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INTERVIEW: Global picture getting scarier
Viswanathan Shankar, Standard Chartered CEO, Middle East, Africa, the Americas and Europe, talks Europe and the GCC region.
July 18, 2012 10:00 by kippreport
Let’s begin with discussing the eurozone. How is that impacting the GCC?
There are some positives and some negatives. On the positive side, the GCC imports a lot from Europe. With the euro depreciating you would have a positive spinoff in terms of your import cost. Also, with asset prices going down, and the euro going down as well, this could also signal huge buying opportunities for Middle East businesses and sovereign wealth funds. That’s the positive side. The negative side is that Europe as a zone is producing more than a quarter of the world’s GDP, and we are a highly globalised connected world, so any downturn in Europe is likely to have a moderating impact [globally]. The price of oil and a lot of the surpluses of the GCC are on the back of oil prices and you can already see that happening, oil prices coming down if not moderating. That could be one negative. The other is the withdrawal or retreat back home of European banks, which could have a negative impact on the available finance for projects and refinancing needs in the region.
With regards to cheap buying opportunities in Europe, we haven’t seen much action there, have we?
We have seen some. I mean the Qataris have bought a few assets here and there. Look, if prices are cheap, they are probably cheap for a good reason and you never know whether you have seen the bottom yet. So, obviously, investors will be approaching it with some caution and a wait-and-watch approach. One is the price of asset and the second is the need to be able to make a future business case. You don’t know how robust the future is going to be; [about] the asset that you are buying, particularly if it is serving Europe. So I suspect it will happen, but having being burnt in the past, investors will be a little cautious. And that’s a good thing.
But if you look at Greece or Spain. One could have seen lots of buying in Greece, but nothing has really moved.
They didn’t go in early and buy it because the price just got cheaper. The other thing to ask yourself is: what would you buy in Greece, probably a lot of islands and real estate. The last time I looked at Greece, it was not a great producer of anything magnificent enough from an international trade prospective. It does have tourism business and travel business, but it does not produce anything magnificent, nor does it have great access to research and technology.
How is Standard Chartered impacted by this?
Well, the major thing is that we as a banker focus on Asia, Africa and the Middle East. So, to a large extent, we are insulated from what’s happening in the eurozone. Also, I just want to stress that direct exposer to sovereigns of the stressed countries in Europe is zero. So, the direct impact of what’s happening in Europe is going to be very limited for us . . . to the extent that it slows down the eurozone. It’s going to lead to a reduction in global growth, including our core key markets of Asia and the Middle East. This will have a moderating influence on our growth rate. As an institution you are probably aware that our top lines have grown at a CAGR (Compounded Annual Growth Rate) of 16 per cent, and our bottom line has grown in the CAGR of 21 per cent over the past five years. And, in our recent intra management statement, we signal that our growth for the first half is going to be in the high single digits. And that’s partially a result of moderating growth in our markets, plus the fact that the dollar has strengthened against most Asian currencies, which are the major drivers of our revenues.
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