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Uncertainty in Saudi Arabia as Dozens of Princes are Arrested

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Just a few days back we were impressed by the steps taken by the Saudi Crown Prince Mohammed bin Salman. He played a major role in allowing women to drive and in allowing women to attend sports events from next year. He, then, announced the construction of a hi-tech city ‘NEOM’, which was a move to generate additional income for Saudi Arabia and wean the economy away from its dependency on oil.

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Key observations

  1. Crown Prince Mohammed bin Salman cracks down on corruption
  2. Dozens of Prince, former ministers, business executives and government officials arrested
  3. A move widely looked as consolidation of power
  4. Uncertainty has increased
  5. We withdraw our previous recommendation of buying the ETF KSA

We expect crude oil prices to rally in 2018, which should benefit the oil-rich Kingdom in the short-term. As both the short-term and the long-term picture started to improve, we expected Saudi Arabia to make a quick recovery. In order to benefit from this, we had recommended a long position in KSA iShares MSCI Saudi Arabia Capped ETF, which has a significant exposure to Saudi Arabia. However, the events of the last few days have forced us to reassess our call.

The Rise of the Crown Prince

Prince Salman, also known as MBS was an obscure figure just a few years back. However, since his father King Salman ascended the throne, he has quickly risen in stature. In June of this year, the King named Salman as the crown prince and removed the then existing Crown Prince Mohammed bin Nayef of all his duties by a royal decree.

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This move cleared the way for MBS to ascend the throne if the octogenarian King Salman abdicated his throne. With power in his hands, it was expected that the new Crown Prince will implement his Vision 2030 plan with ease. However, last week, MBS made an aggressive move to consolidate his power further.

On Saturday, the King formed a new anti-corruption committee with the Crown Prince as its head. Within hours of its formation, the committee arrested 11 princes, 4 former ministers and hundreds of high ranking officials on allegations of corruption. They are being housed at Riyadh Ritz-Carlton, which has been closed for outside public.

The Saudi Council of Ministers said that the arrests were ““based on specific evidence of criminality and acts that were intended criminal transgressions and resulted in unlawful gain.”

However, experts believe that with this move, the Crown Prince wants to purge all rivals and fire a warning shot at any other possible dissidents.

Will this move ensure that Saudi Arabia stays corruption free?

Unlikely. In Saudi Arabia, the royal clan is more or less above the law. The sources of their income are never revealed and for years they have enjoyed government patronage in various businesses.

Even the current purge is unlikely to reach the royal family members who are loyal to MBS.

In fact, in 2016, MBS had purchased a 440-foot yacht priced more than $500 million. Neither has he disclosed the source of his funds nor will be asked about it.

The recent anti-corruption drive will only shift the power from his rivals to the members who are close to the Crown Prince.

Young Saudi population in support of the anti-corruption drive

The Saudi millennials are likely to support the arrests. They have long despised the unwritten immunity extended to the royal family.  The current move offers a confidence that no one is above the law and it will benefit the nation in the long-term.

Absence of opposition is not a positive development

The Crown Prince has stated that he will steer the nation towards a moderate version of Islam, unlike his predecessors who have followed the hardline. With most of his rivals arrested, decision making can become faster and will help MBS to push aggressive reforms.

However, the involvement of Saudi Arabia in Yemen, the aggressive confrontation with Iran, and the boycott of Qatar have all been inappropriate decisions taken by MBS. With no opposition in future, he may make a blunder that can be detrimental to the nation and also to the region.

Investors are Likely to Be Wary

Vision 2030 can be successful only with the support of the private sector. With some of the top businessmen like billionaire Prince Alwaleed bin Talal, chairman of investment firm Kingdom Holding; Amr al-Dabbagh, chairman of builder Red Sea International; and Nasser bin Aqeel al-Tayyar, founder of Al Tayyar Travel arrested, their businesses are likely to be affected.

Additionally, the foreign investors are unlikely to be interested in projects until this whole drama comes to an end. This can delay many existing projects.

The royal unity will be tested

For the past many decades, power has been divided among the various branches of the Saudi royal family. This has kept them together.

However, the recent purge is unlikely to go down well with the royal clan. Though voices may be silenced now out of fear, it is likely to rear its head sometime in the future. A bloody coup or power struggle can’t be ruled out.

We don’t want to invest in uncertainty

Considering the uncertainty, we would like to withdraw our recommendation to invest in the future growth of Saudi Arabia. The risks far outweigh the potential benefits. We shall keep a close eye on the developments and reassess our call if things change for the better. For now, please don’t invest in the ETF KSA.

Will the Princes park their wealth in cryptocurrencies

Thousands of bank accounts have been frozen in this anti-corruption drive. Saudi Arabia’s attorney-general Sheikh Saud Al Mojeb has said that the current exercise is only Phase one. So, we may expect more such drives in the future, especially if MBS faces any opposition to his decisions.

The combined wealth of the persons who have been arrested totals more than $33 billion. The remaining members of the royal family and wealthy businessmen are likely to remain on the edge. Considering the situation, it is reasonable to expect at least some money to find its way into cryptocurrencies.

Featured image courtesy of Shutterstock. 

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Market Overview

Asian Market Update – Friday: Coins mixed; Asian stocks tumble as investors assess Fed, ECB decisions

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ECB

The Big Question: What’s next for ethereum and litecoin?

The major cryptocurrencies were in a mixed mode on Friday morning in Asia, with bitcoin posting decent gains, and ethereum and litecoin taking losses.

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After modest gains on Thursday and a big loss on Wednesday, bitcoin on Friday edged up again. As of midday in Hong Kong, the virtual currency was up 4 percent to $17,400. Overall, bitcoin has gained about 13.50 percent so far this week – the fifth straight week of gains.

Ethereum entered into a relatively steep fall in Asian trading on Friday morning. At midday, ethereum was down 6.5 percent to $656 on Coinbase. Though the coin surged on Thursday morning, it finished the day down by about 0.5 percent.  Overall, ethereum had a great week, gaining as much as 50.7 percent in the week after two straight weeks of losses.

Litecoin was down for a third consecutive day on Friday. As of midday, the virtual currency was down 2.85 percent to $275. The fall on Friday morning followed a 9.5 percent loss on Thursday and 11 percent fall on Wednesday.

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It has still been a fantastic week for litecoin, which surged from around $150 to reach as high as $420 on Coinbase on Tuesday. Overall, the virtual currency has gained more than 80 percent for the week – its sixth straight week of gains.

Main Market Movers – Mid-day Asian Trading Session

Indexes Value at Midday Daily Change
Japan- Nikkei 225 22,537 -0.69%
China-Shanghai Composite Index 3,264 -0.85%
Hong Kong –Hang Seng 28,826 -1.16%
South Korea-KOSPI 2,480 0.46%
Australia-ASX 200 5,999 -0.19%
S&P 500 E-Mini Futures 2,656 0.11%

Major Asian equities were pointing lower on Friday morning, with significant losses seen in Hong Kong, the Chinese mainland and Japan, while stocks in South Korea edged up slightly. The drop came as investors digested the latest monetary policy clues from the US Fed and the ECB meetings.

In Hong Kong, the Hang Seng Index lost 1.16 percent to 28,826 at midday. A move by the Hong Kong Monetary Authority on Thursday to raise the base rate by 25 basis points in response to the US rate hike did not appear to help investor sentiment.

On the Chinese mainland, the Shanghai Composite Index edged down 0.85 percent at midday on Friday to 3,264. The People’s Bank of China also raised its short-term and medium-term borrowing rates on Thursday after the Fed decision. A slew of figures out on Thursday, including retail sales, foreign direct investment, showed positive signs, but fixed-asset investments cooled in November.

In Japan, the Nikkei 225 Index was off 0.69 percent to 22,537 at midday. The drop followed a new survey released by the BOJ suggesting business sentiment at Japanese companies have improved significantly, having hit a 11-year high.

Down under, the ASX 200 was also down a slight 0.19 percent to 5,999 at midday.

The S&P 500 E-Mini Futures was up 0.11 percent to 2,656.

Stocks in South Korea edged up on Friday morning. At midday, the Kospi was up 0.46 percent to 2,480.

The Fed on Wednesday hiked interest rates, as was widely expected, but maintained its outlook for the coming years despite improvements in the US economy.

The ECB, on its end, kept its cautious stance on the prospect of reaching inflation goals even though it vowed to keep stimulus in place.  Investors are carefully examining these stances as they plan their investments for the next year.

Also, lingering uncertainties over the prospect of the US tax reform passing congress continues to weigh on investor sentiment. The latest reports showed that the bill hasn’t gained full support from key Republican lawmakers like Marco Rubio, who demanded changes to a child tax credit.

Currencies

The Japanese yen firmed 0.08 percent against the US dollar at midday Friday, changing hands at 112.29 per dollar.

The Chinese yuan firmed 0.03 percent against the US dollar at 6.6072 per dollar.

The Australian dollar firmed 0.02 percent on the dollar, changing hands at 1.3042 per dollar at midday.

Commodities

WTI Oil was up 0.02 percent to $57.14 per barrel at midday on Thursday.

Brent Crude was down 0.16 percent to $63.28 per barrel.

Gold was up 0.24 percent to $1,254 an ounce.

News across Asia

In China, British officials, including finance minister Philip Hammond and Bank of England chief Mark Carney, are trying to ink trade and investment deals with China worth a billion pounds during a visit to Beijing. The deals are part of wide-ranging talks between the UK and China during what officials on both sides call a “Golden Era” of bilateral relations.

Take away: Britain is looking to strengthen trade and investment ties with countries such as China, as it seeks to build new relations after exiting the European Union.

In Japan, big Japanese manufacturing companies’ confidence improved for a fifth consecutive quarter in the fourth quarter of 2017 and hit a 11-year high, a BOJ survey out on Friday showed.

Take away: This is just one of the many positive signs in the Japanese economy with robust exports and rising corporate profits, and the BOJ indicates that it will continue its massive stimulus package and ultra-easy monetary policies.  

Featured image from Flickr.

Disclaimer: The author owns bitcoin, ethereum and litecoin. He holds investment positions in the coins, but does not engage in short-term trading.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Market Overview

Asian Market Update – Thursday: Ethereum Extends Rally; Asian Stocks down After US Rates Hike

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Janet Yellen

The Big Question: Is ethereum finally catching up with bitcoin?

Bitcoin, ethereum and litecoin were all pointing higher on Thursday morning in Asia, with large gains seen in ethereum, and slight gains in bitcoin and litecoin.

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By midday, ethereum had edged up 5.68 percent to $752. Although a bit more subdued than litecoin, ethereum has also made huge gains over the past a few days. Etheruem is now up about 67 percent over the course of the week.

Litecoin also surged 1.22 percent to $316 as of midday Thursday in Asia, following a correction yesterday that brought the prices on Coinbase and Bitfinex closer together.

Litecoin gained more than 130 percent on Monday and Tuesday, reaching as high as $420 at one point on Coinbase, before falling back. On Wednesday, litecoin dropped about 11 percent on Coinbase while it was up around 1 percent on Bitfinex.

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Bitcoin was also up 0.66 percent to $16,799 at midday on Thursday. The slight gain came after big losses on Wednesday. The virtual currency dropped about 6 percent on Wednesday, after a 16 percent increase over the previous two days.

Outgoing US Fed Chair Janet Yellen voiced criticism against bitcoin on Wednesday, saying the cryptocurrency is a “highly speculative asset” and “not a stable source of value,” according to media reports.

Main Market Movers – Mid-day Asian Trading Session

Indexes Value at Midday Daily Change
Japan- Nikkei 225 22,704 -0.24%
China-Shanghai Composite Index 3,296 -0.20%
Hong Kong –Hang Seng 29,216 -0.02%
South Korea-KOSPI 2,503 0.92%
Australia-ASX 200 6,020 -0.02%
S&P 500 E-Mini Futures 2,670 0.06%

Major Asian equities were narrowly down on Thursday morning, following the US Fed delivering a much-anticipated US rate hike, but voicing concern over inflation next year and rate hikes in China and Hong Kong.

In Japan, the Nikkei 225 Index was off 0.24 percent to 22,704 at midday. The loss, though small, came even after fresh data out on Thursday suggested positive signs in the Japanese economy.  The Markit/Nikkei Japan Manufacturing Flash Purchashing Managers Index rose to 54.2 in December, up from 53.6 in November – the highest reading in more than three years.

On the Chinese mainland, the Shanghai Composite Index edged down 0.20 percent at midday on Thursday to 3,296. That came after the People’s Bank of China raised the country’s short- and medium-term interest rate by 5 basis points on Thursday morning, in response to the US rate hike. Though the move was unexpected, the increase was minimal and will likely not make any significant impact.

In Hong Kong, the Hang Seng Index was down 0.02 percent to 29,216 at midday. The Hong Kong Monetary Authority also raised the base rate by 25 basis points on Thursday after the US Fed’s rate hike.

Down under, the ASX 200 was down a slight 0.02 percent to 6,020 after midday in Australian trading.

Stocks in South Korea edged up on Thursday morning. At midday, the Kospi was up 0.92 percent to 2,503 at midday.

The S&P 500 E-Mini Future was up 0.06 percent to 2,670.

The Fed on Wednesday raised interest rates for the third time this year as expected, while maintaining a projection of three more rate hikes in 2018. However, the thing that got the attention of investors was concerns raised by the Fed about the low inflation, downplaying expectations for a tightening in 2018.

Currencies

The Japanese yen lost 0.04 percent against the US dollar at midday Thursday, changing hands at 112.56 per dollar.

The Chinese yuan firmed 0.07 percent against the US dollar to 6.62084 per dollar.

The Australian dollar firmed 0.43 percent on the dollar, changing hands at 1.3035 per dollar at midday.

Commodities

WTI Oil gained 0.09 percent to $56.70 per barrel.

Brent Crude edged up 0.22 percent to $62.79 per barrel.

Gold was up 0.24 percent to $1,258 an ounce.

News across Asia

In China, investment in the real estate sector cooled in November, following a slew of measures from the government to crack down on speculation in overheated real estate markets. New figures out on Thursday showed that property investments grew 4.6 percent in the month, slower than the 5.6 percent growth in October.

Take away: Though the government measures, which include tough mortgage rules and sales regulations, could contain the overheated housing market, it could also very well weigh on the overall economic growth in China.

In Japan, the government is reportedly expected to reduce new bond issuance for the fiscal year 2018. Total bond issuance could fall as much as several hundred billion yen in 2018 from the current 34.37 trillion yen, the Nikkei reported.

Take away: The decision is likely to have been supported by rising tax revenues from the government following a recovery in economic growth in recent months.  

Featured image from Flickr.

Disclaimer: The author owns bitcoin, ethereum and litecoin. He holds investment positions in the coins, but does not engage in short-term trading.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Analysis

Daily Analysis: Dollar Falls, Gold Jumps after Yellen’s Final Move

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2668 -0.02%
DAX 13125 -0.45%
WTI Crude Oil 56.65 -0.68%
GOLD 1258.00 1.35%
Bitcoin 16,100 -6.32%
EUR/USD 1.1842 0.73%

The Federal Reserve hiked interest rates as expected today, and although the central bank’s monetary statement was slightly more hawkish than expected, the market’s reaction didn’t reflect the much-anticipated move. The worse than expected Core CPI reading that underlined the low-inflation narrative weighed on the recently strong Greenback, while stocks were unchanged after decision and bonds gained ground as yields retreated.

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EUR/USD, 4-Hour Chart Analysis

The major indices are hovering near their all-time highs with the DOW leading the way higher, hitting a new record for the second day in a row. While volatility Is expected to remain low as we approach the end of the year, market internals and valuation levels are still concerning from a long-term perspective, and stocks outside the US are also negatively diverging. The action in crude oil could be slightly more interesting as the commodity is starting to act in a slightly bearish manner after a grinding multi-month rally.

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WTI Crude Oil, 4-Hour Chart Analysis

The Brexit process is still in the center of attention in Europe, although volatility took a nosedive on the old continent as well, and it’s unlikely that the Christmas period will be much different, given the predictable drop in volumes and trading activity. The date of the next election in the financially and politically troubled Italy has been set to March 4th next year, and the early date caused some turmoil in the countries assets, which dragged the Euro Stoxx 50 lower today, together with the DAX and the other major indices.

Cryptocurrencies

As the total market cap of the crypto-market crossed the incredible $500 billion mark, Ripple, NEO, and Ethereum made headlines with lofty gains in the face of the severely overbought readings elsewhere in the segment. While XRP and NEO are still not overbought from an investment perspective, Ethereum reached our final target for its break-out and triggered a long-term sell signal.

ETH/USD, 4-Hour Chart Analysis

The previously surging IOTA continued its correction, Litecoin consolidated in a relatively narrow range, while Dash, ETC, and Monero scored marginal new highs before turning lower together with BTC. The most valuable coin that has lost some of its momentum “mojo” in recent days fell back below last week’s highs, and that could mark a failed break-out and a start of the deeper correction that seems more and more likely.

BTC/USD, 4-Hour Chart Analysis

Key Economic Releases on Wednesday

Time, CET Country Release Actual Expected Previous
11:30 UK Average Earnings 2.5% 2.5% 2.3%
11:30 UK Claimant Count Change 5,900 3,300 6,500
11:30 UK Unemployment Rate 4.3% 4.2% 4.35
15:30 US Core CPI 0.1% 0.2% 0.2%
15:30 US Crude Oil Inventories -5.1 mill -3.6 mill -5.6 mill
21:00 US Fed Rate Decision 1.5% 1.5% 1.25%
21:00 US FOMC Statement

Featured image from Shutterstock

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