Goodbye To You My Trusted Friend

Goodbye To You My Trusted Friend. 15 October 2020

There are signs that Dubai’s property pipeline is likely to contract in the coming years and more so in the villas and townhouses segment. For example, Core is looking at a residential units’ supply of only 32k by 31 December – about 35% less than the 49k widely forecast at the beginning of the year. With 21.5k units added to Dubai property portfolio in the first nine months of the year, the total residential stock now stands at 571.5k. Allsopp & Allsopp also noted that over the past three years, 334 projects have been completed in Dubai, with almost half that, 176 projects, scheduled for handover over the next five years. Core estimated that property transactions in many areas are 35% down on their 2014 highs, with prices at a cyclical low. Even before the onset of Covid-19, new developments were slowing down markedly, as the market tried to rebalance its over-supply conundrum. Indeed Covid-19 may be the catalyst that pushes the property cycle into some form of equilibrium, as the supply side slows.

Damac Properties has awarded a US$ 49 million contract to Trans Emirates Contracting, LLC, to start main work construction of its Zada development, a 26-storey building located in Business Bay.  Some may consider this a brave move in the current economic climate, as the sector has been battered by the impact of Covid-19. However, recent reports have indicated a slight uptick in the market, along with a notable increase in first time buyers. For example, the DLD reported an 11.3% increase in sales, compared to the same month in 2019, with sales valued at US$ 1.3 billion; various reasons have been expounded why this has happened including historically low mortgage rates, attractive/relatively competitive pricing by the banks and pent up demand.

Seven Tides have decided to rebrand its US$ 272 million JLT development from Seven City JLT to Golf Views Seven City to “fully appreciate” its views overlooking the twin Majlis and Faldo courses. This is its first mixed-use development and, with 2.6k apartments across 14k sq mt of retail space, a hotel and restaurants, its largest to date.

Accor has announced that it is to manage the Rixos resort at the upcoming Jewel of the Creek, after signing an agreement with Dubai Developments. The 770-key property will also house a 3k sq mt conference centre, a commercial zone, sports facilities, as well as the usual accoutrements.The global hospitality group, which currently operates four Rixos properties in the UAE, will have sixty-five properties (18k keys) in the country, following this latest addition, with twenty-nine more projects (7.9k keys) in the pipeline. The actualJewel of the Creek project is a one million sq mt, mixed-use development, featuring residential, commercial, hospitality, sports, entertainment, recreational and marina components; they are connected to the main city area with seven tunnels and almost 7k parking spaces.

Nakheel has indicate that the four-star Riu Dubai, in a JV with Spain’s Riu Hotels and Resorts, is set for a December opening. The 800-key hotel, located on Nakheel’s Deira Island coastal city, will have ten F&B outlets, three pools and a conference centre and is in the final stages of construction and landscaping work under way.

According to Knight Frank Middle East, Dubai prime office rents fell by an average 6.5% during the first nine months of 2020. Prime rents fell 4.7% to US$ 205 per sq ft, grade A rents by 6.1% to US$ 130 per sq ft and average citywide rents by 7.7% to US$ 100 per sq ft. It is obvious that many companies are suspending any expansion plans and adopting a wait-and-see approach until there is more positive news on the pandemic. There are others who are taking advantage of the current economic environment by either negotiating cheaper rents or upgrading. Q4 will see the delivery of additional supply especially in the prime sector, whilst next year, the vast majority of supply scheduled to be delivered is of Grade A quality. It is estimated that there are 25 active projects, valued at US$ 7.6 billion, in the emirate, with delivery dates up to 2024, which are either being executed or in the study or design phase. Office vacancy levels will increase, as latest data, from the Dubai Statistics Centre,  forecast a 7.4% contraction in its GDP and not expected to recover to its pre-pandemic level until 2022; furthermore, employment is set to contract by 9.1% this year, with 6.7% and 5.1% growth rates over the next two years.

The IMF, not known as one of the world’s better forecasters, has projected that the UAE will have negative 1.5% inflation this year, with its current account balance staying in positive territory – 3.6% this year and more than double to 7.5% in 2021.  The world agency also predicts a 6.0% contraction this year, followed by growth of 3.3% growth in 2021 for the oil-exporting ME and Central Asian countries, with forecasts of minus 1.1% contraction in 2020 and 2.5% expansion next year for oil importers. On a global scale, 2020 and 2021 will see a contraction of 4.4% and growth of 5.2%, whilst the advanced economy growth is seen at minus 5.8% and a positive 3.9% this year and next. Location-wise, the US, Eurozone, UK and India will all contract in 2020 by 4.3%, 8.3%, 9.8% and 10.3%, with 2021 growth figures of 3.1%, 5.2%, 5.9% and 8.8%; China will grow over the two years by 1.9% and 8.2%. As a rider, the forecasts are reliant on the pandemic being contained and a workable vaccine is globally available.

This in contrast to the Washington-based Institute of International Finance that has forecast a 5.7% contraction to the UAE’s GDP this year followed by 3.1% growth in 2021. Because of its exposure in the tourism and aviation sectors, the emirate could be looking at an increased weakening in its GDP this year. Despite the 2020 decline in economic activity, its external position should remain strong, whilst its current account surplus, although narrowing, will still remain significant. The report noted that employment has fallen by some 10% since the onset of Covid-19. Interestingly, it commented that a more diversified and knowledge-driven economy is needed and that privatising non-strategic GREs and enforcing competition laws and regulations would improve efficiency and raise productivity. The report posted a bleak picture of the real estate market, citing that the price slump since 2014 has been caused by oversupply, weaker consumer sentiment in the context of prolonged low oil prices, and recently Covid-19. It failed to mention that recent figures indicate that a rebound is on the cards because of historically low mortgage rates, the supply pipeline slowing appreciably, attractive sales promotions and pent up demand.

As it had met its aim to ensure liquidity in the banking system, one of its mandate pillars, that of regulating cash flows and withdrawing cash surplus in order to retain economic resilience, the Central Bank of the UAE withdrew US$ 3.0 billion out of excess liquidity during August; this resulted in increasing the cumulative total of certificates of deposits at the end of July to US$ 42.8 billion. At the beginning of the pandemic, it had injected a considerable amount of funds, before starting to remove excess liquidity as from June.

A new scheme to allow professionals to live in Dubai, while employed by overseas businesses, has been introduced, so as to facilitate such a class to relocate to the emirate; those availing of this new facility will be able to utilise all services available to permanent residents in Dubai, including phone and internet, utilities, and schooling. The annual government fee is US$ 287 plus medical insurance with valid UAE coverage. Other requirements include passport, with at least six-month validity, proof of employment with a current one-year contract and a minimum monthly salary of US$ 5k. This comes a month after the government unveiled a five-year visa that allows residents of other countries to retire in Dubai as long as they are over 55 years old and have valid UAE health insurance. One other condition was that applicants must fulfil one of these three requirements: earn a monthly income of over US$ 5k; have US$ 272k in cash savings; or own US$ 544k worth of property in Dubai.

At the first meeting of the country’s General Budget Committee, the federal budget spending and cash flow for the 2020 fiscal year, in light of the repercussions of the Covid-19 pandemic were discussed. Last month, the cabinet had increased the size of its 2020 budget by 2%, exceeding the largest budgetary plan it unveiled 2019, on top of the US$ 16.4 billion the government had allocated for 2019. The meeting, chaired by Sheikh Hamdan bin Mohammed Al Maktoum, also discussed the draft budget for next year and the cash flow impact of the pandemic on its forecast spend.

Standard Chartered is planning to cut more than one hundred of its 1.7k staff positions in the country, with reductions being centred on its retail and global banking division. It is reported that termination payments will include their equivalent of their salary until the end of year, along with their severance pay. The UAE is the biggest market of Standard Chartered’s MEA business, with the region’s H1 profits tanking by 80% after a slump in oil prices. Other international banks, including Nomura Holdings and Credit Suisse Group, have also been reducing their Dubai presence.

Figures from the UAE Central Bank show that YTD, to the end of August, the Cheque Clearing System dealt with a total of 14 million cheques worth US$ 177.0 billion, being handled by the Cheque Clearing System; this equates to 53% of the total cheques handled in the whole of 2019.  The impact of the pandemic can be seen from comparing Q1 data with Q2 when 6.3 million cheques, valued at US$ 82.1 billion, were much higher than the Q2 figures of 4.3 million cheques, worth US$ 52.5 billion. Another surprise is the high volume of cheques, in these days of online banking, that are still being used in a country which has a high level of IT penetration. Total withdrawals from the CBUAE were valued at US$ 36.7 billion, with deposits reaching US$ 40.8 billion.

A recent KPMG report points to the fact that the H1 profit of the ten leading UAE banks declined by an average 38.9%, driven by higher-than-expected credit losses on loans and advances, which increased by 125.8%, year on year. Over the first six months of the year, the banks’ non-performing loan ratio rose from 3.8% to 4.1%, as they continue facing the double whammy economic challenges from low energy prices and historically low interest rates. The local banks have received support from the Central Bank of the UAE, including a US$ 70 billion stimulus package, as there has been an unprecedented demand for greater liquidity, as well as relief from capital norms and certain accounting guidelines. Do not be surprised if the industry were to see further mergers and acquisitions in the country’s banking sector over the next twelve months.

With a strategy of “achieving a smoke-free future for the GCC”, Philip Morris International has opened UAE’s first IQOS Boutique at Dubai Mall. This comes after the UAE officially legalised the sale and use of electronic cigarettes in April 2019, ensuring that the nicotine components of vaping are 95% less harmful than traditional cigarettes. In the US, the FDA (Food and Drug Administration) has authorised and granted for the first time the marketing of IQOS devices, an electronic alternative to cigarettes. Over the past twelve years, PMI, which has invested US$ 7.2 billion in developing, evaluating and producing reduced-risk alternatives to smoking, has seen the number of global IQOS users jump from zero to fifteen million. PMI estimates that 70% of its investment, and 20% of its generated revenue, are now in smoke-free products; it also aims to see forty million adult smokers switch to PMI’s smoke-free products over the next five years. Furthermore, the global market for e-cigarettes, or vapes, is expected to be worth US$ 53.4 billion by 2024.

Shuaa Capital has recently launched its fourth investment vehicle this year – a $200 million fund, targeting special situations across Gulf countries, has already attracted US$ 68 million in commitments from investors. This is the Dubai investment banking firm’s first dedicated Sharia-compliant financing vehicle aimed, at GCC corporates and developers, Despite the challenges facing any investment bank, Shuaa is still confident that there are opportunities that will result in appropriate risk-adjusted  investor returns for its investors, ”in key sectors including healthcare, real estate, hospitality, construction and shipping.” Shuaa currently manages US$ 13 billion and is aiming to boost this figure to US$ 20 billion over the coming years.

September saw Dubai’s non-oil private sector continue with its recent improvement, with the seasonally adjusted HIS Markit PMI, moving 0.6 higher, month on month, to 51.5, helped by the wholesale and retail recording another sharp rise in new orders. Compared to August, activity and new business rose at faster rates. Unsurprisingly, Q3 only posted a moderate recovery, with the PMI over 50 – the threshold between expansion and contraction – as the gradual easing of restrictions resulted in a marginal rise in business activity. The rate of sales growth posted a ten-month high with higher client demand and the starting of new projects. Travel and tourism remained in the doldrums and although it continued to soften, it did so at the slowest pace since February. Dubai has now opened its borders to overseas visitors. What did continue was the continuation of discounting but at a marked slower pace and although firms continued job cutting, this was also done at a slower rate. There was a general consensus that there would be further growth, mainly linked to a recovery in sales as the pandemic-related restrictions are eased, but firms continue to exercise caution in their business affairs, being wary of expanding too quickly.

More disturbing news continues to pour in from the ongoing administrators’ investigation into the shenanigans related to NMC Healthcare. It seems that a number of financers could be implicated in potential collusion, with the previous management that resulted in billions of dollars in losses to the company. The investigations, whilst also trying to trace stolen property, has compiled evidence which shows that the audited accounts have been misstated since 2012.  The administrators are concerned that “money and property was misappropriated from NMC, the perpetrators sought to make NMC liable for debt of which it never received the benefit, or sufficient benefit, and NMC’s losses are likely to be in the region of billions of dollars”. The investigation is expected to be completed within six months, at which time claims will be launched against the perpetrators.

With a US$ 325 million cash injection, NMC Healthcare is now able to meet short-term payment priorities, including salary obligations for its 13k strong workforce and operational expenses, as well a further US$ 65 million to part pay its creditors; most of this funding came from its main creditor, ADCB, and was released under the mandate of the ADGM. Creditors will be offered a minimum allocation of US$ 1.4 million, while the upper limit must not exceed 20 per cent of their exposure in the old debt, if they have no ongoing legal action against NMC or if they have to agree to a freeze or remove any actions to be eligible. This sets the stage for the administrators to sell its UK healthcare assets, that could bring in an estimated US$ 75 million, and the whole of the Barcelona-based Clinica Eugin’s global assets, that could be worth US$ 850 million, to raise further funding.

There are two apparent options facing the company’s creditors to fully exit from administration. Firstly, go for a reorganisation, sell the non-core assets and focus on the local business which is a viable going concern; run the business for up to five years and then divest, with the facility then being more profitable and more valuable. The end result would be that creditors would receive far more in the future than they would from the other option of a fire sale at today’s prices. The former option would see a much bigger return for creditors than the estimated US$ 0.15 to the dollar, if divested now. Despite a US$ 6.0 billion debt, NMC is still a professionally run local medical operation, with YTD revenue to August of US$ 916 million, with earnings before one-offs and restructuring costs of US$ 51 million. It is a pity that some of the management and shareholders saw a quicker way of obtaining their investment return – by systematic looting and fraudulent action.

This week, Arabtec Holding, in the throes of liquidation, has requested banks for a three-month standstill on debt repayments for its subsidiary Target, that specialises in oil and gas projects and marine work with operations in the region.  Creditors have been advised that this subsidiary is a sustainable business and should be protected from the collapse of the wider group. By the end of H1, Arabtec, which had total liabilities of nearly US$ 2.8 billion, including US$ 500 million to banks, had accumulated losses of almost US$ 400 million.

With Arabtec liquidation now in process, it does not take a financial guru to see that shareholders will receive zilch, considering that there is a 37.4% difference between the developer’s liabilities of US$ 2.8 billion to assets of US$ 2.0 billion. If the liquidators decide on a bulk sale then it is a given, the market value will be much lower.  Arabtec, which had seen the highs and lows during its years with good and bad management periods, was already in trouble even before the arrival of Covid-19; last year, it posted a US$ 211 million deficit attributable to weaker income from its construction business amid tighter liquidity in the construction sector. Some of its assets are already pledged to creditors so will not be thrown into the mix when the actual assets are collated; for example, a US$ 91 million Mashreq loan is backed by land it owns in Dubai valued at US$ 155 million.

Union Properties seems to have had success with its turnaround strategy, as it finally posted a quarterly profit of US$ 139 million, compared to a US$ 22 million loss during the same period last year; its revenue slowed 15.0% to US$ 25 million.  The main factor that resulted in this impressive turnaround was the US$ 224 million gain on fair valuation of investment properties. A statement by the embattled developer noted that “in the span of three months, we have restructured the bulk of our debt, substantially reduced our operating costs and reinstated our credit reputation.” YTD, the company posted a nine-month profit of US$ 95 million, compared to a US$ 45 million loss over the same period in 2019. By the end of last month, its assets were 5.1% higher at US$ 1.7 billion and it had “cleared all losses for 2019 as well as for the first and second quarter of 2020 and reduced its accumulated losses below the critical threshold of 50.0% to 41.8%”.

After receiving shareholders’ approval, the National Central Cooling Company (Tabreed) has advised the Dubai Financial Market that it will raise US$ one billion, through the issuance of bonds or sukuk in one or more tranches over the next twelve months. Finance raised will be used for funding acquisitions or for general corporate purposes. This move comes six months after Tabreed acquired an 80% stake in Emaar’s Downtown Dubai district cooling business for US$ 675 million which then expanded its business by 12.6% to 1,338,602 RT from 83 plants.

The bourse opened on Sunday 11 October and, 52 points (1.9%) lower the previous week, lost a further 19 points (0.9%) to close on 2,195 by 15 October. Emaar Properties, US$ 0.09 lower on the previous three weeks, remained flat at US$ 0.72, whilst Arabtec is now in the throes of liquidation, with its last trading, late last month, at US$ 0.14. Thursday 15 October saw the market trading at a low of 214 million shares, worth US$ 45 million, (compared to 135 million shares, at a value of US$ 31 million, on 08 October).

By Thursday, 15 October, Brent, US$ 2.86 (7.0%) higher the previous week shed US$ 0.44 (1.0%) to US$ 42.78. Gold, US$ 38 (2.0%) higher the previous two weeks, slipped US$ 4 (0.2%) to close on US$ 1,911, by Thursday 15 October.

In order to obtain EU approval for its US$ 27 billion Refinitiv deal, the London Stock Exchange Group has consented to sell Borsa Italiana, to Euronext and two Italian lenders, (Cassa Depositi e Prestiti, a state-backed lender (7.3%), and Italy’s biggest bank Intesa Sanpaolo (1.3%), for more than US$ 5.1 billion in a deal that will create the largest listing venue in Europe. This move will see Euronext handle 25% of all equity trading in Europe and 28 of the Euro Stoxx 50 companies will be listed on its markets, giving the bourse a clearinghouse for the first time as well as a securities depository, stock exchange and bond platform.

IBM has announced that it will split into two public companies – one to cover its higher-margin businesses like cloud computing and artificial intelligence and the other focusing on its legacy IT infrastructure which will be renamed and spun off next year. Last year, the world’s first big computing firm acquired cloud company Red Hat for US$ 34 billion and now it will be focussing on trying to join the two leaders – Amazon Web Services and Microsoft – in the growing market for cloud services. Its shares closed nearly 6% higher after the announcement.

In a sign of things to come – not only in Saudi Arabia but also regionally – the US$ 15 billion merger between the Kingdom’s Commercial Bank and Samba Financial Group has created the country’s largest lender and the Arab world’s third largest bank by assets, totalling US$ 223 billion. Samba shareholders will receive 0.739 newly issued shares of NCB in exchange for each Samba share they hold. Once the transaction is completed, only NCB will survive, while Samba “will cease to exist”, with its shares being cancelled and new shares in NCB will be issued to its shareholders. In these days of tight liquidity, it is inevitable that more mergers will be seen in the coming months because of economies of scale, greater pricing power over both loans and deposits with a bigger financial institution cost synergy.

On the back of a rebound in global financial markets, Morgan Chase & Co posted a 30% Q3 hike in trading revenue to US$ 6.6 billion, as loan impairment provisions of US$ 611 million were well down on the US$ 10.5 billion of the previous quarter. The bank’s net Q3 income rose to 3.3% to US$ 9.4 billion, or $2.92 per share. Because the Fed has maintained rates at nearly zero, to offset the impact of the pandemic, its net interest income fell 9.05 to US$ 13.1 billion.

As the company tries to get to grips with the new post pandemic norm, the luxe division of L’Oréal USA plans to close retail locations, as it starts to restructure its US luxury operations which will see more emphasis in growth areas such as e-commerce, which jumped 65% in H1. L’Oréal confirmed that up to 400 roles in the luxe divisions would be affected in the US, the company’s largest market, but was silent how many of its outlets would close. The French company, with 88k global employees, has seen revenue knocked, (19% lower in Q2), by the fact that spending has decreased for pricey perfumes and makeup as lockdown drastically reduced the number of social occasions.

The WTO has ruled in favour of the EU and has allowed the bloc to impose a further US$ 4.0 billion in annual tariffs in response to the US government providing subsidies granted to Boeing; last year the global body cleared the US to impose tariffs on US$ 7.5 billion of EU items. The US has responded by noting that it had had removed the offending subsidies for Boeing, tax breaks granted by the state of Washington, with the EU countering with the fact that there would no longer be any subsidies for the A380, as it has been taken out of production. This particular trade dispute has been ongoing since 2005, when both sides lodged complaints with the WTO, and now fifteen years later, it seems both sides want to reach a settlement by negotiation rather than tariffs and that “it is time to find a solution now so that tariffs can be removed on both sides of the Atlantic.”

Last Thursday, BA bade farewell to its last two 747s which made a rare double departure from LHR. The jumbos’ premature retirement was brought forward by the Covid-19 impact. The plane first entered service in 1974, with BA taking delivery of its first jet a year later and for over forty years, the ‘Queen of the Skies’ was a firm favourite with passengers. British Airways streamed the take-off live on its Facebook page so that aviation fans from around the world could tune in for the final farewell. Since its first test flight in 1969, Boeing has built 1,558 747s, with the initial programme costs coming at US 1.0 billion (US$ 7.4 billion at today’s prices) Only a few airlines now fly their passengers on a 747, including Lufthansa, Air China, Korean Air, Air India and Thai. The oldest 747, which first flew in 1986, still flying passengers is owned by Iran’s Mahan Air.  it is estimated that 427 747s are still air-borne, most of which are for cargo. Of the five variants of the plane there are nine -100s, 20 -200s, 2 -300s, 266 – 400s and 130 -8s in operation.

Meanwhile, the airline is ditching its current chief executive Alex Cruz to be replaced by Sean Doyle, the Aer Lingus boss for the past two years; before that, he had worked at BA since 1998. The Spaniard, who has been involved in a bitter dispute with unions over redundancies and pay cuts. will stay on as non-executive chairman; towards the end of his four-year tenure, he has overseen 13k staff cuts and been criticised for following a “fire and rehire” policy, which left some employees facing pay cuts of up to 50%. The change at the top of the BA hierarchy comes a month after similar changes with its parent company, IAG, with Luis Gallego, replacing Wille Walsh as chief executive. A case of out with the old and in with the new guard as the airline navigates through the worst crisis in its history. The BA brand has taken a beating of late, with both staff and customer dissatisfaction growing, plus the repeated IT failures and various strikes over “poverty pay” by cabin crew.

The first age of commercial supersonic effectively came to an end in July 2000, with the fatal take-off crash of AF4590 in Paris but was pulled from service three years later. Now it seems there is every chance that the second era is nearly upon us. The Aerion AS2 supersonic business jet, being developed by Aerion and Lockheed Martin, with GE’s Affinity engines, is planning to start flights in 2027; initial flight speeds will top 1,074 mph but later models could see jets travelling at 3k mph (equivalent to almost four times the speed of sound). The company, founded by Texas billionaire Robert Bass and with Boeing a stakeholder, claims it already has a US$ 3.5 billion backlog.

Other players entering the field include Boom Technologies, Virgin Galactic and Spike Aerospace. With thirty jets already ordered by Japan Airlines and Virgin, its US$ supersonic aircraft, slated for a 2030 launch, will travel twice the speed of sound and carry up to eighty-fiver passengers. A third the size demo model, XB-1, powered by three GE J85 engines, will begin test flights next year.  Virgin Galactic Holdings made a surprise announcement in August about its planned 19-seater Mach 3 aircraft as an interim step on the company’s path toward eventual hypersonic point-to-point travel. Meanwhile, Boston-based Spike Aerospace plans an 18-seater supersonic jet that can travel at Mach 1.6 that would be able to fly from Dubai to New York, non-stop. Even Elon Musk’s Space Exploration Technologies has indicated that their eventual high-speed point-to-point aircraft service will operate above earth’s atmosphere, at hypersonic speeds.

In a move that could affect 21k jobs, Edinburgh Woollen Mill, owner of the Peacocks and Jaeger clothing brands, Jane Norman, Ponden Mill and Austin Reed, and with 1.1k stores, is planning to appoint administrators to save the failing business. It will be business as usual until a review of the firm is carried out. EWM posted that this decision was partly taken because of “the harsh trading conditions, caused by the impact of the Covid-19 pandemic and a recent reduction in its credit insurance”. Like most other retailers, the business was severely impacted by the pandemic but more so because it attracts a bigger number of older shoppers, more likely to keep away from the High Street during these troubled times. The 73-year old company, founded in Carlisle, is owned by Dubai-based billionaire Philip Day who also bought Bonmarché out of administration in February – a company that he previously owned; the company is not part of the current restructuring plans.

Restaurant Brands International has posted plans to open a Tim Hortons outlet in “every major city and town” in the UK over the next two years. The Canadian fast food chain, which has only 25 coffee shops in the country, after opening its first in 2017, expects this growth spurt to create over 2k new jobs. Even though the pandemic has severely hit sales, (down some 30% globally among its 4.9k outlets – including nearly 4k in Canada), Tim Hortons sees expansion in the drive-through dining sector. RBI, which also owns Burger King and Popeye’s Chicken, has more than 27k restaurants globally, which it operates through a franchise model; it still harbours ambitions to grow this figure to 40k over a period of time.

Online fashion group Asos has done well because of the pandemic by adding three million customers, to 23.4 million, in the twelve months, as global sales jumped 19.0% with pre-tax profits climbing 329% to US$ 190 million, driven by cost-cutting and buyers returning fewer items amid the pandemic. Its main worries going forward are unemployment hitting young customers, (reducing their consumer spend) and if tariffs were introduced because of a Brexit deal. On Tuesday, the worry concerned its investors so much that Asos’s market value fell 10% on the day.

Boparan Restaurant Group, which owns the Giraffe chain, has agreed to buy part of the restaurant chain Gourmet Burger Kitchen out of administration; the deal covers 35 sites and 669 jobs, but 26 other restaurants and 362 jobs will be lost. GBK, most recently owned by South Africa-based Famous Brands, has been in trouble for some time, having entered into a Company Voluntary Arrangement in November 2018; it appears that Covid-19 was the final nail in its coffin.

By expanding its customer base, adding 800 McDonald’s restaurants and 300 Greggs outlets, Just Eat indicated that its orders had jumped by 43%; the company also did well because of the lockdown, as it delivered 46 million orders in Q3. The takeaway delivery company, which merged with Dutch rival Takeaway.com in February, is planning to acquire US rival Grubhub for US$ 7.3 billion – this came about after potential merger negotiations between Grubhub and Uber collapsed. The group also saw demand rise in markets like Germany, Canada and Australia, with global bookings rising 46% to 151.4 million orders in Q3.

Almost half of Australian home loans deferred due to the coronavirus pandemic are now being repaid, but that also means half are not. In June, almost 500k home loans, with major banks, were on a “pause” – the latest figure is around the 270k level. Furthermore, it is estimated that 20% of those 270k are ‘ghosting’ or avoiding communications from their lender.  In March, banks gave an almost blanket offer that allowed people to stop making payments for six months and now that period has ended, and payments have to resume with some now worse off than they were six months ago. Inevitably, there will be defaults and if the number is sizeable, it will have the double whammy of banks posting reduced profits as their impairment provisions go higher, and house prices will head south.

This week has seen casino baron James Packer, son of Kerry, who was born into unimaginable privilege and power, appearing before a NSW inquiry into whether his company Crown Resorts is fit to hold a casino licence. In recent times, he has struggled with alcohol and depression, as well as bipolar disorder, and this week, there were more startling revelations concerning Mossad agents, accusations of negligence in policing and reporting suspected money laundering, illegal or unlawful operations in China that may have had a negative impact on his ability to hold a casino licence. The enquiry also revealed the lack of oversight from Victorian and Western Australian gaming regulators, where Crown has operations. It also showed that even though management and board duties have been relinquished, he still remains the dominant figure at Crown, whilst still retaining a controlling shareholder agreement.

His grandfather was a media magnate but when James took the reins as chairman of Publishing and Broadcasting Ltd, his first deal was to acquire the then ailing Melbourne-based Crown Casino. Seven years later, he linked up with Lawrence Ho, (the son of Stanley who had enjoyed a 30-year monopoly in the Macau casino business until 1999, when the former Portuguese colony was returned to China), to build the first of several new casinos. With casinos still outlawed on the mainland, money-making enterprises proved a magnet for China’s infamous organised crime groups, known as triads. It has been widely reported that Stanley, who controlled Melco International, had been banned in the 1980s from having any involvement in a proposed Sydney casino development and declared unfit to run American gaming operations in Nevada; in fact several governmental and regulatory agencies had noted his links with criminal organisations which included allowing them access to his casinos to carry out illegal activities.

It seems that only weeks before Packer’s JV with Melco, the control of the Macau business was handed over from father to son but despite this the Victorian gaming authority had no problem approving Crown’s Macau joint venture. The due diligence was so slack that nobody bothered to check that the principal shareholder in Melco was a Virgin Islands Trust, with Stanley— personally banned by the NSW Government — being a beneficiary until his recent death. Lawrence Ho has subsequently withdrawn his interest in taking control of Crown and has left James Packer and Crown to pick up the pieces and to do a lot of explaining to the NSW enquiry.

There are reports that Chinese state-owned energy providers and steel mills have been told to stop importing Australian coal, this coming after earlier in the year, China had imposed tariffs on Australian beef and barley exports.  On Thursday, BHP confirmed that Chinese customers have asked for deferrals of their coal orders. It appears that two steel mills were told verbally about the ban and even if not true, some traders believe buyers will avoid Australian coal. Trade Minister Simon Birmingham confirmed that the government had not been able to verify the reports but there had been similar disruptions to coal exports to China before; Prime Minister, Scott Morrison, noted that China sometimes changed its import demand based on how much coal it is receiving domestically and put domestic quotas in place. However, it seems that the procrastinating Birmingham should lift his game and get talking with his Chinese counterparts – more so because the country is home to 48% of Australia’s exports.

As the Australian government starts to taper its coronavirus stimulus measures, the RBA has warned once again that there are distinct possibilities of a substantial rise in business failures, home prices falling further, along with a marked increase in borrower defaults. As the country climbs out from its first recession in almost thirty years, after the coronavirus pandemic had closed parts of the country’s economy, it will face new economic problems,  as mortgage loan repayment holidays begin to expire and income support measures, such as  the JobKeeper wage subsidy, are being wound back; such measures had shielded many from economic reality and had helped with increased cash buffers and lower bankruptcies, which now have been largely withdrawn. The end result will be an increase in business failures which will reverberate around the while economy and impact on creditors, both financial institutions and other businesses, and their employees.

Whilst it appears that most global economies continue to struggle, China comes with impressive economic data once again, noting September exports and imports growing by 9.9% and 13.2% respectively. With imports growing at a quicker rate than exports, the country’s trade surplus dipped by US$ 22 billion, month on month to US$ 37 billion. The world’s second biggest economy has recovered well over the year, after a sharp decline in Q1, because of the then strict lockdown measures, bounced back at the beginning of Q3. The drivers behind this trade improvement, which YTD has reached US$ 3.4 trillion, has been put down to a surge in global demand for medical devices, PPE, home electronics and textiles.

Over the last two months, there have been troubling signs that all is not well with the US labour market and last week applications for US state unemployment benefits unexpectedly jumped by 53k to 898k – as Americans increasingly moved to longer-term jobless aid. The total number of Americans claiming ongoing unemployment assistance fell 1.2 million to 10 million; however, as that number has dropped, the Pandemic Emergency Unemployment Compensation headed in the other direction – by 818k to 2.8 million. There is no doubt that the recovery in the labour market will continue to slow down as the economy and the job market cannot operate at full capacity until a vaccine is widely available.

Reaching its lowest level in a decade, employment in the 37-country Organisation for Economic Co-operation and Development area fell to 64.6% in Q2 and in the 19-nation euro area by 66.2%, with the highest decreases of three percentage points found in Estonia, Ireland and Spain. Over the period, the OECD reported that there were 34 million fewer people, in work by the end of Q2 to 560 million. The age make-up is interesting, as the youth employment rate dropped more sharply (down 5.6 percentage points, to 36.3 per cent) than for people aged 25-54 and those aged 55-64.  Overall, male and female employment rates fell by around 4% (to 72 per cent and 57.3 per cent respectively).

In an attempt to test the waters with the UK banks, the Bank of England has written to them, asking them how ready they are if interest rates were cut to zero or turned negative, as has happened in Japan and Switzerland. There is every chance that this could happen especially since rates were cut to 0.1% last March and the BoE is concerned that the banks would face technological challenges if rates should turn negative; this is vitally important because the banks have had a recent litany of outages and other problems with their computer systems.The idea behind the concept of negative rates is to penalise hoarding of cash and provide incentives to spend and invest; to date, banks depositing cash overnight at the likes of the European Central Bank currently pay 0.5% to do so, whilst the Swiss bank UBS began charging up to 0.75% for cash deposits from wealthy clients. If the BoE were to go down this path, it shows that the English central bank is demonstrating that it has not run out of weapons from its monetary policy armoury, which comprise cutting interest rates,  which in return reduce the cost of borrowing, encourages investment and consumer spending; on the flip side, lower interest rates also reduce the incentive to save, and makes spending more attractive instead.

24k people in the UK have woken up this week to receive unwanted mail from HM Revenue and Customs that questioned whether they received the self-employment support grants and whether they had been trading at the required times. Some 2.7 million people claimed grants from the Coronavirus Self Employed Income Support Scheme (SEISS) which came in the form of two grants of up to US$ 3.4k and those who were trading in the financial year 2018-2019, and the following year, and who planned to continue doing so, but whose business has been hit by coronavirus. HMRC have indicated that up to US$ 350 million in grants may have been fraudulent or paid in error or made by fraudsters making claims under names of innocent people.

Even as the economy continued its growth recovery for the fourth straight month, August’s return of 2.1% was lower than expected and still 9.2% down from pre-pandemic February; the UK economy had grown8.7% and 6.6% in June and July. Three factors – the October end of the generous furlough scheme, Brexit and possible further lockdowns – will almost certainly ensure that Q4 monthly growth rates will ease. The immediate outlook is that the recovery is beginning to peter out, but Q3 will show slowing growth and put an end to the country being in technical recession (being two straight quarters of contraction which was the case in Q1 and Q2). The dream of a V-shaped – and quick – recovery, which was spoken about four months ago, has long gone and with winter approaching and the inevitability of further lockdowns, any rate of growth would be welcome.

With the pandemic not going away and rearing its ugly head again, the UK unemployment rate has surged to its highest level in over three years, standing at 4.5% in the quarter ending 31 August, higher than the 4.1% in the previous quarter; this will get worse and it would be no surprise to see this hit over 8.0% early next year. This equates to 1.5 million, as redundancies were at 227k, mostly in hospitality, travel and recruitment sectors, their highest level since 2009. Overall, unemployment has fallen 500k from its pandemic peak but there may be more with the government having imposed tough local lockdown rules this week. By the end of last month, the number claiming work related benefits had risen to 2.7 million from March’s 1.5 million.

The Chancellor, Rishi Sunak, has announced a scheme that will see UK employees receive 67% of their wages from the government purses, if the firms they work for are forced to shut by law because of coronavirus restrictions. This will run from 01 November, when the furlough scheme comes to an end, and will run for six months – a sure indicator that the government sees the pandemic continuing at least until the end ofApril 2021. Whether this is enough investment for the worst affected areas and sectors remains to be seen. The announcement comes just weeks after the government  .announced its Job Support Scheme top up the wages of staff who have not been able to return to the workplace full time; the grants will be paid up to US$ 2.8k a month However, this will only apply to those businesses told to close rather than those who choose to shut because of the broader impact of restrictions. Furthermore, businesses that are forced to close will receive an increase in business grants – with up to US$ 4k a month paid every fortnight

Even though initial estimates point to the fact that the UK Q3 economy may have grown by as much as 17%, driven by shoppers making up for lost time when the coronavirus lockdown restrictions were initially lifted. However, it seems likely that in comparison, Q4 may be much slower, probably around 1%, especially now that some restrictions are being reintroduced and the generous furlough scheme curtailed. With unemployment expected to rise, consumer spending will slow, with the end result of sluggish growth for the immediate future. Overall, the UK economy will probably not return to pre-pandemic levels until H2 2023.

Apart from all the political, social and economic problems, emanating from Covid-19, the Johnson government has had to deal with the intransigent EU bureaucracy, led by Michel Barnier, in Brexit discussions. The EU is infamous for its last-minute deals but they could be in for a rude awakening and live to regret their apparent unwillingness to discuss topics on fishing rights and state help for business.  Goodbye To You My Trusted Friend.

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Thank You Very Much!

Thank You Very Much!                                                                     09 October 2020

A report by Springfield Real Estate on the Dubai residential market is fairly bullish – not unexpected because that is their job to push the business higher. It expects a strong supply chain next year but in 2022, it sees handovers slowing, as there will be very limited new project launches coming on stream. It is expected that only 40k units will be handed over this year (and the same number next) – a far cry from the figures of up to 80k expounded by some experts earlier in the year. As supply tapers, then is the time that prices will start rising and the demand/supply cycle will move into a new equilibrium and then the cycle will start all over again so as we will see prices moving higher which in turn will see more development and then there will be another oversupply and prices tanking – this will not happen again for at least another six years.

For the week ending 01 October, the value of 1.7k real estate and properties transactions in Dubai was near to US$ 1.1 billion. Of the total, 182 plots were sold for US$ 330 million and 1.14k apartments/villas accounted for US$ 425 million. The most expensive land and building transactions were for a plot in Marsa Dubai sold for US$ 68 million and a Burj Khalifa apartment going for US$ 60 million.  Two other apartments went for a fair whack – in Al Merkadh for US$ 54 million and Al Khairan at US$ 50 million.

Last weekend, HH Sheikh Mohammed bin Rashid Al Maktoum participated in a ceremony to mark the start of the final phase of construction of the US$ 136 million Museum of the Future, located on the SZR-side of Emirates Towers. The Dubai Ruler witnessed the installation of the final piece of the structure’s façade, which is covered by 1k Arabic Calligraphy panels manufactured by robots; the 77 mt high, and seven-storey column-less structure, encompasses an area of 30k sq mt. The museum will house a research centre, with labs and classrooms, as well as being open for museumgoers to experience new technologies. As usual, Sheikh Mohammed added pearls of wisdom including “Our goal is not to merely build engineering icons. Rather, it is to inspire mankind to build a better future,” “Dubai continues to build and the UAE continues on its path of achievements”, and “Progress favours those who know what they want”.

In a bid to ease hassles for both incoming and outgoing passengers, whilst maintaining appropriate safety protocols, the Ruler of Dubai, HH Sheikh Mohammed bin Rashid Al Maktoum, has directed changes to be made. Among them, Emiratis returning to Dubai from overseas are not required to do a PCR test prior to departure, regardless of the country they are coming from and the time spent there but will only need to conduct a PCR test on arrival in Dubai. All residents and inbound tourists will need to take a PCR test prior to departure for Dubai, as will transit passengers from some countries. The pre-travel test is also mandatory for transit passengers if their destination country requires them to do so. Another change sees no need for a PCR test prior to departure for Emiratis, residents and tourists if their destination country does not require a pre-travel negative test certificate.

By the reckoning of some analysts, many jobs have been lost and whilst UAE salaries may have fallen by at least 30% since the onset of Covid-19, it seems that hiring is picking up, as economic activity begins to gain traction in the country. The sectors that are garnering added attention are procurement, sales, e-commerce, legal service, life sciences, healthcare and education, whilst industries such as banking are shipping staff, as the digital age makes its impact. Some companies are also redeploying staff in other internal positions, whilst others appear to be replacing senior level staff with mid-level executives in order to trim costs further. Another cost saving strategy seems to be local – rather than overseas – recruitment in another bid to save money. It does also appear that there is an increasing number of non-working residents – such as housewives, mothers, and other family-dependent members – also looking for work to supplement the breadwinner’s income that may have been reduced (or lost) because of the pandemic. There are others, especially in the hardest-hit sectors such as aviation and hospitality, looking for a career-change as they have been made redundant and their outlook is gloomy However, the hiring rate is still some 20% lower than pre-Covid levels.

It will not be the first time – or the last – that credit agencies get their forecast horribly wrong, but it seems that S&P may have erred again with their 2020 forecast for Dubai. It announced that “S&P Global Ratings expects Dubai’s economy will contract sharply by around 11% in 2020, owing in part to its concentration in travel and tourism, two of the industries most affected by COVID-19.” It also points to the emirate’s already high debt load which will inevitably expand as it supports those sectors that are struggling to rebound from the impact of the coronavirus pandemic. It expects the emirate’s economy to return to its 2019 levels only by 2023.  The agency estimates that Dubai’s gross general government debt stands at US$ 80 billion, or 77% of GDP, rising to 148% when GREs (government-related entities) are added. If the picture, painted by the agency, is to be believed then it is hard to reconcile that to the fact that when Dubai returned to public debt markets last month, for the first time in six years, its US$ 2 billion debt issuance was five times oversubscribed. It has to be remembered that, following the GFC, the US Congress concluded that the “failures” of the Big Three rating agencies, (S&P, Moody’s and Fitch), were “essential cogs in the wheel of financial destruction” and “key enablers of the financial meltdown”. Time will tell!

Driven by the double whammy of the coronavirus pandemic and record low oil prices, the IMF has commented that the current economic crisis will be worse for the ME than that of the 2008 GFC. It also notes that some GCC nations have used the ‘pandemic period’ to reset their economic models. For example, the likes of Saudi Arabia, Oman and Kuwait have markedly reduced their dependence on foreign workers, with more nationals taking on those roles, whereas the UAE heads in the other direction – keeping and attracting expatriates and tourists to resurrect local economic growth. The UAE has also introduced a five-year “retiree visa programme” for high-net- foreigners over the age of 55.

Dubai-based equity firm Al Masah Capital, founded in 2010, has finally hit the wall and has been placed into voluntary liquidation in the Cayman Islands. This comes months after the company and several of its employees were fined by the Dubai Financial Services Authority for misleading investors about fees charged. Al Masah Capital and Al Masah Capital Management were fined US$ 3.0 million and US$ 1.5 million, as were three of its employees – chief executive Shailesh Dash (US$ 225k), CFO Nrupaditya Singhdeo (US$ 150k)  and executive director Dom Lim Jung Chiat (US$ 10k) – and banned them from “performing any function in connection with provision of financial services in or from the DIFC”. It is reported that the two companies had raised US$ 1 billion from investors. The DFSA took the action against both companies a year ago after claiming it had not informed investors of a placement fee equating to 10%of all funds raised from investors.

The Central Bank’s latest report indicates that, in September, residents’ bank deposits at US$ 98.4 billion were some 8.0% higher than their loan balances, with non-resident deposits declining 1.3% to US$ 6.8 billion. Although down by 2.3%, residents’ retail loans, at US$ 90.7 billion, accounted for about 20% of the total banking lending, equating to some 30% of the country’s non-oil GDP. Over the year, property financing came in 2.9% higher, with auto loans heading the other way, declining by 7.6%.

This week, it was noted that the Arab World’s three biggest economies – Egypt, Saudi Arabia and the UAE – had bounced back to life last month, as movement restrictions eased and businesses continued to recover. The UAE headline PMI rise of 1.6 to 51, month on month, in September, indicated an improvement in business conditions, as the country’s non-oil private sector ended Q3 on a high. For the second time since January, export sales moved higher, with rising activity levels being supported by a robust upturn in new business, driven by a further rebound in consumer demand, assisted by continuing discounting which has been a feature now for too many months. Companies have to be careful not to get involved in a race to the bottom to hang on to business at any cost. Export sales were higher for only the second time in eight months, whilst the inflow of new orders slowed. There was also another monthly fall in private sector employment, with work force numbers still heading south, as most companies move heaven and earth to maintain cash flow and slice costs to the bone.

The bourse opened on Sunday 04 October and, 14 points (0.7%) higher the previous week, lost 52 points (1.9%) to close on 2,214 by 08 October. Emaar Properties, US$ 0.04 lower on the previous fortnight, lost US$ 0.05 to close at US$ 0.72, whilst Arabtec is now in the throes of liquidation, with its last trading at US$ 0.14. Thursday 08 October saw the market trading at a low of 135 million shares, worth US$ 31 million, (compared to 212 million shares, at a value of US$ 41 million, on 01 October).

By Thursday, 08 October, Brent, US$ 3.03 (7.0%) lower the previous fortnight regained some of that deficit, gaining US$ 2.86 (7.1%) to US$ 43.22. Gold, US$ 26 (3.4%) higher the previous week, nudged up US$ 12 (0.6%) to close on US$ 1,915, by Thursday 08 October.

Tesla stunned the market by delivering a global record number of cars worldwide in Q3, whilst consolidating its dominance in electric-vehicle sales. During the quarter, it delivered 139.3k vehicles, surpassing its previous record high of 112k cars posted in Q4 2019. The news pushed its share value higher on the day and by last Friday its YTD share value had skyrocketed 435%. In 2019, the company, founded by Elon Musk, had 16% of the global market, a figure that made it the industry leader and figures like these indicate that this will be the same by 31 December. Most of Q3 production was their mass market Model 3 but it also saw the introduction of  its Model Y crossover; all Tesla’s four models – S, X, Y and 3 – are made at its Californian factory with another one in Shanghai also turning out its Model 3; the company is also building plants in Berlin and Austin, Texas.

September was an abysmal month for the UK car trade, with registrations of 328k new vehicles – the worst September this century in what is normally the industry’s second most important month after March (the end of the UK tax year); year on year, this figure was 4.4% lower. Even before the onset of the pandemic, the industry was suffering from declining numbers but Covid-19, which saw factories and showrooms closed, has landed a major economic blow. Any hope of business improvement, because of pent up demand, has not materialised, as it appears that the current climate of uncertainty, exacerbated by Covid-19 and indecisive Brexit discussions, is making the public at large wary of buying big ticket items such as cars.  However, as the market for diesel vehicles is imploding, sales of electric cars are on the increase, despite them being on the expensive side both to build and for potential customers. As a matter of interest, the four best selling cars in the UK last month were Vauxhall Corsa, Ford Fiesta, Mercedes Benz A-Class and VW Polo – with unit sales totalling 10.5k, 9.5k, 8.1k and 7.4k respectively. The industry holds out little hope that it can recover the 615k registrations lost so far this year and is now forecasting a 30.6% sales slump by the end of the year.

The pandemic has resulted in Boeing cutting its forecast, to 2029, for commercial jet deliveries to 18.4k – 11% lower than its 2019 projection; this total has a list price of US$ 2.9 trillion. Over the following decade, this will increase by a further 24.7k jets (valued at US$ 3.9 trillion) to a twenty-year delivery total of 43.1k planes, valued at US$ 6.8 trillion. As international air travel declines, because of lockdown restrictions, the main casualty is the wide-bodied plane used on long haul routes, with the US plane maker seeing narrow-body aircraft leading the way to recovery, as domestic and short-haul routes rebound faster than long-haul travel. In future, because passengers will prefer point-to-point travel, as opposed to routing through hubs, Boeing has upped its twenty-year forecast for twin-engine planes – such as the Boeing 787 Dreamliner and Airbus A350 – by 10.3% to 7.5k deliveries.

In line with all other major airlines, EasyJet is struggling and has announced it could face its first-ever loss – of over US$ 1.0 billion this year – and more worryingly, that it expects to fly at just 25% of normal capacity into next year. It has also warned the government, that has already provided a US$ 785 million loan facility, that it may need more financial support. To help with liquidity, the airline has sold planes for US$ 810 million, raised a further US$ 540 million from the shareholders and cut 4.5k jobs.  Any notion of a post-pandemic recovery was brought to a sudden halt when the government introduced quarantine restrictions on arrivals from abroad. It had started summer operating at 38% capacity with hopes of upping that figure, going into Q3, but government action dashed those hopes.

One company that did well out of the pandemic was Tesco which posted a 28.7% hike in half yearly profits to 28 August of US$ US$ 740 million, with food sales 9.2% higher and online sales more than doubling to 1.5 million slots a week. One sector that did not fare well was clothing, with sales declining 17.2%.  The retailer is divesting itself of its businesses in Thailand, Malaysia and Poland but this is not expected to result in any retrenchments. Tesco Bank still presents problems, posting a half yearly loss of US$ 210 million. It will be a tough quarter for Tesco (and its rivals), as job losses mount and consumer spend will inevitable fall when the furlough scheme ends at the end of the month; on top of that, there will be further problems associated with a no-deal Brexit, the Ocado tie-up with M&S, the late arrival of Amazon into the competitive mix and Aldi’s new click-and-collect service.

The four major supermarkets accounted for 66.3% of the UK market share – Tesco, Sainsbury’s, Asda, Morrisons with shares of 26.8%, 14.9%, 14.5% and 10.1% respectively. The next four, with a combined 26.6% share, were Aldi (8.0%), Lidl (6.9%), Co-op (6.8%) and Waitrose (4.9%).

Despite the pandemic and the increasing trend of online shopping, Ikea (and its franchisees) are feeling confident enough to be opening a record fifty stores this year bringing its worldwide total to almost five hundred. It seems that the lockdown has encouraged many people to improve their homes. Even though YTD revenue to August fell 4.0% to US$ 48.0 billion, it is better than what had been predicted in April. The Swedish company has agreed to pay back government money received from state wage support schemes around the world, including in the US and Ireland, but not the UK as it did not claim any compensation, although 10k of its workers were furloughed.

The anti-virus software entrepreneur, John McAfee, is facing thirty years in prison for tax evasion after being arrested in Spain and now facing extradition to the US. Evidently, he had not filed tax returns for four years, (2014-2018), despite earning a shed load of money for selling the rights to his interesting life story, consulting and dealing in cryptocurrencies. He is alleged to have paid the proceeds from these ventures into bank accounts and cryptocurrency exchange accounts in the names of nominees, as well as hiding assets in the names of others. It is alleged that he made over US$ 23 million by “leveraging his fame” and recommending seven cryptocurrency offerings between 2017 and 2018, which allegedly turned out to be “essentially worthless”, without disclosing that he was paid to do so.

According to the latest WTO reports, global trade is bouncing back, but a complete recovery will take longer than initially forecast because of recent worldwide upticks in infection rates and further restrictions. There has also been an improvement from April’s 12.9% forecast decline in the 2020 volume of world merchandise which now stands at 9.2% – positivity returns next year with an estimated growth figure of 7.2%, but well down on the April prediction of 21.3%. In June, the IMF projected a 4.9% 2020 contraction and this week its managing director, Kristalina Georgieva, said “the picture today is less dire.”

One way or the other, the pandemic has taken its toll – governments and central banks have injected more than twelve trillion dollars  to stimulate their Covid-19 battered economies, (to stabilise financial markets and protect jobs), 36.2 million (0.00046%) of the 7.8 billion population infected, 27.1 million have recovered and 1.06 million have died The UAE has had 103k  cases and 438 deaths to date. With global rate increases mounting by the day, there seems some sort of inevitability that many countries will soon be hit by a second wave, the economic damage of which will be frightening and perhaps worse than the first.

For many years, credit card rates in Australia were among the highest in the world, as that sector was often very reluctant to pass on any rate cuts to their long-suffering customers. Now it seems that they have finally cooked the golden goose, as latest RBA figures show that Australians have eliminated US$ 4.5  billion worth of debt from their credit cards since the pandemic began; August figures indicated that consumers owed US$ 19.0 billion to card providers, 23.5% lower than the figure five months earlier in March., with actual credit card numbers diminishing by 4.3% (584k) over that period and 1.4 million down on August 2019 – the lowest number of accounts since April 2008. Having rested on their laurels – and easily gotten gains – for so many years, the credit card providers are now fighting an uphill battle with the buy now, pay later industry.

This week, the Australian budget’s main aims seemed to be to introduce measures to encourage businesses to hire more employees, (by offering investment tax breaks, wage subsidies and loss carry back tax provisions), and tax cuts for the vast majority of workers. In probably the most stimulatory budget in modern times, the Treasurer handed out tax cuts of around US$ 12.5 billion and US$ 18.8 billion full instant asset write-off for firms with turnovers of less than US$ 3.5 billion. However, there was no movement for bringing forward the next round of personal income tax cuts for high income earners and no mention of a permanent increase in the JobSeeker unemployment benefits. The Treasury’s latest forecast sees a rather optimistic 1.5% decline in GDP and next year by 4.7%. These will mean nothing if there is an increase in the infection rate that in turn would lead to more severe restriction measures. All three of the major credit ratings agencies – Fitch, Moody’s and S&P – reaffirmed Australia’s AAA credit rating., with the latter warning the risk of a downgrade remains and more so if borrowing costs rise sooner than expected.

With a further 661k jobs added in September, the US economy has managed to recover over half of the 22 million jobs lost at the onset of Covid-19; the figure was the smallest increase in jobs since employment started picking up again in May. However, last month’s figures were lower than the 800k expected by the market – maybe a portent that the recovery may not be as quick and robust as first thought. The jobless rate dipped for the fifth straight month, posting a rate of 7.9%, compared to the February figure of 3.5%, but there was little monthly change for the minority workers hit hardest by the pandemic, as the rate remained higher for African American and Hispanic workers than that of white workers. One statistic for the Trump administration to worry about is that 36% of unemployed are now classed as permanent job losers, up from 14% in May.

Earlier in the week, Federal Reserve chairman Jerome Powell warned of “recessionary dynamics” for the North American economy if Congress failed to pass the additional spending, and that the US economy could slip into a downward spiral if the coronavirus is not contained. He emphasised the urgent need for more economic stimulus amid the fallout from Covid-19. Meanwhile President Trump was hospitalised for three days and when he returned to the White House, he announced he was halting talks on coronavirus relief legislation until after the November 3 presidential election, whilst accusing House of Representatives Speaker, Nancy Pelosi, of not negotiating in good faith on new stimulus measures by calling for US$ 2.4 trillion in economic relief.

At last, there is somebody that seems to have time for sterling, with Goldman Sachs advising clients to buy the currency as the bank thinks a Brexit agreement is on the cards in the coming weeks. With the bank anticipating a relatively ‘thin’ trade deal, it is urging  clients to “go long” on sterling versus the euro, despite the fact that many consider there is still a great deal of uncertainty for any “decent” agreement. Earlier in the week, the pound was trading at US$ 1.28, having fallen to its lowest level at US$ 1.15 in thirty-five years last March. There is also every chance that the pound will also benefit from a weaker greenback. However, to the  ever-doubting Thomas, there is a chance of a no deal and, in the unlikely event this were to happen, and add in the Covid-19 impact, this could result in the UK economy contracting by US$ 173 billion,  of which a no deal could cost US$ 108 billion.

With UK employers planning an additional 58k redundancies in August, (150% higher on the same month last year), the number of employees, that are potentially losing their jobs over the first five months of the Covid crisis, stands at 498k. In the three months to August, monthly cuts of 150k, 150k and 58k, were the combined totals from 966 separate employers advising the government of plans to cut twenty or more jobs; this information is an employer requisite to complete an HR1 Advance Notice of Redundancy form. The hardest hit sectors were retail and restaurants.

The economic bounceback noted in August, as lockdown restrictions were eased and schemes like the Eat Out To Help Out restaurant vouchers, has petered out somewhat in September so much so that the chances a quick recovery are now off the table. This month sees the ending of the government’s furlough scheme to be replaced by subsidising the pay of employees who are working fewer than their usual hours due to reduced demand. Other measures to bolster the sagging employment market include a US$ 1.3k retention bonus, to help employees get back to work, with the so-called Kickstart scheme, costing US$ 2.6 billion, and doubling the number of frontline work coaches. Because the government is moving most of the employment payment back to the employer – with a lot less coming out of the Exchequer’s coffers – there is every chance that this increased cost will be too much to bear for many companies. The conclusion is that during the winter months, unemployment levels may scale new heights, as the level of redundancies starts to climb.

According to Boris Johnson, the chances of a deal are “very good” if everyone “exercises some common sense”, following the latest Brexit negotiations breaking down yet again. The main sticking points still appear to concern fishing and government subsidies. The Prime Minister is still confident about a Canada-style relationship and had a Saturday video call with EUC, President Ursula von der Leyen; she had been calling on both sides to “intensify” efforts with time running out, after six months of trade talks, for both parties to meet the October deadline to settle any differences. In January, the UK formally left the EU and had a one-year transition period for both sides to negotiate a trade deal; the EU had stipulated that a deal had to be agreed before the end of October to allow it to be signed off by the member states before the end of the year. Boris Johnson’s riposte has been that both sides should “move on” if agreement was not reached by the middle of the month. If there is no deal, the UK will go on to trade with the bloc on WTO rules.

In the UK, there are estimates that up to 60% of emergency pandemic loans, made under the Bounce Back scheme, may never be repaid and there could be a loss to the taxpayer of as much as US$ 35 billion from fraud, organised crime or default. According to latest official figures, there have been 1.55 million applications for the loans, with 1.26 million approvals. Because of the initial rush to make funds quickly available, checks were not as robust as they should have been so that fraudsters seem to have had a field day. The scheme provided firms with bank loans of up to US$ 67k, 100% backed by the government and did not have to be paid off for ten years. Demand was almost twice as much than initially estimated at up to US$ 64 billion and early signs indicated that fraud risk was heightened because of the speed with which the scheme was rolled out. The government’s largest ever and most risky business support scheme saw banks get 100k applications on first day. Fraudsters soon got in on the act stealing people’s personal data, then setting up fake accounts, to claim the government handout, with many victims not knowing what had happened until repayment letters began arriving in early summer. There is no surprise that banks got in on the act, with reports that the five major ones will pick up US$ 1.3 billion in interest payments from the scheme. But the big winners have been the criminals who may well have helped themselves to billions and have to say to the UK taxpayer – Thank You Very Much!

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The Taxman’s Taken All My Dough! 02 October 2020

The Taxman’s Taken All My Dough.                                                02 October 2020

According to Data Finder, Q3 registered a 55.8% increase in the total of property sales at 8.7k, with transactions worth US$ 5.0 billion, 67.7% higher. YTD figures indicate that there were 24.6k transactions, with a value of US$ 13.5 billion. The current market is a conundrum – low supply in prime areas with high demand where sales prices have nudged northwards whist rents have tended to remain flat rather than the rest of negative still sees rent track lower. The local market seems to be benefitting from three drivers – lower down repayments, pent up demand and historically low mortgage rates.

For the month of September, there were 3.9k property sales transactions, (56.6% and 59.7% higher than August and July), worth US$ 2.4 billion – up 88.4% and 36.0% than the previous two months. September sales were split 46.1:53.9 between off plan and secondary sales, with the Q3 split being 37.5:62.5. On a month on month basis, September off plan sales transactions were up 128.8%, whilst secondary transactions were up 23.2% lower, whilst the value increases were at 140.5% and 79.3%.

Latest data seems to confirm that quarterly rental declines for Dubai apartments hover around the 4.0% level, (9.0% on an annual basis), and slightly less for villas at 2.5%, (7.0% on an annual basis), with some analysts forecasting this trend to continue in the short-term. Over the past quarter, Motor City, Sports City and Dubailand recorded the sharpest quarterly dips in average apartment rents, with International City, Jumeirah Lake Towers and DIFC remaining flat. In relation to villa rentals, Springs, Meadows and Arabian Ranches posted the steepest rental rate drops, whilst Jumeirah Islands, Palm Jumeirah and The Lakes saw the lowest annual declines. It is noted that there is a trend for some of the population actually moving to bigger residences, although others are downsizing to reduce expenses during these turbulent times.

The UPS Global Real Estate Bubble Index places Dubai 25th in a list of cities most at risk of being in “bubble territory”. It concludes that the emirate has seen property prices recording an almost 20% drop in values over the past two years and it considers that Dubai prices are now “fairly valued”. The report also notes that current inflation-adjusted prices are 40% lower than recorded in 2014 and that “Dubai’s property market has reached a cyclical low. What we’re seeing is price effects of high population growth and easier mortgage regulations are being offset by ongoing high supply growth and weaker oil prices”.

After being on life support for some time, the debt ridden Arabtec Holding finally succumbed to its mainly self-inflicted wounds and announced that it will file for liquidation. Its situation was made worse by the adverse market conditions, exacerbated by the onset of Covid-19. Last year, the company posted a US$ 211 million loss, whilst its latest H1 loss came in at US$ 215 million, (compared to a US$ 16 million profit in the same period of 2019); revenue sank 28.0% to US$ 817 million. This is a sad end for a company that had been associated with some of the country’s major projects – including the Burj Khalifa, Dubai International Airport’s expansion and Dubai Living. It also joins the likes of Abraaj Capital, BR Shetty DSI and others that were once beacons of the local economy but the lights have almost gone out – sic transit gloria mundi.

Omniyat, the company that delivered The Opus by Zaha Hadid project last year, confirmed that it is on track with the impressive Dorchester Collection, with which the developer is linking up to run its first ME property. The development, located in Downtown Dubai, and being  built by Roberts Construction, includes a 39-apartment residential component, and will join the company’s portfolio of world-famous hotels in locations, including London, Rome, Beverly Hills and Paris. In addition, the two glass towers, connected by a ground-floor podium and a glass and steel bridge, includes over 56k sq mt of office space, a club and several restaurants.

Five months after its parent company NMC Health was placed into administration in the UK., administrators have now been appointed to the UAE operations of NMC Healthcare and a group of thirty-six trading entities, within the UAE, allowing the company to raise funds and pay the salaries of its employees. The appointment of Alvarez & Marsal, approved by the Abu Dhabi Global Markets Courts, will see the start of a US$ 325 million restructuring process; the largest creditor, ADCB, will provide US$ 250 million of the additional funding. The group of companies has total debts outstanding of about US$ 6.8 billion, of which US$ 5.0 billion is owed to a myriad of eighty banks. NMC Healthcare is the country’s biggest private healthcare company with about 15k staff employees, generating US$ 1.6 billion of revenue.

The President, His Highness Sheikh Khalifa bin Zayed Al Nayhan, has issued a new decree – amending Article 32 of Federal Law No 08 of 1980 – that sees equal pay for men and women in the private sector come into immediate effect; this will ensure that future pay grades will be determined by market standards and not gender. Dr Anwar Gargash, Minister of State for Foreign Affairs, commented that the decree is a “new positive step in the process of empowering women in the Emirates” and that it will help strengthen the country’s regional and international status for upholding gender equality. This move will consolidate the country’s position as the region’s leader in the United Nations Development Programme’s 2019 Gender Inequality Index.

Although times have inexorably changed this year, in 2019, there were some 7.388 million employed throughout the country, with a 2.2% unemployment rate. The working-age population accounts for 82% of the country’s total population, with women accounting for 58 per cent of the workforce, up from 52.7% in 2018. The female unemployment rate   improved over the year from 5.9% to 5.1%.

With estimates that AI will contribute US$ 320 billion to the ME economies by 2030, the UAE is keen to be in the forefront and become its capital. In this regard, HE Mohammed Ahmad Al Bowardi, the UAE’s Minister of State for Defence Affairs, confirmed the country’s willingness

to discuss with friendly countries and international partners in line with fourth industrial revolution. Despite all the global turmoil, the minister also commented “we believe that collaboration with friendly countries and international partners to face various challenges with an aim of achieving security, stability and peace has become a necessity,” It is expected that the global spend on AI next year will be US$ 57.6 billion.

Since April, UAE fuel prices have remained unchanged; so for the seventh straight month, Special 95 and diesel will retail at US$ 0.490 and US$ 0.561 per litre. 

Dubai Customs’ latest statistics show that over the past decade, the emirate’s external trade in coffee has generated more than US$ 950 million. Dubai is the natural hub for this sort of trading, linking some of the major coffee producing nations – such as Ethiopia, India, Indonesia, Uganda, and Vietnam – with regional and European markets. The industry is further helped by the DMCC providing quality logistics support linking coffee producers with buyers. Latest figures indicate that H1 trade grew 5.4% to US$ 69 million, equating to 14k tons, with the three main partners being Switzerland, Italy and Brazil valued at US$ 9 million, US$ 6 million and US$ 6 million respectively; Oman, Saudi Arabia and Kuwait were the main export and re-export markets.

Dragon Mart has rolled out an online platform, dragonmart.ae, with the shopping mall in International City housing an onsite fulfilment centre. Those shopping online can now select from 35k products across 11 categories , including home furnishings, games/toys, electronics, and fashion. The world’s biggest Chinese trading hub, outside of mainland China, has finally entered the e-commerce sector in a move which will support government-led e-commerce initiatives and help the country in its quest to accelerate digital transformation to meet the demands of 21st century e-commerce societies.

The IMD’s World Digital Competitiveness Ranking 2020 places the UAE 14th in its list – still the best in the region but down two places on the year. The country is rated highly in sub-indices such as talent, international experience, highly skilled foreign personnel, management of cities and net flow of international students. Two areas of possible concern were declines in high-tech exports and investment in telecommunications – down from 43rd to 58th and down to 50th respectively. To enhance its position in this field, the UAE will have to see improvements in training and education and continue to remain attractive to a highly skilled foreign workforce.

UAE’s healthcare industry saw capex at US$ 76 billion last year and this is expected to grow a further 17.1% to US$ 89 billion by the end of 2022. The government spends the most in this sector, funding US$ 16 billion last year, equating to 69% of the total spend. However, this ratio is likely to move, as private care spending is forecast to have a 9.5% cumulative annual growth rate, compared to a 4.4% government annual increase. There will be extra spending seen in fairly “new” technology, including in digital transformation, technology and AI and IoT-based solutions, with other investment increases in wellness and prevention, as well as on ageing. Meanwhile, Dubai is ranked sixth in KPMG’s latest Medical Tourism Index of leading global destinations for medical tourism, with inbound growing steadily over recent times. Covid has had a severe impact on this sector but once some form of normality returns, and lockdown restrictions are removed, this will surely bounce back.

Dubai Airport Free Zone Authority and the Israeli Federation of Chambers of Commerce have signed a memorandum of understanding which will enhance bilateral cooperation between the two sides, with DAFZA encouraging and supporting Israeli companies to establish their businesses in the free zone. DAFZA, home to 5k businesses, is seen as an ideal location for Israeli companies that could use Dubai International as a hub to expand and reach Asian and ME markets. It will also offer incentives for Israeli businesses to establish a presence in Dubai, particularly start-ups, with Israel rated second in the world for emerging companies.

It is interesting to note the role that precious stones and metals plays in both the Dubai and Israeli economies. Last year, they accounted for 38% of the total import value at US$ 8.1 billion and US$ 8.7 billion in exports and re-exports. Israel posted exports of US$ 11.9 billion, (which is 20% of its exports), and imports of US$ 5.2 billion. Another sector, in which they have a common bond, is that of machinery and electronic equipment, which accounts for 55% of DAFZ’s foreign trade, with a value of US$ 10.0 billion for imports and US$ 14.4 billion for exports and re-exports. For Israel, its exports are valued at US$ 8.0 billion, while imports are the same, US$ 8.0 billion.

YTD figures at the end of September show that Arab investors traded US$ 4.2 billion of shares on the country’s bourses, equating to 8.3% of the their total and 48.0% higher on the year. More of the investment – at US$ 3.6 billion – was seen on the Dubai Financial Market –with a split of almost 50.5:49.5 between purchases and sales.

The bourse opened on Sunday 27 September and, 69 points (3.0%) lower the previous week, nudged 14 points (0.7%) higher to close on 2,266 by 01 October. Emaar Properties, US$ 0.03 lower on the previous week, lost US$ 0.01 to close at US$ 0.77, whilst Arabtec, having shed US$ 0.04 the previous three weeks, lost US$ 0.01 to US$ 0.14 – but trading was suspended because of its liquidation announcement. Thursday 01 October saw the market trading at 212 million shares, worth US$ 41 million, (compared to 305 million shares, at a value of US$ 69 million, on 24 September).

For the month of September and YTD, the bourse had opened on 2,245 and 2,765 and, having closed the month on 2,273, was 28 points (1.2%) higher but well down by 17.8% YTD. Emaar and Arabtec both traded lower from their 01 January starting positions of US$ 1.10 and US$ 0.35 – down by US$ 0.34 and US$ 0.21. YTD. However, in the month of September, Emaar was up US$ 0.08 at US$ 0.78, whilst Arabtec headed in the opposite direction, down US$ 0.04 to US$ 0.14. Trading on the last day of September was markedly higher with 301 million shares, valued at US$ 73 million.

By Thursday, 01 October, Brent, US$ 1.38 (3.2%) lower the previous week was US$ 1.65 (4.0%) lower at US$ 40.46. Gold, down US$ 83 (3.4%) the previous week, moved US$ 26 higher (1.8%) to close on US$ 1,903, by Thursday 01 October. Brent started the year on US$ 66.67 and has lost US$ 21.39 (32.1%) YTD but gained US$ 1.96 (4.5%) during the month of September to close on US$ 45.28. Meanwhile, the yellow metal gained US$ 461 (30.3%) YTD, having started the year on US$ 1,517 to close at the end of September on US$ 1,978 from a year start of US$ 1,517, with September prices nudging US$ 2 higher.

Royal Dutch Shell is planning to make 9k (10.8% of its total 83k global workforce) jobs redundant, 1.5k of which would be voluntary as it tries to cut costs, by over US$ 2.0 billion within two years, with revenue slumping because of the Covid-19  fall in oil demand; the oil giant is also trying to become a net-zero emissions energy business by 2050 or sooner. This strategy will mean that Shell’s future revenue streams will predominantly be low-carbon electricity, low-carbon biofuels and hydrogen but will still have some oil and gas in the mix of energy. The past two quarters have seen dire results – Q1 down 46% to US$ 2.9 billion and in Q2, 82% to US$ 638 million respectively; it seems that Q3 earnings will be around US$ 850 million.

With liquidity tightening by the day, because of plunging aircraft sales and rising costs, Boeing is retrenching some 170 mid-level executives who are taking a buyout offer that includes a year’s salary. Having already slashed its payroll numbers by 19k earlier in the year, the troubled plane maker is looking at building the 787 Dreamliner at a single site, most likely at its South Carolina factory, reducing costs in futuristic technology, as well as its businesses and organisational structure, and closing indefinitely its lavish executive retreat, the Boeing Leadership Center. Prior to the resumption of its Max planes in late Q1, it is estimated that Boeing could post a massive US$ 23.3 billion cash outflow. The Chicago-based company is looking at other ways to save money including R&D, phasing out Boeing NeXt, a two-year-old unit focused on futuristic concepts, not proceeding with the Autonomous Flight Research Center and trying to sublease about half of the 100k sq ft space it had secured. In Q4, it will also decide what to do with three of its ventures – Aerion, which is developing a supersonic business jet, SkyGrid, which is making an air-traffic management system for drones and Wisk, a joint venture with Kitty Hawk Corp, an autonomous flight venture. With its revenue forecasts still in the clouds, the company has to save to survive until better times are here again.

It can only be Ireland when its Supreme Court decides that the rolls used in Subway’s hot sandwiches cannot be considered bread because it contains too much sugar. Under the country’s VAT law of 1972, ingredients in bread such as sugar and fat should not exceed 2% of the weight of flour in the dough – as Subway bread contains up to 10%, it will be subject to 13.5% tax and not at zero rate for bread which is considered a staple food. The case was first brought to legal attention in 2006, when a request for a VAT refund was refused. It is not the first time Subway’s bread has been in the spotlight. In 2014, the company announced it was removing azodicarbonamide – the so-called “yoga mat” chemical because it is also used for yoga mats and carpet underlay – to whiten flour and improve the condition of dough. Although no longer used by Subway it is still approved by the US Food and Drug Administration.

After a US$ 390 million Saudi bid fell apart in August due to protracted negotiations, Singapore’s Bellagraph Nova has stepped in with a US$ 375 million offer for Newcastle United. Nothing is straight forward when it comes to dealings with this 128-year old football club that was put up for sale by its owner, Mike Ashley in 2017. The largely unknown Paris-based newly merged group boasts 2019 revenue figures of US$ 12 billion and employs 23k staff; it deals in a wide range across consumer goods, luxury products and healthcare. These figures cannot be verified because Bellagraph Nova and its entities are not publicly listed on any stock exchanges, apart from one linked company called Axington. Some find it hard to believe that such an entity can fly under the radar and appear out of nowhere to bid for the football club – in football terms this will probably last less time than Ali Dia did at Southampton when Graeme Souness was the manager.

The world’s second biggest fashion retailer plans to cut 250 of its 5k stores globally driven by the fact that an increasing number of its customers are going on-line – a trend that had already started prior to the onset of Covid-19 but gained more traction because of global lockdowns. H&M confirmed that sales were moving in the right direction last month but were still 5.0% lower, year on year. For the nine months to August, it posted a decline in profits at US$ 280 million. The Swedish retailer will invest more to increase digital investment to cope with growing online demand and confirmed that it had taken “rapid and decisive action” to manage the impact of the coronavirus, including changes to purchasing, investments, rents, staffing and financing.

The head of Next has commented that he thinks – like many other analysts – that hundreds of thousands of traditional retail jobs may not survive in the wake of the coronavirus crisis. Lord Wolfson blames the lockdown for triggering a permanent shift to online shopping, although the trend was becoming apparent even before the onset of Covid-19. The situation will not improve for workers in that sector in the short-term, as the government’s furlough scheme – which paid up to 80% of a monthly wage to those that could not work because of the lockdown – will close at the end of the month – to a new Job Support Scheme that will pay only 22% of pay to those unable to work full time. Next managed to make a small H1 profit and is seen as one of the more progressive retail groups, already having a robust online business and a strong presence in retail parks.

One of the country’s biggest bakery chains, employing 25k, has indicated its staffing was too high for customer demand and that it expects business activity to “remain below normal for the foreseeable future”. With the closing of the government’s furlough scheme at the end of the month, Greggs now expect that staff in over 50% of its 2k outlets will have to accept fewer hours or face losing their jobs. The company has not clarified whether it will utilise the government’s new Job Support Scheme, which will replace the existing furlough scheme – the vast majority of the payroll was on the scheme, with about 25% still on it. Q3 sales were 28.8% lower than the same period in 2019. Any staff losses are expected to be lower than those of its peers including Pret A Manger and Upper Crust which have made 3k and 5k job cuts.  Despite the bad news on possible redundancies, Greggs did confirm that it will still open twenty new shops this year, “predominantly in locations accessed by car” and noted that it has been encouraged by launched food deliveries, with delivery app Just Eat, and that it had increased investment in its digital investment, with “click & collect” being rolled out at all its stores.

Another retailer in trouble seems to be Hotel Chocolat that posted a 3.0% hike in annual revenue to 30 June of US$ 175 million but a Covid-19-related loss of US$ 10 million, (compared to a US$ 15 million profit in 2019). In a year of two halves – H1 revenue was up 14% but H2 headed in the other direction, down 14%. Prior to the onset of the pandemic, outlets accounted for 70% of revenue but the company was able to make the most of a bad situation by expanding sales via online and through partners who sell its goods. Since the lockdown was lifted, the shops have been reopened but they “are seeing a very patchy picture”.

Despite all the negativity around the UK High Street, discount chain B&M is planning to open up forty-five new stores this year after sales soared during the coronavirus lockdown; goods sold include DIY and foodstuffs. During the pandemic, the retailer, which initially closed sixty stores in shopping centres, but reopened them quite quickly, will open forty-five new outlets in the year to April; on the flip side, some smaller stores could be closed. In the half year to 26 September, sales were 25.3% higher, resulting in a revised earnings forecast for the year from a previous estimate of between US$ 320 million – US$ 350 million to US$ 370 million.

Aldi has initiated its new click and collect trial by which shoppers message their order to the supermarket and then later have their groceries delivered straight to their car. Aldi was originally a disruptor by discounting their produce and pinching customers from the major supermarkets and expanding their market share. The onset of Covid-19 put the German intruder on the back foot and they lost revenue from the huge boom in online sales and increase in convenience store sales. It is now trialling several new on-line concepts to regain their place as the fourth biggest UK supermarket and redefine discount retailing. Last year, it posted an 8.0% increase in revenue to US$ 15.9 billion, along with a 49.0% jump in pre-tax profits. Although Aldi’s sales are 10% up on last year, for the first time in its UK history, it is growing behind the market. Despite all these problems, Aldi will have spent US$ 1.7 billion on investments by the end of the year and will add another one hundred shops (and 4k jobs) over the next two years.

Twenty-one years since being sold to US giant Walmart, there is every chance that Asda could return to UK ownership, with Blackburn-based billionaire brothers, Mohsin and Zuber Issa, with TDR Capital, considered leading contenders to buy the supermarket for a reported US$ 8.4 billion. The brothers’ EG Group already has a relationship with Asda via their petrol forecourt business and recently three of their forecourts were trialled for Asda’s expansion into convenience stores concept, “Asda On the Move”. Sainsbury’s earlier deal to acquire Asda was blocked on competition grounds.

The pandemic has hit Walt Disney hard as it announces it will be laying off 28k employees, most of whom will be US-based, 67% of which are part-time. All its parks were closed at the onset of the pandemic but all, except Disneyland in California, have reopened although visitor numbers are limited to allow for social distancing. Disney’s parks in Shanghai, Hong Kong, Tokyo and Paris are not affected, with Hong Kong reopening last week after closing for the second time in July because of a spike in Covid-19 cases. Q2 was a financial disaster, with revenues from its Parks, Experiences and Products division plummeting 85%, resulting in a US$ 4.7 billion deficit.

Harley-Davidson is downsizing in the world’s biggest motorcycle market, with 17 million annual sales of motorcycles and scooters, as it stops manufacturing and scales back its sales operations in India; the US brand only managed average annual sales of 3k bikes. Last month, Toyota announced that it would stop further expansions in the country due to its high tax regime and this follows GM pulling out in 2017 and Ford agreeing last year to moving most of its assets to a JV with vehicle giant Mahindra & Mahindra. Historically, India has been a tough market for foreign automakers and even US President Donald Trump has previously complained about India’s high taxes, calling it a “tariff king”. Yet another high-profile exit from the market is a blow for Prime Minister Narendra Modi’s efforts to lure or retain foreign manufacturers, not helped by prohibitively high taxes and a slowdown in discretionary spending.

UK betting giant William Hill has received two rival takeover approaches – from US-based private equity firm Apollo, that is also interested in buying Asda, and casino giant Caesars Entertainment. Under UK takeover regulations, both suiters have until 23 October “to announce a firm intention” to make an offer. With a potential bid battle in the offing, its shares have jumped by a third to US$ 3.85. Under the recent lockdowns, betting has continued to shift online and away from the High Street, and in August, the company did not reopen 119 of its 1.5k betting shops. In the US, where Caesars already have a 20% stake and has exclusive rights to operate sports betting under the Caesars brand, it has 170 retail sites in thirteen different states.

Australia’s Banking Code Compliance Committee was set up in the wake of epic failures with the industry exposed at the Hayne royal commission and has turned into an industry watchdog with no teeth. Members are expected to follow certain baking standards which when shove comes to push has no legal force. It holds members to standards set out in a code of practice, a set of guidelines that has no weight in law. This week, the BCCC sanctioned Bendigo and Adelaide Bank for “serious and systemic breaches” in how it has treated customers over four years ending February 2019. The bank and its management received no fines, penalties or court cases and escaped with just a sanction. It did not even apply any of its other limited powers, including imposing staff training, insisting on customers being repaid or referring issues to the Australian Securities and Investments Commission. There is no doubt that the banking industry will continue with historic practices by preferring to deal with its problems away from public view – and often brushing their dirt under the proverbial carpet. No wonder, Australian banks are among the most profitable (and litigated) in the world.

There could be shock about to hit the Australian real estate sector, as the six month mortgage repayment deferral, taken up by over 10% of those with a home loan, comes to an end; a recent study has indicated that 20% of those taking up the mortgage holiday will be requesting a further extension. Worryingly, nine of the top ten areas, for mortgage deferrals with the major banks, are in Queensland, an indicator on how hard the state – and specifically its tourist areas – has been hit by Covid-19. With international flights largely grounded, and state borders closed for months, overseas and interstate tourists have effectively been locked out so that these tourist hotspots felt the hit early and hard and it is still continuing six months from the pandemic onset. The problem is not going away and those locations, with low-wage workers, high unemployment and rocketing household indebtedness, will bear the brunt. One note of concern is that of those requesting a deferral extension 40% overstated their income in their mortgage application, 15% understated other debts, 67% are currently on JobKeeper and 25% are on unemployment benefits. A sure recipe for banks to be worried as their impairment provisions will inevitably skyrocket over the next six months.

It is estimated that the pandemic will have cost Australia US$ 251 billion and there are some who believe that the Morrison government will need to pump more money into the economy to create jobs and escape the recession; this could take the form of personal tax cuts, some form of furlough, major government infrastructure projects, maybe a new business investment allowance and an increase in welfare spending. The situation would be even worse were it not for the high iron ore prices, Australia’s biggest export earner. Over the four financial years ending 30 June 2020, the federal budgets will be in deficit by US$ 60.8 billion, (4.3% of GDP), US$ 140.9, US$ 32.0 billion and US$ 18.2 billion respectively.

Data from the CPB Netherlands Bureau for Economic Policy Analysis notes that global trade has only recovered to 75% of its pre-Covid-19 level, with all regions posting rises. However, the two superpowers recorded the biggest increases, as China’s exports were already at its pre-virus levels as at the end of July, with the US 13% lower than earlier in the year. By the end of September, latest PMI figures pointed to the recovery continuing into Q3. In July, world trade had regained 67% of flows cleaned out by the pandemic, standing at 6.6% below its December 2019 peak – an improvement on the May reading of 17.0%. Latest forecasts indicate that by the end of 2020, trade and foreign direct investment would have contracted by some 20% and 40% respectively, and remittances will be US$ 100 billion lower. With the global economy shrinking by over 4%, there will be a US$ 6 trillion shortfall in global output come 31 December.

In May, the UK government agreed to a US$ 2.1 billion bailout for the London Metro after its income fell by 90% during the coronavirus pandemic. Now with the deal expiring mid-October, Transport for London is now requesting a further US$ 2.7 billion to keep the network running until the end of the year, without which it would have to issue a Section 114 order – the equivalent of bankruptcy for a public company. With their finances “right on the wire”, the Johnson government has promised a letter setting out terms for a fresh bailout. Following what he considered punitive conditions – including extra borrowing, slashing free travel for older people and under 18s and raising fares next year – for the May payout, no doubt London Mayor Sadiq Khan will find something to grumble about when the bailout details are made public but is unlikely to dip into the network’s US$ 1.6 billion reserve fund.

The global press is having a field day dissecting details of Donald Trump’s tax returns, courtesy of a New York Times investigation. The paper claims Mr Trump paid no tax at all in ten of the past fifteen years and has paid just US$ 750 in federal income taxes in 2016 and 2017, after reporting he had lost millions of dollars from his golf courses and had debts of US$ 421 million. Interestingly, over the first two years of his presidency it is alleged that he earned US$ 73 million abroad, from countries such as the Philippines and Turkey. His critics fail to acknowledge that low income tax payments can be perfectly legitimate and employ experts to structure their tax affairs in a more efficient way. The US President said the report was a “total fake” and indeed it was discovered that many of his businesses are struggling and that he relied on heavy losses across his business empire to nullify his federal income tax bill. He is one person, along with the likes of Jeff Bezos, Mark Zuckerberg and Bill Gates who will not be singing The Taxman’s Taken All My Dough.

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From a Distance1




From A Distance!                                                                               24 September2020

Since the UK government introduced an eight-month break in Stamp Duty Land Tax that sees no duty paid on any property transfer less than US$ 640k (GBP 500k),
UK house sales have risen 14.5% and 15.6% in July and August. The stamp duty holiday, which is scheduled to end on 31 March 2021, has reportedly protected almost 750k jobs in the housing sector and wider supply chain such as housebuilders, estate agents, tradespeople, DIY retailers and removal firms. It has also contributed to a 9.9% hike in spending on household goods and home improvements compared to pre-pandemic February levels. Another study by Checkatrade estimates more than 10% of Britons hope to buy a new home by the end of March 2021, with a third of that total using the cash saving from the tax holiday on home improvements and renovations. Maybe a similar “holiday” from the up to 4% registration fee of the value of transferred property here in Dubai may see a similar result and prove a fillip for the sector and the local economy?

Saudi Arabia’s Musharaka REIT Fundhas paid DMCC US$ 13 million for a single 5.4k sq mt plot of land sale, with a self-storage facility, and a total built up area of 13.9k sq mt. Musharaka will lease it to the ‘The Box Self Storage Services Co,’ with an initial 8.7% rental yield.

Despite the pandemic, Dubai manages to keep its head above water, as illustrated by the emirate’s gold and diamond air-cargo trade making US$ 18.3 billion, weighing a total 601.3 tons, in the four months to 30 June. Data from Air Customs Centre Management, at Dubai Customs, shows that imports accounted for 53.0% of the trade (US$ 9.7 billion – 428.8 tons), with reexports accounting for (US$ 8.0 billion – 161.2 tons). Over that period, 31.6k transactions took place.

Al Habtoor Group has agreed a partnership with Mobileye, the independent Jerusalem-based autonomous car division of Intel Corp that may see a fleet of self-driving ‘robotaxis’ on Dubai’s roads within two years. The Israeli input will mainly be to provide mapping technologies for Advanced Driver Assistance Systems (ADAS), self-driving vehicles and smart city solutions to the UAE. Initially, the plan is to equip 1k vehicles with Mobileye’s 8 Connect system to map Dubai – and collect data – with testing starting next year; this will be followed by a pilot programme a year later, followed by a commercial service in 2023.

This week a strategic partnership agreement has been finalised between the Dubai Chamber of Commerce and Industry and Tel Aviv Chamber of Commerce. Following a joint study, identifying synergies and sectors of mutual interest, the parties will look at ways to bring benefits for the public and private sectors across the Middle East and further cross-border collaboration across economic sectors. Both sides will actively encourage and support new businesses, start-ups, and scale-ups in each other’s country.

In another move to further enhance bourgeoning UAE/Israeli relations, and to promote the flow of bilateral trade, DP World and Israel’s Bank Leumi signed an agreement. They will try to identify opportunities to develop Israeli ports and logistics assets, as well as to simplify working capital requirements through trade finance to improve cargo flows. This is the latest in a series of agreements between UAE and Israeli companies, (including DP World and Dove Tower combining to develop trade infrastructure and Bank Leumi working with Emirates NBD), following the signing of the Abraham Accord between the two countries in Washington DC last week. The UAE’s Minister of Economy Abdulla bin Touq expects greater cooperation in sectors such as health care, food security, aviation, finance, tourism, energy, science and technology.

A wholesale market platform, that links buyers and sellers globally, has been formed by a venture between Investment Corporation of Dubai and Dubai South. Dubai Global Connect is a one million square metre purpose-built facility, initially focussed on furniture/living, food and fashion. With no financial details readily available, the development, also known as “City of Trade”, will be constructed in phases, with the first one encompassing 400k sq mt. Located adjacent to Al Maktoum International Airport, and connected to Jebel Ali Port, the infrastructure will also be supported by a digital wholesale trading platform, which will connect online wholesale traders – both sellers and buyers. The main aim is to build a unique trade infrastructure that enhances efficiencies in global trade flows through Dubai. Normal wholesale markets focus on promoting local businesses, but DGC is different as it focuses on a macro audience – regional and global – to trade goods from all around the world. ICD, the principal investment arm of the emirate’s government, owns stakes in some of Dubai’s biggest and best-known names, including Emirates airline, Emirates NBD and Emirates National Oil Corporation, as well as holding minority stakes in Emaar Properties, the Dubai Airport Free Zone and the World Trade Centre.

The Central Bank has amended the country’s 2020 overall GDP forecast to a 5.2% contraction, compared to an earlier -3.6% expected downturn, with the non-oil GDP shrinking slightly less over the year at – 4.5%. In the second quarter, the negative real growth in the GDP slumped to 7.8% and 9.3% for the non-hydrocarbon sector. The bank noted that there were slowdowns in credit growth, real estate prices and employment in Q2 but now expect that a recovery in all three sectors may have started in Q3 and there will be further progress in Q4, assuming that the virus risks are under control. Driven by falling fuel and rent prices, subdued demand and exchange rate appreciation relating to the country’s main trading partners, the consumer price index remained in negative territory in Q2 at -2.3%, with inflation in non-tradeables even lower by -3.9%. The negative trend is expected to continue into 2021.

In a bid to cut costs, including reducing rent and office expenses, Careem is encouraging its office staff – stretched across 36 locations in fourteen countries – to work from home. However, those who prefer to work in the office, for whatever reason, are still able to do so. The ride-hailing app, which also plans to recruit 150 more people to develop new versions of its Super App, also noted that Careem staff were more productive and developed stronger relationships with peers in other countries while working remotely during the earlier lockdown. This new strategy comes five months after Careem laid off a third of its staff as the initial impact of Covid-19 was gaining traction.

An unknown party has offered US$ 109 million to Union Properties for a 40% stake in its subsidiary, Dubai Autodrome. This offer will be tabled at next week’s board meeting which will also discuss the acquisition of real estate assets in the UAE worth US$ 202 million. The developer established the facility, which is the UAE’s first multi-purpose motorsports and entertainment centre, in 2004. Last month, UP announced plans to list three of its subsidiaries – facilities management company ServeU, The FitOut, which specialises in interior fit-outs of offices, hotels and restaurants, and Dubai Autodrome – on the DFM. The developer is keen to cut costs, improve its liquidity and reduce its retained losses.

It is reported that the NMC fraud, that rocked the corporate world, took place over a period of eight years. Apart from the time factor, the current management’s investigation into how all this happened has been hampered by the destruction, by unnamed employees, of thousands of documents. Disgraced BR Shetty’s NMC Health’s troubles started last December when US-based activist investor Muddy Waters alleged the company had inflated its cash balances and understated its debts; four months later, it was placed into administration, (through the Abu Dhabi Global Markets Courts to fend off creditor claims), and the appointment of external investigators who discovered that the company’s debts stood at US$ 6.6 billion – not the US$ 2.1 billion as posted in the accounts.

The bourse opened on Sunday 20 September and, 38 points (1.7%) higher the previous week, shed 69 points (3.0%) to close on 2,252 by 24 September. Emaar Properties, US$ 0.02 up on the previous week, lost US$ 0.03 to close at US$ 0.78, whilst Arabtec, having shed US$ 0.03 the previous fortnight, lost US$ 0.01 to US$ 0.15. Thursday 24 September saw the market trading at 305 million shares, worth US$ 69 million, (compared to 555 million shares, at a value of US$ 397 million, on 17 September).

By Thursday, 24 September, Brent, US$ 3.46 (8.6%) higher the previous week was US$ 1.38 (3.2%) lower at US$ 42.11. Gold, up US$ 29 (2.0%) the previous three weeks, moved markedly lower down US$ 83 higher (0.4%) to close on US$ 1,877, by Thursday 24 September.

It seems that Covid-19 may have put the final nail in the coffin of coal-fired power plants, as General Electric announced plans to exit the market to focus on greener alternatives. GE noted it would close or sell sites, as it prioritised its renewable energy and power generation businesses. It is a huge reversal, bearing in mind that only five years ago, the conglomerate paid US$ 13.4 billion for a business that produced coal-fuelled turbines. Now it seems to be bowing to pressure that mirrors the growing acceptance of cleaner energy sources in US power grids. Furthermore, GE has looked at the current energy economics, as cheaper alternatives such as natural gas, solar and wind gain market traction. The decision comes just weeks prior to the presidential election, with Donald Trump having championed “beautiful, clean coal” and his opponent Joe Biden expounding the complete opposite view.

Meanwhile, the US President has indicated that there is no future for TikTok in the US unless Oracle and Walmart have “total control” of the company; currently, the deal sees the two US companies each holding 10% shares and China-based owner ByteDance retaining an 80% stake in Tik Tok Global. If this deal had not gone through, the app would have been banned from the US on security grounds. Prior to the agreement, Oracle issued a statement that the two US companies would own a combined 20% stake but also added “Americans will be the majority. And ByteDance will have no ownership in TikTok Global.” In contrast, ByteDance maintained that it would be keeping an 80% stake in TikTok Global, and as well as it would not be transferring ownership of the valuable algorithms that power TikTok. The Chinese company also poured water on a US$ 5 billion contribution, requested by the President, from the two companies, towards a new education fund.

ZeniMax Media, the parent company of the video games studio Bethesda Softworks, has been acquired for US$ 7.5 billion by the Xbox owner Microsoft. The deal will add the likes of titles such as Fallout, Doom, Skyrim, Quake and The Elder Scrolls to Xbox’s portfolio. Phil Spencer of Xbox commented that the two firms “shared similar visions for the opportunities for creators and their games to reach more players in more ways”. Xbox has indicated that the publisher’s franchises would be added to its Game Pass subscription package for consoles and PCs, (that already has access to 200 games), which could be seen to make the PlayStation 5 less attractive to some players than the forthcoming Xbox Series X; both machines are due for launch in November.

HSBC is in a spot of bother for past misdeeds following reports that the bank had continued to allow fraudsters to transfer hundreds of millions of dollars, after the bank had discovered the Ponzi scheme scam. The revelations came via the so-called FinCEN Files, (obtained by Buzzfeed), a leak of 2.7k documents, mostly consisting of Suspicious Activity Reports. The files relate to alleged money-laundering transactions, totalling in excess of US$ two trillion and involving several banks that took place over most of this century. The bank’s share value dropped 5.3% on the day adding to its woes, including the impact of Covid-19 outbreak in China and US-Sino geo-political tensions, that has seen its market value halved so far this year. JP Morgan is another bank involved and one other bank implicated in the scam, Standard Chartered, shed 6.2% in Monday’s trading. It seems that on a global scale, banks cannot help themselves. It is reported that US authorities repeatedly flagged transactions as suspicious in the years between 1997 and 2017, yet the banks apparently took little or no action. It does seem like open season for some banks to assist oligarchs and terrorists to allow the flow of trillions of dollars of dirty money through their systems.

Another former stock market favourite, Rolls Royce, appears to be in dire trouble, with its shares hitting their lowest level (8.4% lower at US$ 225) since 2004 on Monday. This comes after the UK company announced it was in talks with several SVWs as it considers “funding options to enhance balance sheet resilience and strength”; it is reported that the maker of aircraft engines is looking for funding in the region of US$ 3.4 billion. Its financial woes, made worse by the pandemic which has turned the aviation sector on its head, sees RR’s liabilities higher than its assets which makes the cost of borrowing higher than it would be for a solvent business. In H1, it posted a US$ 7.3 billion loss. There are other financing methods that the company will be considering including a rights issue (which is probably the least desirous given the low share price) or even a new debt issuance.

Fosun, which owns Club Med and completely took over Thomas Cook when it went bust last year, has released ambitious plans for its post-Covid holiday sector, which it expects to happen once a vaccine has been found.  The Chinese travel firm, which has already dramatically down sized the historic English company, relaunched Thomas Cook in China in July which it describes as a success, with more than 170k customers, and has now relaunched the brand in the UK as an online travel agency. The strategy for the Chinese relaunch is more than an-online operation but a lifestyle platform which offers a range of related products and services, hotels, tickets, entertainment, education and retailers selling gifts and souvenirs. Fosun has also started building ten new Club Med resorts to be ready for the end of 2022.

Because of a slump in hotel guest numbers, the owner of Premier Inn and Beefeater has warned that it may have to make 6k staff redundant. 27k of Whitbread’s 35k staff are still being paid via the government’s furlough scheme.  Their hotels have seen August stays halved, compared to a year earlier, and diner numbers a third down which would have been lower if not for the government’s Eat Out to Help Out scheme in August. Meanwhile, pub chain JD Wetherspoon posted that 50% of its 1k staff working at airport venues could lose their jobs because of the dramatic fall in travel and tourism mainly because of a downturn in trade in these pubs. On Tuesday, the sector was doubly hit by the news that, as from today, Thursday, hospitality venues will have to close at 22.00, to help curb the spread of the virus, and that the government has advised the population to now work from home “if they can” – described by UK Hospitality that this represented “effectively a lockdown” for city centre bars and restaurants.

Little wonder that Cineworld posted an H1 US$ 1.6 billion loss, (compared to a US$ 130 million profit in the same period a year earlier), as its cinemas were closed under lockdown and will now probably have to raise more funds to keep going; group revenues were  down by two thirds at US$ 712 million. The cinema company has reopened 72% of its 778 global sites but six of its UK theatres remain closed. Following new government guidelines, its UK cinemas will now be closed from 25 September until November which just reinforces the urgency of negotiating waivers on banking agreements, which fall due in December and in June next year, to maintain liquidity.

It seems likely that 1k of the 6k Butlin’s employees will have to take either paid or holiday leave when the furlough scheme comes to an end next month. The iconic holiday camp, operator, privately-owned by Bourne Leisure Group, is currently working at 50%, as the UK summer comes to an end and the winter revenue stream starts to dry up. The leisure group, with Haven caravan sites and Warner Leisure Hotels in its portfolio, has managed to secure hundreds of millions of dollars in government support in the form of loans and furlough payments as well as deferred VAT and business rates since the start of the pandemic.

A sign of the times, sees owners Mars Foods changing the name of Uncle Ben’s Rice to Ben’s Original and removing the image of a smiling, grey-haired black man from its packaging. This follows a brand review by the group which concluded that the almost eighty-year old company should change its name and branding.

Expecting little prospect of the UK winning a deal on financial services in Brexit talks, JP Morgan Chase has told about 200 staff to plan to move out of London. These employees, mainly in sales and trading, have been told to prepare for relocation to other European cities and will be given six months commuting and accommodation support. It seems that the EU considers the UK jurisdiction not robust enough rules to enable cross-border trade, a process known as equivalence. Furthermore, in the event of a no deal, banks will be barred from doing investment services business from London with clients such as German and French pension funds. However, some banks are holding out on any move until a decision is known.

To add to its many woes, the people of Lebanon are now facing Zimbabwe-type inflation with consumer prices increasing 112.4% and 120.0% in July and August, as food, clothing/footwear and furnishings/household equipment jumped 367%, 413% and 664% last month. The country, still in comatose from last month’s massive Beirut explosion, is facing its worst economic crisis since the culmination of the fifteen-year civil war that ended in 1990. The country’s gross July public debt was 9.0% higher, on the year, at US$ 94 billion, of which the three major stakeholders were the central bank, commercial bank accounts and foreign investors holding 42.5%, 28.4% and 18.8% of the total debt. Although Lebanon’s current account deficit is narrowing, the central bank’s foreign currency reserves have been losing US$ 1 billion every month in 2020 – and if this continues, at this rate, there may be no reserves by this time next year. The Lebanese pound has lost more than 80% of its value in the black market against the dollar over the past twelve months. If no early positive action is taken, there is no doubt that social and political instability will prevail and there is every chance that the country’s sectarian divisions will deepen with inevitable tragic consequences. The Lebanese deserve a better life and a better government.

Australia’s second largest bank, Westpac, can now boast that it has had to pay a record US$ 0.9 billion in fines for the nation’s biggest breach of money laundering laws and counter-terrorism financing laws. However, the fine could have been a lot worse, as the bank posted 23 million breaches of the law, with each individual breach carrying a maximum penalty of US$ 15 million (AUD 21 million). The reduced fine came after the bank negotiated a deal and apologised for its “failings” but to an outsider it looks as if the cosy establishment relationships continue and it is time for criminal action to be taken. Last year, the bank disclosed to its shareholders that it had self-reported some of the breaches to the Australian Transaction Reports and Analysis Centre and also disclosed the investigation to shareholders, including a forecast penalty. Austrac estimated that the total amount of funds involved was US$ 7.8 billion. On a local scale, Westpac is not the only bank to have been fined – in 2018, Commonwealth Bank was fined US$ 500 for similar offences, but on a smaller scale – whilst on a global scale the list, including HSBC, Danske Bank and Rabobank, is almost endless.

Poor old Alan Joyce has just seen his total pay fall by 83% because of the pandemic which has caused air travel to tank. Two years ago, the Irish-born Qantas Airways boss was Australia’s highest paid chief executive but for the year ending 30 June, he saw his pay slump from US$ 7.2 million to just over US$ 1.2 million. He took no salary from April to July this year as revenues collapsed, before returning to 65% of his base salary in August and also agreed not to receive 345k shares associated with a long-term incentive from 2017 – with the board deciding next August whether he receives them or not. Any guesses?

There are fears that up to 100k Australian businesses could collapse before the end of the tax year next June, not helped by the closing of JobKeeper and an imminent change in insolvency laws. The figure may be higher when it is estimated that the country has 2.4 million businesses – and if only 10% fail, then a lot more would go under.  The new law could see ‘zombie” companies – which have too much debt and poor management and have been ticking along due to emergency COVID-19 support measures – being identified quicker. It is thought that business owners, with liabilities of less than US$ 710k (AUD 1 million), will be allowed to stay in charge while they deal with their debts. For smaller companies in trouble, quicker and easier regulations will allow for almost immediate liquidation.

One major casualty of the pandemic is the loss of so many international university students returning to study in Australia which is virtually under complete lockdown. It is estimated that only forty student-visa holders entered the country in July, as student accommodation providers witness occupancy rates dropping significantly. The seriousness of the problem can be gleaned from the following table:

2019 arrivals2019 departures2020 arrivals2020 departures
Jan90,26068,72091,61075,640
Feb183,90044,650121,32028,960
Mar72,15031,96060,36042,130
Apr44,50045,410309,910
May34,26039,300405,460
Jun46,040118,850607,450
Jul143,84065,2904012,130

Source: ABS

A major problem has been caps the states have put on international arrivals – for example, South Australia has a weekly limit of 500 people. The slump in overseas student numbers sees traditional student accommodation falling from a 95% occupancy to barely 50% and ancillary businesses that rely on students for their income are also suffering. It is estimated that a third of the students’ spending was in retail and hospitality, with another third spent in the property sector. Urbis reckons that there are nearly 113k purpose-built student accommodation beds in Australia, and a further 45k+ in the pipeline, either under construction, in development or planning.

A report by UK-based InfluenceMap has noted that the Minerals Council of Australia is the “single largest negative influence on Australian climate-related policy” and that the country’s current climate policies are consistent with a 3-4 degrees Celsius temperature rise, along with an 8% increase in greenhouse gas emissions, by 2030. The report also noted Australian representative groups – including the main “culprit”, the Australian Chamber of Commerce and Industry, the Minerals Council of Australia and the NSW Minerals Council – featured disproportionately among the world’s most damaging lobbyists on climate, and most responsible for undermining the country’s climate policy. It also claimed that the big four mining giants – BHP, (judged to be the most negatively influential), Glencore, Rio Tinto and Santos – have the most concentrated network of links to industry associations that “continue to work against Paris-aligned policy for Australia”. It appears that over 75% of industry associations are pro-fossil-fuels and take positions against climate regulations and that there has been limited public scrutiny of these activities. Now outside pressure on these policies are coming to the fore, as activists and shareholder groups increase their pressure on companies to be more environmentally friendly and take a more active approach to reducing emissions

A proposed change to money laundering laws could flood the Australian stock exchange with dirty cash, experts have warned, as stockbrokers would not need to identify their clients for up to five days after making a trade. Currently, a new customer must be identified before an account with a stockbroker can be opened. It seems that AUSTRAC has already closed public submissions about identifying the source of funds used to buy and sell ASX stocks. There are global crime syndicates, some of whom have probably used certain international financial institutions in the past, who may take advantage of this rule change, if it goes through, to use the Australian bourse for laundering their ill-gotten gains.

With the government’s furlough programme coming to an end at the end of next month, it is reported Chancellor Rishi Sunak is considering alternative options, including top-up schemes similar to those already operated by governments in France and Germany. Instead of paying 80% of an employee’s wage, this will allow firms to reduce employees’ hours while keeping them in a job, with the government paying part of the lost wages when no work is being carried out. If nothing is done in the meantime, unemployment figures will skyrocket in November. Such a scenario would be cheaper than the US$ 52.5 billion it has cost to run furlough, bearing in mind the bill for Kurzarbeit, which has been extended until the end of 2021 by the German government, has a forecast cost of US$ 40.5 billion by the end of 2021.

With the UK economy under increasing pressure from escalating Covid-19 cases, and the reintroduction of tighter restrictions in many areas, along with apparent little progress in Brexit negotiations, the Chancellor has been in parliament to set out the government’s new support scheme to save millions of jobs and businesses from a winter crisis. Whilst acknowledging that the UK should be prepared for at least six months of hardship and that its economy will undergo a “more permanent adjustment,” he introduced several measures to bolster the sagging economy.

These included more financial support to various industries including extending a VAT cut for hotels, cafes and restaurants until the end of March to support the hospitality and tourism sectors which are struggling with much reduced demand. He replaced the government’s furlough scheme, which will end at the end of next month, (and had helped 32% of eligible jobs since its introduction to 30 June), by paying  a third of the wages of staff in “viable jobs” who are forced to work lower hours due to reduced demand; the government and the employer will each pay a further third of the wages. There will be an extension until 30 November of business loans, such as the ‘bounce back’ and ‘coronavirus business interruption’ support. To date, more than one million businesses have taken out a bounce back loan, with an average loan size of US$ 40k. A new ‘Pay as You Grow’ system allows businesses to repay their loans over a period of up to ten years or switch to interest-only repayments for six months.

August saw the UK government borrowing US$ 46.7 billion – 85% more than the comparable figure of US$ 7.0 billion a year earlier. For the first five months of the fiscal year (April – August), the government has already borrowed US$ 225.6 billion, beating the previous annual record of 2010, following the GFC.  By the end of the year, 31 March 2021, the borrowing could well touch the US$ 500 billion mark, as the government tax revenues slow down considerably, whilst its spending, on keeping the economy turning over, moves in the other direction. Another record set in August saw the country’s debt top US$ 2.6 trillion (GBP 2.0 trillion) for the first time ever, and US$ 324.4 billion higher than in August 2019; the figure now exceeds the size of the UK economy.

September PMI figures from both the UK and the eurozone were disappointing as the Flash UK Composite PMI data dipped to 55.7 from a three-month low 59.1, a month earlier; the eurozone fared worse with a monthly decline of 1.8 to 50.1. (The threshold figure between expansion and contraction is 50.0). Thedecline is a result of rising infections that has led to governments reintroducing more lockdown rules which have had a knock-on impact on various economic sectors. The big losers are those workers in the service sector, whilst data shows that driven by increased demand, factory production is moving northwards.There are concerns, on both sides of the English Channel, that if September figures trend into Q4, there is every possibility that the gains made in Q3 will be lost and recession will return in early 2021.

On the orders of the Pontiff, one of the more high-ranking Vatican officials, Cardinal Giovanni Angelo Becciu has resigned. It is reported that he had been using church funds in a controversial US$ 240 million deal, to invest in a luxury London building. He had also been suspected of giving Church money to his brothers and also propping up a failing Roman hospital which employed his niece. The deposed 72-year old Italian cardinal, a close aide to the Pope had previously held a key job in the Vatican’s Secretariat of State, was called to a showdown meeting with Pope Francis today, following which a communique confirmed that the Pope had accepted Becciu’s resignation as prefect and his renunciation of “all rights connected to the cardinalate”. He had been involved in several controversies and was a major character in conspiracies about alleged attempts to undercut financial reforms, when he suspended an audit of all Vatican departments by PwC. The Vatican has not been immune from scandals in the past and has had probably more than its fair share of financial shenanigans. The latest one may seem to indicate that Pope Francis has had enough and a long-needed clean-up has begun. Someone’s watching From A Distance!

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You Get What You Give!

You Get What You Give!                                                                     17 September 2020

A report by ValuStrat reported a 1.6% monthly price decline, along with strong activity levels, much in line with Property Monitor’s latest findings that the average August property price in Dubai reached its lowest level in eleven years dipping to just US$ 220 per sq ft, with rentals declining at comparative levels. Annually, residential capital values fell 13.8%. These figures see gross rental yields remaining “relatively stable” at 6.49%, still at a healthy return level. August is a traditionally quiet month for this sector, but this year – with monthly sales of 2.5k 1.3% down on the month, (compared to August 2019 sales volumes which were 48.5% lower than July 2019) – this is not the case. Interestingly, 52.8% of last month’s home sales were for properties valued at less than US$ 272k (one million dirhams), with 23.9% of the total for properties under US$ 136k (AED 500k). With developers delaying new launches, it is no surprise to see more completed homes being sold than off plan ones. The report indicated that the two most popular areas for secondary market sales were Town Square and Dubai Marina, while Jumeirah Village Circle, Arjan and International City remained the three more popular for off plan deals.

Colliers International note that the most of Dubai’s new developments are aimed at buyers looking for affordability so that a large proportion of units are townhouse style properties. Accordingly, many of the villas are built on reduced plot sizes and more rooms of a smaller size.The global property management and consultancy pointed out that developers “also cut back on lakes, large parks and have reduced the sizes of communal swimming pools and play areas.”

Investment in a leasehold staff blue-collar worker development, Sakany, located in Dubai South, has now topped US$ 136 million. The project, with ten buildings all equipped with dedicated medical and fit-for-purpose quarantine rooms, is already 80% full, with 7k occupants; the recently launched phase 2 will have nine hundred rooms in six buildings. The development will also house a Grand Supermarket, four restaurants, a cafeteria, barbershop, pharmacy, clinic, retail outlets and a money-exchange. There is no doubt that Sakany, with a 2k seating dining hall and extensive sports facilities, will not only be an ideal location for Expo 2020 site workers but also be a regional benchmark for safe and secure housing. It will also have a female-only building with its own grocery store.

Despite the pandemic, Danube Properties have posted a record H1 18.0% growth in sales of over 300 units, worth US$ 68 million, whilst delivering units, valued at US$ 78 million. In contrast to its peers, who have cut staff numbers and payrolls across the board, the developer appointed sixty more people, bringing its total workforce to 250. The company plans to intensify work over the next two years so as to deliver more than 6k units to the market. Danube has a development portfolio of 6.2k units, valued at over US$ 1.2 billion and expects two of its projects – Miraclz and Bayz – to be handed over by the end of this year, whilst the other three, Jewelz, Elz and Lawnz will be ready by the end of 2022.

The first ever virtual matchmaking event between DMCC and China’s Innoway took place this week. The Beijing and Haidian Government established the platform that, to date, has incubated 3.8k start-ups and raised US$ 11.4 billion in funding; Innoway will soon set up a presence in DMCC’s Jumeriah Lakes Towers. The event, following both parties signing an MoU in May, was joined by UAE companies and Chinese innovators; five “unicorn” companies – Beijing NOBOOK Education Technology, MEGVII, Terminus Group, Guangzhou Hongyu Science & Technology Co. Ltd and Neolix Technologies Co. Ltd – were among the virtual attendees.

On Tuesday, at the White House, the UAE and Israel signed the Abraham Accord to formally normalise relations between the two countries and encourage bilateral trade and investment opportunities in a wide range of sectors. Two days later, an agreement, to develop closer ties, was signed by the diamond exchanges of Dubai and Israel, with the twin aims of promoting bilateral trading opportunities and partnering on initiatives to grow regional trade. Both parties will open representative offices in each other’s country. It is hoped that this new relationship will not only attract new businesses to Dubai but also boost the regional and international trade in diamonds. Last September, the Dubai Diamond Exchange opened the biggest global diamond trading floor at its headquarters in Almas Tower. In 2019, the total value of rough and polished diamonds handled through the emirate stood at US$ 22.9 billion. Another early venture sees Emirates NBD, Dubai’s largest bank, signing an MoU with Israel’s Bank Hapoalim, that country’s largest lender.

Earlier in the month, Etisalat started phase one of rolling out 5G services on fixed-line networks, with the second phase starting in Q3 next year. The Telecommunications Regulatory Authority has allocated a new frequency band (24.25 – 27.5 gigahertz) for the 5G application to be expanded, which will see the country able to deploy applications such as self-driving cars, robots, smart industry, big data and the Internet of Things. This will see the internet speed move from its current 1.2 gigabits per second to an eventual 10Gbps – more than 100 times faster than 4G – and enhance data volume on wireless broadband services.

The recently released 2020 Smart City Index by The Institute for Management Development sees Abu Dhabi and Dubai ranked at 42nd and 43rd in a list of smart cities. Over the year, Dubai has nudged two places higher in the index which ranks 109 cities on a number of factors, including economic and technological data, as well as by their citizens’ perceptions of how “smart” their cities are. It also considers the technological provisions of each city across five key areas – health/safety, mobility, activities, opportunities and governance. Dubai is ahead of Beijing and Tokyo in a list which places Singapore, Helsinki, Zurich, Auckland and Oslo in the top five, with Rabat, Cairo, Abuja, Nairobi and Lagos being at the other end of the scale.

The Central Bank has confirmed the country’s commitment to the Financial Action Task Force standards to combat all types of financial crimes; the FATF is the global watchdog, monitoring and controlling money laundering and terrorism financing. The bank’s new governor, Abdulhamid Alahmadi, reiterated that “we shall continue to adhere to FATF standards in order to ensure the UAE’s financial system is sound and inclusive.” The country has strict laws to deal with money laundering and the financing of terrorism and has recently introduced a smart tool named ‘Fawri Tick’ to monitor and curb terrorism financing. Another recently introduced rule makes it compulsory for all hawala providers – informal funds transfer agents that typically do not use banks – to register with the regulator to “enhance transparency in financial transactions.

Du is expected is expected to make a US$ 142 million profit, as it sells its 26% stake in Khazna Data Centre to Abu Dhabi’s Technology Holding Company, for US$ 218 million. Du’s share in Khazna was held as an “indirect stake”, which includes du’s exposure to shareholder loans, as part of the telco’s “strategy of pursuing data centre development through either full ownership or commercial partnerships”. This profit will boost the company’s Q3 results to be released next month.

The bourse opened on Sunday 13 September and, 12 points (0.5%) lower the previous week, gained 38 points (1.7%) to close on 2,321 by 17 September. Emaar Properties, US$ 0.02 lower the previous week, regained the US$ 0.02 to close at US$ 0.81, whilst Arabtec, having shed US$ 0.03 the previous week, remained flat at US$ 0.16. Thursday 17 September saw the market trading at a much improved 555 million shares, worth US$ 397 million, (compared to 284 million shares, at a value of US$ 111 million, on 10 September).

By Thursday, 17 September, Brent, US$ 6.69 (3.0%) lower the previous fortnight was US$ 3.46 (8.6%) higher at US$ 43.49. Gold, up US$ 20 (1.0%) the previous fortnight, nudged US$ 9 higher (0.4%) to close on US$ 1,960, by Thursday 17 September.

In a December 2015 blog – Move On – wrote

“It was only three months ago that Seb Coe was elected president of the International Association of Athletics Federations, taking over from the 16-year reign of the disgraced and allegedly corrupt 82-year old Lamine Diack. At the time, the former Olympic gold medallist made light of his own six-figure ambassadorial role with Nike and chairmanship of CSM – a leading sport and entertainment agency. There are reports accusing him of lobbying for the Oregon city of Eugene (with close ties with Nike) to host the 2021 World Championships that was granted earlier in the year, without a bidding process taking place.

It has to be remembered that he was also vice president to the Senegalese for the previous eight years and referred to him as the IAAF’s “spiritual leader”. This is the same person who is now charged with taking millions of dollars to cover up positive doping tests and was reprimanded by the IOC 4 years ago for his role in a FIFA scandal”.

This week, the octogenarian has been found guilty of corruption, having accepted bribes from athletes suspected of doping to cover up test results and letting them continue competing, including in the 2012 London Olympics. Lamine Diack’s lawyers will be appealing against the four-year prison sentence, and a US$ 600k fine, indicating it was “unfair and inhumane”. His son, Papa Massata, was sentenced to five years, along with a US$ 1.2 million fine. In November 2015, the current head of the sport, Seb Coe, labelled as “abhorrent” allegations of doping bribery within athletics after his predecessor was arrested by French police.

Another (hopefully former) corrupt sports body FIFA is also in the news, with reports that Zurich-based group, Julius Baer is in “advanced talks” with US regulators to resolve allegations in a corruption and money-laundering case involving the world football body. In 2017, a former employee of the private bank pleaded guilty to facilitating payments from a sports marketing company to FIFA officials. The 2015 investigations by the Department of Justice led to the eventual demise of the disgraced Sepp Blatter – despite more than a decade of rumblings into the shenanigans of the disgraced official and his cronies.

Finally some good news for Lionel Messi, after his clubBarcelona refused to allow him a free transfer, insisting that any team that took him on would have to honour an US$ 850 million release clause; he threatened to take his boyhood club to court but later changed his mind, saying he did not want to face “the club I love” in court. This week his luck changed, with the EU’s top court confirming that he could can register his name as a trademark after a nine-year legal battle against Spanish cycling company Massi and the EU’s intellectual property office, EUIPO. He can now finally trademark his surname as a sportswear brand. The decision could see his annual earnings increase quite significantly from their current US$ 126 million level.

A  damming US report into the two fatal 737 Max crashes has come out with criticism for two of the major stakeholders concluding that “Boeing failed in its design and development of the Max, and the FAA failed in its oversight of Boeing and its certification of the aircraft.” Indeed, it found a series of failures in the plane’s design, combined with “regulatory capture”, an overly close relationship between Boeing and the federal regulator, which compromised the process of gaining safety certification. The 250-page report also pointed to the fact that the regulator was, in effect, in Boeing’s pocket and that the FAA’s management “overruled” its own technical and safety experts “at the behest of Boeing”. It will take years for Boeing to recover its once vaunted position in the aviation sector, whilst fliers will take little comfort from some of the grim reading which narrates how Boeing could well be accused of putting cost saving at the expense of safety and human life – and paid the ultimate penalty. The much-modified plane will probably return to the skies by March 2021 – two years after being universally grounded.

A major faux-pas by mining giant, Rio Tinto, that resulted in the unwarranted destruction of Aboriginal cultural heritage sites earlier in the year, has seen its chief executive Jean-Sebastien Jacques – and two other senior staff members – being forced to leave.  Even chairman Simon Thompson should be a worried man about his Rio future, as yet another conglomerate shows little concern about the microenvironment. It seems that shareholder disquiet played a significant role in the eventual decision to part ways with the three executives who were seen as directly accountable for the Juukan Gorge blasting. In previous times, such actions would have gone largely unnoticed and many would argue that most major mining companies have probably done a lot worse to the environment and local populations in global areas where they have mined. It is exactly fifty ago that Milton Freidman hypothesised that the main purpose of a company is to maximise profits for its shareholders – these days executives have to be very careful and consider all their stakeholders.

SoftBank is set to receive over US$ 40 billion for selling UK chip designer Arm to US-based Nvidia in a cash and stock deal, that will create a mega player in the chip industry; the Japanese company bought Arm in 2016 for US$ 32 billion, as part of its then strategy to expand into the Internet of Things technology. The core business of Nvidia is graphics chips that power video games, but it has recently moved into other sectors including AI, self-driving cars and data centres. It does not make chips itself but licenses out the underlying technology so others can make chips with it.

It is reported that ByteDance, the Chinese owner of video-sharing app TikTok, is planning to make Singapore its Asian headquarters in a move that will see it spend several billion dollars in the city state; it will also boost local employment by hundreds of jobs, in addition to the four hundred already working there. The Beijing-based company has already considered the US, (where it was forced to sell TikTok operations, following pressure by the Trump administration), UK, (where TikTok faces a likely ban from moving local user data out of the country), and India, (where TikTok is banned by the government on security concerns), as  regional hubs, outside of its home base of China.  Last year, ByteDance generated US$ 17.0 billion of revenue and a US$ 3.0 billion profit, driven by the likes of news aggregation app Toutiao, and TikTok’s Chinese twin Douyin, which have more than 1.5 billion monthly active users.

After almost a decade – and sales of over 76 million units – Nintendo has discontinued its 3DS handheld which had the ability to trick the human eye into seeing 3D images like those in some cinema screenings – but without special glasses. The announcement has been long expected, as in 2019, the Japanese company announced it no longer planned to make any new first-party games for the system. Nintendo will now focus their attention on Nintendo Switch – a hybrid handheld-and-home machine.

With November launch dates, it seems that the Sony will match the price of its flagship PlayStation 5 with that of Microsoft’s Xbox Series X. At the last launches, Sony’s PS4 came in with a price lower than the Xbox One and to date they have outsold their US rival by a factor of almost two to one. But this time the tables may be turned when both consoles are launched in the UK on 19 November, a week later than in most other locations. Some analysts point to the fact that Microsoft’s combination of a US$ 340 price for the XBox Series S, allied with the value offered by the Xbox Game Pass subscription service, could give the US firm an advantage.

For the first time in sixty years, the Asian Development Bank has confirmed that the region of forty-five countries has gone into recession. It expects the region to post a 0.7% contraction this year but expects a 6.8% rebound in 2021. South Asia is expected to be worst hit, with big variances between different countries. For example, China will buck the trend, forecast to post a 1.8% hike, whilst India will head in the other direction, with an expected 9.0% contraction, although both economies are expected to rebound next year with expansions of 7.7% and 8.0% respectively. Major economic damage will be felt in tourism-dependent island economies, with the Maldives and Fiji expecting their 2020 economies to shrink by 20.5% and 19.5%.

Questions have to be asked about the state of the German economy as one of its leading companies, MAN, announces 25% job cuts of 9.5k in a bid to save US$ 2.14 billion in costs. The loss-making truck and bus manufacturer, one of the main brands of VW’s truck maker subsidiary Traton, posted a H1 34% slump in revenue, whilst recording a US$ 500 million deficit, compared to a US$ 300 million profit over the same period last year. Eurozone industrial production is slowing, with German expansion faltering, as the bloc’s July growth of 4.1% was more than a half down on the preceding month’s 9.5%, which in turn was 7.7% lower compared to the 2019 return.

If the state of the global countries’ employment sector is anything similar to that of the UK, then we are in for a turbulent twelve months. Latest August figures see the number of people claiming jobless benefits since March rising a massive 121% to 2.7 million. In Q2, the number of young people in employment dipped 156k to 3.6 million. The furlough scheme, which has assisted companies retain about ten million during the pandemic, is expected to close by the end of October and this presents the Chancellor a quandary; for if no further action is taken by Rishi  Sunak then there will be an inevitable sharp rise in the unemployment rate. With the rising unemployment rate, allied with the ever-growing number of payrolls lost, it is clear that the negative labour market impacts of the coronavirus crisis are here to stay for a while longer. The Q4 unemployment figure should be just south of 9.0% before dropping back again during 2021.

In forty-four days, the government’s Job Retention Scheme comes to an end and yesterday was the deadline for employers to give notice of redundancy. There is no doubt that over the next few days there will be a rise in the unemployment ranks. Even in June, a Freedom of Information request showed that 1.8k firms were intending to cut more than 139k jobs. The worrying fact is that since March, nine million people have been furloughed for at least one three-week period whilst over the past five months, only 695k have gone from the payrolls of UK companies. It is unlikely that the government will continue with furlough scheme into November.

In contrast, Germany is extending its Kurzarbeit job subsidy measures until the end of 2021, whilst the French may extend their equivalent scheme by two years. The German scheme is different to that of the UK’s in as much that it is about short-time working. This allows employers to cut the hours worked and the government will pay workers a percentage of the money they would have got for working those lost hours. (The UK scheme was based on paying workers to stay at home and get paid 80% of their normal pay). It is estimated that at the height of the pandemic, half of all German firms had at least some of their staff on the scheme.

In June, the Organisation for Economic Cooperation and Development forecast the global economy was expected to decline 6.0% and this week revised the figure down to 4.5%; although the UK economy is still forecast to contract by 10.1%, down from June’s 11.5%, it is no longer the worst hit in the developed world as the latest forecast sees Italy, India and South Africa posting larger contractions. The OECD is now forecasting a weaker global rebound in 2021, including UK’s expected 7.6% expansion; however, by the end of 2021, the economy will still be smaller than it was in 2019. The US forecast has been upgraded from a 7.3% level in April to the current 3.8%.

Oxford Economics’ latest forecast sees ME GDPs shrinking by 7.6% this year – much higher than their April forecast of a 3.9% contraction. However, it is relatively bullish about the future with annual 4.0% growths predicted for the next two years, assuming that lockdowns are fully eased, global travel picks up and Brent oil prices move closer to US$ 50 per barrel. The report noted that the outlook for the non-oil economy in the GCC countries remains challenging, whilst exports levels in oil-producing countries were experiencing severe damage, caused by the price slump in March and April, and are expected to decline by between 6.0% – 12% this year.

New Zealand is now suffering from being one of the few global nations to have kept a lid on the spread of Covid-19 as is chose lockdown and border closures, and the population’s health, ahead of any economic benefit. Q2 figures show that the country’s GDP shrank 12.2% which has pushed the country into its first recession since 1987. The measures have had a massive impact on many of the country’s industries including retail, accommodation, restaurants, and transport – sectors that were more directly affected by the international travel ban and strict nationwide lockdown. The economy is likely to be a key issue in next month’s election, which was delayed after an unexpected spike in Covid-19 cases in August. Pre-Covid polls had Jacinda Arden’s Labour Party running closely behind the National Party in second place but this has all changed since then with the Labour Party now well ahead in the polls.

The South African economy was struggling even before the onset of Covid-19 which has only exacerbated the problem; in March, the country was in technical recession, with Moody’s downgrading the country’s sovereign credit rating to junk status. The days of up to 5% growth numbers have long gone and current GDP levels are at Q2 2007 GDP levels – with all post-2008 financial crisis growth having been wiped out. Q2 figures were 51% lower, compared to the same period in 2019, and it is expected that South Africa’s GDP will reach US$ 295 billion – a level last seen over a decade ago. Some of the economic damage can be laid at the door of the former president, Jacob Zuma, who will go on trial next month for allowing associates to gain access to state-owned entities and redirecting spending for personal profit. His successor, Cyril Ramaphosa, has estimated that Zuma may have squandered US$ 30 billion in corruption during his tenure. Whether the new administration can rein in corruption remains to be seen. The short-term outlook is not good – tax revenues have fallen to catastrophic levels, the construction industry has just entered its eighth straight quarter of decline and the debt-ridden (of over US$ 40 billion) state-run electricity utility Eskom, overseeing an aged, unreliable and inefficient portfolio of mostly coal-fired stations, has witnessed numerous blackouts and hours of ‘load shedding’.

In the first eleven months of this financial year, the US administration has already spent US$ 6.0 trillion, including US$ 2 trillion on coronavirus relief, whilst tax receipts have totalled  US$ 3 trillion, resulting in  a US$ 3 trillion YTD deficit; the shortfall is more than double the previous full-year record, set in 2009 – and triple the expected figure of US$ 1 trillion forecast pre the onset of the pandemic. With a full-year US$ 3.3 billion shortfall now expected, it will bring the country’s total debt to well over US$ 26 trillion.

By the end of Thursday’s trading, most global markets traded downwards including the three major US bourses – Nasdaq (-1.3% at 10,910), S&P 500 (-0.8% to 3,357) and Dow Jones (-0.5% to 27,902) – along with  Europe – FTSE and DAX, 0.5% lower at 6,050 and 0.4% to 13,208. One of the drags was the fact that the Bank of England indicated there was a chance at cutting interest rates into negative territory, with the UK facing a triple whammy of rising COVID-19 cases, and an increased possibility of a national lockdown, a possible no-deal Brexit and higher unemployment, as the furlough scheme nears to its conclusion.

Meanwhile, the number of Americans filing new claims for unemployment fell 33k to 860k on the week which the Labor Department considers an extremely high level. By the end of last month, it is estimated that almost thirty million Americans were receiving ongoing jobless benefits indicating the devastation Covid-19 has imparted on the US economy. It is fairly obvious that much of the damage may have been averted if the politicians, (on both sides of the House), could have agreed on implementing much-needed fiscal stimulus measures; the knock-on effect will be a slower recovery time period with an economy more scarred that it needed to be. Fed chair Jerome Powell once again confirmed his intention to keep interest rates near zero, for at least the next three years, in an on-going attempt to lift the world’s biggest economy out of a pandemic-induced recession but admitted that central bank’s tools to achieve that were limited.

With the help of a US$ 200 million funding from China, the Maldives built a 2.1 km four lane bridge which linked its capital Male and the airport on the island of Hulumale. Not only did it help with reducing traffic congestion, it also led to a boom in new property and commercial developments on Hulumale. The structure, known as China-Maldives Friendship Bridge, was one of several major projects built under the presidency of Abdullah Yameen. Elected in 2013, he was pro-China and wanted to kickstart the economy, with the help hundreds of millions of dollars from Chinese President Xi Jinping who was embarking on his grand “Belt and Road Initiative” to build road, rail and sea links between China and the rest of the world, excluding the Americas. However, the nation voted in a new president in 2018 and the new government discovered that it was indebted to China for US$ 3.1 billion which included government-to-government loans, money given to state enterprises and private sector loans guaranteed by the Maldivian government. Now it appears that none of the projects had any back-up business plans and there are worries that the cost of projects was inflated and the debt on paper is far greater than the money actually received. Some estimates put the figure at US$ 1.4 billion and even this is far too much for an economy that relies so much on tourism which has been in lockdown since March.

It looks as if the Maldives is following in the footsteps of its neighbour Sri Lanka. That island state owes billions of dollars to China and has defaulted on one loan – US$ 1.5 billion to build a port in Hambantota – which proved to be economically unviable. The end result is that China now has a 70% stake in the port on a 99-year lease and has been given 15k acres around the port for China to build an economic zone. This has given the country an entrée to one of the busiest shipping lanes in the Indian Ocean and a base some hundreds of miles from its rival India. In 2019, US Secretary of State accused China of “corrupt infrastructure deals in exchange for political influence” and using “bribe-fuelled debt-trap diplomacy”.

These are not the only Asian countries involved in acquiring Chinese funding, which also appears rampant in parts of Africa. In 2019, a change of government in Malaysia saw a Chinese-funded railway project, being cut by a third to US$ 11 billion and a year earlier, Myanmar reviewed a Chinese-funded multi-billion-dollar deep-sea port project and scaled it down to 75% of the original cost. Economic history is just repeating itself as this could have been the modus operandi for another superpower in the 1970s in two South American countries and Indonesia. Some governments are now realising that they were wrong to think that You Get What You Give!

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Get The Fire Brigade!

Get The Fire Brigade!                                                                        10 September 2020

Airolink has been appointed by Seven Tides as the main building contractor to complete its US$ 272 million Seven City JLT development. Due for completion in 2023, the 2.7k unit project covers an area of 3.5 million sq ft. Launched in 2004, Seven Tides is a privately-owned luxury property developer and holding company whose CEO is Abdulla Bin Sulayem, who has overall responsibility for the company’s portfolio of luxury five-star properties.

This week saw the lifting of the 192 mt long first section of the Link, now connecting the two towers of the One Za’abeel development. It took twelve days to raise the 8.5k tonne structure, one hundred metres above ground. Ithra Dubai, wholly owned by the Investment Corporation of Dubai, expects the Link to be completed next month, when the final 34 mt is added and, on completion, it will become the longest cantilevered building in the world. Encompassing a built-up area of 471k sq mt, the development will include the world’s first One & Only urban resort, with 497 ultra-luxury hotel rooms and serviced apartments, premium office space, 263 high-end residential units and three floors of retail space. One Za’abeel, due for completion by the end of next year, is the gate to the financial district of the DIFC, with an overhead link to the Dubai World Trade Centre.

Since the March onset of Covid-90 to the end of June, Emirates processed 1.4 million customer refunds, totalling almost US$ 1.4 billion, representing 90% of its backlog. It is also reported that Emirates will return their staff to full salaries as from next month. Earlier in the week, the airline announced that it had added another two routes, Lagos and Abuja, to its Covid-19 truncated schedule bringing its total destinations to eighty-four – more than a half of its pre-pandemic level of 160. The Dubai carrier will continue to restore revenues (and also target new avenues) and be as cost efficient as possible, as it tries to resume flights to all “network destinations” within ten months.

This week, HH Sheikh Mohammed bin Rashid Al Maktoum announced the formation of a Board of Directors of the Dubai Economic Security Centre. His Decision, effective from its date of issuance and will be published in the Official Gazette, will see Talal Humaid Belhoul, serving as the Chairman of the Board, and Awadh Hadher Al Muhairi as the Vice Chairman.

In line with the government’s smart transformation strategy, including the aims of the Dubai Paperless Strategy, the Dubai Land Department has started utilising AI in their smart valuation process for real estate units. The DLD’s Registration and Real Estate Services Sector has completed the project that will contribute to improving the quality, efficiency and readiness of smart government services. The target is for the DLD to raise its global ranking on performance indices in terms of providing DLD users the best valuation services quickly and with complete transparency. Customers can now download the app, Dubai REST, from the App Store or Google Play. The government body expects that this will reduce both current costs, by 20%, and implementation time to fifteen seconds.

DEWA has signed an agreement with Group 42, a leading Artificial Intelligence and cloud computing company, which will enable the three digital DEWA companies – Moro Hub, InfraX and DigitalX – to introduce and implement digital and data transformation initiatives, as well as fostering new services around AI. DEWA becomes the world’s first digital utility utilising autonomous systems for renewable energy, storage, expansion in AI adoption, and digital services. The authority, a Dubai 10X enabler, (a government tech initiative to ensure that the emirate is always ten years ahead of other global cities), will adopt digital technologies with its four pillars; Solar Energy, Energy Storage, Artificial Intelligence, and Digital Services.

At last Friday’s Global Manufacturing and Industrialisation Summit online, the Minister of Industry and Advanced Technology, Dr Sultan Al Jaber, reiterated that the UAE is looking to bolster its position in new high-value growth sectors such as biotechnology, health care and pharmaceuticals. Part of the strategy is also to enhance certain sectors, including water, health, agriculture, energy, petrochemicals and metals, so as to strengthen the country’s self-sufficiency. Technology will play an important role in the country’s move away from being hydrocarbon reliant and the government is keen to cooperate closer with any country that is ready and able to work with the UAE. The country is a pathfinder in certain areas of technology and was the first in the world to appoint a Minister of AI. The Minister stressed that “we can only hope to shape an inclusive and sustainable Fourth Industrial Revolution through building strong multi-stakeholder partnerships with representatives of national governments, multilateral organisations, the private sector, the research community and civil society.”

According to August’s Purchasing Managers’ Index, Dubai’s non-oil private economy is showing further signs of improvement. Business conditions continued to recover from the extreme effects of the pandemic, as output levels headed north, but the index did fall 0.8 to 50.9, indicating only a marginal improvement.  This would seem to indicate that the hopeful swift uptick may not result, as market conditions are still showing signs of depressed market conditions. The PMI covers three sectors – two of which, construction and wholesale/retail showed softer growth, whilst travel/tourism registered a downturn in business. Job cuts speeded up, as companies slashed costs, including the reduction in payroll numbers, to reduce capacity and employee costs. For the tenth consecutive month, margins continued to be pinched with companies chasing business by lowering selling prices.

The federal government posted a US$ 2.7 billion H2 budget surplus, including almost US$ 2.2 billion in Q2. In the first six months of the year, the government spent US$ 6.8 billion and collected revenue of US$ 9.5 billion. Last year, the cabinet had approved a three year zero-deficit US$ 16.7 billion budget. Q2 revenue topped US$ 9.5 billion, including federal revenue at US$ 4.5 billion and Ministry of Human Resources and Emiratisation chipping in over US$ 0.5 million. Expenses for the quarter came in at US$ 7.3 billion with the big four spenders being federal expenses, the Ministry of Education, the Ministry of Health and Ministry of Community Development at US$ 2.3 billion, US$ 0.6 million, US$ 0.4 million and US$ 0.1 million respectively.

DFM-listed Gulf Navigation has appointed a new board, headed by Theyab bin Tahnoon bin Mohammad Al Nahyan and a new group chief financial officer, Rudrik Flikweert. Shareholders are hoping that the new set-up will be able to turn the troubled business around, following tough trading conditions. Even before the advent of Covid-19, the company, with eight vessels, turned in an annual 2019 loss of US$ 82 million, driven by climbing operating costs and the carrying value of some of its vessels being written down by US$ 88 million. The pandemic has also exacerbated the Dubai company’s problems, as global trade contracts 27% in Q2.

The bourse opened on Sunday 06 September and, 199 points (9.5%) higher the previous four weeks, shed 12 points (0.5%) to close on 2,283 by 10 September. Emaar Properties, US$ 0.11 higher the previous five weeks, lost US$ 0.02 to US$ 0.79, whilst Arabtec, having gained US$ 0.02 the previous week, lost US$ 0.03 to US$ 0.16. Thursday 10 September saw the market trading at 284 million shares, worth US$ 111 million, (compared to 373 million shares, at a value of US$ 97 million, on 03 September).

By Thursday, 03 September, Brent, US$ 1.37 (3.0%) lower the previous week lost US$ 3.69 (8.4%) to US$ 40.03. Gold, having nudged US$ 9 (0.4%) the previous week, was US$ 11 higher (0.6%) to close on US$ 1,953, by Thursday 10 September.

After a disastrous Q2, when UK vehicle sales plunged to record lows, July recorded the first gain in sales for 2020, but then August vehicle sales dipped 5.8% to 87k, denting hopes of a recovery in the industry this year; for the first eight months of the year, registrations were down almost 40%. The UK is not alone with similar negative returns recorded across the EU, including France, Germany and Spain. The market is hoping that the market may be boosted by so-called revenge buying – when financially secure people buy luxury cars after saving money during the pandemic but were unable to go on an overseas holiday – along with pent up demand.

As it managed to avoid any further cancellations, Airbus delivered thirty-nine jets, comprising thirty-five A-320 narrow-bodied planes and four twin-aisle planes – ten lower than a month earlier. In contrast, Boeing posted disappointing news of only nine deliveries in the month, made worse with news that handovers of its 787 Dreamliners were slowed because of faults in the plane’s horizontal stabiliser that are wider than specified.  

After successfully completing a US$ 1.6 billion rescue plan, Virgin Atlantic announced a further 1.15k job cuts, in addition to the 3.5k jobs lost earlier in the year, which will see a 46.5% reduction in job numbers to 5.35k. The airline, 49% owned by Delta Airlines, commented that “until travel returns in greater numbers, survival is predicated on reducing costs further and continuing to preserve cash,” and that the outlook for transatlantic flights remains uncertain. Both US and UK courts approved Virgin’s US$ 1.6 billion rescue plan, involving U$S 525 million in new cash, half of which was generated from its main shareholder, Sir Richard Branson’s Virgin Group.

Last Friday, the largest group of Virgin Australia’s 10k creditors agreed to US private equity firm Bain Capital becoming the new owner of Virgin Australia; Bain have agreed to pay out all worker entitlements and honour travel credits, althoughbondholders lose out, probably seeing a meagre 13% return, as well as the “numerous suppliers and investors who will not receive all of the monies owed to them”. Furthermore, there will be no return to Virgin’s major shareholders, which include Singapore Airlines, Etihad Airways, China’s Nanshan Group and HNA and Sir Richard Branson’s Virgin Group. The airline, with a 9k workforce, having seen a third already made redundant, was placed into voluntary administration in April with debts of US$ 4.9 billion, following which its biggest shareholders, as well as the Australian government, refused to add further capital to save the airline. The airline will no longer be a full-service carrier, operating with a far smaller fleet, with up to sixty 737s airborne by the end of H1 2021, dependent on demand, and more limited routes The new airline will keep hold of its key international routes but will no longer operate as a full-service carrier like Qantas.

Singapore Airlines is the latest airline to announce massive staff cuts – by 4.3k, as it looks to restructure in line with the new norm for the industry including a weak travel outlook for the near future. The carrier expects the actual number will be 2.4k, once a recruitment freeze, natural attrition and voluntary departure schemes have been taken into account. Positions will be lost in all three of its flying units – Singapore Airlines, SilkAir and its low-cost carrier Scoot – which posted July passenger numbers down by 98.6%, year on year. Q2 losses amounted to US$ 820 million, compared to a US$ 80 million profit the previous July, with revenue falling 79.0% to US$ 620 million. SQ expects to operate only 50% of its capacity by year-end, with a reduced network to cope with the crisis.

BA has announced that it will be cutting more flights for the rest of the year as it comes to terms with the continuing collapse of air travel demand. IAG, which also operates Aer Lingus and Iberia, expects that autumn capacity will be 60% lower compared to 2019 figures. More worryingly, the company does not expect business to return to pre-pandemic levels until at least 2023. By the end of August, the airline had shed 8.2k of the 13k proposed job losses, “mostly as a result of voluntary redundancy”. IAG also confirmed that, in line with its July announcement, it would tap its shareholders for US$ 3.4 billion to help with its financing, debt reduction and withstanding a prolonged downturn in travel. Existing shareholders, including Qatar Airways, (with a 25.1% stake), will buy new shares at 36% lower than yesterday’s closing price.

LVMH is blaming the proposed US tariffs on French goods the raison d’être of pulling out of a proposed US$ 16 billion deal to acquire Tiffany, who have countered that the French conglomerate “is in breach of its obligations relating to obtaining antitrust clearance.” The French conglomerate indicated that a letter from France’s European and Foreign Affairs minister suggested “in reaction to the threat of taxes on French products by the US, directed the group to defer the acquisition of Tiffany until after 06January 2021”. The New York-based luxury jewellery retailer said there was no contractual basis for LVMH to honour the French government’s request and that LVMH just wanted to avoid its obligation to complete the transaction on the agreed terms because of the downturn in business resulting from the Covid-19 pandemic and  a sharp global downturn in the luxury goods industry.

Campbell is but one of several companies that can thank the onset of the pandemic for stirring up its business as once again its age-old canned soup brands become best-selling items in the supermarket. Q2 US soup sales came in 52% higher, contributing to the company’s 18% surge in revenue and a swing into profit. Initially, panic buying was the main revenue driver but now it seems that with families eating most of their meals at home, Campbell’s products – such as chicken soup, SpaghettiOs and Prego pasta sauce – are making somewhat of a resurgence. It seems that the company should now consider other products that could be eaten outside of the home – if not the soup will quickly turn cold and cans will start collecting dust on supermarket shelves.

Three of the biggest banks in the US have made impairment provisions of US$ 28 billion in relation to the prospect of Covid-19 related defaults on customer loans. The end result sees Citigroup’s Q2 profit plunging 78%, JP Morgan Chase down 50% and Wells Fargo posting its first quarterly loss since the 2009 GFC. Citigroup has set aside a 3.9% provision on its loan book (from 1.9% last year), as it posted a US$ 1.3 billion profit figure on a 5% increase in revenue to US$ 19.8 billion. JP Morgan, which has set aside US$ 10.0 billion for losses, including nearly US$ 9 billion to build its reserves, reported profits of US$ 4.7 billion on the back of a 15% increase in quarterly revenue to US$ 33.0 billion. Having set aside US$ 9.5 billion to cover potential coronavirus-related losses, including US$ 8.4 billion in reserves, Wells Fargo posted a US$ 2.4 billion loss, (compared to a US$ 2.4 billion profit in Q2 2019).

Latest estimates from Lloyds point to a current US$ 5.0 billion pay-out in claims relating to the pandemic, noting that H1 had been “exceptionally challenging for our people, our customers, and for economies around the world”.  Lloyd’s of London, whose results are an aggregate of some ninety syndicate members, expects to settle claims in the region of US$ 2.4 billion in H1. With on-going court cases, their H1 loss of US$ 525 million, (compared to a US$ 3.1 billion profit in the corresponding 2019 period), may well be replicated in H2, with pandemic-related losses stretching well into the future.

A study of the companies trading on the ASX 300 noted that twenty-five companies managed to pay a total of US$ 18 million in executive bonuses, whilst still claiming JobKeeper subsidies. The Business Council of Australia criticised their actions saying companies should not be paying bonuses if they are receiving JobKeeper. It included Star Entertainment Group, which operates Star Casino, which actually received the most in JobKeeper subsidies – US$ 46 million – whilst paying its chief executive, Matt Bekier, a US$ 600k bonus. Footwear company Accent Group — which distributes brands Dr Martens, Athlete’s Foot, Vans, Saucony and Skechers — paid its chief executive Daniel Agostinelli a US$ 860 million bonus, having received over US$ 15 million in wage subsidies, as well as nearly US$ 6 million in rent waivers.

It seems that Amazon has taken time out to work out that it paid US$ 400 million in UK taxes in 2019, (including business rates, corporation tax, stamp duty and other contributions) and has again stressed that it pays “all taxes required in the UK”. The tech giant, which employs 33k, posted a 26% hike in revenue to US$ 376 billion, resulting in a US$ 15.5 billion profit. Little wonder then that Amazon, and its fellow cohorts, are being chased by governments worldwide concerned with the relatively low amounts of money they add to different countries’ exchequers. The UK Chancellor has said that the massive US tech firms need “to pay their fair share of tax” and launched a 2% tax on digital sales to make up for losses incurred when conglomerates re-route their profits through low tax jurisdictions; Rishi Sunak also added that the coronavirus crisis had made tech giants even “more powerful and more profitable”.

Apple has refuted claims, made by Epic Games, that the 30% commission it charges all its users was anti-competitive and monopolistic, pointing the finger at the maker of the Fortnite game being “self-righteous” and “self-interested”. It also accused the game maker of violating its contract – and asked for damages in a lawsuit initiated by Epic last month – following its offering a discount on its virtual currency for purchases made outside of the app, from which Apple receives a 30% cut. This led to the tech giant banning updates that are required to continue progress with the game. Epic has refused to accept Apple’s offer to allow it to use the app on condition it deleted the direct payment feature, (so as comply with its terms and conditions of use) because it would be “to collude with Apple to maintain their monopoly over in-app payments on iOS.” There is no doubt that Epic is not the only problem facing Apple as global scrutiny on the modus operandi of its App Store is gaining traction; legislators in Washington and Brussels are becoming increasingly concerned that competition rules are being stretched and violated.

UK regulators are closely looking at whether fraud, or payment in error, has taken place in relation to the government’s furlough scheme that has cost US$ 48 billion to date, with estimates that up to 10% of that total could have been paid by mistake. The scheme paid laid-off workers a maximum US$ 3.4k a month from government funds.  HMRC is now looking into 27k “high risk” cases where they believe a serious error has been made in the amount employers have claimed. The losses attributable to the furlough scheme are just a portion of the almost US$ 40 billion lost in 2019 due to taxpayer error and fraud.

After weeks of negotiations, the EPL has walked away from a US$ 700 million contract with Chinese digital broadcaster PPTV, who wanted to pay less following the football blackout during lockdown. The UK “suits” refused to back down, despite agreeing to U$ 440 million worth of rebates with other broadcasters over the three-month enforced break. It seems quite understandable that the Chinese company should not continue to pay the full value of the broadcast deal at the “same price and conditions as pre-Covid”. The EPL lost over US$ 1.1 billion last season, attributable to lost match day income with games being played in empty stadia. Pre-Covid, the EPL was forecasting a net US$ 5.7 billion from the sale of international rights for the next three seasons but that now seems a distant hope.

As an indicator that the US economy is on the move, the August unemployment rate fell again for the fourth straight month from its April 14.7% high to under 10% last month, with firms adding 1.4 million new jobs. There are fears that this recovery is unsustainable, with the pace of job growth slowing, so that it would take a further nine months for the twelve million displaced since February 2020 to return to work. The other factor is that the ‘under-employment’ rate is still over 14%, and this may be even slower to fall; the 2008 GFC showed that rapid job losses did not equate to sharp recoveries.

President Emmanuel Macron has unveiled a US$ 120 billion stimulus package – dubbed “France Relaunch” – as the country tries to get to grips with the impact of Covid-19. The aim of the package is to reverse rising unemployment, (by creating 160k new jobs), and counter the massive 13.8% contraction in the Q2 economy and will include major spending on green energy, long-term investments in employment and transport. The plan, equivalent to 4% of the country’s GDP, will be four times more than the 2008 package following the GFC. Not surprisingly, about US$ 47 billion will come from the new European Union Recovery Fund. Whether this boost will be enough to help the French economy escape one of Europe’s worst recessions, with an 11% drop in economic output forecast for 2020, remains to be seen.

The knives were already out and sharpened prior to the announcement that London-born and Rhode scholar, Tony Abbott, former Australian prime minister, had taken up an unpaid position as an adviser to Britain’s Board of Trade. The role involves promoting UK trade interests to other countries and help with setting up trade treaties with various countries, when the UK finally exit the EU without a deal at the end of the year. He has had experience with the likes of China, Japan and South Korea, overseeing free trade agreements with such countries when he was Australia’s prime minister. His current remit involves providing “a range of views to help in its advisory function, promoting free and fair trade and advising on UK trade policy to the International Trade Secretary”. There are many, including Nicola Sturgeon and Keir Starmer, who are against the appointment on the grounds that he is a misogynist, a sexist and a climate change denier.

The week ended with the eighth round of Brexit talks in London having made little or no progress. In typical Johnsonesque brinkmanship, the UK prime minister has rattled EU negotiators, headed by the urbane Michel Barnier. The UK announced that it would be prepared to override the Brexit treaty by using parliament to set aside parts of the protocol on N Ireland enshrined in the withdrawal agreement; this had solved the problem of a hard trade border on the whole of Ireland by ensuring the Six Counties being both close to EU customs union and at the same time being  in the UK’s customs territory. Ironically, the EU, expressing deep concerns about this protocol violation, threatened legal action and said that the move had “seriously damaged trust between the EU and UK”. It is very difficult to put the ‘EU’ and ‘trust’ in the same sentence.

The ECB is becoming increasingly concerned about the implications of a strong euro which has risen to US$ 1.20 due to a myriad of reasons including the knock-on effect of last month’s massive EU pandemic recovery fund and last week’s US Fed’s discretionary inflation-targeting stance. According to its president, Christine Lagarde, the situation is being closely monitored because of the negative pressure on prices; she also confirmed the bank will use its stimulus package in full to help pull the bloc out of recession. There is every possibility that rates may have to be cut further into negative territory as the ECB seems “determined to use all policy tools it has available”. The bank also expects that inflation, which turned negative in August, will continue below zero until later in the year but the average 2020 rate will be 0.3%; however, it has forecast that 2021’s rate will be a highly unlikely 1.0%. The ECB will have to introduce more stimulus measures mainly because of the record Q2 12% output contraction.

These are tough times for the EU having to fight fires on three fronts – an upcoming currency war with the US, finally realising that their previous bullying tactics no longer work in Brexit negotiations and the bloc’s post-pandemic economy is not bouncing back as quickly as first forecast. Time to Get The Fire Brigade!

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All The Young Dudes!

All The Young Dudes!                                                                       03 September 2020

There was a significant and historic move this week when the country’s President Sheikh Khalifa bin Zayed Al Nahyan issued a federal decree “abolishing the Federal Law No. 15 of 1972 regarding boycotting Israel and the penalties thereof”. This will undoubtedly lead the way to expanding diplomatic and commercial cooperation with Israel and from the date of the announcement “it will be permissible to enter, exchange or possess Israeli goods and products of all kinds in the UAE and trade in them.” It is inevitable that the decree will benefit many sectors, including trade, travel, tourism, e-commerce and energy and could act as a catalyst to a quicker economic recovery post Covid-19. There is every chance that the new relationship could see a marked improvement in the Dubai housing market, as Israelis may well see Dubai as an attractive investment prospect.

Latest data indicates that Dubai’s property sector contributes over US$ 4.2 billion to the emirate’s economy, equating to 7.4% of its GDP. There is no doubt that the latest peace deal with Israel – an untapped market – will benefit the sector which just before the onset of Covid-19 had shown signs of growth. There is every chance that Israel will be the source of an influx of new money which will push prices northwards, resulting in the disconnect between supply and demand diminishing. This will not only be via direct purchases of local real estate but Israeli investment in many sectors of the economy – including the four ‘Ts”, tourism, trade, travel and telecommunications – will prove a fillip for the emirate’s prosperity. This in turn will see an indirect benefit for the Dubai property market, as new businesses take root and more professional people and entrepreneurs move to Dubai which will absorb surplus inventory and create more demand for residential units.

The new report from the portal Property Finder shows that August, traditionally a slow month for Dubai real estate, posted 2.5k sales transactions, valued at US$ 1.3 billion – increases of 2.2% and 11.3% on a monthly and annual basis. The improvement in business has been put down to a combination of pent up demand, attractive pricing and the fact that many residents are eschewing their normal summer overseas holidays. A breakdown of the figures shows that 68.4% were in the secondary market, whilst 31.6% were off-plan, and that there were 1.2k mortgages, valued at over US$ 2.8 billion. As it seems that there are fewer new projects being launched, as the market tries to find equilibrium between the current over supply and demand, (estimated at 70k units), this has led to a 22.4% annual increase in the secondary market.

The Property Finder data found that there had been increased demand for larger units, as a direct result of the Covid-driven lockdown, whilst the volume of sales transaction for both studios and 1 B/R apartments declined by 34% and 10%, the volume of transactions for 3, 4 and 5-B/R apartments increased by 9%, 20% and 15%, respectively. The leading five off-plan transactions were found in Jumeirah Village Circle, Business Bay, Palm Jumeirah, Arjan and International City, whilst the main secondary market properties were sold in Town Square, Dubai Marina, Dubailand, Downtown Dubai and Dubai Sports City.

One of the few launches this year is Azizi Developments’ US$ 95 million, 587-unit Creek Views II on the shores of the Creek in Dubai Healthcare City. Prices for the 116 studios, 436 1 B/R and 35 2 B/R start at US$ 108k, US$ 152k and US$ 206k. The latest project will also feature two swimming pools, a sauna, a steam room, a fully equipped gym, and a children’s play area.

The recent Eid break proved a boon for Dubai hotels that had been witnessing very poor occupancy rates, some as low as 20%, for most of the summer. The last two weeks of August saw many properties reaching the 60% – and some up to 90% occupancy levels – during the Eid Al Adha. It is expected that average room rates will hover around the US$ 100 level into September, then moving higher, if – and when – the overseas holiday traffic gains traction from October.

In a major restructure, with the aim to increase efficiency and flexibility through strategic consolidation, the emirate has become Swiss-Belhotel International’s regional hub, as the group merges its Europe, Middle East, Africa (EMEA) and India regions. The Dubai-based executive team will now also be responsible for the group’s operations in Europe, whilst the flagship Swiss-Belhotel du Parc, Baden Switzerland will be the operational base for Europe.

There are reports that Emirates is to receive a US$ 2.0 billion government handout, as it tries to get to grips with the impact that the aviation sector has suffered from Covid-19. Not only have long haul carriers received the brunt of the fallout, that has seen the Dubai airline having to ground its 255-fleet of jets, comprising Airbus A-380s and Boeing 777s, but also this sector will almost certainly be the slowest to recover.

Earlier in the week, it was reported that Dubai could be returning to the debt market that would result in a potential sale of US$ 6 billion worth of ten-year sukuk and US$ 5 billion thirty-year conventional bonds. Money raised could be used to boost those sectors of the economy that have been badly impacted by Covid-90, including trade, finance and tourism. On Wednesday. the Dubai Government announced it has raised US$ 2 billion in an issuance process, comprising two US$ 1 billion tranches -a ten-year Islamic Sukuk, at a profit rate of 2.763%, and a thirty-year government bond, at an interest of 3.90%. The order book was more than five times oversubscribed than the target value which is an indicator of Dubai’s stature in the international community and the resilience of its economy; global investors made up 84% of the total investors in the government bond. (This week, neighbouring Abu Dhabi raised US$ 5 billion via a 50-year loan issue).

After moving into positive territory in July, the UAE economy slipped back from 50.8 to 49.4, (50.0 is the threshold between expansion and contraction). The PMI figures indicate that demand is still soft, whilst payrolls have been cut to reduce costs to a bare minimum just to keep afloat. Covid-19 and the lockdown have hit businesses on two counts – demand, in many cases, has fallen off the proverbial cliff, whilst those businesses still operating are facing fierce competition from their like-minded peers. For some sectors, it looks like a race to the bottom that sees no winners at the end. Business sentiment is low and expectations of an improvement over the next twelve months “dropped to the lowest since April 2012”. Reality maybe another matter – notwithstanding a second wave, some consider that Dubai will be one of the first global hubs to return to the new form of “business normalcy”.

Latest figures from the Federal Competitiveness and Statistics Authority seem to indicate that a post Covid-19 bounce has already started, as August consumer spending rose for the third straight month, coming in 63% higher compared to the March return. The better performing sectors were restaurants and apparel, 75% and 78% higher over the period respectively, whilst hotel spending was up 29%. Meanwhile, expenditure on food supplies and medications, both online and conventional purchases, slowed by 32%.

The emirate’s government has launched ‘Retire in Dubai’, a global retirement programme for those aged over 55. Initially, this will only be applicable for those who are already living and working in Dubai and offers an easy and hassle-free retirement option. Eligible applicants will be able to apply for a five-year renewable visa as long as one of the following three options are met – monthly income over US$ 5.5k, owning a property worth more than US$ 545k or having savings of over US$ 272k.

In a landmark move, July 2019 saw the federal cabinet approve 100% foreign ownership across thirteen sectors in 122 economic activities. Under this new foreign direct investment legislation, steelmaker Conares becomes the second company in Dubai to be granted 100% ownership in the mainland, following Aster DM Healthcare being allowed 100% ownership in its Dubai subsidiaries last February. The new facility, with an annual capacity of 100k metric tonnes, will cater mainly for regional infrastructure development projects. It is hoped that Dubai will slowly move to a value-added economy from its traditional trading/re-exports base and that the ‘Made in UAE’ logo becomes an everyday sign.

The agricultural sector has received bank financing, totalling US$ 209 million in H1, bringing the cumulative total to US$ 496 million. There is every reason why the country is investing heavily in the agricultural sector as intimated by Sultan Alwan, Acting Under-Secretary of the Ministry of Climate Change and Environment, saying “achieving food security and sustainability and ensuring flawless and flexible food supply chains for local markets are priorities of the UAE”. The country, which imports over 80% of its food requirements, is considered food secure, with the federal government having one of the most comprehensive plans in the world.

One sector that has been battered by the pandemic is flexible office space, as users have deserted “short-term desks” and coworking spaces to work from home. However, according to a recent JLL study, demand is beginning to pick up again now there are signs that the worst may be over (at least for the time being). The global study concluded that 67% of the respondents are still “increasing workplace mobility programmes and incorporating flexible space as a central element of their agile work strategies.” A further reason for the bullishness is that large companies are still concerned whether to commit capex budgets in the post Covid-19 environment and are moving towards pre-built space and lease flexibility. There is no doubt that Dubai’s economic future will owe a lot to the expected inflow of entrepreneurs, freelancers and start-ups, many of whom will be traditional users of flexible office space to save on commercial rent. Over the past six years, Dubai’s flexible office space has more than tripled to 160k sq mt, serviced by more than forty different operators, some of whom will not have survived over the past five months.

Compared to June 2019, UAE-operating banks this year has seen a 12.1% jump in debt securities to US$ 71.9 billion and a 3.4% rise, month on month; this move was a bid to counteract the decline in energy prices. However, the banks’ investments in stocks fell by 15.4% to US$ 2.4 billion, over the twelve months, whilst their portfolio of held-to-maturity bonds dipped 0.7% to US$ 27.4 billion on the month.

The Dubai Executive Council has issued a resolution with the aim of curtailing future competition between the government and private sector, to try and protect the latter’s interests. The new ruling details a legislative framework under which the private sector is protected from government entities and operates on a “level playing field”. In future, it looks as if government bodies will have to pay all relevant taxes and fees for which they are liable under federal and local laws, as well as being unable to receive any advantage or financial support from the government. Sheikh Hamdan bin Mohammed has stressed that government-owned companies should not “be a competitor to the private sector, but rather seek to complement it”, and that “we are keen that the private sector plays a major role in shaping the future of the national economy and achieving sustainable development”.

It was good news for global diamond hubs in Antwerp, Belgium, and Mumbai that after a moribund six months, when the business was at a standstill, it is reported that De Beers likely sold about US$ 300 million in rough diamonds last week. Although still less than a traditional sale, it is the biggest offering since February and equates to almost six times its total Q2 sales. With the likes of De Beers and Alrosa refusing to budge on prices since the onset of the pandemic, last week some diamond prices were slashed by up to 10%, leading to diamond buyers snapping up about half a billion dollars in uncut gems. The knock-on effect will be felt here in Dubai, which will benefit from any uptick in global trade. It has only taken fifteen years for the DMCC to become the third largest global diamond trading centre, with the government-backed Dubai Diamond Exchange managing to build on strong connections with producers in Africa, cutting centres in Asia and worldwide consumers.

DP World and Canada’s Caisse de dépôt et placement du Québec have agreed to invest a further US$ 4.5 billion in their global portfolio of ports and terminals, bringing their combined spending to US$ 8.2 billion. Established in 2016, the ports and terminals investment platform, between one of the world’s largest operators and the Canadian asset management firm, is keen to “working together on new investments that will connect key international trade locations worldwide.” The Dubai ports operator has been recently involved in acquiring numerous global logistics operations, including a 60% stake in South Korea’s Unico Logistics.

Over last week’s four days of trading on the DFM and the Abu Dhabi Securities Exchange, it is estimated that foreign inflows into the UAE’s twin bourses amounted to US$ 668 million, accounting for 48.3% of the total liquidity recorded. Of that total, the Dubai bourse claimed US$ 327 million, with the banking sector the main target on account of their normal lucrative annual dividends.

Dubai logistics firm Fetchr has raised US$ 15 million in its third funding round that will assist its expansion plans for China, Europe and the US and its aim to attain its break-even EBITDA point this year; it expects to attract a further US$ 10 million before the end of the year. Among this round of investors were Beco Capital, Tamer Group (who also invested in the first round of funding in 2018) and CMA CGM, along with its logistics arm CEVA Logistics, (who joined in early 2019). The pandemic resulted in a marked slowdown in funding for start-ups but now it is picking up momentum; H1 saw MENA funding top US$ 659 million – 35% higher, year on year. The courier company is also considering strategic partnerships with global service providers and large retailers and implementing an asset-light business model for accelerated growth. Fetchr will also benefit from a major boost in the on-demand delivery sector due to Covid-19, with figures indicating that 90% of consumers in Saudi Arabia and the UAE – two of Fetchr’s core markets – now purchase online.

Every week sees another episode in the on-going NMC Health saga, as it faces yet another legal battle – this time Pine Investments are seeking the restitution of a 49% stake sold to NMC Health in 2018,  the founders of an IVF business, which was sold to the company, say it failed to honour an agreement with them. Dr Michael Fakih, his wife and co-founder Dr Amal Al-Shunnar, the founders of an IVF business, sold their company to NMC – via a 2015 sale of a 51% stake, followed three years later by the remaining 49%, which was sold for US$ 205 million, valuing the company at US$ 409 million. The payment for the second stake was a mix of cash and shares and the sellers only agreed to accept a bigger proportion of shares on its then chief executive, Prasanth Manghat’s guarantee that the company would make good any shortfall if NMC’s share value dipped below US$ 38.50.  Earlier in the year, the claimants sold a small portion of shares at below the guarantee and in February wrote to the company to seek US$ 7 million – the difference between the lower sale price and the guarantee – and also to offload their remaining shares at the guarantee price.

The bourse opened on Sunday 30 August and, 185 points (10.6%) higher the previous three weeks moved up a further 14 points (0.6%) on the week, closing on 2,283 by 03 September. Emaar Properties, US$ 0.10 higher the previous four weeks, was up a further US$ 0.01 to US$ 0.81, whilst Arabtec, dumping US$ 0.13 the previous three weeks, gained US$ 0.02 to US$ 0.19. Thursday 03 September saw the market trading at 373 million shares, worth US$ 97 million, (compared to 339 million shares, at a value of US$ 102 million, on 27 August).  For the month of August and YTD, the bourse had opened on 2,051 and 2,765 and, having closed the month on 2,245, was 194 points (9.5%) higher but well down by 18.8% YTD. Emaar and Arabtec both traded lower from their 01 January starting positions of US$ 1.10 and US$ 0.35 – down by US$ 0.32 (29.1%) and US$ 0.17 (48.6%) YTD. However, in the month of August, Emaar was up US$ 0.08 at US$ 0.78, whilst Arabtec headed in the opposite direction, down US$ 0.07 to US$ 0.18. Trading on the last day of August was markedly higher with 450 million shares, valued at US$ 376 million.

By Thursday, 27 August, Brent, US$ 6.81 (17.8%) higher the previous seven weeks lost US$ 1.37 (3.0%) to US$ 43.72. Gold, having lost US$ 136 (6.6%) the previous fortnight, nudged US$ 9 higher (0.4%) to close on US$ 1,942, by Thursday 03 September. Brent started the year on US$ 66.67 and has lost US$ 21.39 (32.1%) YTD but gained US$ 1.96 (4.5%) during the month of August to close on US$ 45.28. Meanwhile the yellow metal gained US$ 461 (30.3%) YTD, having started the year on US$ 1,517 to close at the end of August on US$ 1,978 from a year start of US$ 1,517, with August prices nudging US$ 2 higher.

It has been confirmed that Goldman Sachs has made the US$ 2.5 billion payment to the Malaysian government to settle allegations of fraud and misconduct relating to the 1MDB scandal. The money will be used to repay some debts of the disgraced fund which includes bonds totalling US$ 3.5 billion due over the next three years.

IATA has reported that July global air cargo demand was stable but remained 13.5% lower than the same month in July 2019, due to capacity constraints, as passenger aircraft remained grounded. With a year on year 31.2% fall in global capacity – slightly better than the 33.4% June drop – these figures do not reflect what is happening on the global stage, where indicators point to an improvement in the global manufacturing sector, with upticks in new export orders and output. However, until national borders are opened, travel returns to some form of normalcy and more planes return to the skies, air cargo will continue to suffer. ME carriers reported a 14.9% annual decline in international cargo volumes in July, an improvement from the 19% fall in June, as seasonally-adjusted demand grew 7.2% month-on-month in July – the strongest growth of all global regions.

EU aviation regulators confirmed  that scheduled flight tests on Boeing’s troubled 737 Max (now known as 737-8) will start next week but have noted that US  Federal Aviation Administration clearance will not automatically transfer to clearance to fly in Europe; US testing restarted two months ago but the scheduling the test flights by European regulators has been hindered by Covid-19 travel restrictions between Europe and the US. However, the EASA indicated that it had been “working steadily, in close co-operation with the FAA and Boeing, to return the Boeing 737 Max aircraft to service as soon as possible”, and wanted to ensure that the overall maturity of the re-design process was sufficient to proceed to flight tests. This is not the only model to be causing Boeing problems – it has found “two distinct manufacturing issues” affecting the fuselage of eight 787 Dreamliners that need urgent investigation.

Last week, the blog pointed out some of the UK politicians who were making extra money outside their normal constitutional labours. This week, it is reported that the UK government have paid large consulting firms over US$ 145 million for advice on its response to the pandemic! A total of 106 contracts have been handed out since March. It appears that government contract award notices must be published within thirty days, but some have remained secret for up to three months. A US$ 750k McKinsey contract was for advice on “the vision, purpose and narrative” of England’s testing programme, whilst Deloitte was appointed to manage PPE procurement but was criticised for delays in providing kit and other administrative errors. PwC did well obtaining eleven separate contracts, worth US$ 28 million, including advice to the British Business Bank on its business interruption loan scheme; PA Consulting received four contracts, totalling US$ 24 million, mainly for advising on the Ventilator Challenge project, whilst MullenLowe was the recipient of a US$ 21 million advertising campaign. Leaving the best to last was Public First which “has been awarded (three) contracts (worth over US$ 1.3 million) because of its wealth of experience”, one of which was to help ministers “lock in the lessons of the Covid-19 crisis”. Two of its directors had previously worked for Michael Grove, a current minister in the Johnson cabinet.

Going against the trend in the retail sector, Lego is set to open 120 shops this year, eighty of which will be in China. The iconic company, with 612 global stores, believes that there is a future for bricks-and-mortar stores, despite the statistics pointing otherwise. The Danish toy store announced a 7% hike in H1 revenue to US$ 2.4 billion that led to an 11% hike in operating profit; over that period, visits to its website doubled to 100 million, including one million adult fans signing up. The company has noted that more adults are getting involved in building Lego kits, whilst sales of the more complicated – and more expensive – big Lego sets grew 250%, as families looked for big projects to make together during lockdown.

Another UK High Street casualty could be Moss Bros who have hired KPMG to prepare the suit-maker for a company voluntary arrangement (CVA). With the likes of major events such as Royal Ascot and large weddings – the crux of their revenue stream – having to be cancelled because of Covid-19; business at their 125 stores has been almost non-existent.  The chain, with 1k employees, was acquired by Menoshi Shina, who also owns Crew Clothing, for US$ 30 million in early March, who two weeks later tried unsuccessfully to cancel the sale after all non-essential retailers were ordered to close.

In a bid to reduce its cost base and amidst “high levels of uncertainty”, as to when trade will regain pre-pandemic volumes, Costa has said that 1.65k jobs are in danger and that the role of assistant store manager may be removed in its UK branches. Most of its outlets have reopened after the lockdown, but even with the government support, including VAT reductions, its August “eat out to help out” scheme and furlough, the coffee chain, which employs 16k in its wholly owned coffee shops, and 10.5k working in its franchise network, is struggling.

It is reported that Capita, is set to permanently close over a third of its UK offices and plans to end its leases on almost one hundred workplaces. The latest announcement could be considered another nail in the coffin of city centre economies, as the traditional office set ups have been turned on its head by Covid-19. It is ironic that Capita, a major government contractor, including the management of London congestion charges, chose the same day to announce these plans when the government prepares to launch an advertising campaign encouraging more people to return to workplaces. With a 45k workforce across the country, the company has noted that there will be “increased working from home, but they will still spend a significant amount of their time working from offices that are based in the heart of our local communities.” A recent BBC study found fifty major UK employers, including Lloyds, NatWest, Facebook, Fujitsu, HSBC and Twitter, had no plans to return all staff to the office full time and there are worries that city centres could easily become “ghost towns”.

Having already added 3k jobs to the UK economy, Amazon is planning to make it 10k by the end of the year, which will see the tech giant’s payroll numbers rise to 40k; the jobs will be full-time, paying at least US$ 12.50. During the upcoming festive season, the tech giant will hire 20k seasonal posts. Even before Covid-19, there was a clear trend indicating the rise in online-shopping and the slow demise of retail; the pandemic only highlighted the change, as the lockdown saw many High Street shops temporarily closed and massive expansion in online shopping. Indeed, July on-line sales were 50% higher than the February pre-pandemic levels. Tesco is creating even more positions than the US interloper, with 16k new permanent positions – it is estimated that it took the supermarket twenty years for online sales accounting for 9% of total turnover, and just twenty weeks to nearly double that to 16%. This is not all good news – notwithstanding the pandemic, retail jobs have dwindled by 106k over the past five years, during the time Amazon added 5k.

There were many analysts surprised to see that UK house prices rose to record highs last month, driven by the cut in stamp duty and pent up demand following the lifting of lockdown which saw the market effectively closed for April and May. Prices have bounced back 3.6% since June with August average prices reaching US$ 298k. This may be as good as the market gets because next month the government’s furlough scheme comes to a halt (and unemployment rates will head north), mortgage holidays are abating quickly and stamp duty will return to normal rates next April.

No surprise to see videoconferencing app Zoom’s Q2, to 31 July, revenue leapfrogging 355% to US$ 664 million, (beating market expectations of US$ 500 million), as profits more than doubled to US$ 186 million. Year on year customer growth expanded 458%. Shares hit US$ 325 – a record high – with the company revising its annual forecast to US$ 2.4 billion, up from US$ 1.8 billion. It managed to continue with its free services for many clients but more than doubled – to 1k – the number of high budget corporate clients that generated more than US$ 100k in revenue. However, the success has not come without its problems including some outages last week in many US schools, cases of hackers managing to hijack meetings and increased political scrutiny because it has 700 staff members, including most of its product development team, working out of China.

In 2017, Samsung heir Lee Jae-yong was convicted and sentenced to five years in prison for his role in using stock and accounting fraud to try to gain control of the Samsung Group, South Korea’s largest conglomerate. Although found guilty of separate charges over the deal including bribery, the prison sentence was later suspended. Now, the son of Lee Kun-hee, chairman of Samsung Group, (and the grandson of Samsung founder Lee Byung-chul), is facing fresh charges  over his role in the 2015 merger deal between Samsung C&T and Cheil Industries. The 2017 conviction involved him being accused of using Samsung to pay US$ 36 million to two non-profit foundations, operated by Choi Soon-sil, a friend of Ms Park, in exchange for political support; the fall-out from this resulted in a political and business scandal that led to the resignation and conviction of former President Park Geun-hye.

Warren Buffett has bought himself an early 90th birthday present by acquiring almost 5% stakes in five Japanese trading companies – in Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Company and Sumitomo Corporation- over the past twelve months. On Monday, these investments rose about 5% in Tokyo trading to equate to US$ 6.0 billion. His company, Berkshire Hathaway, valued at US$ 521 billion, seems to be currently focussing on the commodities sector, as seen by a July US$ 4 billion agreement to purchase most of Dominion Energy’s natural gas pipeline and storage assets in July. On most global markets, including Japan’s benchmark Topix index, falling commodity prices have seen valuations in the sector lower than the broader market, whilst offering relatively higher dividends. The nonagenarian seems to be betting against the market trend as, so far this year, foreign investors have withdrawn a net US$ 43 billion from the Tokyo bourse.

Because of ailing health, Shinzo Abe is to step down as Japan’s PM, a position he has held since 2012 that has made him the country’s longest-serving leader; ill health also caused the 65-year old to resign as prime minister in 2007. His decision to leave, with one year still remaining, was taken to avoid a political vacuum as Japan copes with the impact of Covid-19 and its economic fall-out. The prime minister was born into a Japanese political dynasty – his grandfather, Nobusuke Kishi, was a former leader, as was his great uncle, Eisaku Sato, (who was the country’s longest serving prime minister before his record of 2,798 days from 1964 to 1972 was broken), whilst his father, Shintaro Abe, was a former foreign minister. The front runner to take over as the country’s new prime minister is Yoshilide Suga.

Even before the advent of Covid-19, the Indian economy was showing signs of distress, including growth dipping to a six-year low of 4.7%, shrinking demand, debt-ridden banks and unemployment at a forty-five year high. Now its economy has witnessed its worst slump, since the country started releasing quarterly data in 1996, with Q2 figures contracting 23.9%, driven by a severe lockdown which brought economic activity to an almost standstill; it is inevitable that the economy will fall into recession by the end of the month – for the first time in forty years. (Two successive quarters of contraction lead to a technical recession). Despite posting 78.8k new cases on Sunday – and 3.6 million in total – it seems that the country has had to reopen for business; if not, the economic consequences would be a lot more damaging than the horrendous Q2 figures. Every segment of the economy – apart from agriculture which posted 3.4% growth – showed sharp contractions and it seems that the bad news will continue into Q3 because consumer demand, which contributes 60% of India’s GDP, will remain moribund, as much of the country will try and stay indoors whenever possible. The Modi government already has its own liquidity problems as public expenditure is heading north, whilst tax revenues are drying up so any further stimulus packages will have to be limited.

After four days of cyber-attacks, resulting in the Friday closure of its stock exchange, due to so-called “distributed denial of service” (DDoS) attacks, the New Zealand cyber-security organisation CertNZ has been called in to investigate. The bourse, with a near record high market of US$ 135 billion, confirmed its networks had crashed due to the cyber-attacks, which originated overseas; the modus operandi of such attacks is to flood the website with huge amounts of requests until it crashes.

Driven by a desperate July VAT rate cut by the Merkel administration, as it tried to stimulate its Covid 19 – ravaged economy, Germany’ annual consumer price index fell for the first time since May 2016; it fell 0.1%, year on year, having stagnated a month earlier in July. This figure is well short of the ECB’s target of keeping inflation close to but below 2% in the euro zone.

A report from Australia’s Banking Code Compliance Committee, created by the banking industry in the wake of a scathing royal commission into the sector, has concluded nearly 21k breaches of the new code had occurred within the six-month period to December 2019. The authority, which is not legally binding, also noted that 4.4 million customers were affected by bad behaviour or poor standards by the financial sector and that there had been 219 breaches involving deceased people being knowingly charged fees by banks. 72% of the reported cases involved just two (unnamed) banks and the toothless watchdog did not apply any of the limited powers it holds to sanction banks – enforced staff training, referring issues to the Australian Securities and Investments Commission or insisting on client repayment. The committee concluded that it was obvious that some of the banks were not taking reporting seriously, adding there was “substantial room for improvement”. Until they do it would appear that many banks will continue to take some of their customers for a ride and fail to engage with customers in a “fair, reasonable and ethical manner”.

Just as overseas investors seem to favour UAE banks, when investing in the local bourses, so do Australians who have more money invested in bank stocks than any other sector, either directly or indirectly, in the local market. The share price for NAB, ANZ and Westpac are all still around 40% below their February highs, whilst CBA has clawed back more ground and is down around 20%; although heading in the right direction, these increases are not as much as the rest of the market. Current conditions of record low interest rates and central bank stimulus both locally and globally have been supporting a rally on equity markets.

However, next month, the Morrison government will start withdrawing the JobKeeper payment and other measures that will see the federal government turning down the money tap so that instead of US$ 10.1 billion being pumped into households and businesses every month, the figure will now be US$ 2.2 billion. On top of that, the moratoria’ winding back of loan repayments, rent and evictions, as well as a marked increase in unemployment, will result in more trouble for the Australian economy – and with it the country’s banks’ turnover and profits. With borrowers’ confidence battered, despite the low rates and attractive offers, credit growth will slow and banks’ revenue streams will further dry because of net interest margins falling – as they are all vying for the same business in a competitive market – and many ditching credit cards to debit cards is further bad news for the banks.

Last week’s Federal Reserve’s decision to allow inflation to run above 2% in the future will have repercussions for Australians, starting with the currency. The dollar has risen by more than a third since its March nadir of US$ 0.55 and is likely to move higher (but at a slower rate) in the coming weeks from its current US$ 0.73 mark to settle by the end of the year, just shy of US$ 0.80. A strong greenback makes Australian exports more expensive and imports cheaper. The fact that it makes overseas holidays cheaper or makes inbound tourism more expensive, and less attractive to an overseas visitor, is currently irrelevant because the country is as good as isolated. The Fed decision on future inflation policy future is another reason for US equity prices to move higher and, the knock-on effect will be felt globally, including Australia. Furthermore, low rates will see many investors preferring to put money into the stock markets rather than historically low returns from US bond and money markets. Higher US market valuations will also be directly beneficial for Australian pension funds with exposure to US shares. The fact that the Fed is to keep interest rates lower for longer to encourage inflation to lift above 2% also has implications for Australia’s Reserve Bank which will have another reason to keep local rates at nearly zero. This will make borrowing costs low for probably at least three years – another positive indicator for the housing market.

Even without the onset of Covid-19, there was every likelihood that Australia would fall into recession this year, having already contracted 0.3% in the first quarter of the calendar year. At the start of 2020, an extreme bush fire season ravaged more than twelve million hectares –  bringing tourism to its knees and thousands of small businesses losing months of essential seasonal revenue – and trade problems with China saw the economy beginning to struggle. Now with a 7.0% decline in the June quarter – the biggest fall since records began back in 1959 – Australia has plunged into its first recession since 1990, as it suffers the economic fallout from the coronavirus. However, the lucky country is doing better than most other advanced economies, including the UK, France, US and Japan, that have experienced bigger quarterly downturns of 20.4%, 13.8%, 9.5% and 7.6% respectively.

Late last week, the Federal Reserve indicated a roll out of an aggressive new strategy that aims to boost employment and let inflation rise higher for longer than in the past. Jerome Powell confirmed that the aim is to see inflation still average 2.0% – so if there is a period of inflation lower than 2%, the Fed would then make efforts to lift inflation “moderately above 2.0% for some time”, before considering a rise in interest rates.  The Fed is set to use the central bank’s “full range of tools” to achieve its goals of stable prices and a strong labour market. This policy change suggests that the Fed will continue with rates hovering around the zero level for the foreseeable future, with some forecasting little change until early 2024. That being the case, it could be time for some investors to consider debt financing, with the cost of borrowing at such low rates.

With its share value climbing 4% in Tuesday’s trading, Apple’s valuation of US$ 2.3 trillion surpassed the total valuation (just over US$ 2.0 trillion) of the one hundred companies listed on the FTSE 100. Only two weeks ago, the tech giant became the first US company to be valued at over US$ 2.0 trillion and its value has more than doubled since March. Like other tech stocks, demand for their goods/services during the pandemic has surged, with an increasing number of people relying on technology during the lockdown to work and shop from home. In contrast, the London bourse is full of banks, oil companies and various old-world stocks, most of which have been battered by the impact of Covid-19, and has only one real tech stock, Ocado, in the index. No wonder then that it is 22% lower since January, whereas the Nasdaq hit record highs on Tuesday, having jumped over 100% since its March lows.

There are many who feel that the time is fast approaching for the global bourses to take a dose of realism. This happened on Thursday with shares in the big five US tech firms shedding between 4% – 8% om the day’s trading, with the tech-heavy Nasdaq down 5%. Despite this, the values of many companies and assets have been magnified because of stimulus measures, including QE (quantitative easing), and historic low interest rates, from the majority of the global central banks. Over the past six months the Nasdaq-100 has risen 38.2% to 11,879 and YTD returns 36.69% higher. Last month, the tech gauge continued to climb, and its Price Earnings Ratio reached what some consider a dangerously high level – 36 – for the first time since 2004 and well above the ten-year average of 22. Just maybe, this represents a permanent change that the global markets are inexorably changing from the old to the new digital and on-line era. Time for All The Young Dudes!

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A Change Will Do You Good!

A Change Will Do You Good!                                                            27 August 2020

A new CBRE report is relatively bullish on the Dubai property sector, indicating a rise in demand for villas and town houses, as many end-users are looking for more space, as well as enhanced amenities. Much of the demand is a result of Covid-19 when many had to work from – and stay at – home and have now recognised the benefits of more space and their own garden. The trend has also been helped by a greater supply of affordable priced housing, historically low mortgage rates and attractive packages. The report also pointed to a potential expansion in green housing developments, with end-users “increasingly motivated to reduce utility costs as they spend more time at home”.

Meanwhile, the emirate’s office market will continue to struggle, despite landlords offering incentives, such as rental deferrals, rent-free periods, lower headline rents, partial rent waivers and increased number of cheques. Rents vary according to location, whilst prices have remained stable in Q2, having fallen by around 4% in Q1, with occupancy at 84%. For example, according to Allsopp & Allsopp, the range of rents in JLT currently stands between US$11 – US$ 60; in Business Bay, the range is between US$ 16 – US$ 27 and in DIFC, US$ 41 – US$ 95. The only exception is Downtown where prices have dropped by up to 30% to an average US$ 35. The short-term future will continue to favour occupiers, with supply continuing to outstrip demand, not helped by the fact that working at home still continues to be favoured by many employees and the growing use of co-working space.

After a slow start to the decade, it seems that the number of new Dubai hotels will show a marked increase in the near future, ahead of the pandemic-delayed Dubai Expo. Analysts estimate that growth will return quicker to city hotels – as opposed to beachfront properties – as business visitors will ensure that the Mice (meetings, incentives, conferences and exhibitions) lead the growth in returning international travellers. A recent Messe Frankfurt study rated the emirate as the safest global location to host international events, with 77% of respondents viewing Dubai as the safest destination to attend exhibitions post-Covid. Colliers expects that, although 8k keys have been delayed this year, 26k rooms will be added to the country’s portfolio before the end of 2022, of which 8k will be added to Dubai’s hotel room tally before the end of next year. However, the days of 80% occupancy, witnessed in recent years, will take at least two years to recover and in the meantime, hotels will have to maintain occupancy rates hovering around 40% just to break even.

The first of forty-seven passenger pods have been installed at the world’s tallest observation wheel, ‘Ain Dubai’. The 250 mt Ferris wheel, located on Bluewaters island, dwarfs its international competition such as the 167 mt High Roller in Las Vegas and the soon to be built 190 mt New York Wheel, planned for Staten Island. Loosely translated as Dubai Eye, the attraction has been in development for several years and before the onset of Covid-10 – and the postponement of Expo 2020 – it was scheduled to open in Q4.

For the sixth month in a row, September UAE fuel prices have again been left unaltered since April. Special 95 petrol will still retail at US$ 0.490 per litre and diesel at US$ 0.561.  (Brent prices on 31 March and 27 August were US$ 26.35 and US$ 45.09 respectively, whilst at the beginning of the year, Special 95 was at US$0.578 with Brent trading at US$ 66.67).

An agreement between Emarat, whose chairman is the country’s energy minister Suhail Al Mazrouei, and Emirates District Cooling sees the state-owned petroleum distributor supplying liquefied petroleum gas to the firm’s entire residential, commercial and industrial portfolio. Dubai customers will be able to utilise an integrated, automated online portal and use contactless payments for delivery of their gas cylinders. It is estimated that Emarat, formed in 1999, has a 50% share of the emirate’s LPG distribution market.

In a move that will surely have a wider impact on the local economy, Nasdaq Dubai has signed an agreement with Hong Kong-based investment bank Zhongtai Financial International and a Beijing-based law firm Tian Tai. The three parties will encourage and support Chinese companies that wish to list on the Dubai bourse, as well as to assist them when it comes to other securities, such as bonds and real estate investment trusts. With the US tightening regulations for Chinese listed companies, and the spin-offs from the Belt and Road initiatives, this could see more Chinese money being invested not only in Dubai’s stock markets and property sector but also on a regional basis. Nasdaq already holds US$ 82.0 billion of US-dollar denominated debt listings, including nineteen debt issuances valued at US$ 11.3 billion from Chinese companies since 2014.

 The latest initiative from the Dubai Multi Commodities Centre, in association with India’s CropData Technology, sees an agricultural trading platform, connecting Indian farmers with UAE food companies. The agri-commodity trading and sourcing platform, known as Agriota, cuts out the middlemen and aims to boost food imports from the sub-continent. It will aid Indian farmers to deal directly with UAE companies and also boost UAE’s food security. The country imports 90% of its food and is targeting to increase local food production by 40%.

Last year, Jebel Ali Free Zone posted a 24% growth in food and agriculture trade and a 7% increase in its customer base which includes famous brands such as Alokozay, Bayara, Heinz, Hunter Foods, Nestle and Unilever. Jafza has a 1.57 million sq ft dedicated food and agriculture cluster, with 550 companies employing over 6k; it has also introduced a Halal Incubation Centre to encourage traders to launch their halal business in the emirate and the region. H1 saw Dubai’s external food trade volumes top nine million tonnes, representing US$ 8.7 billion in total, whereas Dubai’s food imports touched US$ 6.0 billion.

There was no surprise to see that the Manghat brothers, Prasanth and Promoth, have categorically denied any involvement in siphoning off millions of dirhams, from NMC Health and Finablr, as a report, commissioned by founder BR Shetty, seems to have concluded. The Manghats were both senior managers in the two entities; it is claimed that Prasanth, who was chief executive of NMC, “made payment transactions on the personal account of Mr Shetty at the Bank of Baroda, without having any authority or delegation on the account and sent transfer orders attributed to Mr Shetty”. A further claim made is that the then chief executive of Finablr, Promoth Manghat, and another employee, opened an account with a UAE bank using “a forged account opening form” in Mr Shetty’s name that gave them the authority to run the account. The biggest creditor, ADCB, has begun legal proceedings against Mr Shetty, who is apparently ensconced in India, whilst the Credit Europe Bank has filed a claim that has seen the DIFC issuing a global freezing order on Mr Shetty’s assets. It is estimated that the restructuring of NMC – covering the consultancy and legal costs of more than ten advisory firms – could reach US$ 140 million.

According to the latest Alvarez & Marsal report, the top ten UAE banks posted a 21.2% hike in Q2 net profits, driven by enhanced cost efficiency and a reduction in impairments. The professional services firm sees the banks focussing more on improving their efficacy in H1 and reducing their costs – hopefully not at the expense of their service levels. Because of a myriad of factors, including sound liquidity, strong capitalisation, low levels of non-performing loans and a bigger ratio of non-interest-bearing deposits, the banks are among the most profitable in the world.

Depa, has secured a US$ 55 million order, via its German unit Vedder, to fit out a superyacht. The Dubai-based company, listed on Nasdaq Dubai, has shown recent signs of improvement but still carries retained losses of US$ 148 million; its H1 loss of US$ 46 million was 18.8% lower than its deficit over the same period in 2019. Its assets as at 30 June were 7.9% lower at US$ 349 million.

The bourse opened on Monday 24 August and, 185 points (9.0%) higher the previous three weeks moved up a further 33 points (1.5%) on the week, closing on 2,269 by 27 August. Emaar Properties, US$ 0.09 higher the previous three weeks, closed up a further US$ 0.01 to US$ 0.80, whilst Arabtec, dumping US$ 0.10 the previous fortnight, lost a further US$ 0.03 to US$ 0.17. Thursday 27 August saw the market trading at 339 million shares, worth US$ 102 million, (compared to 336 million shares, at a value of US$ 85 million, on 20 August). 

By Thursday, 27 August, Brent, US$ 6.73 (17.6%) higher the previous six weeks nudged US$ 0.08 higher to US$ 45.09. Gold, having lost US$ 109 (5.3%) the previous week, shed a further US$ 27 (1.4%) to close on US$ 1,933, by Thursday 27 August.

Along with voluntary staff departures, American Airlines has announced a further 19k redundancies for October, when a government wage support scheme, worth US$ 5.8 billion to the airline, comes to an end. (Conditions of the government bailout barred airlines from making significant job cuts before 30 September). This would lead to the world’s largest airline with a 100k workforce, 30% lower than it was pre Covid-19.  It expects that in Q4 it will be flying at 50% capacity, whilst international flights will be 25% of last year’s returns. Global carriers are all in the same boat with the likes of United, Lufthansa and BA warning of cuts of up to 36k, 22k and 12k respectively. IATA has recently estimated that the pandemic will result in global airline losses of US$ 84 billion in 2020.

Following an 80% reduction in passenger numbers, Gatwick Airport will cut 25% (600) of its workforce; currently, 75% of staff are on the government’s furlough scheme. Running at about 20% of its normal August capacity – and with only the North Terminal open – the airport was already struggling before Covid-19 and had already announced the loss of 200 jobs in March and had taken out a US$ 390 million bank loan.

STA Travel has become the latest UK travel firm to fall victim to the Covid-19 pandemic and has stopped trading, with the loss of 500 jobs and closure of fifty outlets. Its Swiss-based parent company noted that the pandemic had “brought the travel industry to a standstill”. The Association of British Travel Agents (ABTA) indicated that the majority of flights and holidays sold by STA would be protected by the Atol scheme. Founded in 1971 as Student Travel Australia, and later Student Travel Association, STA Travel specialised in long-haul, adventure and gap year travel – a sector that has been battered by complete lockdowns in Australia and New Zealand. 

In the UK, with job losses already nearing 40k, the travel industry has called for further government support to stem job losses, which will worsen significantly when the furlough scheme is lifted in October. The travel industry trade body ABTA estimates that about 65% of travel firms have had to make redundancies and noted that many of them had not yet restarted after the lockdown, with cruise firms and school travel operators still closed for business. At the macro level, UN Secretary-General Antonio Guterres has warned that as many as 100 million direct tourism jobs are at risk, and that global GDP could fall by 2.8%, as export revenues from tourism fall.

Rolls-Royce has announced a record H1 pre-tax loss of US$ 7.3 billion, caused by a marked slump in demand for air travel. Although it has an operating loss of US$ 2.2 billion it lost a further US$ 3.3 billion on its currency hedging programme and US$ 1.8 billion on other restructuring costs. Furthermore, the engineering giant confirmed the closure of both its Lancashire and Nottinghamshire factories, with the possible loss of 2k jobs, as it consolidates UK production at its Derby factory. Its latest restructuring program, that started before the onset of the pandemic, sees RR reducing the number of its global sites from eleven to six. This year, the company expected to deliver 500 engines but now that number has been halved, so it has had no alternative but sell assets to maintain its liquidity. Consequently, it plans to raise about US$ 2.6 billion by divesting its Spanish unit ITP Aero and other assets. However, this amount is not enough to satisfy its cash needs so it is highly likely that a share issue is on the cards and maybe some government support. More worryingly, was the forecast that it did not expect demand to return to pre-Covid levels until 2025! Rolls Royce has still got to come to terms with the impact of Covid-19 has had on its business as well as solving technical problems, with design glitches on the Trent 1000 engine and cracks in compressor blades in a “small number” of its XWB-84 engines.

Mike Ashley’s Frasers Group has paid US$ 49 million to his long-term nemesis Dave Whelan to acquire 46 leisure clubs and 31 retail outlets from DW Sports Fitness. The deal will see 54% of the 1.7k payroll numbers saved, as DW had owned 75 retail stores and 73 gyms before going bust earlier in the month. Fraser’s also owns Lillywhites, Evans Cycles and House of Fraser and will add its new acquisition to complement its own gym and fitness club portfolio, under its Everlast brand. DW also owns the Fitness First gym chain which is unaffected by this administration.

Aimed at saving part of its struggling business, Pret A Manger is to slash 3k jobs, equivalent to over a third of its workforce; most of the jobs will go across its outlets, with ninety being retrenched from its support centre. Earlier in the year, the sandwich chain announced that it would close thirty of its 367 stores. With many of its customer base working from home during the lockdown, demand plummeted and even now, trade is 60% lower than it was in 2019, with its boss Pano Christou saying “the pandemic has taken away almost a decade of growth at Pret”. Its weekly August sales, at almost US$ 7 million, have been less than they were in 2010, when the chain was considerably smaller. (About 80% of hospitality firms stopped trading in April and 1.4 million workers were furloughed).

A little good employment news for a change from the UK, with Tesco creating an additional 16k new jobs after lockdown led to “exceptional growth” in its online business; these will include 10k to pick customer orders from shelves and 3k delivery drivers. The supermarket chain estimates that online numbers have jumped 67% to 1.5 million from the start of the pandemic at which time only 9% of sales were online – now it stands at 16% – and growing rapidly with such sales expected to contribute US$ 7.2 billion to Tesco’s top line by the end of 2020.

Scotland’s leading producer of farmed salmon has not only had to deal with the ramifications of Covid-19 but also fish disease, higher costs and the escape of 50k fish when the farm’s pens broke free from their moorings in the recent Storm Ellen. Now its Norwegian parent company, Mowi, has warned of a 10% reduction in its 14.5k global headcount, of which 800 work in Scotland. Management is particularly concerned with its Scottish operations, (which accounted for 40% of the country’s output of 166k tonnes), about disease and sea lice and has reported that it expects production to be 12% lower than originally forecast, due to “biological challenges”. Q2 earnings per kilo of harvested Scottish salmon have declined by over 65%, compared to the same period in 2019, whilst the spot price of benchmark Norwegian salmon has more than halved to under US$ 11 per kg since the start of the year.

US Secretary of State Mike Pompeo has taken a swipe at HSBC for apparently not allowing executives at Next Media, a pro-democracy media group, to access their bank accounts and accusing it of abetting China’s “political repression” in Hong Kong. Part owner of the media firm, Jimmy Lai, was arrested the other week under the territory’s controversial new security law. The last time the US administrator criticised China was in July when he was not happy when the bank gave its backing to the security law and accused China of “browberating” the bank and using “coercive bully tactics”. This time, he said the bank was “maintaining accounts for individuals who have been sanctioned for denying freedom for Hong Kongers, while shutting accounts for those seeking freedom”.

Ant, 33% owned by Alibaba, is planning to have a dual share listing on both the Hong Kong and Shanghai bourses that could raise a record US$ 30 billion, (higher than the US$ 29 billion raised at Aramco’s IPO last year) which would value the company at around US$ 300 billion; this would see its value higher than many of the US banks. Largely unheard of in the rest of the world, it owns Alipay, China’s dominant mobile payments business.  To put this in perspective it is estimated that Ant, along with TenCent, processes US$ 28.8 trillion of payments and transfers annually – this represents more than that of MasterCard and Visa combined.

With banning threats by the US President due to come into effect mid-September, TikTok’s chief executive, Kevin Mayer, has quit his job having only joined the Chinese tech firm in June from his Disney role as head of streaming services. Having been accused of being a national security threat, TikTok was given ninety days to be sold to an American firm or face a national ban. His surprise appointment seemed to indicate that the Chinese company wanted an American front who would probably be able to discuss matters with the Trump administration, better than a Chinese chief executive, and further help TikTok’s entry into the US market. That strategy soon fell off the rails when it was realised that the intense pressure from the administration meant that Donald Trump wanted the Chinese out one way or the other.  The two front runners to acquire TikTok, maybe with a value of US$ 30 billion, are Oracle and a Microsoft/Walmart venture.

The omnipotent tech giants continue to take governments for a ride, with Facebook the latest, making a mockery of French tax legislation, having agreed to pay the French government a paltry US$ 120 million in back taxes, going back to 2009. Just to add salt to the Gallic wounds, Facebook agreed to pay 2020 taxes of US$ 10 million – 50% higher than a year earlier – adding  that “we pay the taxes we owe in every market we operate.” The other three tech conglomerates – Amazon, Apple and Google – have previously reached similar agreements with the French tax authorities. Ironically, Mark Zuckerberg saidhe recognised the public’s frustration over the amount of tax paid by tech giants. Last year, France announced a new digital services tax  – being 3% of their French revenues – on multinational technology firms, but in January, the country said it would delay the tax until the end of 2020. This move upset the Trump administration which retaliated with US$ 2.4 billion worth of tariffs on French goods, including champagne and cheese, that were later withdrawn when the French tax was delayed.

Facebook royally pushed the UK’s face in the dirt by managing to pay only US$ 38 million in 2018 on record sales of US$ 2.2 billion. The Johnson administration has taken some belated action by levying a 2% Digital Services Tax in April. This involves any digital services operating in the UK having to pay the tax in connection to social media services, internet search engines and online marketplaces. This will remain in place until the OECD come up with a global agreement on how these behemoths are taxed on the global stage.

Victoria is bearing the brunt of the pandemic as the number of payroll jobs fell 2.8%, whilst July Australian payroll jobs only dipped 1%. The state entered stage 3 coronavirus restrictions earlier in the month whilst the state capital moved one notch higher to stage 4. Many are of the opinion that the situation will deteriorate as research indicated that by mid-April job losses had hit their peak but bounced back by the end of June, as 39% of jobs lost then had bounced back in line with restrictions starting in March and largely out of them in May. The trouble started again in July before a hard lockdown was introduced in early August, by which time the 39% mark in June had fallen to 12% in August. The extent of scarring to the economy can be gleaned from the 8% fall in Victoria’s payroll (and 5% for the whole country) and that payroll jobs worked by people aged under 20 increased 1.5% nationally but decreased 5.6% in Victoria, driven by restrictions on sectors like retail and hospitality that employ a lot of young people.

NAB’s latest forecast has forecast a 5.7% decline in the national economy this year and although a 3% rise is expected in 2021, it will be less than 1% in year-average terms; it will be early 2023 before the economy returns to its pre-Covid-19 levels. Unemployment will remain a problem for some time, expected to peak at 9.6% early next year and will still be around 7.6% by the end of 2022. The triple whammy of rising supply, slowing population growth and reduced consumer spending could result in house prices falling as much as 15%. Not surprisingly, commercial property especially retail and office space in the Sydney and Melbourne CBDs, will be hit hardest.

It is estimated that over the past three months, about 25% of Australian entities have reduced or cancelled their investment plans, mainly because of concerns relating to potential business uncertainty and future demand. Capex fell by 5.9% in the June quarter, after a 2.1% decline in the previous quarter, with annual contractions of 20% and 18% recorded in New South Wales and Victoria, respectively. The Bureau of Statistics Business Impacts of COVID-19 survey also found that small businesses (35%) were almost twice as likely as large businesses (18%) to be in severe financial strife and that a third of companies are expecting to struggle to meet future financial commitments.

It seems that the Chinese government is to investigate claims by its local wine makers that Australia is dumping its produce on the cheap in China and that the industry is being subsidised by the Australian government. These claims have been refuted by both Australian wine exporters and Chinese importers. Over the past four years, it is notedthat sales of Chinese wine in its home market have dipped from 75% to 50%; over the same period, exports of Australian wine grew more than six-fold from US$ 194 million to US$ 1.27 billion.

Lebanon is still reeling from the horrific 04 August explosion in Beirut, which killed at least 180 people and injured more than 6k. Before this disaster, it had seen its currency lose more than 80%, against the greenback, on the local black market, its issuer rating downgraded by Moody’s to C, its lowest grade, which is on par with Venezuela, and had defaulted on a March US$ 31 billion eurobond repayment. Now analysts, initially expecting a 15% contraction in the country’s GDP this year, has revised this to 24%. It has also released its July inflation rate, topping 112% (up from 89% the previous month), as prices for furnishings/household equipment/routine household maintenance items, clothing/footwear and non-alcoholic beverages skyrocketed by 517%, 409% and 336% respectively on an annualised basis. August figures will be even higher as the impact of the explosion will be felt in the market with prices set to rise even higher. It is hoped that things do not get much worse for Lebanon and that it works on rooting out endemic corruption, as well as introducing much needed political and financial reforms. Only then, will donors have the confidence to invest again in the country, with stability and confidence returning to put the past political and economic upheavals into the pages of history.

In a bid to shore up government funds, Prime Minister Narendra Modi has released plans to initiate an IPO for the sale of up to 15% of defence contractor Hindustan Aeronautics that could bring in US$ 680 million; retail investors will receive a 5% discount on the US$ 13.54 floor price; Wednesday’s closing price was US$ 15.93, a 17.6% premium. India is the world’s largest defence importer and now wants to boost local manufacturing including the Indian-made Tejas, a light combat aircraft, the Su-30MKI under licence from Russia’s Sukhoi, as well a medium lift helicopter and an unmanned aerial vehicle for the navy. Although India is the world’s third-biggest military spender, its defence forces are using largely obsolete equipment and weapons, whilst its air force of thirty-one squadrons of mainly Rafale fighters manufactured by Dassault Aviation is eleven squadrons down on actual requirements.

Following news that its economy contracted by a revised 9.7% in Q2,  and that the number of Covid-19 cases rose to 1.5k on Wednesday to a total of 238k cases, the Merkel administration has extended, by a year, ‘Kurzarbeit’, the scheme that tops up pay for workers, affected by the pandemic, as well as continuing short-term work subsidies (until 31 December 2021) and financial help for SMEs until the end of this year. It is estimated that the additional cost will be over US$ 11 billion. Other countries are still considering the way forward, but the UK has already indicated there will be no extension to its Coronavirus Job Retention Scheme, which allows firms to put workers on furlough without making them redundant, when it is finally closed in October.

UK government debt jumped to US$ 2.62 trillion (GBP 2 trillion) trillion for the first time as the Johnson administration ramped up spending to support the economy battered by the pandemic. The July figure was 11.3% higher – or US$ 298 billion – than a year earlier and the first time in sixty years that public debt has been above 100% of GDP. The past four months have witnessed the four highest borrowing months ever recorded, as YTD borrowing (for the four months from April) has topped US$ 197 billion and is close to the US$ 207 billion deficit recorded for the 12-month financial year to March 2010, the previous largest cash deficit in history. The simple explanation for this spending explosion is that government revenue (via tax) is well down, as people and businesses earn and spend less, at the same time as government spending has necessarily exploded with programmes such as the furlough scheme. The only good pointer for the government is that interest rates are at historic record lows, so that borrowing costs are low so that it is spending less on servicing its debts than had been forecast before the coronavirus crisis.

There is every likelihood that negotiators will not iron out a post-Brexit trade deal between the UK and the EU, with David Frost speaking of little progress being made, whilst his EU counterpart, Michel Barnier, not a friend of the UK,  indicating that he was “disappointed” and “concerned” about the lack of progress. The UK has made it clear that it will not extend talks if an agreement cannot be reached by the December deadline and if that were to happen then bi-lateral trade will be on WTO (World Trade Organisation) terms; this would result in UK goods being subject to tariffs until a free trade deal was introduced.

One of the major stumbling blocks is that the intransigent EU negotiators have been insisting that differences over state aid and fisheries have to be resolved before “substantive work can be done in any other area of the negotiation, including on legal texts”. It seems that the EU side find it difficult to believe that the UK wants to “ensure we regain sovereign control of our own laws, borders, and waters”. The Europeans are frustrated by what they see as the UK wanting the benefits of the single market, without paying the membership fee or signing up to its rules. The ex-French politician, who has been the EU’s chief negotiator with the UK since 2016, has also been adamant for a level-playing field approach – “a non-negotiable pre-condition to grant access to our market of 450 million citizens”; this should include sectors such as workers’ rights, environmental protection, taxation and state aid.

Although global stock markets are rocketing dangerously high, it seems that dividend pay-outs are heading in the other direction with more than US$ 108.1 billion (22.0%) being wiped off in Q2, to a total of US$ 382.2 billion. Every region in the world posted falls, with the exception of North America, with the worst affected being the UK and Europe. For example, the UK and France saw dividend payments slump 54.1% to US$ 15.6 billion and 65.4% to US$ 13.3 billion respectively. Many global conglomerates – including UK’s Royal Dutch Shell, Boeing and Australia’s Westpac – have either suspended, axed or cut dividends to ramp up their balance sheets.

The dividend blows for UK investors and retirement savers have been increasing in recent times and will continue to worsen for the foreseeable future. BP – for so long the darling of the pension funds by traditionally generating the largest dividend payment of all FTSE 100 companies – has halved this year’s payment, whilst Shell cut theirs for the first time since WW2; on top of that, UK banks have suspended their pay-outs for this year.  Historically, these two sectors, oil and banking, make up 38% of the market yield and if they are taken out of the equation, then the historic average yield of 6% dips to below 4%. Some analysts predict a 40% decline in the total amount of pay-outs by UK firms this year. Those investors that have relied on dividends for most of their income (and want to continue with that sort of investment) would be better advised to start looking and investing in companies with strong balance sheets and low valuations. For some investors, especially pensioners who have relied on ‘traditional’ dividends for their annual income, A Change Will Do You Good!

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That’s What Friends Are For!

That’s What Friends Are For                                                                        20 August 2020

Not seen for more than a decade, rent to own schemes have returned to the Dubai property sector, as Dubai South Properties announce such a plan for new tenants of The Pulse in its Residential District. The scheme has easy exit terms and there is no need to actually buy, but renters are allowed to make quarterly payments towards their unit, while living in it, which will contribute towards full ownership after a period of ten years. There is no doubt that there will be many potential first-time buyers in Dubai keen on owning their own property, without the need of any major up-front investments which can be as high as 30% of the value of the property.

Having reviewed ‘the fifty economic plan’, outlining the country’s fiscal policy for the next ten years, HH Sheikh Mohammed bin Rashid Al Maktoum is optimistic about the country’s future and confident that the UAE is striving  to have the fastest-recovering economy in the world, as well as being the most stable and diversified in the long term. The Dubai Ruler was chairing a meeting with a Ministry of Economy’s task force to review their post Covid-19 plans for the next decade, and key outcomes for the national economy by 2030. HH Sheikh Mohammed indicated that the federal government is promoting a drive towards an economy post-Covid-19 which is based on knowledge, smart technology and advanced sciences, adding that the cornerstone of this new economy is passionate talent. The strategy, launched last December, is focussed on several pillars – integrated economy, SMEs and entrepreneurship, tourism, foreign direct investment (FDI), doubling exports and attracting talents.

A week after the world was shocked to see a peace accord signed between the UAE and Israel, UAE’s Apex National Investment and TeraGroup have announced a commercial agreement to develop research and studies on Covid-19. This is apparently the first of hopefully a raft of trade, economy and effective partnerships between the Emirati and Israeli business sectors which will inevitably boost the economies of both countries, including energy, tourism, technology and precious metals.

With the cruise season fast approaching, Dubai is taking steps to ensure that it is ready to meet the challenge, arising from Covid-19, by assuring cruise tourists of the highest global safety standards at every stage of their travel journey from the time they disembark at Port Rashid to the point they depart from the cruise terminals; a draft safety protocol for the cruise industry is currently being drawn up by Dubai Tourism.

Global ports operator DP World saw H1 profit plummet 58.5%, on a reported basis, or by 34.5%, excluding a 2019 land sale to Emaar Properties, although revenue was 17.7% higher at US$ 4.1 billion, with the main driver being acquisitions made over the previous twelve months.  Cash from operating activities nudged marginally higher to US$ 1.1 billion. At the beginning of the year, DP World issued a US$ 1.0 billion capex guidance for 2020 – with investments planned in the UAE, London Gateway, Berbera in Somaliland, Sokhna in Egypt and Caucedo in the Dominican Republic. To date, it has it invested US$ 552 million across the existing portfolio.

Majid Al Futtaim Group posted a 27% decline in its H1 Ebitda (earnings before interest, tax, depreciation and amortisation) figure at US$ 436 million, as revenue slipped 3% to US$ 4.7 billion. The multi-faceted Dubai-based conglomerate, with major interests in shopping malls, real estate, retail and leisure sectors, tried to lessen the negative economic impact by reducing its cost base and focusing on digital transformation. Despite the economic environment, MAF is continuing with its expansion plans, including the openings, later in the year, of Mall of Oman in Muscat and City Centre Al Zahia in Sharjah as well as fifty-five new VOX Cinemas screens. Management have noted that ‘the recovery is a bit faster than expected,” but do not see a full economic recovery until the end of Q2 2021, dependent on the availability of an effective vaccine.

Of its five divisions, four – Properties, Malls, Hotels, (a 41% fall in occupancy rates) and Ventures (with a revenue drop of 46% to US$ 188 million) – posted declines, whilst retail revenue came in 4.0% higher at US$ 3.7 billion, with Ebitda growing 18% to US$ 193 million. Its Carrefour franchises posted a 263% jump in on-line sales, as it opened five physical stores and three new fulfilment centres in H1.

Driven by a 12% decline in H1 revenue to US$ 134 million, payments processor Network International swung to a first-half loss of US$ 150k, compared to a US$ 16 million profit over the same period in 2019. Its revenue streams in the ME and Africa fell 15.3% and 10.5%, year on year, caused by the usual Covid-19 suspects of movement restrictions along with reductions in domestic and tourism-related consumer spending. As a direct consequence of the pandemic, capital expenditure of US$ 40 million, including its entry into the Saudi Arabian market, was put on hold in April in a “prudent measure to protect” its cash flows; it has also introduced a hiring freeze and will cut discretionary spending. However, it did sign a US$ 288 million agreement last month to take over DPO Group, an African online commerce platform. Network International posted a 61% hike in e-commerce volumes in July, whilst Q2 volumes were 45% higher.

A JV between Emaar Entertainment and Abu Dhabi-based developer Eagle Hills is to develop an aquarium and underwater zoo at its 200k sq mt Marassi Galleria shopping mall, with 560 outlets, in Bahrain; no financial details were readily available. It will feature a 20 ft long “digital tunnel”, with interactive digital exhibits, and also house four different ecological zones – the ‘Rainforest’, the ‘Ocean Trench’, the ‘Jellyfish’ and the ‘Reef Zone’. Marassi Galleria mall forms part of 875,000 square metre Marassi Al Bahrain development, a joint venture project between Eagle Hills and Bahrain’s Diyar Al Muharraq that was launched in 2016. The waterfront site includes 6k residential apartments, 245k sq mt of retail space and two hotels. Emaar Entertainment manages facilities including Reel cinemas, Dubai Ice Rink, Dubai Aquarium and underwater zoo and KidZania. Mohammed Alabbar of Emaar is also chairman of Eagle Hills, whose chief executive is Low Ping.

Bahrain-based., but DFM-listed, GFH financial group posted a massive 69.4% slump in H1 profit to just US$ 15 million, with revenue slipping 10.4% to US$ 147 million; total expenses moved 10.0% high at US$ 126 million, mainly attributable to a US$ 500 million Sukuk issue to shore up the investment bank’s balance sheet. In H1, total assets expanded 3.1% to US$ 6.1 billion, whilst earnings per share dropped 69.0% to US$ 0.45 because the Covid-19 pandemic resulted in “modification losses, commercial banking restructuring activities, recognition of fair value losses and foreign currency translation differences”.

There is not too much to say when a company loses 94.4% of its revenue stream and this is what has happened to DXB Entertainments in Q2, after the theme park was closed as from 15 March.  The company, 52% owned by Meraas Leisure and Entertainment, posted revenue and loss figures of US$ 1.7 million (down from Q2 2019’s US$ 30 million) and by 11.0% to US$ 70 million. H1 visitor numbers dropped 57% to 596k, as revenue dipped 58% to US$ 29 million, and losses widened by 69% to US$ 236 million, which included a one-off, non-cash US$ 107 million impairment charge related to the pandemic. The theme park will reopen on 23 September and, with major upgrades during the six-month closure, guests will see a revitalised facility, including twelve new rides.

Embattled Union Properties posted a 20.4% decline in Q2 revenue to US$ 23 million, as it narrowed its net loss by 54.0% to US$ 11 million, driven by “a drastic cost cutting effort, including a reduction of the group’s administrative and operational expenses”. However, its H1 loss almost doubled to US$ 44 million, as revenue dipped 5.7% to US$ 53 million, although administrative and operational costs fell by about 24.2% to US$ 16 million. In H1, the developer was hit by a US$ 20 million loss on the value of investments held and a US$ 5 million loss on the disposal of investment properties.

As part of its strategy to erase accumulated losses of US$ 627 million, Union Properties is planning to list three of its subsidiaries – ServeU, (a facilities management business), The FitOut  (specialising in interior fit-out to offices, hotels and restaurant), and Dubai Autodrome – on the Dubai Financial Market. Dubai Autodrome is the first multi-purpose motorsports and entertainment facility located in Motor City. To date, the developer has built 60k units in Dubai and is planning a new project – Motor City Hills – with 195 villas, 490 town houses and six commercial land plots. (Who knew that Dubai had so many hills?).

Arabtec posted a net loss of US$ 215 million in H1, (compared to a US$ 16 million profit over the same period in 2019), with revenue 28% lower at US$ 823 million, attributing the loss mainly to “limited liquidity in the real estate and construction sector”. Cash flow was impacted by delays in the settlement of outstanding claims, increased costs and progress on projects being slowed down by the impact of Covid-19. The contractor’s other core businesses – Target Engineering, Arabtec Engineering Services and Efeco – remained profitable. The company is hoping for a quick solution to its on-going problems that sees its liabilities of US$ 2.76 billion greater than its assets of US$ 2.67 billion, with it owing the banks US$ 490 million and creditors US$ 1.444 billion. Only three years ago, Arabtec recapitalised that saw a reduction in the number of shares to clear US$ 1.25 billion of losses and a US$ 409 million fresh equity boost, via a rights issue. The developer will continue with its restructuring plans that aim to boost liquidity, cut costs, clear legacy projects, pursue legal claims to “secure and recover the group’s contractual rights” and to divest its non-core assets.

The bourse opened on Sunday 16 August and, 104 points (5.1%) higher the previous fortnight moved up a further 81 points (3.8%) on the week, closing on 2,236 by 20 August. Emaar Properties, US$ 0.06 higher the previous fortnight, closed up a further US$ 0.03 to US$ 0.79, whilst Arabtec, shedding US$ 0.04 the previous week, lost a further US$ 0.06 to US$ 0.20. Thursday 20 August saw the market trading at 336 million shares, worth US$ 85 million, (compared to 330 million shares, at a value of US$ 123 million, on 13 August). 

By Thursday, 20 August, Brent, US$ 5.47 (17.6%) higher the previous five weeks nudged up US$ 0.05 to US$ 45.07. Gold, having lost US$ 109 (5.3%) the previous week, shed US$ 10 (0.5%) on the week to close on US$ 1,940 by Thursday 20 August.  

Both Jaguar Land Rover and Tata Steel Bailout will have to seek private funding now that negotiations with the Johnson administration have broken down. The government decided that both companies – owned by the Indian conglomerate Tata Group – did not qualify for taxpayer support through its bailout plan, titled “Project Birch” which was introduced, by Chancellor Rishi Sunak, to rescue companies that are seen as strategically important. There are reports that the main stumbling block to any progress was the imposition of strict conditions on any lending.

Marks & Spencer is cutting a further 7k  jobs (about 9% of its payroll) over the next three months, noting there had been a “material shift in trade”, since the onset of Covid-19; in-store sales of clothing and home goods were “well below” 2019 levels, down 29.9% in the eight weeks since shops reopened.  Online and home deliveries headed in the other direction, with online surging 39.2%, compared to store sales tanking 47.9%. It seems that working practices during the pandemic showed that staff could work “more flexibly and productively”, multi-tasking and moving between food, clothing and home departments.

Supermarket chain Morrisons and Amazon are trialling a same day delivery scheme in Leeds, allowing its customers to get their shopping requirements from the tech giant for the first time; people have to an Amazon Prime subscription to benefit from the service and will have an option to book two-hour slots for same-day delivery. Currently, Morrisons operates a grocery delivery business through its own website, using Deliveroo and Ocado, but an Amazon deal would put its online platform on a different level. For Amazon, it is another step towards the tech giant’s target to serve millions of UK shoppers by the end of the year in a sector that has more than doubled during the pandemic, with many grocery chains struggling to keep up with demand.

Pizza Express is to close 16% of its UK restaurants to bring its total outlets to 381. The chain has taken this step, that could see the loss of 1.1k jobs, (almost 11% of the current workforce), to reduce its massive rental costs and “to safeguard the chain for the long term”. Pizza Express, majority owned by Chinese firm Hony Capital, noted that most of its restaurants had been profitable over the past three years, although the revenue stream had been slowing.

Since it came out of administration in 2018, House of Fraser has shut ten of its fifty-nine stores and is now expecting more closures. The number of shops to close will be dependent on current rental negotiations between the new administrators and landlords. The chain, part of Mike Ashley’s Frasers Group that owns Sport Direct, expects more job losses all over the High Street. Its annual pre-tax profits were 20% lower at US$ 186 million, despite a 6.9% hike in revenue to US$ 5.2 billion, driven by acquisitions.

After going into administration and closing its remaining 79 UK outlets, baby goods firm Mothercare has completed a ten-year franchise deal with Boots to sell its branded clothing and home and travel products at branches and online. Mothercare still has eight hundred global stores, operated by franchise partners, and has just signed a twenty-year deal with Kuwait’s Alshaya Group, which operates stores in Russia and ten ME countries.

According to Takeaway.com’s founder, Jitse Groen, Just Eat Takeaway, plans to end gig working across Europe that will see staff getting benefits and more workplace protection. This year, the company became the biggest food delivery, company outside China, when it completed a US$ 7.6 billion deal for UK based Just Eat in January and a US$ 9.6 billion acquisition of its US rival Grubhub. In its three leading European markets – the UK, Germany and the Netherlands – H1 orders jumped 34% to 149 million, compared with the same period in 2019.

Having been appointed the new Walt Disney chief executive earlier in the year, Bob Chapek has wasted no time to make his mark to transform the world’s largest entertainment company. He has already scrapped twenty foreign TV channels, closed down a musical version of the animated film Frozen, abandoned a chain of Chinese language schools and scaled back a US$ 1 billion resort-technology project; 100k workers have been furloughed. A consequence of the pandemic is the need to cut costs, as lockdown conditions have seen Disney theme parks cruise ships generating no turnover and a marked slowdown in their TV (inc ESPN and ABC)/movie businesses, resulting in a 42% slump in revenue; it also took a US$ 4.9 billion impairment charge. In a bold move, the new CE is planning to remove the Disney Channel TV networks from pay-tv systems, operated by Virgin Media and Sky in the UK, and to put the programming on the new Disney+ streaming service instead, using the Star brand internationally.

Apple has become the first US company to have a market value in excess of US$ 2 trillion in mid-morning trading yesterday, Wednesday 19 August, as its share price hit US$ 467.77. It took the tech giant just two years to double its value, after it became the world’s first trillion-dollar company in 2018. It was not the first global company to hit the US$ 2 trillion mark – this was the Saudi oil giant, Aramco, which reached this figure when it listed its shares last December; since then, its value has eased to US$ 1.8 trillion.

Following Fortnite by-passing Apple, (who take a standard 30% cut of sales from its compulsory payment system), by letting players buy in-game currency at a lower rate if they bought direct from maker Epic Games – Apple removed the platform from its App Store. Epic retaliated by filing a legal complaint, with Apple arguing that Epic had taken the “unfortunate step of violating the App Store guidelines”. It is alleged that Apple effectively runs a monopoly in both deciding what apps can appear on iPhones and demanding that its own payment system is used. Epic confirmed that it is not seeking financial compensation but would pass on any savings to its millions of consumers and is more concerned “in seeking injunctive relief to allow fair competition in these two key markets”.

In his latest effort to pressurise China, the US President, using his security trump card, has given ByteDance ninety days to divest its US operations of its video-sharing app TikTok. The US company is in advanced talks with Bytedance to buy its North America, Australia and New Zealand operations. (Two other suiters appear to be Twitter and Oracle, with the California-based company working with a group of American investors, including General Atlantic and Sequoia Capital). Donald Trump has indicated that he would support this deal if the US government got a “substantial portion” of the proceeds. He has also authorised government agencies to crackdown on the Chinese-owned social media app and to allow them to inspect TikTok and ByteDance’s books and information systems to ensure the safety of personal data while the sale talks are ongoing.

Earlier in the year, Softbank’s Vision Fund posted record losses, partly attributable to writing down WeWork’s valuation by more than 90% to US$ 2.9 billion, from its US$ 47 billion peak in which it had invested more than US$ 10 billion. This week, the Japanese company has added further financing of US$ 1.1 billion, in the form of senior secured notes, to WeWork at a time when the co-working company is witnessing declining membership, (12% lower at 612k), amid the coronavirus pandemic; the New York-based company has available cash and unfunded cash commitments totalling  US$ 4.1 billion. Quarter on quarter, revenue was 19.8% down at US$ 882 million, but 9% higher than in Q2 2019, with 843 locations in 38 countries.

IATA’s latest forecast, amended by a further year, is that passenger traffic will not return to pre-Covid levels until 2024, as the recovery so far has been slower than originally expected, with falls in 2020 passenger numbers now at 55%, rather than the 46% figure forecast in April. The reasons behind the revised forecast include slower lifting of restrictions, with increased cases in several countries, weak consumer confidence and uncertainty over possible future retrenchments, along with a marked decline in business trips as companies cut costs. On top of these three problem reasons, the position has been made worse by an increasing number of countries imposing travel restrictions to curb the virus spread. Figures speak for themselves – on a yearly basis, passenger traffic in May and June tanked 91.0% and 85.5%, as June load factors of 57.6% were an all-time low for the month. IATA anticipates that the airline industry will lose US$ 84.3 billion this year, with revenue declining 50%.

Australia is probably typical of many advanced countries as it experiences a ‘buy now, pay later’ boom, at a time that sees credit cards on the decline, (with 400k personal credit card accounts closed since March); furthermore, RBA data points to US$ 43.0 billion having been wiped off national credit card debt over that time period. The problem is that compared to other financial services, the industry is seen as being under-regulated, with warnings that this modern-day lay-by service leaves the vulnerable at risk of spiralling into debt. The Covid-19 pandemic has acted as a catalyst for companies like Afterpay and Zip Co. Between them, they have about 5.4 million customers in the country, both have had immense growth since the onset of Covid-19 and both have seen share values increase eightfold since March. Australia’s watchdog, ASIC, is reviewing the sector where most models allow customers to pay off purchases in instalments and avoid fees if they pay on time. Afterpay has estimated that 85% of its revenue is generated from charging fees to its 55.4k merchants which range from 3% – 6%.

The Indian Prime Minister announced a US$ 1.46 trillion package in infrastructure projects to boost the sagging economy, battered by Covid-19. It seems that Narendra Modi is aiming to make India self-sufficient in manufacturing and to develop the country as a leading global supply chain location. At an event celebrating the country’s 73rd independence anniversary, the Indian leader also confirmed that three vaccines are in different phases of testing in the country and mass production will begin as soon as scientists give the green light.

The world’s third largest economy witnessed its Q2 GDP shrink by an unprecedented 27.8%, quarter on quarter. Japan had been struggling well before the onset pf Covid-19 – and had already fallen into a technical recession – but the pandemic has only exacerbated the problem. Although exports have fallen sharply, the main driver continues to be a severe decrease in domestic consumption, made worse by two events last October – a 10% sales tax hike and typhoon Hagibis. As with all other countries scarred by Covid-19 – consumers buy less, companies earn less, and governments are hit by the double whammy of less tax receipts and the need to spend more. There is a feeling that Japan should bounce back, as Prime Minister Shinzo Abe has already injected massive stimulus packages and restrictions started to be eased in late May – a little earlier than other G20 economies. One country that lifted restrictions earlier was China, the world’s second biggest economy, and now it is bearing the fruit of their action, posting a 3.2% Q2 growth.

If there is one lesson that Covid-19 has taught economists is that the world has been too dependent on China for its supplies. The country was the first to go into lockdown and, almost immediately, supply chains were cut off and access to raw materials and products non-existent. Very few companies had a plan ‘B’ – and were without an alternative supply chain – and Just in Time inventory finally met its match, with so many companies regretting the fact that there was not any surplus stock lying around in the stores. A recent US survey concluded that 95% of companies would diversify suppliers both in and out of China, whilst 87% of the companies surveyed still maintained that China is still one of their top three sourcing destinations.

Last week, the number of Americans claiming unemployment benefits had dropped to 971k and has now unexpectedly climbed back to 1.1 million, at the same time Donald Trump is facing mounting pressure over his handling of the health crisis. It seems that, as the recent jobs’ improvement has stalled, this could be as a consequence of the impact of virus-related rolling shutdowns that are beginning to spread around the country, as consumers limit their activity and spending. As the recovery stalls, Congress is split in bipartisan groups on the detail and value of the next relief package and no agreement has been reached after more than two weeks of bickering. Democrats are pushing for a further US$ 3 trillion in further spending, with the Republicans looking for a smaller stimulus package.

In the first fortnight of the UK’s ‘Eat Out to Help Out’, the scheme, which runs every Monday, Tuesday and Wednesday has been used more than 35 million times. In a bid to further support the battered hospitality sector, the government has set aside US$ 650 million to fund the scheme that offers customers, in a total of 85k registered restaurants, pubs and cafes, 50% off the price of their meal, up to a maximum of US$ 13. It has been estimated that these facilities are actually 27% fuller now than compared to the same periods in 2019.

There is a tendency in the global financial press to use the UK economy as a whipping boy but there is every chance that it could be a major error, as it will probably recover a lot quicker than most of its peers. Only last week, the headlines screamed that the UK had entered into a technical recession and the economy had contracted 20.4% in Q2 (April – June). Not many reports added that the economy had actually grown in May and June by 1.8% and 8.7% respectively. Latest data according to a July IHS Markit/CIPS survey indicate that businesses in the services and manufacturing sectors grew at the fastest rate in more than five years. At the same time, retail spending levels have already recovered to pre-pandemic levels, driven by online shopping and sales rising over 70%. It is estimated that the country has already reclaimed half of its Covid-19 related losses and that by the end of the year, it will have expanded by a further 20%, but even at this rate, it will take another twelve months to fully recover. One problem area could be in relation to employment, but the fear of massive job losses has receded somewhat, with spending and business confidence picking up.

There is a thin line when it comes to a conflict of interest and the old boys’ network that sometimes sees a too cosy relationship between government and big business. The latest is the case of Sajid Javid who left as the UK Chancellor of Exchequer in February and has now accepted a position, as senior adviser for Europe, the Middle East and Africa, with JP Morgan, a bank he first worked with in the 1990s. He is barred from sharing sensitive information he received as chancellor, whilst the bank has not disclosed his pay or hours but noted that the work would not interfere with his duties as an MP. That must be a relief to his Bromsgrove constituents! However, the bank is “looking forward to drawing upon his in-depth understanding of the business and economic environment to help shape our client strategy across Europe.”  The job has been approved by the UK’s Advisory Committee on Business Appointments (ACOBA), which oversees jobs for former ministers and top civil servants. (Over the past two years it has approved ten applications by former ministers to take on outside work). He joins an illustrious list of former politicians on the same advisory council gravy train including former Italian economy and finance minister Vittorio Grilli and former prime minister of Finland Esko Aho. Even Tony Blair took a post at the bank after leaving office and was reportedly paid US$ 2.6 million as a “senior global adviser”. In 2017, it was reported that the then ex-Chancellor George Osborne managed to secure six jobs, including US$ 850k a year plus shares for a job with BlackRock that required him to work four days a month. Life in the fast lane can be a little more rewarding than the US$ 110k MP’s basic salary but although it can provide a path to financial riches, there are questions as to the value of the extent of government lobbying, policy knowhow and insider knowledge. That’s What Friends Are For!

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It’s Not Over Yet!

It’s Not Over Yet!                                                                              13 August 2020

The big news of the week sees the UAE and Israel signing a historic peace agreement – a deal that will normalise diplomatic relations between the two countries. A joint statement between the two countries – and the US – indicated that the “breakthrough will advance peace in the Middle East region”. The agreement will also see Israel stop further annexation of Palestinian territories and the two countries “agreed to cooperation and settling a roadmap towards establishing a bilateral relationship”. There is no doubt that collaboration between the two countries will also result in closer economic and security ties but there will be the inevitable problems along the way.

Q2’s Mo’asher report pointed to a strong July, with returns similar to pre-Covid levels of late February/early March, amid signs of a V-shaped recovery. The figures, released by the Dubai Land Department and Property Finder, noted June and Q2 transactions and values of 2.4k at US$ 1.3 billion and 5.6k, valued at US$ 3.0 billion, respectively – and this despite the fact that the sector was as good as closed for the whole of April and a good part of May. In Q2, 60% of transactions involved off plan sales, with the balance from the secondary market. There is market confidence that H2 will see growth in the sector. The index uses 2012 as the base year and in June, the quarter showed a marginal monthly decline to 1.113 but increases of 0.79%, quarter on quarter and a 15.3% jump since 2012; in June, the index value was US$ 289k, down 0.09% since January 2020. YTD, the index for villas/townhouses was 1.79% lower at US$ 444k and apartments up 0.58% to US$ 280k.

Further good news for some with mortgages was that the six-month and one-year EIBOR rates dipped this week to 0.699% and 0.941% from 01 January openings of 2.2% and 2.8% respectively. Three-monthly, monthly and weekly rates also fell to 0.46%, 0.26% and 0.15%.

According to Savills’ latest global report, Dubai’s H1 prime property market declined 3% which on a worldwide scale edged 0.5% lower and 0.8% for the year – the first time that this index has posted negative returns since 2008. With values averaging US$ 560 per sq ft, Dubai’s prime market continues its six-year plus downward trend, albeit at a reduced pace, and presents a buying opportunity, with comparatively high yields for investment grade properties on the international stage. With rates at historically record lows, recently relaxed loan-to-value norms and a slowdown in new project pipelines, there are indicators that the sector could well improve in H2. The Savills’ report noted that Seoul, (5.5%), Moscow and Berlin were the three cities with the biggest value increases, whilst Mumbai recorded the steepest H1 decline, with a 5.8% drop followed by Los Angeles, 4.7% lower, and the world’s most expensive city, Hong Kong, down 4.2%.

Amazon has expanded its 2019 Project Zero programme, which is focused on tackling counterfeiting, to seven new countries, including the UAE, bringing its total locations to seventeen countries. Its main aim is to ensure that all goods traded through Amazon are authentic and not fake products. The tech company, having spent US$ 500 million last year to attain its target, confirmed that “as a result of our efforts, 99.9% of all products, viewed by customers on Amazon, have not received a valid counterfeit complaint.” It is estimated that the amount of global counterfeiting worldwide will top a staggering US$ 1.82 trillion by the end of the 2020. Earlier in the year, US House of Representatives passed a bill that will make online marketplaces responsible if customers buy fake goods on their platforms.

In Dubai, July’s IHS Markit Purchasing Managers’ Index returned to positivity with a 1.7 rise to 51.7, driven by a solid increase in new work, as restrictions are being lifted and green shoots of a recovery appearing. This was the first expansion in the emirate’s non-oil private sector in five months. Consumer demand improved and additional sales resulted from the resumption of international flights, the reopening of tourist destinations and enhanced government support; in July, it introduced a further US$ 409 million economic stimulus package, bringing the total support given to businesses to US$ 1.7 billion. Although travel and tourism understandably lagged behind, there was a marked uptick in construction and wholesale/retail. However, July witnessed a fifth successive fall in employment, with reports that current workforce numbers remained weak because of tight corporate cash flows.

In a bid to further underpin the troubled pandemic-hit economy, by enhancing its support to the banks, the Central Bank has introduced further measures to boost its Targeted Economic Support Scheme, launched in March. The agency has decided to relax banks’ structural liquidity positions by easing both the Net Stable Funding Ratio and the Advances to Stable Resources Ratio, both by 10%, and effective until December 2021. NSFR, which is mandatory for the country’s five largest banks, allows those institutions to go below the 100% threshold, but no lower than 90%, whereas ASRR applies to all other banks which will be allowed to go above the 100% threshold, but not higher than 110%. These measures are aimed at encouraging banks to strengthen the implementation of the TESS and support their impacted customers, through the Covid-19 crisis, and to ensure the smooth flow of funds from banks into the economy.

One company has actually posted a profit increase in H1 – Oman Insurance made a 4.0% hike in net profit to US$ 30 million, whilst increasing its solvency above 250%. Over the period, the net investment income increased 5.0% to US$ 16 million, as total Gross Premiums Written, GPW, were 3.0% higher at US$ 572 million. The US-based credit rating agency AM Best has updated the company’s outlook to stable from negative, with an ‘A’ rating, whilst both Moody’s and S&P maintain ratings of ‘A2’ and ‘A-’ respectively.

With earnings badly impacted by lower receipts from its healthcare investments, and a one-off US$ 4.0 million provision related to “aged receivables”, attributed to Sukoon International, Amanat Holdings posted a Q2 loss of over US$ 1 million, compared to a profit of US$ 4 million in the same period last year; over H1, the healthcare and education business just about broke even, with a US$ 158k net income, from almost US$ 10 million in H1 2019, on the back of a 5% hike in revenue to US$ 25 million.

Shuaa Capital posted H1 operating income of US$ 73 million and a US$ 2 million profit, with no comparable 2019 figures because the Dubai asset manager merged with Abu Dhabi Financial Group last year. Q2 operating income was at US$ 23 million, with assets under management nudging 1.6% higher to US$ 13.0 billion, quarter on quarter. Over the past twelve months, the firm has realised a 38% downsizing in its non-core asset unit, “releasing in excess of US$ 35 million of cash through exits”.

Amlak posted a H1 US$ 21 million loss, compared to a US$ 1 million profit for the same period in 2019; however, its Q2 results pointed to a US$ 16 million profit. According to the mortgage provider, it still has accumulated losses of US$ 499 million, most of which relate to impairment costs taken on price declines on investment properties, then valued in 2014 at US$ 801 million. In January 2019, Amlak entered renegotiations with its financiers on the restructuring terms agreed in 2014 and subsequently revised in 2016.

Emaar Properties posted a 35% fall in H1 profit to US$ 545 million on the back of a 22% revenue dip to US$ 2.45 billion, whilst selling, marketing, general and administration expenses declined 5% to US$ 545 million. In the first six months of 2020, the emirate’s largest listed developer, by market capitalisation, made property sales of US$ 1.4 billion. At 30 June, the company had delivered a cumulative total of 64.7k residential units and is currently involved in developing 40k residences, of which 11k are overseas; its UAE sales backlog was valued at US$ 8.0 billion, with US$ 3.3 billion of international projects in the pipeline.

Its two main subsidiaries posted H1 declines with Emaar Development’s revenue and profit down 59% to US$ 1.3 billion and 76% lower at US$ 272 million respectively. With slumping revenues, arising from lockdown measures, it was no surprise to see Emaar Malls, posting a 69% fall in H1 profit to US$ 94 million, as revenue dipped 26% to US$ 436 million, with sales and general administrative costs coming in 16% higher at US$ 83 million. However, because of the “higher rate of online shopping, coupled with exponential growth in the Saudi market”, its regional e-commerce platform, Namshi, acquired last year, posted a 57% hike in revenue to US$ 181 million. Despite the pandemic, the operator continued its redevelopment plans, including the 95k sq ft Meadows Village mall set to complete later this year.

Damac Properties posted quarterly and H1 losses of US$ 76 million and US$ 105 million, compared to profits of US$ 14 million and US$ 22 million, over the same periods last year. Although revenue climbed 27% to US$ 654 million, with booked sales of US$ 286 million, impairment on development properties stood at US$ 119 million. At the end of June, Damac had a gross debt of US$ 954 million, with a US$ 1.2 billion cash balance, and during the period handed over its 30,000th property. Damac’s chairman, Hussain Sajwani, commented that his company’s “focus remains on selling completed and near completion inventory,” and that he is “optimistic that the lead up to the Dubai Expo at the end of 2021 will allow some of the excess real estate supply be absorbed”.

Deyaar released disappointing H1 results indicating a 77% slump in profit to just over US$ 2 million, not helped by a 66.4% hike in impairment costs to US$ 327k; revenue declined 48% to US$ 48 million. Q2 profit also slid – by 68% – to under US$ 2 million, driven by a 53% revenue decline to US$ 21 million and finance costs 64% higher at under US$ 3 million. The developer, with Dubai Islamic Bank its major shareholder, is currently working on its 75% completed Bella Rose project in Al Barsha South and expects to start work soon on the third phase of its Midtown residential project, comprising seven buildings. In April, the company restructured its capital base, reducing its equity by 21.3% to US$ 1.2 billion.

Embattled Union Properties received a boost this week with an agreement to restructure a US$ 257 million debt with Emirates NBD, its principal creditor, which includes payment of an initial amount. The improved terms will enable the developer to reduce its debt instalment payments, improve its already tight liquidity and focus on the development of its activities and projects. These include the recently announced new project, Motor City Hills – a development next to the Dubai Autodrome, including 195 villas, 490 townhouses and six commercial land plots – and a US$ 54 million expansion of the Dubai Autodrome. It is also transforming three units – ServU, The Fitout, and the Dubai Autodrome – into private joint stock companies, as it reorganises its business to cut costs.

The bourse opened on Sunday 09 August and, 57 points (2.8%) higher the previous week moved up a further 47 points (2.2%) on the week, closing on 2,155 by 13 August. Emaar Properties, US$ 0.03 higher the previous week, closed up a further US$ 0.03 to US$ 0.76, whilst Arabtec, up US$ 0.14 the previous five weeks, shed US$ 0.04 to US$ 0.26. Thursday 13 August saw the market trading at 330 million shares, worth US$ 123 million, (compared to 297 million shares, at a value of US$ 80 million, on 06 August). 

By Thursday, 13 August, Brent, US$ 5.47 (14.3%) higher the previous four weeks closed up US$ 1.26 (2.9%) at US$ 45.01. Gold, having climbed US$ 269 (14.9%) the previous three weeks, gave back the US$ 109 (5.3%) gain of the previous week to close on US$ 1,960, by Thursday 13 August.  The International Energy Agency has cut its 2020 oil consumption forecast again – this time by 140k bpd – to 91.9 million bpd and expects it to move higher to 97.1 million bpd next year. The agency attributes the decline in demand to the continuing spread of the virus and does not expect that to return to its pre-Covid-19 level of 100 million bpd for some time or prices returning to anywhere near US$ 70, posted before the onset of Covid-19.

Having retrenched 4k staff in May – and now cutting a further 2.5k from its payroll – Debenhams has lost a third of its total payroll as it struggles, like many of its peers, with the ravaging impact of Covid-19. This time, the jobs lost will be mainly across its UK stores and distribution centre but there will be no further shop closures of the 124 stores that have reopened post lockdown, apart from the twenty that were slated to shut following the onset of the pandemic. In April, the retailer entered administration for the second time in 2020.

In a case of déjà vu, for the second consecutive time, Mike Ashley’s Frasers Group – formerly Sports Direct – has held up its annual results which should have been released today, 13 August, for at least another week. Last year, the company’s 2019 results were delayed by a week and then subject to continuous deferrals thereafter before releasing annual results that included the shock news of a US$ 760 million tax bill from Belgian authorities. The company has been keen to reassure investors the delay was not because of any problems and that it was due to “final IFRS 16 disclosures still being completed and reviewed”. (IFRS 16 is an International Financial Reporting Standard relating to the accounting of leases, which specifies how they must be recognised, measured, presented and disclosed).

There was some good news and bad news for Tui this week. The German travel posted a US$ 1.3 billion Q2 loss, as the lockdown brought the travel industry to a halt and, after announcing late last month, that it would shut 166 High Street outlets in the UK and Ireland as summer bookings were 81% lower (made worse by new travel  restrictions for Spain – and possibly soon France and the Netherlands), and 40% down for a scaled-back winter programme.. But the good news was the firm announcing there had been a marked increase in 2021 bookings – up by a “very promising” 145% – and the fact that it had cut a compensation deal with Boeing over the prolonged grounding of 737 Max planes, including a deferral of 61 aircraft deliveries.

It seems that Japan’s 7-Eleven has taken a massive gamble by paying US$ 21.0 billion for Speedway, the US petrol chain owned by Marathon Petroleum. The bid was more than US$ 4 billion than those of their two main competitors – UK’s EG Group and Canada’s Alimentation Couche-Tard – with similar offers in the region of US$ 17.0 billion. It appears that these convenience chains are more interested in selling coffee, grocery and fast food items which have over the years gained revenue traction as fuel sales, as a percentage of total turnover, have declined. The Japanese interloper has been involved in over forty deals since 2006 to become the US’s top operator of convenience stores with over 9k outlets.

Uber Technologies Inc posted a net US$ 1.8 billion Q2 loss, which included costs associated with laying off 23% of its payroll. Revenue fell 29% to US$ 2.3 billion, as the number of active platform users nearly halved to 55 million, year on year. Although there was more than a doubling in demand for its food-delivery service, to US$ 1.2 billion, demand for ride-hailing trips, which accounted for 66% of its turnover, has only marginally recovered, up by 5%, from its rock-bottom April figures. However, Uber is still confident of becoming profitable by the end of 2021.

There was much surprise when it was reported that Eastman Kodak was granted a US$ 765 million loan from the Defence Production Act, in collaboration with the US Department of Defence, late last month. Then it was explained that it was intended not only to speed up production of drugs in short supply, and those considered critical to treat Covid-19, but also to  restore the troubled camera company that had lost focus, after once been the leading player in the photography industry. Now that loan is on hold pending investigations into allegations of wrongdoing, probably on two fronts. The first obvious one is whether Kodak could handle large scale pharmaceutical manufacturing, whilst the other will centre on whether some of the board used information to buy shares before the announcement was made as Kodak stock values jumped 2,760%.

At the beginning of the week, the US economy received good news on two fronts. With a 10bp fall to 2.88%, US mortgage rates have dropped, (for the eighth time since the onset of the virus), to their lowest ever level, in a move that could well boost the housing market, battered by Covid-19, by “giving potential buyers more purchasing power and strengthening demand.” Part of the fall can be attributed to two acts by the Federal Reserve – maintaining its near to zero benchmark rate and buying mortgage bonds, as part of its plan to stimulate the economy.

July unemployment rates fell again from 14.7% in April and 11.1% last month to 10.2%, as payrolls rose higher than expected by 1.75 million, better than the market’s expectations of 1.48 million. However, it must be noted that employment remains about thirteen million lower than the pre-Covid-19 level and the country being the worst affected major global economy, with over five million infections (26% of total global cases), and 163k deaths. Further bad news saw stimulus negotiations between the Republicans and Democrats on the brink of collapse.

June industrial production in the eurozone increased by more than expected with Spain, France and Germany posting monthly gains of 14.0%, 12.7 and 8.9%, although year on year figures are still well down by 14.0%, 11.7% and 11.7% respectively. Chances of a quick recovery have been reduced, with several countries posting a resurgence in Covid-19 cases that may have a negative knock-on impact on short-term growth prospects. Not surprisingly, Germany seems to have had the strongest recovery of all eurozone nations, but the volume of trade remains 10% lower than this time last year. However, a lot of German exports are reliant on their eurozone partners’ economic health and these figures indicate there is some way to go for the country to return to some form of trade normalcy. For example, Spain has seen its GDP decline 18.5% in Q2, resulting in one million Spaniards losing their jobs.

The EC President has confirmed that restrictions on national budgets, already suspended in March because of the onset of Covid-19, will continue until 2022, mainly because of the on-going economic uncertainty, made worse by a recent resurgence in cases that may lead to an unwanted second wave. At the time, Ursula von der Leyen said that the step was necessary to cope with “the human as well as socio economic dimension” of the pandemic. The budget rules, often “bent” in times of various crises to meet the bloc’s then requirements, are that any budget deficit to be less than 3% of GDP and public debt to be lower than 60% of GDP.

Last year, remittances overtook foreign direct investment as the biggest source of external financing for many nations, with a reported US$ 545 billion involved; it is estimated that because of Covid-19, the 2020 figure will be 18.3% lower to the tune of around US$ 100 billion. For example, it is estimated that nine million Filipinos work overseas but their remittances fell by 20% in the year to May, at a time when Covid-19 will see up to 750k repatriated because of overseas retrenchments, whilst many others overseas have seen pay rates cut. The end result is that domestic consumption will decline in the country with a negative knock-on effect for the Filipino economy,  as less is spent on the likes of construction, food and education.

Another leading political figure in Malaysia is in legal trouble and has been charged with corruption, involving a US$ 1.1 billion undersea tunnel project. Lim Guan Eng, the country’s former finance minister, has been charged with soliciting 10% of potential profits in 2011, as a bribe for the project planned in northern Penang state where he was the chief minister from 2008-2018, before his move to the federal government. This week, he has been accused of abusing his power as Penang chief minister to obtain US$ 800k, as an inducement to help a local company secure the 7.2 km tunnel project contract. He has pleaded not guilty but could face up to twenty years in jail and a fine, if found guilty.

Australian wages only grew 1.8% in the year to June 2020 – their slowest pace since records began in 1997 – with the private sector wages bearing the brunt of the slowdown, driven principally by a number of large wage reductions across higher paid jobs. Although public sector wage growth was stronger, which helped to keep inflation positive, it still declined to 2.1%. Industry-wise, the largest wage declines were seen in “other services” (-0.9%), construction (-0.5%) and professional, scientific and technical services (-0.5%) and on the flip side, the “winners” were in utilities (0.6%), education (0.5%) and mining (0.5%). The pace of the wages slowdown surprised analysts but what is certain is that worse is to come, given the depressed economic environment. Another surprise was that consumer confidence in NSW, down 15.5% to 77.8 was worse than Victoria, (down 8.3 to 78.0), which has just imposed stage 4 restrictions in Melbourne; these levels are only slightly better than those recorded in April when the country entered the early stages  of a national lockdown. A level of over 100 means the level of optimism is outweighing pessimism.

According to the Bureau of Statistics, there were more than one million Australians unemployed in July – a marginal monthly increase of 16k – with an unemployment rate of 7.5%, the highest level since 1998. It is estimated that if the Morrison government had not introduced JobKeeper, the unemployment rate would be at least 8.3%; if those people that have lost their job and exited the workforce since March, and the 165k counted as employed, but working zero hours, the rate rises to around 10%. However, almost 115k new positions (44k full-time and 71k part-time) were created in July. But the extent of economic scarring will become more obvious when JobKeeper is withdrawn and the true unemployment rate becomes apparent.

Since peaking at 6.9 million in late March, the number of Americans filing new claims for unemployment fell below 1 million for the first time since then, with the latest 963k figure down from the 1.3 million last week. Prior to the onset of Covid-19, the highest number of new jobless claims, at 695k, occurred in 1982. Although down from the pandemic peak of 14.7%, the 10.2% unemployment rate is still unacceptably high which may result in more stimulus money being pumped in by the Trump administration more so because of the looming November presidential election. However, 20% of US workers are still collecting benefits and that even though it seems that jobs recovery is gaining traction, the fact that twenty-eight million are still claiming some form of jobless benefits must be a worry to Donald Trump.

Q2 UK employment fell by 220k – the largest quarterly fall since 2009 at the height of the GFC. The Office for National Statistics noted that the youngest workers, oldest workers and those in manual occupations have been scarred most financially from Covid-19 and its lockdown. The figures would be even worse, but they exclude the estimated ten million that are on furlough, the one million on zero-hours gig contracts and those on temporary unpaid leave from a job. It will probably be October, when the government is scheduled to stop its US$ 52 billion furlough and self-employed income support schemes, before the full impact on the UK employment figures will be known. Furthermore, the number of people claiming universal credit – utilised by both those on low pay as well as unemployed people – rose 117% in the three months to July to 2.7 million, whilst quarterly pay levels dipped 0.2% – its first negative pay growth since records began at the turn of the century. In June alone, various sectors, including retail and F&B, announced further redundancies totalling 140k, whilst the number of self-employed fell by 238k to 4.8 million, about 14.5% of the workforce.

Although known for several weeks, the UK economy formally fell into recession, (technically two consecutive quarters of contraction), down 20.4% on the quarter – the country’s biggest slump on record. However, more positive news was that the economy actually grew in May and June, by 1.8% and 8.7% respectively – indicating somewhat of an economic bounce, although it must be noted that the economy is still a sixth lower than its February level and a fifth lower than it was in December 2019. The slump is not as bad as Spain’s 22.7% but almost twice as bad as those of Germany and the US but it must be remembered that the UK economy is more focused on services, hospitality and consumer spending – that accounts for a larger share of the economy – than most other advanced economies. Even Boris Johnson has warned “clearly there are going to be bumpy months ahead and a long, long way to go.” It’s Not Over Yet!

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