Friday, April 30, 2010

INCREASED APPETITE FOR LARGE INFRASTRUCTURE AND ENERGY PROJECTS SIGNALS TRUE RECOVERY IN THE MIDDLE EAST: KOREAN-BASED SAMSUNG REWARDED

THE SHAH DEVELOPMENT PROJECT
Helped by relatively high energy prices, the appetite to invest in large-scale infrastructure and energy projects in the Middle East (and to a lesser extent ...Africa) has increased dramatically. Today, South Korean's Samsung Engineering announced that it won a huge USD 1.5 billion order from Abu Dhabi Gas Development Co. Samsung will build the utilities and offsite facilities in Shah, 180 km Southwest of Abu Dhabi.



The project will be completed by August 2013 and is part of a larger development with a total value of USD 10 billion. The Shah development will process 1 billion cubic feet of gas per day into more than 500 billion cubic feet of fuel and 10,000 tons of sulfur, according to the CEO of Abu Dhabi Gas Development.

 

ABU DHABI BACK ON TRACK
It clearly indicates that the richest of the Gulf Emirates didn't really feel the bailout of fellow-Emirate Dubai after the latter went too far with its own non-energy-related development plans during the crisis and shortly after. One thing is sure: the European nations that will have to bail-out Greece will take longer to overcome the cash drain than Abu Dhabi did.

Abu Dhabi: Back on Track
Bailing out Dubai was not a killer
Host to the most expensive and prestigious closing race of the Formul1
And embarking on expensive, huge energy and infrastructure projects

But be sure: they won't make the same mistakes as Dubai did


AFRICA MIDDLE EAST AND MAYBE SELECTED KOREANS
It strengthens LMG's believe that Africa and the Middle East will probably be among the more interesting parts of the world when it comes to Emerging Markets investing for the period 2010-2013. But the project and developments so far during 2010 have also made it clear that the Koreans (Samsung Engineering and its rivals Korea Electric Power amongst others) are well positioned to benefit from increased activity in Africa and the Middle East. 

 Middle East - Africa: 65 percent of oil wealth. 

Why didn't their financial markets deliver yet?

We would urge investors that assume that they can play the Africa Middle East card through investments in Chinese engineering and construction giants to reconsider things. True, the Koreans are on average more expensive than the Chinese, and the latter are one of the most important clients of the Middle Eastern energy states as well, but in terms of efficiency and technological savvy the Chinese might have difficulty to deliver when it comes to the high-end of the market in terms of engineering and construction projects.

Also taking into account the latest figures that were presented by the Korean authorities with respect to overseas orders in this industry (a 51 percent increase compared to last year, with a grand total of USD 70 billion meaning a record high export number), the large manufacturing giants of the country might be well-positioned to show good results over 2010.

ANALYZING THE MSCI BARRA DATABASE

And when comparing the MSCI Index performance (gross returns) for China, Korea and the Gulf Council nations on the one hand and regional indices for Africa, The Middle East and the Far East we get the following result (in USD, as of April 29, 2010):

When studying the return numbers carefully one can first of all conclude that stocks weren't really delivering over the last 10 years. The All Country World Index posted a 1.64 percent per annum gross return in USD. No wonder that the bulk of institutional investors in developed nations posted dramatically reduced coverage and solvency ratios.

One can also conclude that both Korea and China were success stories that were delivering with annualized returns over the last 10 years in excess of what institutional investors normally would require. The Gulf nations and the Africans weren't really a good investment story at all. We believe that things are different this time and follow a contrarian approach in which we urge you to consider increasing your allocation to this area.

 Click here for the original article from Arabian Business.com

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