Gulf central banks chop interest rates in tandem after Fed cut

The U.S. Federal Reserve’s decision to cut interest rates set off a chain reaction of parallel reductions in the Middle East.

Central banks in Saudi Arabia, the UAE, Bahrain and Oman, which have currencies pegged to the U.S. dollar, chopped their own borrowing rates today by 0.25% in tandem with the Fed, Reuters reports. Qatar cut its three main interest rates by 0.30%.

The Fed’s action on Wednesday produced a sour reaction, however, on Gulf stock exchanges, which dropped in morning trading with other global markets as traders absorbed the message from Federal Reserve Chairman Jerome Power that rates cuts will be slower in 2025.

Benchmark indexes lost ground in Riyadh, Dubai and Abu Dhabi. Qatar’s market was closed for the country’s National Day.

Masdar chases European green energy projects after Endesa deal

UAE renewables company Masdar says it will continue to chase green energy projects in Europe, where high interest rates and rising debt costs are pushing utilities to sell stakes in wind farms and solar plants.

Masdar, which is owned by Mubadala, ADNOC and Abu Dhabi National Energy Co., has a goal of reaching 100 gigawatts of capacity in its portfolio by 2030 and has been quick to pounce on European projects that will help it rapidly scale up.

Last week it reached an $885 million agreement with Madrid-based Endesa to buy a 49.9% share of 48 solar farms with 2 gigawatts of capacity.

And in June it agreed to buy a majority stake in Greece’s biggest renewables company Terna Energy, in a deal that valued the company at $3.4 billion.

Masdar CFO Mazin Khan told Reuters that “normalization” of asset prices had created big opportunities in Europe and the Endesa deal was just a first step in its investment plans. 

Rate cut timing top of mind as financial elite gather from Dubai to Beverly Hills

From Dubai to Beverly Hills, the question occupying the world’s financial elite is this: when will the U.S. Federal Reserve cut interest rates?

Not till September at the earliest, says hedge fund manager Ken Griffin, CEO of Citadel, who addressed the Milken Institute Annual Conference at The Beverly Hilton on Monday. Yie-Hsin Hung, CEO of State Street Global Advisors, sees rate cuts happening sooner: she predicted that the Fed will start to reduce rates as soon as July amid a more muted economy, speaking this morning at Day 2 of the Dubai FinTech Summit. 

The market-moving question is top of mind, but so too is the Gulf’s growth story amid the energy transition. “We’re known as oil exporters, but our second biggest export is capital,” Mohammed El-Kuwaiz, Chair of the Board of the Capital Market Authority of Saudi Arabia said at Milken on Monday, fielding questions from The Economist’s Editor-in-Chief Zanny Minton Beddoes. 

“For the first time in our history we may be capital importers,” El-Kuwaiz predicted, as the kingdom looks to lure foreign capital to help fuel the $3 trillion of investment from now until 2030 for its economic diversification drive.

The money is being poured into developing sectors like tourism, manufacturing and tech alongside mega-projects like NEOM.

“The capital markets are an extremely important fulcrum” at this time and why Saudi has opened up to the world and cracked into the top 10 capital markets, he said. El-Kuwaiz shared the stage with Jane Fraser, CEO of Citigroup; Harvey Schwartz, CEO of Carlyle; and Ron O’Hanley, Chair and CEO of State Street.

Back in Dubai, non-oil growth was top of the agenda for UAE Minister of Economy Abdulla bin Touq Al Marri. Speaking at the Dubai Fintech Summit, he repeated his belief in 7% annual GDP growth, but said that 4.9% non-oil growth is possible in 2024.

“We see growth away from traditional economies such as real estate and tourism to new types of tourism, such as sustainable tourism, health tech. We’re looking into AI, generative AI, the UAE is becoming the capital of AI,” he said.

Gulf capital markets in focus as DFM doubles profits

The Gulf’s capital markets have remained hubs of activity amid inflation, geopolitical risk and higher interest rates. The how and why of this story will be in focus on Wednesday in Dubai as the two-day Capital Market Summit gets underway.

The Dubai Financial Market is set to host government officials, investment bankers and business leaders to identify what’s driving the market and explore trends in sustainable investing, fintech, digital transformation and market resilience. 

Helal Saeed Al Marri, Chairman of the DFM, is slated to be in conversation with May Nasrallah, Founder and Executive Chair of corporate advisory firm deNovo Partners on Wednesday.

Also on the agenda are Jim DeMare, President of Global Markets at BofA Securities; Claire Suddens-Spiers, a 27-year veteran and Co-Head of Equity Market Solutions at Rothschild & Co.; and Michael Wilson, Chief U.S. Equity Strategist and Chief Investment Officer at Morgan Stanley.

The DFM reported strong quarterly earnings today, more than doubling net profit year-on-year to $24 million amid a surge in foreign investor activity. The exchange operator attracted 44,259 new investors, of which 85% were from abroad.

Institutional investors’ share of trading value reached 65%. The imminent IPO of Spinneys on May 9 on the DFM is expected to raise up to $376 million for the UAE and Oman grocery retailer.  The total number of shares offered to retail investors has been increased by 7% as of today on strong investor demand.

Israeli startup funding cut in half amid global slowdown

Funding for Israeli startups slid further from last year’s record heights as sinking technology stocks, rising interest rates and renewed geopolitical conflict chill enthusiasm for investment.

The torrent of cash once lavished on Israel’s emerging tech companies fell to $2.8 billion in the third quarter, a 56% drop from the same period in 2021, and a 36% decline from the previous quarter, according to a report by the Herzliya-based Viola Ventures. The slowdown was especially pronounced in so-called mega deals, valued at more than $100 million, which fell 69% from last year’s third quarter, Viola’s analysts said in the Oct. 12 report, “Public Market Volatility – Reflected in the Israeli Tech Ecosystem.”

While the findings were discouraging, they mirror the decline in startup funding for U.S. and Canadian companies, which fell 53% in the third quarter to about $40 billion from the same period a year ago, and 37% from the second quarter of 2022, according to Crunchbase. The drop must also be viewed in the context of 2021’s record fundraising and an overall upward trend over recent years, the Viola report said.

“Prophecy is for fools, but we do believe that technology will continue to be a massive driver for global transformation, and VCs will continue to invest in disruptive companies,” Tomer Meridor, a member of Viola’s investment team who wrote the report with colleague Rotem Shacham, told The Circuit.

New York’s tech-heavy Nasdaq stock market, where Israeli companies represent the second largest number of foreign members after China, reflects the darkening sentiment. The Nasdaq Composite Index has fallen 33% since the end of last year, and Nice Systems, one of the biggest Israeli companies trading on the exchange, is down 30%. The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in September to a range of 3% to 3.25%, bringing borrowing costs to their highest point since 2008. Concern about the Russia-Ukraine conflict and its impact on energy prices has also led investors to reduce risk.

Israeli startups, in turn, have been laying off employees and cutting back on other expenses. Otonomo Technologies, which collects data from network-connected cars, dismissed dozens of its employees after losing 95% of its value on the Nasdaq. Digital advertising platform Taboola, whose shares have fallen 78%, and website maker Wix, down 54%, both reportedly laid off more than 100 employees each.

Setting a record in 2021, Israeli startups raised $25.6 billion and 23 Israel companies held IPOs in the U.S., according to the IVC-Meitar Israeli Tech Review.

“The ongoing economic volatility across the globe is impacting the global public and private markets, and Israel is no different,” said Meridor. “2021 was an outlier in terms of fundraising pace and valuations, and [we’re] actually seeing back-to-normal levels in the short-mid-term.”

Among the ways Israeli companies have sought to contend with the decline in U.S. investment has been to find new partners in the Gulf Arab states that signed the Abraham Accords in 2020, normalizing ties with the Jewish state. Israel and the United Arab Emirates signed a free trade agreement in May that is expected to increase trade between the two countries to $10 billion within five years. OurCrowd, Israel’s most active venture capital platform, was licensed last year to operate as a fund manager in the Abu Dhabi Global Market.

Affinity Partners, a private equity firm founded by Jared Kushner, the former White House adviser, plans to invest millions of dollars in Israeli startups from the $2 billion it raised from Saudi Arabia’s sovereign wealth fund, The Wall Street Journal reported in May. Saudi Arabia’s Mithaq Capital has become the largest investor in Otonomo, amassing a 20% stake as the company’s stock sank.

“We believe this is the time for companies to make bold considerations,” Meridor said, recommending that startups “focus on long-term value creation rather than short-term fixes, diversify revenue streams, hone in on long-term sustainable aligned business models and seek accretive M&A [mergers and acquisitions].”