Any change in the direction of the US stock markets would directly affect local bourses. Above, traders work on Wall Street. Scott Eells / Bloomberg News
Any change in the direction of the US stock markets would directly affect local bourses. Above, traders work on Wall Street. Scott Eells / Bloomberg News

UAE shock absorbers can handle hard hits



Every year the World Economic Forum publishes its Global Risk report to highlight the perils as it sees them for the next decade.

These are classified into five categories: economic; environmental; geopolitical; societal; and technological. This year, economic risks have gained prominence and, in particular, the forum identifies the threat of "chronic fiscal imbalances".

These arise when there is a sustained mismatch between revenue powers and expenditure responsibilities of a government.

Today, the euro zone and the United States are two epicentres of chronic fiscal imbalances. Causes for the euro-zone crisis abound but fiscal profligacy is not the least of them. The consolidation facing the European periphery weighs heavily on their growth.

While the euro crisis continues to take a toll on global growth, the US has its own fiscal woes. According to the IMF, if the US fails to avert a fiscal crisis - by enacting a bundle of tax increases and spending cuts at the end of this year and early next year - the economic effects would be severe.

The US economy could contract early next year and the negative spillovers would be felt around the world.

From the UAE's perspective, chronic fiscal imbalances are an external risk - one that emanates from outside the country. Nonetheless, the UAE - because of its global linkages and relatively open economy - is more vulnerable than any other country in the GCC.

Let us now see how these imbalances can spill over, or have probably already spilt over, to the UAE. A recent IMF paper calculates this on the basis of a spillover coefficient (SC) - a measure of distress dependence, which captures the chances of distress of a country as it is affected by conditions in other economies.

Greece contributed more than 60 per cent to changes in Dubai's SC from July last year to January this year. And, along with Italy, Portugal and Spain, it accounted for almost 80 per cent of the contagion risk to Dubai.

Clearly, financial contagion to Dubai from the euro crisis cannot be ignored. In addition to the implications for sovereign risk, there is a clear link of risk to the tourism, services, manufacturing and trading segments - the key drivers of the UAE's non-oil economy - with what happens in Europe.

As far as direct exposure of UAE banks to Europe is concerned, foreign liabilities are less than 20 per cent of total liabilities, not a worryingly high figure.

However, lending by banks from the leading parts of Europe cannot be ignored.

Now European banks - in an effort to deleverage - have started to retrench from non-core markets, including the UAE, it could make it difficult to roll over the maturing debt of government-related entities, resulting in a rise in the overall cost of their borrowing from international markets.

The jury is still out on whether local banks have filled the gap left by European banks. But the direct impact on the UAE's financial system should be manageable, save for the event of a chaotic disintegration leading to a post-Lehman Brothers kind of liquidity freeze.

Imbalances in the US, in particular a failure to avert a fiscal crisis, could have profound spillover effects. Some equity strategists believe that could lead to a 15 to 20 per cent drop in US stock prices.

Now here's the thing: of all the GCC markets, UAE stocks are the ones most likely to be affected by changes in direction of the US stock markets. To put it another way, the correlation of shocks between S&P 500 and UAE stocks is the largest among the GCC markets.

Not only will this linkage be transmitted to the wider economy by means of the "wealth effect" - the hit on consumption from reduced stock market wealth - but it will also affect the quality of the UAE's banking assets, a good part of which is backed by local equities.

A slowdown in the US will exert downward pressure on oil prices and with a break-even oil price of about US$100, the UAE's revenues and export earnings could suffer a setback.

This in turn would reduce government spending and ultimately slow growth in non-oil GDP. The asset quality of UAE banks - which move in lockstep with oil prices - could also be adversely affected.

So what can be done about these spillover effects? Not much can be done to prevent them, for they do not emanate from within the country.

However, much can be done to mitigate the impact. The UAE already has the advantage of a well-capitalised banking sector. The Government has sufficient resources to inject liquidity into the financial system, which it could do if the need arises.

And, more importantly, if required, a temporary expansionary fiscal stance at home can also be an effective antidote.

Amit Tyagi is the vice president of the risk management division at National Bank of Abu Dhabi. The views expressed are solely of the author and not of the bank.

NO OTHER LAND

Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal

Stars: Basel Adra, Yuval Abraham

Rating: 3.5/5

Three ways to limit your social media use

Clinical psychologist, Dr Saliha Afridi at The Lighthouse Arabia suggests three easy things you can do every day to cut back on the time you spend online.

1. Put the social media app in a folder on the second or third screen of your phone so it has to remain a conscious decision to open, rather than something your fingers gravitate towards without consideration.

2. Schedule a time to use social media instead of consistently throughout the day. I recommend setting aside certain times of the day or week when you upload pictures or share information. 

3. Take a mental snapshot rather than a photo on your phone. Instead of sharing it with your social world, try to absorb the moment, connect with your feeling, experience the moment with all five of your senses. You will have a memory of that moment more vividly and for far longer than if you take a picture of it.

The White Lotus: Season three

Creator: Mike White

Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell

Rating: 4.5/5

Result
Qualifier: Islamabad United beat Karachi Kings by eight wickets

Fixtures
Tuesday, Lahore: Eliminator 1 - Peshawar Zalmi v Quetta Gladiators
Wednesday, Lahore: Eliminator 2 – Karachi Kings v Winner of Eliminator 1
Sunday, Karachi: Final – Islamabad United v Winner of Eliminator 2

Going grey? A stylist's advice

If you’re going to go grey, a great style, well-cared for hair (in a sleek, classy style, like a bob), and a young spirit and attitude go a long way, says Maria Dowling, founder of the Maria Dowling Salon in Dubai.
It’s easier to go grey from a lighter colour, so you may want to do that first. And this is the time to try a shorter style, she advises. Then a stylist can introduce highlights, start lightening up the roots, and let it fade out. Once it’s entirely grey, a purple shampoo will prevent yellowing.
“Get professional help – there’s no other way to go around it,” she says. “And don’t just let it grow out because that looks really bad. Put effort into it: properly condition, straighten, get regular trims, make sure it’s glossy.”

Skewed figures

In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458. 

One in four Americans don't plan to retire

Nearly a quarter of Americans say they never plan to retire, according to a poll that suggests a disconnection between individuals' retirement plans and the realities of ageing in the workforce.

Experts say illness, injury, layoffs and caregiving responsibilities often force older workers to leave their jobs sooner than they'd like.

According to the poll from The Associated Press-NORC Centre for Public Affairs Research, 23 per cent of workers, including nearly two in 10 of those over 50, don't expect to stop working. Roughly another quarter of Americans say they will continue working beyond their 65th birthday.

According to government data, about one in five people 65 and older was working or actively looking for a job in June. The study surveyed 1,423 adults in February this year.

For many, money has a lot to do with the decision to keep working.

"The average retirement age that we see in the data has gone up a little bit, but it hasn't gone up that much," says Anqi Chen, assistant director of savings research at the Centre for Retirement Research at Boston College. "So people have to live in retirement much longer, and they may not have enough assets to support themselves in retirement."

When asked how financially comfortable they feel about retirement, 14 per cent of Americans under the age of 50 and 29 per cent over 50 say they feel extremely or very prepared, according to the poll. About another four in 10 older adults say they do feel somewhat prepared, while just about one-third feel unprepared. 

"One of the things about thinking about never retiring is that you didn't save a whole lot of money," says Ronni Bennett, 78, who was pushed out of her job as a New York City-based website editor at 63.

She searched for work in the immediate aftermath of her layoff, a process she describes as akin to "banging my head against a wall." Finding Manhattan too expensive without a steady stream of income, she eventually moved to Portland, Maine. A few years later, she moved again, to Lake Oswego, Oregon. "Sometimes I fantasise that if I win the lottery, I'd go back to New York," says Ms Bennett.