How low can the oil price go?

The last global recession the world had was in 2001. Nymex crude oil prices, which had gone above $35 a barrel in September and October 2000, fell briefly below $20 a barrel in late 2001 before recovering in April 2002 to above $26 a barrel.

The oil price required for a marginal cost player to return its cost of capital is $65-75 per barrel.

Economic necessity is often cited as important in the price level. The lowest breakeven oil price that would bring the 2008- 2009 budget into balance in Saudi Arabia is $30 per barrel. The level in the UAE is $40 and in Qatar it is $55. The average breakeven for GCC is $50 per barrel.

Harmony Gold turns into profit

Africa's third largest gold miner managed to pull the rabbit out of the hat by delivering third quarter net income of 490 million rand (USD 40.3 million), recovering from a loss the preceding quarter.

At first blush, the results look respectable after production increased and disposed of assets in Papua New Guinea. This disposal obscures the key take away from the results. The company is shifting its focus from exploration to buying producing assets. This strategy is less risky. That said, it shifts the focus to costs, such as labour and power, which are rising in double digits. In short, it shifts the focus from ‘promise tomorrow’ to ‘predictable cash flow and unpredictable costs’.

Danfonds model performance update

Performance is stated before net positive contribution of hedgeing. Shown relative to EM.

Heritage Oil to drill in Kurdistan

Heritage Oil Limited, an independent upstream exploration and production company in our portfolio, announced that it plans to drill an exploration well in the Kurdistan Region of Iraq.

They have secured a rig to commence drilling the Miran West-1 exploration well. Obviously, this is high risk but it looks to us like a high-impact exploration with the potential for billions of barrels of oil from the licence.

Slowdown in global trade shipments on the way

The collapse in the price of dry containers is a direct result of (1) the ability of frontier and emerging trade partners to get letters of credit and (2) the sharpe reduction in consumer confidence and resulting squeeze on inventories.

It is easy to understand why a banker will not extend a letter of credit for a shipment of natural rubber from the ivory coast when they find it difficult to get credit themselves. Unfortunatley, this is extremely bad news for frontier economies.

NASDAQ OMX Group Conference in Dubai

The first NASDAQ investor conference in Middle East will be held in Dubai on November 20. The conference to be held jointly with the Dubai International Financial Exchange, (DIFX), will also feature a discussion of the DIFX's new equity derivatives initiative and the regional potential for exchange traded funds.

The Bell Ceremony will take place at the Dubai International Financial Centre and will be broadcast live in New York's Times Square.

CFAO Ghana Limited posts 398% growth

CFAO Ghana Limited is into a bit of everything, distribution and servicing of automobiles, the installation of Otis elevators. The company has leading brands including Renault, Mitsubishi and Bridgestone tyres. CFAO Ghana Limited also undertakes car rentals and other related activities. The company company has just delivered an impressive 398% growth in net profit.

The company has adoption measures resulting in improved efficiency with expenses falling by 15%

There is, however, some slippage since the first two quarters. The even less inspiring performance of the company’s stock is due to retail selling in a thin market. The parent company of CFAO Ghana Limited, CFAO S.A. France holds about 82% of the issued shares .

Nigeria removes 1% trading limits

The NSE removed the 1% maximum daily downward limit on individual stocks, reverting to the previous limits of 5% maximum daily price movements. The suspension had led to a significant fall in liquidity on the exchange from US$100m per day to less than US$15m per day. Following the announcement, equity prices fell immediately by about 5% across the board.

FNB Namibia acquired by First Rand Holding Ltd

Great news - fundamental value wins out. Actually, this ws one of our portfolio companies!!! FirstRand Bank Holdings Limited has just purchased FNB Namibia Holdings Limited shares (1 389 953) held by TransNamib Holdings Limited for a consideration of N$11.55 per share. As can see, the stock price is bucking the globl trend.

Frontier market index update

Zimbabwe up 187% in a week

Time for some good news (or light relief). In these turbulent times its always good to look at the Zimbabwe stock market, bacause it almost always goes up thanks to its high inflation rate. The Industrials closed the index was up 187% last week led by gains in Old Mutual, KMAL, Pelhams, and ABCH.

Gulf Bank suspended

The Kuwait Central Bank stepped in to rescue the country's second largest lender. The bank had incurred significant losses from trading in derivatives and its shares were suspended on Saturday. A Central Bank order said trading in Gulf Bank shares is suspended pending an investigation into the derivatives deals that caused the losses.

The Central Bank and Gulf Bank say the measures were merely preventive and were misinterpreted. Despite the government guarantee, hundreds of depositors led a run on the bank.

The bank's losses are estimated at up to KD 200 million ($749 million). Derivatives customers were unwilling or unable to fulfill their obligations to cover their losses.

Nigeria's view on OPEC production cut

http://www.ft.com/cms/885d7916-e3aa-11dc-8799-0000779fd2ac.html?_i_referralObject=902922582&fromSearch=n

Kengen falls another 7%

Kenya Electricity Generating Company Limited (KenGen), the leading electric power generation company in Kenya, is still in free fall despite having a great cash generating ability. It produces 80 percent of electricity consumed in the country. Its not even a cost of production issue as it is largely in hydro, geothermal, thermal and wind.

The death of the carry trade...

Kuwait rushes to aid of Investment firms

Kuwait's banks are considering proposals to support investment firms in a bid to stabilize them during the financial crisis. The proposal will be forwarded to the Central Bank of the State of Kuwait this week.

The global financial crisis has impacted the Kuwait Stock Exchange as hot money and speculators rushed for the exit. Investment firms have overextended themselves by providing facilities to investors.

Zambia shrugs of copper decline

Zambia, Africa's biggest copper producer, obviously gets impacted by the dramatic 60%decline in the copper price. Indeed, the government has just cut its forecast for economic growth to 6 percent. Previous forecasts indicated growth of 7 percent this year, up from 5.4 percent in 2007. No forcast was made for 2009 but the country will struggle to achieve the same number as 2007.

United Arab Emirates

The United Arab Emirates economy is said to maintain growth despite the global crisis, a report issued by Morgan Stanely optimistically predicted.

According to Morgan stanley, the UAE economy is expected to grow by 6% in 2009, while the inflation rates will drop from 12% currently to 9.7% by next year. The basis of the optimism is that the country has surpluses in its internal and external accounts.

We, however, are extremely concerned about the UAE property market and would suggest that Morgan Stanley are behind the curve on this one...

Why isn’t the price of gold surging?

Gold is an important part of some frontier market economies (e.g. Tanzania). Gold is stubbonly at $800 an ounce, down 22% since its high of $1,030 on March 17. The weakness might be that inflation might be the next big scare. After all, every central bank is flooding the credit markets with liquidity. Printing money in this way always leads to inflation in either goods and services and/or assets.

Inflation: The price we pay will have to pay avoid deflation and a liquidity trap? Worth thinking about.

Tabreed Bahrain (Bahrain District Cooling Company)

Tabreed Bahrain, the GCC regional district cooling technology providerannounced it will seek a capital increase to finance its rapid expansion.

Tabreed Bahrain has signed a series of contracts with some of the biggest commercial projects in Bahrain. It has just won the Lavalin Gulf Contractors contract to construct a district cooling plant for Bahrain Financial Harbour. This will prove particulaly challenging as any one who has been there know that the buildings are constructed very close together, meaning cooling will be distributed via a pipe network radiating out from a centrally located plant.