreign exchange transactions:
 "It has come to our notice that there are instances of card not present transactions being effected without the mandated additional authentication validation even where the under lying transactions are essentially taking place between two residents in India," RBI said in its circular issued on Friday. A transaction is considered local where both the purchaser and service provider are in India.

"It is also observed that these entities are evading the mandate of additional authentication by following business models which are resulting in foreign exchange outflow. Such camouflaging and flouting of extant instructions on card security, which has been made possible by merchant transactions being acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of these transactions, is not acceptable as this is in violation of the directives issued under the Payment and Settlement Systems Act 2007 besides the requirements under the Foreign Exchange Management Act, 1999," the RBI said. 
Also see Quartz discussing the politics behind this move. Talk about having enemies in high places. Unlike Uber and its fans, I am hardly convinced that they are on the right side of technological history. Are taxis the buggy whips of the early 21st century

The Big One: Saudi Arabia Sells Stocks to Foreigners

♠ Posted by Emmanuel in at 8/25/2014 01:30:00 AM
It's Riyadh or bust, baby.
The never-ending chase for better investment returns brings us to the doorstep of Saudi Arabia. The country remains an enigmatic mix of integration and isolation with the world economy. For instance, the same government that now funds one of the premier research institutions in the region, the King Abdullah University of Science and Technology (KAUST), has long paid what is in effect hush money to fundamentalist educational groups which have helped radicalize impressionable youths the world over. Or, the same country that is a G-20 member does not allow women to drive cars.

One of the restraints Saudi Arabia has kept is barring foreigners from buying stocks listed in the country directly. Sure you could acquire exposure to this market through mutual funds and ETFs, but not by purchasing stocks outright. However, market forces could not be curtailed forever as Saudi authorities are now finalizing plans to allow stock sales to foreigners. In terms of market capitalization, there really is no contest as far as the Middle East is concerned:
Saudi Arabia’s Capital Market Authority (CMA) said in July that it will open its $560 billion stock market to foreign financial institutions in the first half of next year. The announcement (which can be found here, but you may want to use Google Translate if your Arabic is as rusty as mine) spurred investors’ enthusiasm.

“This move by Saudi Arabia could be one of the most important catalysts for attracting significant flows of global institutional capital into this region,” said Zak Hydari, CEO of European Islamic Investment Bank-Rasmala, which manages more than $1.1 billion of assets in the Middle East. “The size and liquidity of the Saudi market, coupled with the strong regulatory framework of the CMA, will be extremely appealing to global investors, who have been waiting a long time for such a development to take place. It could be a real game changer for the region's investment and capital markets,” noted Hydari.

The stock market of Saudi Arabia, the world’s largest oil producer, stands out for its size and breadth. In comparison, Dubai and Qatar—which have been attracting attention in the past couple of years and have been promoted to emerging (from frontier) markets status on the MSCI index by Morgan Stanley—are much smaller. Dubai has a market cap of $101 billion; Qatar, $191 billion.
Make no mistake: the Tadaqul is probably the world's largest stock exchange that remains unopened to foreign investment. Consider it alongside those of other emerging markets...
“To put that in context, [the Saudi market is] just under 10% [of] the size of the Nasdaq, half the size of South Africa's stock exchange and more than twice the size of Israel's market,” said Shane Leonard at Stockflare (, an investment blog. “Saudi stocks have the potential to become a major part of the MSCI Frontier Indexes, which could drive significant foreign interest in the Tadawul,” said Leonard. “Though the devil will be in the details, and retail investors shouldn't expect to be able to buy Saudi shares directly, as there may be a requirement to be a large long-term investor.”

The Tadawul All Share Index has appreciated a healthy 20% since the beginning of the year, compared with a nearly 6% rise in the MSCI Emerging Markets Index and 7% in the MSCI GCC Countries Index.
The logic of capital marches on--what David Harvey would call a "spatial fix."