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ECB-Fed split ignites

talk of euro sliding
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Wednesday, April 10, 2024

Shawwal 1, 1445 AH
SEVERAL FLAVOURS : Page 3

GULF TIMES How three high-tech

countries became
laggards in electric

BUSINESS vehicles adoption

Energy buyback to drive electricity trading

Qatar has ‘right market in Qatar, says IMF working paper
The IMF paper also suggested tonnes per annum as part of

ingredients’ to
By Santhosh V Perumal
Business Reporter
Energy buyback from solar-
powered homes could go long
gradual removal of energy
subsidies to promote more
efficient energy use and
encourage a shift in demand
toward renewable energy,
the country’s strategy to offer
low-carbon energy solution for a
sustainable future.
A green hydrogen pilot project
could be installed at the 800MW

build future global way in developing an electricity

trading market as Qatar embarks
on an expansion in solar power,
according to an International
Monetary Fund (IMF) working
helping achieve Qatar’s emission
reduction target.
Additional efforts to accelerate
emission reduction and energy
transition could include
solar park in partnership with
international companies, the IMF
paper said.
Green hydrogen refers to
hydrogen produced via

entrepreneurs, paper.
Finding Qatar’s expansion of
solar power on the back of
the successful 800MW tender
in 2020 to develop a long-
expansion of carbon capture
and storage (CCS) by requiring
carbon sequestration units are
installed in hard-to-abate sectors
such as cement.
electrolysis powered by
exclusively renewable energies.
The hydrogen demand is
forecasted to grow five-fold
until 2050, opening significant

says tech expert term strategy for solar power

competitive auctions, the
paper said there was a need
to “integrate it into broader
electricity market plans such as
By Peter Alagos energy buy-back schemes from
Business Reporter solar powered homes to develop
an electricity trading market.”
This, along with other
The paper said pilot projects
could be deployed at scale with
selective use of CCS to test
the technology and make it
commercially available.
QatarEnergy recently updated
its sustainability strategy, which
outlines multiple initiatives
to reduce greenhouse gas
economic opportunities
for renewable energy rich
regions like the Gulf countries,
according to a sustainability
research paper from the Al-
Attiyah Foundation.
On the need to decarbonise
and diversify the transport
sector; the IMF paper said the

A
n official of a London-based next-gen app
development platform has underscored the
influential impact of Qatar’s entrepreneurial
ecosystem, saying the LNG-rich nation has the po-
tential to nurture a new breed of global entrepreneurs.
“I think that the market here has all the right in-
gredients to build the future global entrepreneurs, not
only Qatari entrepreneurs, but future global entre-
preneurs,” Builder.ai CEO and co-founder Sachin Dev
Duggal told Gulf Times.
According to Duggal, his company aims to em-
power the next generation of entrepreneurs in Qatar
by democratising access to technology and enabling
digital transformation without the traditional risks
and high costs.
Earlier, Duggal unveiled Builder.ai’s ambitious ex-
pansion strategy in Qatar, which promises to revolu-
tionise the country’s entrepreneurial landscape and
drive digital transformation across its various sectors.
That came after the company secured the Qatar In-
vestment Authority-backed Series D funding of over
$250mn, which Duggal believes will help Builder.ai
establish a stronger presence in Qatar and enable eco-
nomic growth and innovation in the region.
With the presence in Qatar, Duggal believes the
company could be instrumental in enabling aspiring
entrepreneurs to build digital products and bring their
ideas to market even without extensive technical ex-
pertise.
He noted that this could also catalyse a wave of new
businesses and digital transformation in Qatar, with a
significantly lower failure rate and cost compared to
other previous digital transformation efforts.
He said, “You don’t need to be a computer science
student or have an engineering degree...you can be an
entrepreneur here with a great idea to solve a difficult
problem and have no idea what Python is, or what Java
is.
“If we use the technology right, you will create a
revolution on how these things come out...every-
thing, so far, has been an evolution. Our view is that if
recommendations, was made emissions, including flagship use of public transport and ride
as part of the proposed key initiatives such as the further share could be broadened by
economic transformation. deployment of CCS technology changing the cost of parking and
The 800-MW Al Kharsaah solar to capture over 11mn tonnes congestion pricing of roads.
PV plant was commissioned per annum of carbon dioxide in On promoting climate finance, it
in 2022. Two additional solar Qatar by 2035. said improving the investment
power projects in industrial “The upstream value chain can environment and institutional
cities, Mesaieed and Ras Laffan, be further developed including capacity sets the foundation for
with a combined capacity of methanol and cryogenic H2 climate finance.
about 880MW are planned using CSS technology,” it said. In addition to deploying public
within the next two years, the On further developing blue resources for climate financing,
Gas Exporting Countries Forum hydrogen value chains, it said measures should be undertaken
noted. Doha is already poised to to crowd in and scale up
Qatar solar energy market is produce blue ammonia, which private climate finance include
expected to grow at an annual can be converted to hydrogen. developing the appropriate
growth rate (CAGR) of 15.5% in Qatar is establishing the platform and promoting
2024-29, said an estimate of world’s largest blue ammonia innovative structured finance
Mordor Intelligence. facility with a capacity of 1.2mn such as green bonds.
Abu Dhabi’s Lunate, Saudi Group buy into Dubai tower
Sachin Dev Duggal, Builder.ai CEO and co-founder. An Abu Dhabi investment firm and a Saudi conglomer- metres) over Dubai’s financial free-zone, and includes
ate have bought into the largest office tower in Dubai’s roughly 1mn square feet of office space, a members’ only
we use the technology right, you will create a revolu- financial hub, securing a slice of one of the world’s few club, a gym, supermarket and several restaurants. The
tion on how these things come out,” Duggal explained. upbeat commercial property markets. building, which commands premium rents, is over 98%
Aside from establishing a local office presence, The $105bn fund Lunate and Saudi Arabia’s Olayan occupied and Brookfield will continue to manage the
Builder.ai aims to forge strategic collaborations with Financing Company have bought a 49% stake in ICD property after the deal closes.
other entities in Qatar across multiple sectors to drive Brookfield Place in one of the largest commercial real es- Upon completion of the deal, ICD and Brookfield are set
economic growth, said Duggal, citing the company’s tate transactions since the start of the pandemic, accord- to retain a combined 51% equity interest in the tower that
partnership with the QIA. ing to a statement. Financial details weren’t disclosed, will be split equally between the two sides.
Despite being named ‘EY Entrepreneur of the Year though Bloomberg has previously reported the tower The sale comes amid a boom in Dubai’s commercial real
2023 UK overall winner’, Duggal emphasised the value could be worth as much as $1.5bn. estate market, which has become among the best-per-
of keeping one’s self grounded. Not only was he grate- ICD Brookfield Place has become “the most coveted forming worldwide.
ful for the award, but he gave credit to his team mem- address in Dubai for businesses and leisure alike,” Khalid “This investment is a testament to the continued demand
bers and co-founders, lauding their hard work. al-Bakhit, chairman of the development, said in the for premier office properties like ICD Brookfield Place
Duggal said he remains focused on Builder.ai’s statement. “This transaction underscores the trust and and underscores the fact that capital continues to seek
core mission of democratising technology “to bring confidence in this incredible development and in the high-quality real estate globally,” Jad Ellawn, managing
500mn new ideas to life,” aligning with Qatar’s eco- innovation in Dubai’s real estate.” partner and regional head of the Middle East for Brook-
nomic diversification goals. ICD Brookfield Place towers more than 900 feet (283 field, said in the statement.

Egypt gas shortage brings new risks after massive bailout

Bloomberg
Cairo
A $50bn bailout has helped ward off a
worsening of Egypt’s economic crisis. Now, a
growing energy shortage risks draining the
vital foreign currency reserves it needs to pull
off a recovery.
The Arab world’s most populous nation is
in the fragile early stages of an economic
turnaround after massive funding pledges
handed the country’s leadership prospects of
a fresh start.
The next challenge is to tackle the power
blackouts that gripped Egypt last year and
caused widespread public discontent.
Once an exporter, Egypt is no longer produc-
ing enough gas to keep electricity systems
afloat during increasingly hot summers. Last
year was the hottest on record, necessitating
rolling blackouts lasting up to two hours and
forcing Egypt to halt liquefied natural gas
exports during the season. Experts predict
2024 will be even worse.
Bloomberg News reported last week that
the country has started buying LNG cargoes
— which it uses to produce electricity for
air conditioning — unusually early in the
year to avoid chronic interruptions. Another
summer of massive rolling outages would
pile pressure on a population that is already
grappling with high inflation, a substantially
devalued currency and a hike in domestic
fuel prices.
The flip side is that heavy purchases threaten
to sap foreign currency reserves just as Egypt
faces strains from the war in Gaza and dried
up revenues from Suez Canal crossings, a
result from attacks on Red Sea shipping by
Houthi rebels.
“Becoming a gas importer adds to Egypt’s
costs,” said Ziad Daoud, chief emerging-mar-
kets economist for Bloomberg Economics.
“Besides securing energy, authorities need
to provide dollars to clear an import backlog,
settle arrears with international companies,
and ease capital restrictions.”
The LNG purchases mark a major shift for the
country, which largely stopped importing the
fuel in 2018 after the discovery of the massive
Zohr gas field boosted domestic production
and turned the country into an exporter.
Egyptian Natural Gas Holding Co is currently
aiming to import at least one shipment a
month through July or August, according to
people with knowledge of the matter, who re-
quested anonymity to discuss private details.
Egypt will need at least five cargoes for the
summer, one of the people said.
As recently as 2022, at the height of Europe’s
energy crisis, Egypt sold record quantities on
international markets, providing a welcome
source of revenue at a time when it was
struggling with soaring food costs. It was one
of the suppliers that helped Europe keep the
lights on after Russia throttled pipeline flows,
bolstering ambitions that it might transform
into a key energy hub.
Local gas output, however, has dropped to
the lowest level in years recently, which Oil
Minister Tarek El-Molla has linked to a natural
decline at its fields. Domestic production in
Egypt and pipeline imports will be insuf-
ficient to cover the country’s gas needs this
summer, according to Jacopo Casadei, an
analyst at consulting firm Energy Aspects Ltd
in London.
Temperatures in Cairo are already forecast
to be above seasonal norms later this month.
On top of fulfilling stronger demand for cool-
ing, gas is needed to feed energy-intensive
industries such as fertiliser producers. For tion to meet internal demand and export Egypt has to purchase is the steady flows it
now, at least, global gas prices have eased commitments,” said Riccardo Fabiani, project has been receiving via pipeline. Jonathan
significantly — making it easier for price- director for North Africa at the Brussels-based Stern, a distinguished research fellow at the
sensitive customers in emerging markets to Crisis Group. “In the long run, Egypt will need Oxford Institute for Energy Studies, says
secure cargoes. to increase its exploration efforts to boost other discoveries that have yet to come
“In the short term, Egypt will struggle to production and bet on renewable energy.” online might see Egypt swing “between being
achieve its vision of becoming an energy hub. Neither task is easy, he added. an LNG exporter and importer” in coming
It clearly lacks sufficient domestic produc- One factor that may limit how much LNG years.
2 Gulf Times
Wednesday, April 10, 2024
BUSINESS
Commodity
traders rake
in billions
in second
blockbuster year
Bloomberg
London
T
he world’s largest commodity traders
raked in blockbuster profits for a sec-
ond consecutive year in 2023, as the
aftershocks of Russia’s invasion of Ukraine
continued to create opportunities for physical
merchants even as price volatility ebbed.
Vitol Group made a staggering $13bn in net
profit last year, while rival Mercuria Energy
Group Ltd banked about $2.7bn, according to
people familiar with the matter.
In both cases, the profits were down about
10-15% on the previous year, but more than
double the next-best year for either company.
The figures extend what has been the most
profitable period in the history of the com-
modity trading industry. The four leading
privately-owned energy traders — Vitol,
Trafigura Group, Mercuria and Gunvor Group
— have made combined net profits of more
than $50bn in the past two years, according to
Bloomberg News calculations. By compari-
son, in 2018-2019 their combined earnings
were just $6.8bn.
The profits made by the top physical com-
modity traders in the past two years have been
“really astronomical,” Sebastian Barrack,
head of commodities at Citadel, the leading
hedge fund in the sector, said at the FT Com-
modities Global Summit in Lausanne, Swit-
zerland, on Monday.
The blowout profits come at a time of
heightened scrutiny from governments, after
the fallout from the war in Ukraine focused
attention on the industry’s role in ensuring
energy security.
The sector has been further thrust into the
spotlight by a series of investigations into
corruption that have exposed a widespread
culture of wrongdoing across the biggest
trading houses.
The profits are being shared among a small
group of traders and executives, several of
whom have been minted as billionaires and
multi-billionaires thanks to the bonanza.
Vitol is owned by about 450 of its senior ex-
ecutives, Trafigura has some 1,200 trader-
shareholders, and more than half of Gunvor
and Mercuria’s shares are effectively owned
by just three men.
The numbers show how the companies re-
sponsible for buying, selling and transporting
natural resources around the world are still
making massively elevated profit margins.
Sanctions on Russian exports continue to
reroute vast amounts of the world’s energy
trade, creating new dislocations and trading
opportunities.
Meanwhile difficulties shipping through
the Panama Canal and the Red Sea have also
made energy, grains and metals voyages more
expensive.
“You’ve had phenomenal performance
from the trading houses and it means every-
one is now sitting on a lot of cash,” said Lyle
Crawford, a project director for commodities
at Boston Consulting Group.
Traders are already starting to spend these
huge cash piles — Vitol has been buying
stakes in oil refineries, Gunvor agreed to buy
a majority share of a Spanish gas power plant,
while Trafigura bought out a biofuels and fuel
distribution business.
They’re also on a hiring spree — adding
gas, power, freight and metals traders — to
build their presence in markets beyond their
historic cash cow of oil. The moment has also
been a catalyst for succession plans to be put
in place and a transition of senior executives
across the industry.
It’s not just privately-owned independent
physical traders like Vitol and Mercuria that
have benefited from windfall profits, with en-
ergy majors like Shell Plc and TotalEnergies
SE, miner Glencore Plc and hedge funds like
Citadel also notching up major gains.
US corporate bonds likely to stay pricey for months: Barclays
Bloomberg
London
If history is any guide, investment-grade
US corporate bonds can stay at current
nosebleed valuations for months more.
That’s the conclusion of Barclays, which
said that the present macro environment,
and companies’ overall financial health,
are similar to the period from 2004
through 2006, when the economy was
growing at an annualised clip of over 3%
and the Federal Reserve was hiking rates,
ultimately stopping at 5.25%.
The average investment-grade US
corporate bond spread was around 91
basis points over those three years, close
to Friday’s 89 basis points.
“As long as the growth and rates story
remains similar to that in 2004-06, we
think the backdrop has the potential
to keep spreads tight for some time,”
strategists including Dominique Toublan
wrote in a note on Friday, adding that
current valuations are relatively high and
there are risks in the market.
US gross domestic product grew an
annualized 3.4% in the fourth quarter in
the latest reading, similar to the average of
2004 through 2006.
The macro backdrop is just one of a series
of reasons for corporate bond spreads to
stay tight, the Barclays strategists wrote.
ECB tipped to pause one last time before June rate cut
AFP
Frankfurt
Buoyed by falling inflation, the
European Central Bank (ECB) is
expected to keep borrowing costs on
hold one last time on Thursday while
laying the ground for a first interest
rate cut in June.
The Frankfurt-based institution has left
its key rates unchanged since October
2023, following an unprecedented
streak of hikes to tame red-hot
inflation.
ECB president Christine Lagarde
said after last month’s meeting that
governing council members were not
“sufficiently confident” yet on inflation
to consider loosening the reins.
The case for rate reductions has
strengthened since then, with eurozone
inflation slowing more than expected
in March to 2.4% — bringing the ECB’s
two-percent goal within reach.
A change of course as early as this
week seems highly unlikely however,
after ECB officials repeatedly said
Alecta’s $3.2bn woes need more
than a pledge to ‘do better’
Bloomberg
Stockholm
A
lecta’s $3.2bn in losses and writ-
ed-owns have highlighted gov-
ernance shortcomings at Swe-
den’s biggest pension fund and the setup
of a vital part of the country’s retirement
savings system.
The fund, which manages about
$117bn for a quarter of the country’s
population, is preparing to publish the
results of a review into its structure as
soon as this month.
It will be the latest attempt by the
company to put a string of disasters be-
hind it after revealing huge losses just
over a year ago on bets on Silicon Valley
Bank and other US niche banks, which
were then followed by write-downs on
European real estate.
Since then, there have been half-
hearted apologies and a revolving door
of leadership, including, embarrassingly,
two failed chair appointments. The fund
has been excoriated in local news. Three
probes have been launched. And through
it all, those tasked with overseeing the
ship have seemed oblivious to the ex-
tent of the course corrections required to
reach calmer waters.
Given Alecta’s scale, the losses didn’t
threaten its solvency, but the drama has
become a long-running crisis. That may
partly be linked to the make-up of its
board, and the structure of the pension
system.
Alecta is the largest of a number of
funds managing pension savings for
salaried Swedes. It’s governed by a group
of people drawn from the nation’s em-
ployer organisations and unions.
In Alecta’s case, the design dates back
to its founding more than a century ago,
and critics say it hasn’t moved with the
times. The supervisory board holds sway
over Alecta, given it chooses who runs
the fund, but it’s also so distant it can
avoid being accountable for flawed deci-
sions.
“It’s not a very good setup,” said Mag-
nus Henrekson, an economics professor
and member of the top governing body at
Skandia, another pension fund, which is
populated with financial experts.
Alecta’s supervisory board is domi-
Corporate balance sheets are generally
strong, and earnings have been solid, while
investors are seeking to lock in relatively
high yields for retirees through annuities
and pensions.
“We could stay pretty tight for quite a long
time,” said Travis King, Voya’s head of US
investment-grade corporates. “From a
fundamental perspective, earnings have
been pretty supportive so you’re not
they were awaiting data that won’t be
available until their meeting on June 6.
“We will know a bit more by April and a
lot more by June,” Lagarde reiterated
in late March, referring in particular to
data on eurozone wage growth.
In June, the ECB will also have its own
updated forecasts on inflation and
economic growth.
Thursday’s ECB meeting therefore
“looks like the prelude to yet another
turning point for monetary policy in
the eurozone: Final stop before the
cut”, said ING bank economist Carsten
Brzeski.
The ECB’s benchmark deposit rate
currently sits at a record 4%, following
an aggressive hiking campaign to rein
in consumer prices driven higher by
Russia’s war in Ukraine and pandemic-
related supply disruptions.
Eurozone inflation, which peaked at
over 10% in late 2022, has steadily
declined in recent months and is now
expected by the ECB to return to target
in 2025.
But the higher borrowing costs have
taken a toll on the eurozone economy,
The Alecta headquarters in Stockholm. Alecta’s $3.2bn in losses and writed-owns have highlighted governance shortcomings at
Sweden’s biggest pension fund and the setup of a vital part of the country’s retirement savings system.
nated by “representatives from labour
unions and employer organisations rath-
er than individuals who are there because
of their competence in finance,” Henrek-
son said. “This means that their ability to
exert control is likely not as good.”
Speaking last month, Alecta Chief Ex-
ecutive Peder Hasslev addressed the tur-
bulence that continues to buffet his firm,
saying: “We have to do better than this.”
What that means in reality is uncer-
tain. And if the imminent internal review
doesn’t yield voluntary changes, it’s un-
clear whether regulators will force the is-
sue. They are currently looking at Alecta’s
investment in landlord Heimstaden Bos-
tad AB, and the failed US bank bets.
The fund had a $1.2bn write-down
of the real estate stake last year, and it’s
trying to renegotiate the unfavourable
terms of the holding, which has limited
voting rights.
The collaborative relationship be-
tween industrialist owners and the la-
bour unions is a central part of Swedish
seeing fundamental credit deterioration
that would lead to wider spreads.”
Heavy demand has spurred companies
to issue bonds while they can, lifting total
high-grade corporate bond issuance this
year to more than $550bn, up more than a
third from this time last year. First quarter
bond sales reached a record.
“The backdrop for credit is good because
we have more or less a soft landing and
dampening demand as households and
businesses feel the squeeze from more
expensive loans and mortgages.
The 20-nation currency club only
narrowly avoided a recession in the
second half of 2023, weighed down
by a poor performance in its largest
economy, Germany.
Like other central banks, the ECB is now
weighing the best time to switch gears
and support economic growth through
lower rates — without endangering the
progress on inflation.
The Swiss National Bank kicked off
the rate-cutting cycle last month
when it lowered its main rate by 0.25
percentage points — becoming the first
major central bank to do so.
The US Federal Reserve, which began
hiking earlier than the ECB and has
kept rates steady at recent meetings, is
expected to sit tight a while longer in
the face of a robust economy.
Fed chairman Jerome Powell said last
week that the high benchmark rate
was “doing its job” against elevated
inflation, warning that lowering it too
soon could be “quite disruptive” for the
business history over the past century.
In the case of Alecta, it’s a guiding prin-
ciple behind the fund’s creation, meant
to enshrine pensions as a natural part of
employees’ remuneration, and to foster
labour mobility by allowing pensions to
move as workers change jobs.
According to Sophie Nachemson-Ek-
wall, an adviser at PwC who has done re-
search on corporate governance, Alecta
needs a professional board.
“Alecta is a cornerstone in Sweden’s
corporatist tradition,” she said. “It’s hard
to see who will change the power struc-
ture. Also, Swedish politicians generally
are not ready to interfere either, as they
don’t have an interest in changing the
Swedish labour-market model.”
Alecta is owned by its customers —
roughly 35,000 businesses and 2.8mn
private citizens — who are represented in
equal numbers on the supervisory board,
its highest governing body.
The Confederation of Swedish Enter-
prise, run by some of the country’s most
you’ve got central banks around the world
that have already pivoted more dovishly,”
Loomis Sayles portfolio manager Matt
Eagan said.
But there are still risks. A jobs report
on Friday showed that US payrolls rose
by the most in nearly a year and the
unemployment rate dropped, easing
pressure on the Federal Reserve to cut
interest rates.
Dallas Fed President Lorie Logan said
soon after the report that it’s too soon
to consider cutting interest rates, citing
recent high inflation readings and signs
that borrowing costs may not be holding
back the economy as much as previously
thought.
That growing ambiguity about whether
there’s any reason for the Fed to start
cutting rates helped to lift a measure of
interest rate uncertainty, the ICE BofA
MOVE Index, by the most last week since
2023. Torsten Slok, chief economist at
Apollo Global Management, thinks the Fed
won’t cut at all this year, which could drive
the MOVE index even higher.
Because investment-grade corporate debt
is so sensitive to rate movements, any
increase in the MOVE index could translate
to wider corporate bond spreads. The
two measures have been fairly closely
correlated since the Fed started hiking
rates about two years ago.
Other factors could also weigh on
American economy. The possibility of
the ECB slashing rates before the Fed
has worried some observers.
Lower rates in the eurozone could
prompt investors to look elsewhere
for higher returns, weakening the euro
and making imports more expensive —
potentially reigniting inflation.
But Jack Allen-Reynolds from Capital
Economics said he believed the ECB
“won’t wait for the Fed”.
“The two central banks will be
responding to different data. At the
moment, the data arguably support
an earlier cut by the ECB because
economic growth is much weaker in
the eurozone,” he said.
Once the ECB does start loosening its
monetary policy, attention will quickly
shift to the pace and size of future rate
cuts.
Many observers are pencilling in at
least three to four cuts this year, by 25
basis points each time.
Lagarde however has said the ECB would
not “pre-commit to a particular rate
path”, stressing that future decisions
would depend on incoming data.
influential business leaders, chooses
representatives from their ranks, while
the employee members are selected from
some of Sweden’s unions.
The supervisory board is responsible
for picking Alecta’s chairman and other
corporate board members — who in turn
appoint Alecta’s C-suite executives.
The Confederation is chaired by Jacob
Wallenberg, the 68-year-old co-head of
the powerful Wallenberg family, which
exerts considerable influence over cor-
porate Sweden through stakes in a
number of companies.
Representatives for Alecta and Wal-
lenberg declined to comment when con-
tacted by Bloomberg. The current crisis
first broke in March 2023, and Alecta
quickly revealed a $2bn loss from in-
vestments in regional US banks. That
was followed by the Heimstaden Bostad
write-down.
The missteps have been all the more
notable because there was ample oppor-
tunity to curtail the early damage.
corporate debt. Wars in Ukraine and the
Gaza strip may intensify or expand, while
the US presidential election could weigh
on economic expectations.
And with the Federal Reserve keeping
rates relatively high to try to keep inflation
in check, many companies will face higher
interest costs.
“Expectations for the macro backdrop
could shift rather rapidly over the next
couple of quarters,” said Daniel Sorid,
Citi’s head of investment grade credit. He
projects investment-grade spreads will
widen later this year.
“We see a friction between the pivot in
the way companies are managing their
balance sheets and our expectations for
a weaker US economy,” Sorid said. “Firms
have begun to pivot away from more
conservative pandemic-era balance sheet
management practices that were very
credit-friendly over the past couple of
years.”
But even if valuations seem relatively high
now, that doesn’t mean corporate bonds
will weaken in the next few weeks.
“There’s not a lot of room for additional
tightening,” Pacific Investment
Management Co portfolio manager
Sonali Pier said. “But I think it can
persist longer than most predict due to
the macro backdrop, demand for high
quality credit and if issuers were to be
patient on supply.”

How three high-tech countries became laggards in EVs
Bloomberg
New York
Japan meets all the conditions that should
make it a frontrunner in electric vehicles:
above-average incomes, a robust auto
industry, high rates of new-car purchases,
and a culture that generally embraces
technology. Instead, electric vehicles made
up a measly 1.8% of new cars sold in Japan
last year.
Bloomberg Green recently published
an analysis of the 31 countries that
have crossed the tipping point for
widespread adoption of fully electric
vehicles. Now it’s time to look at the
bottlenecks — the countries that aren’t
as far along the adoption curve as one
might expect.
The EV laggards come in several flavours.
The US and South Korea, for example, are a
category unto themselves for maintaining
a relatively slow pace of EV growth even
after EVs surpassed 5% of new vehicle
sales, which has otherwise been a
consistent tipping point for accelerating
sales. We’ll get to them in a bit.
Then there’s Latin America, which EV
manufacturers have largely ignored — at
least until recently — and where not a
single country has reached the critical 5%
threshold. Despite their middling incomes,
Chile, Argentina, Brazil and Mexico should
be nearing that point already, according to
a Bloomberg Green analysis of conditions
favourable to EV adoption. They aren’t.
(In Europe, Russia, Poland and the Czech
Republic fit into a similar category of
slowpoke.) But of all the places in the world
where EVs should have found a perfect
match — but didn’t — it’s Japan that comes
A staff cleans charging ports of Nissan’s Leaf battery EV during the Japan Mobility
Show 2023 in Tokyo (file). Japan’s slow adoption of EVs traces back to a bet made
a decade ago by Tokyo technocrats and Japanese automakers to invest heavily in
hydrogen fuel-cell technology.
out on top, according to the analysis. It is
the one true laggard.
Japan: A bad bet and too few
chargers
Japan’s recalcitrance hasn’t gone
unnoticed by the world’s largest EV maker.
In January, Tesla Inc Chief Executive Officer
Elon Musk blamed a “lack of awareness,” —
something he said he’d heard from friends
there. “Our market share is remarkably
low,” he said on an earnings call in January.
“Japan is the third-largest car market in
the world, and we should at least have a
market share proportionate to, say, other
non-Japanese carmakers like Mercedes or
BMW, which we currently do not have.”
Japan’s slow adoption of EVs traces back
to a bet made a decade ago by Tokyo
technocrats and Japanese automakers
to invest heavily in hydrogen fuel-cell
technology. Toyota Motor Corp, the
world’s largest carmaker, has since been
a frequent EV sceptic, funding misleading
advertisements, and lobbying against
government policies that promote them
around the world.
Japan’s dreams of leading a fuel-cell
revolution haven’t materialized, and
now it’s waking up to an automotive
transformation that’s passing them by,
says BloombergNEF analyst Corey Cantor.
“They’re behind now, and that’s a big
risk — right as BYD and other Chinese
automakers gain prominence,” Cantor
said. “It shows that in a major market, the
impact that domestic automakers can
have is massive.”
Japanese car buyers prefer tiny
economical city cars known as kei
cars — “light” in Japanese — to the more
expensive long-range family-haulers
favoured by Americans. Whereas Tesla
makes up half of the EV sales in the US,
half of Japan’s EV market is taken up by
the diminutive Nissan Sakura. The Sakura
costs around ¥2mn ($13,300), after federal
subsidies, and has a range of about 180
kilometres (112 miles).
It’s difficult for automakers to turn big
profits on such small EVs, and sometimes
the benefits to consumers of going electric
— such as gas savings, reduced noise
and improved performance — aren’t as
obvious.
One of Japan’s biggest obstacles to
catching up is its subpar infrastructure.
The country has just 30,000 charging
connectors, or about one per 4,000 EVs,
according to data from Enechange Ltd,
a Tokyo-based infrastructure provider.
That’s less than a sixth of the density in
the US or Europe, which has led to the
some of the worst charger anxiety in the
world, according to data compiled by
BloombergNEF.
The Japanese government last year
pledged to increase that number of
chargers tenfold by 2030.
South Korea: Shut out of high
rises
Unlike Japan, South Korea’s foray into EVs
has come with strong backing from its
automotive supply chain. Hyundai Motor
Group and Kia Corp are making some of
the most competitive long-range EVs in
the world, and South Korea is home to
three of the world’s five biggest battery
makers: LG Energy Solution, Samsung SDI
and SK On.
Still, Korea’s domestic demand for EVs
is hardly brag-worthy. More than two
years after passing the 5% threshold that
typically precipitates a shift into rapid
adoption, Korea’s EV sales fell flat in 2023,
unchanged from the prior year at just 6.2%
of new cars. The country currently sits
at the bottom of the emerging adoption
curve.
Korea has its own charging bottleneck.
Many Koreans live in high-rise residential
apartment complexes, and don’t have
reliable access to at-home chargers.
About 34% of consumers in a Deloitte
survey rated charger availability as their
top concern, compared to just 14% of
respondents in the US.
Another 20% of respondents in the
Deloitte survey rated safety as their top
concern, the highest in the global survey.
That response reflects a widespread
concern about the potential for battery
fires in those same residential high rises.
In December, South Korea banned the
installation of chargers below the second
basement level to ensure emergency
access in case of a fire.
BUSINESS
Ironically, Hyundai, LG and Samsung
played major roles in developing the high-
density “apatu” housing developments
that are now a standard of Korean
residential life. About 61% of Koreans live
in apartments or multifamily housing,
including residential towers that can
reach as high as 50 stories and complexes
that accommodate up to 10,000
households.
US: A mismatch of options
Like South Korea, the US has fallen behind
the rapid-growth “tipping point” trajectory.
Even though sales of fully electric vehicles
were up about 50% last year, making
up more than 8% of new car sales in the
fourth quarter, the trend has been slower
than the 20 countries that came before
the US.
A further temporary slowdown is
underway in the US, driven by high
prices, a lack of EV variety, and anxiety
about the availability of public chargers,
Tom Narayan, an auto analyst at RBC
Capital Markets, wrote in a note to clients.
Falling battery prices will help, he said,
and “public charging fears are largely
overblown.”
In the US there’s one high-speed charger
for every 555 EVs on the road, which is
“essentially at the same density” as its
530 gasoline-powered cars per fuel pump,
according to an analysis by RBC. When
home charging is taken into account, it’s
closer to 202 EVs per charger.
Perhaps America’s biggest holdup has
been its obsession with battery range. US
drivers demand more range than drivers
from any other country. For years, a few
models made by Tesla were the only
A driver charges a Tesla EV at the Tesla Tejon Ranch Supercharger station in Lebec,
California (file). Even though sales of fully electric vehicles in the US were up about
50% last year, making up more than 8% of new car sales in the fourth quarter, the
trend has been slower than the 20 countries that came before the US.
Gulf Times
Wednesday, April 10, 2024 3
choice for road trippers. Even then, the
styles of electric vehicle didn’t match up
with America’s longing for large SUVs and
pickup trucks.
But the era of scarcity is coming to an end.
The number of vehicles that can go 300
miles or more on a charge, which many
consider the bar for US range convenience,
jumped to 30 models at the beginning
of 2024, a 500% increase in three years,
according to a separate analysis by
Bloomberg Green. A dozen more are set to
go on sale later in the year.
“It’s going to be the year of more,”
said Stephanie Valdez Streaty, Cox
Automotive’s director of industry insights.
“We’re going to see more sales, but we’re
also going to see more bumps. We’re going
to see more incentives, more price cuts,
but also we’re going to see the industry
build more sales muscle — selling these
EVs to the next wave of adoption.”
Countries to watch
A third of the global population still lives
in places where EVs make up less than 5%
of car sales — including India, Indonesia
and the entire continent of Africa. Most of
these countries don’t make the laggards
list due to inherent impediments to EV
adoption, including low per-capita GDP
and outsized rural populations.
Even those obstacles are starting to fall
away as EVs begin to reach price parity
with gasoline-fuelled equivalents. A
tipping point may be approaching for India
and Indonesia, significant auto markets
where EVs have been on the rise. In South
America, a major push underway by
China’s BYD could provide the spark for
widespread regional adoption.
 Wednesday, April 10, 2024
GULF TIMES
Intel investors’ pessimism over turnaround wipes out $27bn of value
Bloomberg
New York
Intel Corp’s latest attempt to prove to
investors that its turnaround strategy is
on track instead spurred a $27bn rout
that further widened the gap between the
chipmaker and its peers as it struggles to
capitalise on investor demand for all things
artificial intelligence-related.
The company has plunged 15% since an
April 2 update about its newly broken-out
foundry division revealed a less-than-rosy
outlook for operating losses in the unit.
That’s pushed its year-to-date declines to
25%, a stark reversal from its 90% rally
in 2023 and well behind strong returns
from peers like Nvidia Corp and Advanced
Micro Devices Inc. It’s also become the
second-worst performing stock on the
Philadelphia Semiconductor Index this
year, leading only Wolfspeed Inc.
Intel’s event stoked investor fears that
Chief Executive Officer Pat Gelsinger’s
ECB-Fed split ignites talk of
euro sliding to dollar parity
Bloomberg
Frankfurt
T
alk of the euro touching par-
ity with the dollar is returning
as policymakers at the European
Central Bank (ECB) look primed to de-
liver more interest-rate cuts this year
than their US peers.
Lenders including Bank of America
Corp and Germany’s LBBW are wargam-
ing a variety of tail risks and warn of euro
weakness ahead if wagers on the differ-
ing pace of rate cuts at the ECB and the
Federal Reserve play out.
Geoffrey Yu, a senior strategist at
Bank of New York Mellon, says the euro
could touch parity with the dollar this
year and doesn’t rule out a cut by the
ECB on Thursday.
For now, none of the strategists polled
by Bloomberg have a one-for-one fore-
cast as their base-case scenario, which
would require a slide of about 8% to
levels last seen in the depths of Europe’s
energy panic after Russia’s invasion of
Ukraine.
But few are prepared to ignore the
possibility of such a decline after traders
were caught out by the 2022 slump — es-
pecially when a potential Donald Trump
presidency could herald inflation-stok-
ing tax cuts and trade barriers.
“The dollar would just go through
parity like a hot knife through butter” if
the Fed holds rates while the ECB eases,
said Moritz Kraemer, chief economist
at LBBW. The bank forecasts the euro
sliding to $1.01 in 2025 — the most
bearish forecast of those compiled by
Bloomberg.
ECB officials led by President Chris-
tine Lagarde are expected to put in
more work when they meet this week
preparing markets for an initial cut on
June 6 as price pressures in the region
ease. Though they’ve pushed back
forcefully against the notion that they
want to keep in line with Fed Chair Jer-
ome Powell, they haven’t committed to
what happens after the first step, argu-
ing that economic data will decide.
For investors, the divergence between
the US and European economies is stark.
On Friday, US payrolls data rose by the
most in nearly a year and the unemploy-
ment rate dropped, pointing to a strong
labour market that’s powering the econ-
omy. In the euro area, inflation is cooling
faster than forecast while the economy
is almost no bigger now than in the third
plan is moving too slowly, putting the
company at risk of falling even further
behind the biggest AI winners. Missing out
on the AI wave could spell disaster for the
company especially as Wall Street sees
it as the biggest technological advance
since the internet — in an annual letter to
shareholders, JPMorgan Chase & Co CEO
Jamie Dimon compared its impact with the
steam engine.
“From a growth perspective, Intel’s
lagging virtually all of their peers, and
from a technological perspective,
they’re also lagging all of their peers,”
said David Wagner, a portfolio manager
at Aptus Capital Advisors LLC. “Once
you get caught behind the ball on the
technological side of things, as soon as you
lose your competitive edge, it’s so hard to
get it back.”
The selloff has done little to improve
Intel’s attractiveness from a valuation
standpoint. The stock trades at about 24
times projected earnings over the next
12 months, compared to around 27 for
Talk of the euro touching parity with the dollar is returning as policymakers at the European Central Bank
look primed to deliver more interest-rate cuts this year than their US peers
quarter of 2022, when the ECB started
lifting rates.
That parting of ways is on show in the
money markets. While bets on easing
in Europe have grown less aggressive in
recent sessions as US yields rise, traders
still envisage the ECB juicing the econ-
omy with around 85 basis points of rate
reductions in 2024.
That compares with about 65 basis
points for the Fed.
The expectations have already put
pressure on the currency, with the euro
down around 1.5% this year at $1.09.
Strategists led by Athanasios Vam-
vakidis at BofA are weighing scenarios
where the euro returns to parity against
the greenback if the Fed stands pat on
rates this year and the ECB delivers
three quarter-point cuts. The euro could
even fall further if there’s a fresh energy
shock, they said.
Every extra cut the ECB delivers rela-
tive to the Fed can trigger a 1% move
in the euro-dollar exchange rate, ac-
cording to Samuel Zief, head of global
the broader SOX index. Nvidia, which has
surged about 500% since the start of last
year, trades at roughly 34. “Investors are
more than willing to pay up for growth, to
pay up for technological advancements,”
but Intel’s discount to Nvidia is not enough
to attract investors, Wagner added.
The latest disappointment adds to
investors’ concerns about the Santa Clara,
California-based company.
Among these is its failure to respond to
the competitive threat posed by Nvidia in
the lucrative data centre chip market —
Nvidia has taken share from Intel and now
dominates in so-called artificial intelligence
accelerators.
There are also worries that the market
for personal computer processors is
becoming more crowded and isn’t
returning to rapid growth.
Intel’s top line “still depends significantly
on legacy/low-growth PC and traditional
server CPU markets exposed to longer
replacement cycles” and competitive
challenges and challenged by emerging
FX strategy at JP Morgan Private Bank.
Mohamed El-Erian, the president of
Queens’ College in Cambridge and a
Bloomberg Opinion columnist, added
to those voicing risks for the shared
currency yesterday.
The potential discrepancy between
the pace of Fed and ECB easing “is hav-
ing a huge impact on relative pricing
between Europe and the US,” he said on
Bloomberg Television. “You do see that
in the bond market, you see it in the cur-
rency market”, he said, adding that par-
ity between the euro and the dollar “is a
possibility.”
So-called risk reversals — a barometer
of market positioning and sentiment —
are pointing to further losses this week.
But other metrics suggest a big move
isn’t in the cards after the ECB decision.
Though Lagarde and colleagues will be
keen to underscore that they don’t take
their lead on rates from the Fed, they’ll
be wary of exacerbating any divergence
that could add to the currency’s weak-
ness and fan inflation in the region.
BUSINESS
ARM-based rivals,” Bank of America
analysts led by Vivek Arya wrote in an April
3 note.
He added that Intel missed three of the
most important cycles of the last decade
— AI, mobile phones and using extreme
ultraviolet lithography manufacturing — so
it may take time before any turnaround
gains credibility.
To be sure, with the backdrop of Intel
and rivals like Taiwan Semiconductor
Manufacturing Company receiving US
funding for chip plants, bulls see the
company’s latest move as a step in the
right direction.
It’s “a solid positive” affirming Intel’s push
to “regain its industry leadership in both
design and manufacturing,” Benchmark
analysts led by Cody Acree wrote in an
April 3 note, reiterating their buy rating
and $62 price target.
Kim Forrest, chief investment officer at
Bokeh Capital Partners LLC, said she’s
adding to her Intel position as some
investors misunderstand the long-term
“I know they all talk about being in-
dependent of each other, but there’s
obviously links between different cen-
tral banks via the currency mecha-
nism,” said Jamie Niven, senior port-
folio manager at Candriam. “I think we
would struggle to see, for example, the
Fed cutting 50 basis points and the ECB
cutting 100 basis points.”
Options markets imply only about a
15% chance of a big enough drop in the
euro to take it to parity from current lev-
els over the next 12 months. Flows into
options since the central bank’s meeting
in March suggest low conviction that the
euro could weaken much below the psy-
chological support level of $1.05.
“Euro-dollar parity partisans are back
in vogue,” said Audrey Childe-Freeman,
Bloomberg Intelligence’s chief G10 cur-
rency strategist. “While we’re not among
them, our expected range of $1.10-$1.15
and outlook for euro strength in 2024
badly needs US data to weaken, a tamer
US inflation trend and some upturn in
the euro-area economy.”
Italy cuts growth forecasts
and says debt set to rise
Reuters
Rome
The Italian government yesterday cut its
growth forecast for this year and next,
reflecting an uncertain international
outlook, and said public debt was set to
rise despite its efforts to curb the annual
budget deficit.
In its Economic and Financial Document,
the Treasury forecast gross domestic
product in the eurozone’s third largest
economy to grow by 1% this year, down
from a 1.2% goal in September.
The latest projection remains
significantly above the consensus of most
independent bodies, who project Italian
growth of around 0.7%.
The government set a GDP growth
estimate of 1.2% next year, down from the
previous 1.4%.
Economy Minister Giancarlo Giorgetti
told reporters the revisions factored in “a
complicated international and geopolitical
framework,” referring to the conflicts in
Ukraine and the Middle East.
On the public finance front, the
government confirmed its 2024 budget
play in the move to becoming a separate
foundry, a business that manufactures
chips for other companies.
“They want to be a competitor to Taiwan
Semi and be making hotter chips,” she
said. “People were confounded that this is
going to take time and that it’s not going to
be very profitable at the beginning.”
Still, Wall Street is largely on the sidelines,
with 32 hold ratings, 11 buys and 4 sells,
according to data compiled by Bloomberg.
It’s a big swing from about four years ago,
when it had 22 hold ratings, 21 buys and 5
sells as the onset of the pandemic spurred
a flurry of PC purchases.
“We have recommended the stock twice
on a sum-of-the-parts narrative in the last
five years, and it ended badly both times,”
Morgan Stanley analysts led by Joseph
Moore wrote in an April 1 note. “This
segmentation may unlock value in multiple
paths, but as long as foundry and the chip
business remain fully linked, we need to
believe in the success of the whole, not the
individual parts.”
Traders favour
two Fed cuts in
2024 with
US rates at
year’s highs
Bloomberg
Washington
T
raders’ conviction on three quarter-
point interest-rate cuts from the Federal
Reserve this year is quickly dissipating,
with markets now favouring just two reduc-
tions.
Interest-rate swaps imply around 60 basis
points of US monetary easing this year, which
means two cuts is the most likely outcome with
the first expected by September, according to
Bloomberg pricing. On Friday, the chance of a
third cut was still above 50%.
Treasuries fell yesterday along with peers,
sending yields across the curve to the high-
est levels of the year. The two-year rate rose
three basis points to 4.78%, while the 10-year
one are was within striking distance of the key
4.5% level that some investors are watching as a
major threshold that could determine whether
rates revisit last year’s highs.
Markets have been tempering bets on Fed
cuts for days as US economic data remains
resilient and Fed officials have pushed back
against the need for easing, with some even
stressing a risk of hikes should progress on in-
flation stall. Consumer price data is due later
this week.
“The focus on the timing of a possible rate
cut is being further undermined by the data,
and the Fed appears to be looking for the ap-
propriate response if inflation dynamics do not
weaken further or even accelerate again,” said
Rainer Guntermann, a strategist at Commerz-
bank. “Following Friday’s surprisingly strong
payrolls report and the hawkish Fed comments
over the weekend, Wednesday’s US inflation
data will be crucial.”
At the start of the year, expectations were
widespread that the Fed’s 11 rate increases in
the past two years would not only curb infla-
tion but also cause economic stress, leading the
market to bet on as many as six cuts this year.
Instead, progress toward lower inflation has
slowed, growth metrics have remained robust,
and investors continue to shovel money into
stocks and corporate bonds at a pace that sug-
gests the economy doesn’t yet require lower
rates.
That’s seen Treasuries selloff, upending the
carefully calibrated portfolios of investors who
bet that bonds would go on a tear. A Bloomberg
gauge of US Treasuries has lost 2% this year.
Still, some asset managers are holding the
line and wagering that Fed cuts, when the
come, will fuel a long-awaited rally.
deficit projection at 4.3% of national
output.
If achieved, that will mark a sharp
reduction from the 7.2% ratio registered
in 2023, when Rome far overshot its
official target due to the impact of costly
fiscal incentive schemes for home
renovations.
Giorgetti said these incentives had cost
the public purse some 219bn euros
($237.99bn) over the last four years.
The most generous, the so-called
‘Superbonus’, allowed homeowners to
reclaim from their taxes 110% of the cost
of energy-saving building work.
For 2025, the Treasury nudged up its
deficit projection to 3.7% from a previous
3.6% goal, while the fiscal gap is seen at
3% in 2026, slightly above the 2.9% target
set last year.
Giorgetti said these estimates were
forecasts rather than policy targets, as EU
fiscal rules are currently being reviewed
so the government lacks a clear reference
framework to work with.
He said he was ready to intervene with
corrective measures to “exactly” meet the
previous, slightly tougher deficit targets
for the next two years.