The annual IFR/PFI Middle East Review comes at a time of renewed confidence in the region and its capital markets. The Dubai crisis has abated - although there is still plenty of restructuring work available for assets linked to Dubai Inc. The Middle East region is getting back to concentrating on growing on the path it had set itself before the Dubai, and indeed the global financial crisis, hit.
What is normal? It is a question nobody knows the answer to, exactly. The last time there seemed to be a clear answer to it was in 2007, before the credit crunch bit, but it seems increasingly clear that the answer that would have been given then no longer holds. In the second half of that year, the market was abnormally frozen, while 2008, defined by the collapse of Lehman and the near collapse of the financial system, was anything but normal.
Investing in emerging markets has always been a pursuit best avoided by the faint-hearted. Typically boasting less liquidity than developed markets, and usually backed by less robust and diversified economies, they are renowned for their volatility. As a place to invest or set up a business, many have excessively complex legal and regulatory systems, among other assorted hurdles to doing business, that dissuade any but the specialist from participating.
Before August 19, the last time the Sensex index touched 18,400 was just after its all-time peak of January 2008. India’s capital markets had just recorded the country’s biggest IPO and confidence was running high. Of course, the Reliance Power listing proved to be a disaster and the markets collapsed. Is it different this time?
A sense of euphoria was to be expected in the year that followed the 2008/2009, when banks and borrowers had to work hard to keep their heads above water. And in the 12 months from May 2009 to April 2010, the scope of this report, the debt markets have started to resemble something like their old selves: loans first became widely available, and then, increasingly as the year went on, even became competitively priced. Bonds had an even swifter return to prominence.
Since the depths of the crisis, as some semblance of normality has returned to financial markets, covered bonds have regained their status as the poster child of a low-risk investment strategy. And its appeal has even broadened in recent years: some hedge funds looked at the market for the first time during the crisis, and, while few are still active buyers, a greater number of pension funds and insurance companies invest than ever before.
Turkey has weathered the financial crisis better than any had expected and it has emerged the other side with its reputation enhanced. In a neighbourhood where much has gone wrong, Turkey has seemingly done everything right.
Sometimes markets are shaken by an event so seismic that everything else seems to fade into the background. Greece’s slide to the brink of bankruptcy was such an event. With the collapse of Lehman still so fresh in the mind, cataclysmic consequences do not seem so far fetched as they once did. Nobody had any illusions as to what the stakes were as the crisis unfolded. But perhaps that was ultimately an advantage, focusing the minds of the politicians and financiers. Although the problem has not been resolved – and there is still a possibility that Greece will be forced to default – the speed and scale of the response seems to have been appropriate, and the situation may yet be contained.
In many ways it has been a fantastic 12 months for Germany. Some of the markets for which it is most renowned have witnessed an impressive return to form that almost constitutes “business as usual”. The Pfandbrief sector, the financial market most synonymous with Germany, has in some ways shrugged off memories of the credit crunch and looks to be in rude health.