Amid US Asset Scrutiny Mideast Investors Hike Dlr Sales
2002 Warren Edwardes interviewed by John Hardy of Dow Jones News Service for
"Amid US Asset Scrutiny Mideast Investors Hike Dlr Sales" "There
is a noticeable change in sentiment amongst Islamic portfolio managers away from
the U.S. dollar ... on political grounds related to events in Palestine as well
as security from seizure and diversification," said Warren Edwardes, chief
executive officer at Delphi Risk Management, a London-based risk advisor with
extensive client relationships among both Mideast fund managers and Islamic
at Delphi Risk Management noted that this reduction in Islamic banks' focus on
U.S. markets may prove damaging to the dollar over the longer term, in addition
to its obvious short term impact. "Movement away from the U.S. is also on
the back of a desire to diversify - as the vast majority of Islamic funds are
dominated by the U.S. dollar," he said.
Amid US Asset Scrutiny Mideast Investors Hike Dlr Sales
By John Hardy
21 May 2002
Capital Markets Report
(Copyright (c) 2002, Dow Jones & Company, Inc.)
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Spooked by heightened fears that their U.S. assets
may be frozen if the war on terrorism escalates, Middle Eastern investors
have been redirecting their extensive currency portfolios out of the dollar,
according to industry participants.
Those portfolio shifts, primarily into the Swiss franc, the euro and the
yen, appear to have contributed partly to the yen's sharp move higher on
Fund managers report that the ongoing move by Middle Eastern investors out
of the dollar has been underpinned by a trio of factors, including
opposition to U.S. policies toward the Israeli/Palestinian conflict,
widespread fears of increased U.S. official scrutiny of Mideast-owned bank
accounts and the recent weakness in dollar-based asset markets.
"There is a noticeable change in sentiment amongst Islamic portfolio
managers away from the U.S. dollar... on political grounds related to events
in Palestine as well as security from seizure and diversification," said
Warren Edwardes, chief executive officer at Delphi Risk Management, a
London-based risk advisor with extensive client relationships among both
Mideast fund managers and Islamic institutions.
Criticized for its response to previous information about possible terrorist
attacks, the White House has increased the volume of attack warnings while
spelling out a wider range of scary scenarios. In the past few days alone,
Vice President Dick Cheney, FBI Director Robert Mueller and National
Security Advisor Condoleezza Rice have been very open about the high
certainty of another significant attack.
There have also been press reports citing the possibility of militant
Palestinian group Hamas and Lebanese guerilla group Hezbollah joining forces
with Osama bin Laden-backed al Qaeda to launch attacks on the U.S.
Some market watchers say these reports are fueling a sense that Middle
Eastern funds will be subject to even more scrutiny, even if the vast
majority Middle Eastern investors aren't involved in funding terrorism.
"Any future terrorist attack on the U.S., that involved either or both of
these organizations, would unleash a far broader response from the U.S.,
including efforts to go after anyone who supports them financially and in
this hypothetical instance, a far wider network than the backers of bin
Laden," noted David Gilmore, a partner at Foreign Exchange Analytics in
"For Middle Eastern accounts who fear the freezing of their U.S. assets by
the U.S. Treasury, getting their money out of the U.S. ahead of a possible
broader terrorist attack and a broader U.S. response seems plausible,"
Gilmore wrote in a note released Tuesday.
Islamic Banking Sector Key
Currency traders say that after already moving into the euro in
recent sessions, Mideast investors have now started to buy more yen.
"They actually started last week, selling dollars and buying Swiss
francs, then they moved on to buying euros and now they're selling
euro/yen," said Chris Melendez, president of Tempest Asset Management,
a portfolio manager based in Irvine, CA.
The dollar fell by over two yen during the global day on Tuesday, a move
that came on the heels of a similarly large loss on Friday, with the euro
also sliding against the Japanese currency.
While negative sentiment toward the dollar has been apparent in a wide range
of Mideast investment accounts, the strategy of reducing U.S. exposure has
been particularly visible in the trading of the powerful - and politically
well connected - Islamic banking sector, largely located in Saudi Arabia,
industry observers said.
Need To Diversify Out Of Dollar
Edwardes at Delphi Risk Management noted that this reduction in Islamic
banks' focus on U.S. markets may prove damaging to the dollar over the
longer term, in addition to its obvious short term impact.
"Movement away from the U.S. is also on the back of a desire to diversify -
as the vast majority of Islamic funds are dominated by the U.S. dollar," he
Recently published opinion polling in the region confirms that anti-U.S.
sentiment is well-established throughout the Middle East. "There's a very
high level of negative impression of U.S. policy," said John Zogby,
president and chief executive officer of Zogby International, a U.S.- based
Speaking at a recent meeting of Mideast bankers in New York, Zogby reported
on a series of polls carried out in recent weeks in each of the countries of
the region, which indicated a general 80% adverse opinion toward U.S.
Mideast policies, with over 90% of Saudi Arabian opinion opposed.
This broad-based finding matches the experience of a Gulf-based trading
manager with an extensive regional client roster.
"Certainly, there is a lot of repatriation from the U.S. to the Gulf - it
depends on U.S. policy toward the Mideast and the Gulf in general," said the
treasurer of a Bahrain-based trading bank.
Some major banks say they haven't seen any evidence of panic dollar selling
by major Middle Eastern accounts, however, suggesting that some of the
dollar selling may be more in line with the general selloff of the greenback
in the market.
Warren Edwardes is CEO of Delphi
Risk Management, the London-based financial product creativity,
communication and control consultancy.
Warren was previously on the board
of Charterhouse Bank and has worked in the treasury divisions
of Barclays Bank, British Gas and Midland Bank. He first researched
into what were later to be called "derivatives" in 1975
and was part of the team that executed one of the world's first
currency swaps in 1981. Since then he has devised and transacted
numerous structures that form part of the history of derivatives.
Warren can be contacted via
Warren Edwardes <note spelling of
edwardes> is author of best seller "Key
financial instruments: understanding and innovating in the world of
derivatives" which includes an appendix on Islamic Banking. see
are the Innovation, Communication & Risk Management arms of Delphi Risk
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