Hope Springs Eternal

Hope Springs Eternal                                                12 September 2019

Despite all the gloom around the realty sector, there have been recent glimpses that the worse may be over. Property Finder reported that over the summer quarter, (June – August), residential sales at 8.8k were the highest in four years and 33.5% up on the 6.6k figure in 2018. The secondary market recorded a 20.4% rise to 8.8k, with total sales at US$ 3.9 billion, up 14.9% year on year. However, the off-plan market still leads the way, with the quarter’s 5.0k, 43.5% higher than the corresponding figure last year; sales came in at US$ 2.0 billion – up 49.6%.

For the first eight months of the year, the fact that only 179 residential units, worth over US$ 1.4 million (Dhs five million), compared to 12.4k under that value, sold in off-plan sales, points to a significant switch in consumer behaviour; in the secondary market, the numbers were 527 and 8.8k. In 2018, off plan sales showed 241 units being sold over US$ 1.4 million and 17.2k below that amount, with the secondary market seeing sales of 1k and 14.6k respectively. These figures indicate a marked shift in a move from what was considered luxury to more affordable units.

MAG Property Development is planning to invest US$ 2.2 billion into the local realty sector, with three major projects – Mag City in Meydan, Al Furjan Villas and MPL Tower in JLT. To further encourage potential buyers into the market, the developer is to introduce a US$ 33 per day payment option to own a property – and this without any additional terms or fees, including registration, service and any other administrative costs.  MAG believes that a move to more affordable housing is the direction the market is taking and that developers should take note or lose out.

September sees Damac launch a month of offers, covering projects in Business Bay, Damac Hills and Akoya. Among the offers are a 50% discount off select homes in Celestia in Dubai South and 10% discounts on luxury villas, along with a three-year flexible payment plan. The payment plan is also open to buyers in Damac Hills (as well as a 15% discounts) and 20% on golf course-facing apartments in Kiara. Buyers for its recently opened Paramount Tower Hotel & Residences will receive guaranteed three-year rental revenue of up to 30%, with the same offer available for Radisson Dubai Damac Hills. Damac is going back in time by also offering a new Mercedes Benz to customers buying homes at three of the four Damac Towers by Paramount, Royal Golf Boutique Villas and those buying 2-3 B/R apartments at Golf Town in Damac Hills.

Businessman, Abdul Razeq Abdul Ahad has signed an agreement with Ellington Properties to build a new residential tower in a central location in the emirate. The US$ 41 million deal will go some way towards the builder’s target to build 1k residential units every year; to date, its developments have included Belgravia, Belgravia Heights, Belgravia Square, Wilton Terraces and Wilton Park Residences in MBR City.

Monday saw the tenth anniversary of Dubai Metro over which time it has carried 1.5 billion people, riding on the world’s longest driverless metro project. In its first year of operations, it had 39 million users, but this has more than quintupled to 204 million recorded last year. It is hard to believe that HH Sheikh Mohmmed bin Rashid Al Maktoum faced some opposition to his plan from some members of the Dubai Executive Council, worried of its non-acceptance by the population.

Emirates reported that its UK market has been growing at a healthy 6% per annum and accounts for 56% of its total European profit, along with 26% of capacity. Data firm OAG estimates that the Dubai-London route is valued at US$ 800 million, with the Heathrow-Dubai leg, (utilising six A380s a day), being the fourth busiest in the world, carrying 3.4 million passengers. The airline uses eight UK destinations, with its president, Tim Clark, believing that there would not be a “collapse in UK demand” if and when the country leaves the EU.

The Minister of Health has ordered that the price of some 410 drugs should be reduced, by between 2% – 77%, as from 15 September; 183 of these are produced locally. HE Abdul Rahman bin Mohammed Al Owais is implementing the government’s directive that medicine should be provided at competitive prices and in line with the lowest prices to be found in the Gulf.

It seems that some UK employees in various sectors would be better off financially by moving to this country. A study by 1st Move International estimates that pilots, doctors and lawyers would earn, on average, more by 126% to US$ 168k, 86% at US$ 108k and 70% to US$ 138k respectively. The UAE was also ranked the tenth best paying country, with an average overall salary of US$ 55k.

Shuaa Capital is to sell its local Shuaa Securities brokerage and market-making businesses to IHC RSC Ltd, an Abu Dhabi investing holding company. This is part of the strategy of the new entity, following Shuaa’s recent merger with Abu Dhabi Financial Group, that sees the divestment of non-core business units.

On Tuesday, Arabtec shares finished 11.3% higher at US$ 0.482 (but still at almost record lows), as the builder confirmed it was in merger talks with Trojan Holding. In the first two quarters of 2019, the troubled company posted year on year profit falls of 50.0% and 62.0% respectively.

The bourse opened on Sunday 08 September and, having gained 122 points (4.4%) the previous week, dipped 3 points lower (0.1%) to 2888 by 12 September 2019. Emaar Properties, having lost US$ 0.07 the previous four weeks, was flat at US$ 1.36, with Arabtec US$.0.03 higher to US$ 0.47. Thursday 12 September witnessed even lower trading conditions again of 98 million shares, worth US$ 51 million, (compared to 143 million shares, at a value of US$ 95 million on 05 September).

By Thursday, 12 September Brent, having shed US$ 0.76 (1.1%) the previous week, nudged US$ 0.06 (0.1%) higher at US$ 60.38. Gold, having gained US$ 19 the previous fortnight, ended on Thursday 12 September US$ 30 (2.0%) lower at US$ 1,507. 

Following problems with so-called “final load” tests, Boeing has suspended testing on its new long-haul 777X aircraft, of which Emirates is the biggest launch customer. There are reports that a door of the plane blew out during the test – a very rare occurrence at this stage of testing.  The new model was supposed to have its first flight this summer – now it seems it will be a toss-up between the 777X and 737 which will fly first. At the same time, the US manufacturer is in the process of completing changes required by regulators to lift a flight ban on the 737 MAX.

Google has agreed to pay French tax authorities US$ 1.0 billion to settle a tax dispute. The US company expects that this will put to bed the many fiscal differences that it had with France for numerous years. However, there seems to be little common ground on how to control the taxation of digital giants, even though this was discussed at the recent G7 meeting.

Earlier in the year, Goldman Sachs was lauding the fact that WeWork could be valued at US$ 65 billion, despite the fact that the office-sharing company was losing billions of dollars and had never posted a profit in its nine-year history. In H1, WeWork lost a further US$ 609 million bringing its total losses over the past three years to US$ 3.0 billion. Now there are questions whether the company will ever go public and if it did, pundits are valuing it as low as US$ 20 billion. There is every chance that it may go to its number one investor, SoftBank, for more financing.

A late flurry in the number of complainants, claiming for the mis-selling of Payment Protection Insurance (PPI), has left Lloyds and Barclays facing billions of dollars in new costs. The former will provide between US$ 1.5 billion–US$ 2.2 billion, whilst Barclays will put aside slightly less. Popular with “financial advisers” in the 1980s, and wholly unsuitable for its supposed purpose, PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs.

It seems highly likely that the London Stock Exchange will reject a surprise US$ 39.4 billion takeover offer from Hong Kong Exchanges and Clearing which would have combined “the largest and most significant financial centres in Asia and Europe”. However, having called the bid “unsolicited, preliminary and highly conditional”, the board said it would “consider” the proposal and “make a further announcement in due course”.

The IMF seem to be advising Saudi Arabia to double its VAT rate to 10%, as one way to reduce its far too high budget deficit (at US$ 320 billion) which is expected to widen by a further 0.6% this year to 6.5% of GDP on the back of OPEC production cuts. In its first year of operation, 2018, VAT generated returns of US$ 12.5 billion, equating to 1.6% of the country’s GDP. Although some progress has been made to reduce the deficit, the government still needs to look at other reforms, such as raising energy prices and fees levied on expatriates.

Australia – with a mere 25 million population – holds the world’s third-largest pool of pension assets, worth a massive $1.9 trillion, almost double that of the world’s tenth largest bourse – the Sydney-based national stock market ASX. This nearly 2:1 ratio is the highest among major developed economies where the ratios for UK, Canada and US are around 1.4, 1.2 and 1.0 respectively.

Fund managers are increasingly looking for overseas returns on some of that total which could be in the region of US$ 250 billion. Because of this cash imbalance, many of the Australian funds have been forced to look offshore to find suitable infrastructure, property, private equity and listed companies that could grow to US$ 1.0 trillion. Reports indicate that 41% of the biggest funds’ assets are currently invested overseas, with 75% of those funds expected to grow these offshore investments over the next two years.

The ECB has announced the return of quantitative easing (initially purchasing US$ 18 billion a month), and further cutting the deposit facility rate by 0.1% to minus 0.5%; the main interest rate remained unchanged at zero. Despite these measures, aimed at pushing the inflation rate to its 2.0% target, the economy remains sluggish at best and the hope is that by making more money available, it will encourage financial institutions to lend more to businesses and individuals.

With all the negative news emanating from the UK media, it is perhaps a surprise to some that the economy is faring comparatively well, when compared to some of its European neighbours. Wages continue to head north with July quarter growth readings of 4.0%, on an annualised basis, and at the same time the unemployment rate dipping to 3.8%; the estimated employment rate remained at a record 76.1% (32.8 million), its highest level in forty-five years. These figures point to a high probability that the economy should avoid a technical recession in Q3. On top of that, sterling started its climb back on Monday standing at 1.2357 to the greenback after falling below the 1.20 threshold the previous week.

Mainly as a result of the bi-lateral trade war with the US, China posted disappointing August exports – down 1.0%, compared to the same month in 2018. Exports to its nemesis fell 16.0%, year on year, whilst the flip side saw US imports slump 22.4%. The country is almost certain to introduce new measures to avoid the obvious danger of a further economic deterioration. This has already included the central bank cutting banks’ reserve requirements for a seventh time in twenty months to free up more funds for lending; there is the possibility of a rate cut which would be the first in four years. The on-off talks are back on with both countries agreeing to renew trade talks next month.

Good news and bad news on the trade tariff war. This week, China has decided to exempt sixteen US imports from their tariff quota. The bad news is that there are still 5k products still subject to levies of between 5% and 25%. In July, the US had exempted 110 Chinese-made products from their tariff list and some observers consider the Chinese move a very small gesture of goodwill ahead of talks in Washington next month. Currently the tariff table stands at US imposing US$ 360 billion worth of “charges”, with China retaliating with US$ 110 billion. By the end of the week, a presidential tweet saw Donald Trump delaying the planned tariff hike on US$ 250 billions of Chinese goods as a “gesture of goodwill”. Hope Speaks Eternal.

Advertisements
Posted in Uncategorized | Tagged | Leave a comment

Make The Money

Make The Money                                                      05 September 2019

In an on-line letter, HH Sheikh Mohammed bin Rashid Al Maktoum addressed his “brothers and sisters” in a six-point document. One of his most interesting points was directed at government officials who he said belong “in the field” and “we want to see them there and hear from them among the people rather than in conferences that have increased and consumed resources and the energy of those in charge…we are a government of achievements and not a government of conferences.” He was also critical of social media users and urged them not to tarnish the efforts and accomplishment of the UAE, whilst reminding them that “we have a Ministry of Foreign Affairs and International Co-operation, responsible for managing our external affairs, speaking on our behalf and expressing our position on foreign policies.”

He also pointed out that Emiratisation is a “priority of the new season”, more so because Emiratis account for only 0.5% of the private sector (and 60% of the public sector). He also reemphasised that “providing jobs for Emiratis was and remains a priority”. He also indicated that the country is to become more competitive on the global stage, adding that “we are not a country that moves according to the average economic rates. We are a country that seeks to make economic leaps.” Who needs Tony Robbins when it comes to motivation?

In a busy week, he was among a crowd of over “10k aspiring leaders and positive change makers at the biggest motivational event in the region.” He was attending lifestyle guru, Tony Robbins’ ‘Achieve the Unimaginable’ event and also tweeted “gathering a crowd of 10k is just the beginning to lead societies towards a better future. We have more to come.”

HH Sheikh Mohammed Bin Rashid Al Maktoum also issued directives to form a Higher Real Estate Planning Committee to try and equate the supply/demand conundrum seen in the emirate’s realty sector. He is keen to bring about a right balance between supply and demand, avoid launching similar real estate projects and ensure projects add real value to the national economy. Part of its strategy would be “to ensure that semi-government real estate companies do not compete with private investors”, as well as “to develop a comprehensive strategic plan and vision for all major real estate projects”. It also aims to ensure that real estate projects are not duplicated and to avoid competition between big developers and small private investors.

So far this year, Sobha has racked up sales in excess of US$ 272 million and expects to double that number by the end of the year, if the strong investor interest, in its flagship project Sobha Hartland, continues; compared to the same period in 2018, sales are up 165%. Interestingly, Chinese sales account for 36.5% of the total. The property developer is planning a 2022 IPO of its local business unit, dependent perhaps on it meeting its ambitious revenue and profit forecasts of US$ 680 million and US$ 110 million.

There has been a 2.1% hike in the number of hotel rooms in the final phase of the development pipeline in the ME with, as usual, the UAE, streets ahead of its neighbouring countries. A STR study indicates that the pipeline comprises 427 projects, accounting for 124k rooms of which the UAE has over 54k (31.8%) of the total.

Its seventh premium luxury Address Hotels + Resorts property was unveiled by developer Emaar Properties. Located in Downtown Dubai, the three tower, 193-key Address Fountain Views will open next month; a link bridge will connect it with Dubai Mall.

Emaar has confirmed that it has appointed banks, including Standard Chartered and Emirates NBD, to assist with the potential issuance of US$ Islamic bonds, (probably a ten-year sukuk), an integral part of its US$ 2 billion debt raising programme.

This week it has also launched Ease by Emaar, a property management service that allows investors to seamlessly rent their Emaar property short-term as a holiday home. The company will charge a. 20% management fee, whilst the owner will have to pick up all other expenses, including government and booking fees.

It already has properties in its portfolio, as the new initiative may well boost the realty sector. Strangely, a day after this announcement, Emaar announced a rather abrupt end (as from 19 September) to all holiday-home visits in Downtown Dubai, citing that this was the result of “several requests and resident complaints on disturbances and related inconveniences due to holiday home operations.”

According to Mastercard’s Global Destination Cities Index 2019, Dubai maintained its position as the fourth most visited global city, with almost sixteen million international overnight visitors. Once again, Dubai visitors spent more (US$ 553) on a daily average, with a total spend for the year at US$ 30.8 billion, than any other of the two hundred cities surveyed. The next three – Makkah, Bangkok and Singapore – were way behind, with totals of US$ 20.1 billion, US$ 20.0 billion and US$ 16.6 billion.

The emirate welcomed more than 1.4 million passengers over the last two weeks of August, of which 260k (18.6%) utilised the 75 smart gates.

It is reported that Dubai Airports “is currently reviewing its (Dubai World Central) long term master plan to ensure infrastructure development takes full advantage of emerging technologies”. It seems that plans for what would have been the world’s biggest airport are being pushed back. There were hopes that following phase one, DWC would be able to handle 130 million passengers. Currently, even though it can handle 27 million, total passengers last year came in at 900k.

In the light of the imminent demise of its workhorse, the Airbus A-380, and a slowdown in the global economy (which is inevitably a cyclical event), Emirates is reviewing its future fleet requirement. The airline, basing its fleet around the Airbus super jumbo and the Boeing 777, has become the world’s largest international carrier. Now it has to consider that the market may be changing and that some locations may be better served by smaller planes. Emirates has reportedly still to sign off on a US$ 21 billion order, for thirty A350-900s and forty A330-900neos, made earlier in the year. It is also to restrict the number of A-380s to 123 after RR could not guarantee their engines’ price and fuel efficiency. It will be interesting to see what order the local carrier makes at this November’s Dubai Air Show.

Emirates has revamped some of its top hierarchy this week, with Adnan Kazim appointed as CCO, replacing Thierry Antinori, who abruptly departed some four months ago. Other appointments saw Adel Al Radha, as the new chief operating officer, leading all operational departments in the airline, and Shaikh Majid Al Mualla as divisional senior vice president for international affairs.

Emirates Cuisine Solutions is a new entity following a JV agreement between Emirates Flight Catering and Washington DC-based Cuisine Solutions. This will see Dubai host the world’s largest halal sous vide manufacturing facility. (Sous-vide is a cooking method in which food is placed in a plastic pouch or a glass jar and cooked in a water bath for longer than usual cooking times at an accurately regulated temperature). Distribution of these specialised food items will start this month, whilst the manufacturing facility will be ready by 2022.

There was a big fall in August’s IHS Markit’s PMI which saw the index decline to an eight-year low down, month on month, by 4.9 to 51.6. Despite this dip in business conditions, driven by increasing market competition, it is still above the 50 mark that is the threshold between expansion and contraction. It was also noted that activity in the non-oil economy increased “at a notably softer rate”, with weaker demand biting into any expansion and prices continuing to be discounted. Companies maintained their vigilance when hiring, with employment numbers, in the non-oil sector, remaining in the doldrums.

One sector that seems to defy the local economic conditions is banking, with the Central Bank releasing figures showing that the sixty UAE-based institutions received a total of US$ 5.8 billion in commissions last year; national banks accounted for 82.8% of the total. In 2018, the profits of UAE banks rose by 12.0%, year on year, to US$ 11.6 billion. With total banking assets topping US$ 780 billion, the UAE maintained its banking sector’s position as the largest in the Arab world. The Central Bank also revealed that eligible liquid assets totalled US$ 112.8 billion.

S&P expects Dubai economy to expand by 2.4% this year (2.0% – 2018), driven by a slight rise in economic activity, with stronger growth expected next year on the back of Expo 2020 and the completion of related infrastructure projects, along with increased tourist numbers. The ratings agency expects average 2.5% growth until 2022 but the downside could arise from the real estate sector expected to post a further price 10% decrease this year. Meanwhile, the country will see growth at 2.6% next year (up from 1.7% in 2018), with Dubai’s non-hydrocarbon sector contributing about 70% of its real GDP.

August saw the DGCX post average daily volumes totalling 146.5k – 55% higher than the same month in 2018 – and actually had its highest ever daily volume of 220k on 05 August. As usual, the best performing asset class during the month was the Indian Rupee, specifically Rupee futures which links the Indian currency to the US$. It seems highly likely that continuing geo-political tensions will benefit the Dubai exchange – as investors search for new hedging tools – so much so that by the end of the year it should have overtaken its previous annual volume of 22.3 million contracts.

On Monday, Emirates NBD, 55.8% owned by the Dubai government,  raised the cap on foreign ownership, from 5% to 20%, and saw its shares, quoted on the DFM, jump 15% limit up to its highest level since 2007; it is considering doubling this to 40% in the near future, as well as raising its capital base to US$ 2.0 billion from a new share issue. Money raised will help to pay some of the US$ 2.6 billion spent on its recent Turkish acquisition, Denizbank AS. The bank also confirmed that it raked in US$ 376 million, with its April sale of a 10.5% stake in Network International which floated on the London Stock Exchange; it still retains an 11.9% shareholding. There is every chance that, by early next year, Dubai’s largest bank could be included in the emerging market benchmarks compiled by MSCI and FTSE Russell. Since the beginning of September, its share value has shot up 19.5% to US$ 3.76.

The bourse opened on Sunday 01 September and regained most of the 141 points (4.8%) shed the previous four weeks, jumping 122 points (4.4%) to 2891 by 05 September 2019. Emaar Properties, having lost US$ 0.08 the previous three weeks, nudged US$ 0.01 higher to close on US$ 1.36, with Arabtec flat at US$ 0.44. Thursday 05 September witnessed low trading conditions again of 143 million shares, worth US$ 95 million, (compared to 159 million shares, at a value of US$ 45 million on 29 August).

By Thursday, 05 September Brent, having gained US$ 3.70 (6.4%) the previous three weeks, was US$ 0.76 (1.1%) lower at US$ 60.32. Gold, having gained US$ 29 the previous week, ended on Thursday 05 September US$ 10 (0.7%) lower at US$ 1,537.  Silver ended the week at US$ 18.82 – up 17.5% from its 01 January opening of US$ 16.02.

For the month of August, Brent lost ground, shedding US$ 5.17 (9.0%) to close the month at US$ 59.25 but was well up YTD having gained US$ 5.45 (10.1%) from its year opening balance of US$ 53.80 to close at US$ 59.25. Meanwhile, gold astounded the market, with monthly gains of US$ 104 (7.3%) and YTD US$ 235 (18.3%) to close August on US$ 1,520.

American Airlines has followed the example of others, including United, South West and Air Canada, to remove the troubled Boeing 737 Max from its schedule until at least December. The aircraft manufacturer is confident that the US Federal Aviation Administration will conduct its Max certification flight next month, more than seven months after the model was grounded worldwide on 13 March, following two crashes within five months that killed 346 people. However, some global civil aviation authorities have complained that Boeing has yet to provide technical details about modifications to the Max’s flight control computers and this could delay its return into the new year.

In the UK, the Restaurant Group, that acquired Wagamama last year, has indicated concerns that some of its restaurants are considered to be in unfavourable locations. Having identified 76 Frankie & Benny’s restaurants in March, they have now highlighted that a further 42 (mainly Chiquitos) are in line for possible closure for the same reason. The future of each outlet would be reviewed when their lease expired. Although total H1 sales were 58.2% higher at US$ 620 million, the company posted a US$ 106 million loss, driven by a US$ 139 million write down in the value of restaurant sites seen as being “structurally unattractive”. Its share value dipped 14% on Tuesday when the details were published.

Last Friday, shares in Shoe Zone sank by over 30% after a double announcement that it expected profits to be less than initially forecast and its chief executive, Nick Davis, would leave immediately to “pursue other business interests”. The retailer, with 4k employees and 550 stores, is but the latest High Street name to hit the buffers, as reports indicate that the number of empty shops in the UK reached its highest rate in four years and shopper footfall declined by 1.9%.The retailer also revealed that its 17 freehold properties were worth US$ 4 million less than expected. Its future strategy will see it focus more on online and larger out-of-town stores.

The Australian supermarket sector is in for a major shake-up, involving the entry of a largely unknown German powerhouse Kaufland, backed by the fourth biggest retailer in the world, Schwarz Gruppe. It first announced that it would open three stores earlier in the year and now has twenty ready to open in Victoria and South Australia, prior to moving to NSW. It is expected that the expansion will result in 2.4k jobs and that Victoria itself will benefit by a US$ 350 million investment made in outlets, HQ and a distribution centre. Not only other big players – including Coles, Woolworths and even its compatriot Aldi – will feel the pinch but also the likes of Big W, as well as Wesfarmers’ Kmart and Target, because the German interloper also houses a full line of discount department store goods. Kaufland operates big – its stores are usually fifteen times bigger than an Aldi, five times bigger than a big Coles or Woolworths, and stocks 40k different stock items (compared to Aldi’s 1.3k average).

It is no surprise to see yet another of Australia’s larger banks in court. This time, Westpac is facing a class action by potentially thousands of their superannuation members, claiming that they have been short-changed out of retirement savings for more than a decade. The case involves two of the bank’s subsidiaries – Westpac Life and BT. The latter, (even though funds were meant to be invested directly into a low-risk “cash-only” fund), is accused of shifting its superannuation members’ funds to the former which then transferred them to an external fund, thus ramping up fees. It is then thought that Westpac Life “pocketed” half the returns.  It seems that Westpac Life had earned “reasonable returns” (of 2.5%) but decided to only pass on 1.3% to members. The compensation claim could cost the bank tens of millions of dollars – and because it is an “open class action”, any investor is automatically included as plaintiffs.

Australia posted its first quarterly current account surplus (of US$ 4.0 billion) since June 1975 (when January’s ‘Never Give Up’ was number one in the charts) on the back of big trade surpluses driven by booming iron ore prices and a lower Australian dollar. The current account deficit used to average about 4% of the country’s GDP but this figure had risen to US$ 16.1 billion by 2015. Subsequently, it has been slowly whittled down to finally attain positive status. Meanwhile, the RBA has kept the cash rate at a historic low 1.0% following consecutive 0.25% cuts the previous two months but expect a further reduction probably in November. The dollar (US$ 0.682) is hovering around decade-long lows.

It is a hard fact of economic life that Australia’s good news derives a lot from Brazil’s Vale iron ore mine disaster in January that saw 300 people killed and the facility closed. Consequently, Australian miners, including Rio and BHP, cashed in as iron ore prices rose from US$ 72 a tonne to US$ 122, before dipping to US$ 90.72 by Thursday; even at this level, it is still 65% higher than the US$ 55 a tonne forecast by Treasury for the current financial year. The fact that for every US$ 10 over the US$ 55 forecast price generates US$ 3.7 billion for the federal budget may well be masking that the Australian economy is not performing as well as it first appears.

This week, Argentina introduced currency controls, limiting bank withdrawals to a maximum of US$ 10k without formal approval. This move comes with the country facing a deepening financial crisis, resulting in the value of the peso slumping. The Macri government, which is likely to fall from power in next month’s elections, has also approached the IMF to defer debt repayments. Argentina, where in 2018 alone, three million more fell into poverty, has posted a H1 inflation rate of 22%, as its economy contracted 5.8% in Q1, following a 2.5% decline last year. Whether this compares with the other four debt defaults, that the country has faced in the past thirty years, remains to be seen.

August’s IHS Markit/CIPS PMI saw UK manufacturing activity slumping to its lowest level in seven years, as the index dipped, month on month, 0.6 to 47.4. With new orders dropping at their fastest rate in seven years, and business confidence at a historic low, the blame has been apportioned to the usual two main suspects – the global economic downturn and uncertainty around Brexit.

In what many considered to be an election budget, there is no doubt that new Chancellor Sajid Javid splurged out, declaring that the Johnson governmenthad “turned the page on austerity”. With what was a budget, with the fastest increase in spending for fifteen years, the government will spend US$ 16.5 billion across the board including the NHS, education and the police (with an additional 20k new police being recruited).The budget was overshadowed within hours when Prime Minister Boris Johnson lost his majority in the House of Commons with Phillip Lee’s defection to the Liberal Democrats. More bad news followed when rebel Tories and Labour MPs passed a bill to stop the UK leaving the EU on 31 October without a deal and the PM failed in a bid to hold a snap general election on 14 October. Sterling had fallen to US$ 1.206 but recovered to close on Thursday at US$ 1.225 – another missed opportunity for those with dirhams or dollars to exchange.

Despite the ever-increasing noise about an imminent recession, driven by the year-long trade war between the United States and China, August US private payroll figures continue to move northwards, with an increase of 195k monthly jobs, up from July’s figure of 142k. However, despite the obvious strength in the labour market, and the fact that the US economy is in its 11th straight year of expansion, there are genuine concerns that global trade issues will eventually have a negative economic impact. On those grounds, there will almost certainly be a further interest rate cut later in the month, two months after the last one.

As options contracts expired at the end of the month and low liquidity pervaded the market, the euro sank below US$ 1.10 for the first time in over two years last Friday and weekend worries about tariffs and possible Hong Kong unrest. Even Donald Trump was tweeting about the fact that the strong dollar was costing his country exports revenue to the bloc. There are expectations that the ECB could well cut rates to below zero as well as introduce a new stimulus package. If you can get a near-zero loan, it could be time to fill your boots – otherwise, yet again, it is time for the banks to Make The Money.

Posted in Uncategorized | Tagged | Leave a comment

True Colours

True Colours                                           29 August 2019

Finally, some good news for the Dubai realty sector, with a Knight Frank report that luxury property prices showed a 0.3% increase in Q2 (but still down 6.0% over the previous twelve months). However, the emirate is only ranked 42nd out of out of 46 cities, covered in the latest Knight Frank Prime Global Cities Index, which listed Berlin at the top of the ladder (showing a 12.7% annual growth, with Vancouver at the other end, declining 13.0%). Hong Kong still remains the most expensive global prime residential city market, with an average price of US$ 4,251 per sq ft; Dubai is a lot more affordable, with average per sq ft prices of US$ 625. It is inevitable that Dubai real estate will benefit from the on-going trouble in the once-held British colony.

Oyo Rooms and Gallery Suites Vacation Rentals have signed a US$ 5 billion deal to furnish and manage 10k Dubai holiday homes, to meet the growing demand for short-term and holiday lets. Located in areas such as Dubai Marina and Palm Jumeirah, the venture is confident of becoming the service provider of choice for the exclusive end of this burgeoning market. Gallery Suites Vacation Rentals is a subsidiary of the UAE-based IBC Group, whilst Oyo is the third largest hospitality company in the world. It may well benefit from its choice of Berkshire Hathaway Home Services Gulf Properties to play an advisory brokerage role in identifying, acquiring and financing the right properties.

Five Jumeriah Village is set to open its doors in JVC next month. The new hotel, located in Jumeirah Village Circle, comprises 247 rooms and suites, along with 254 1-4 B/R hotel apartments; the chic hotel also boasts 269 pools and jacuzzis. Nearby, Nakheel has released one hundred 4-5 B/R villas, with prices starting at US$ 871k –  part of its new gated community, containing1.6k Mediterranean and Moroccan style villas.

Just when you thought that Dubai was teeming with too many schools, the Knowledge and Human Development Authority announce that five new ones will open this school year and at least three more next; it also added that 13k new seats would be made available to give parents an even wider choice for their children’s education. Over the last three years, 41 new schools have opened in Dubai which has seen the number more than triple over the past decade to the current 119.

Since its 2016 start-up, India’s Cure.fit has managed to raise over US$ 400 million in four rounds of funding. Now it is to spend US$ 10 million to test the UAE market, with the aim of opening fifty gyms (35 in Dubai) and get up to 20% of the local US$ 545 million market, set to rise by 50% to US$ 817 million over the next three years. Although there are some major players in Dubai, such as Fitness First and Gold’s Gym, the market is fragmented with over 91% of fitness outlets being independently owned.

Dubai Economy reported a 23% hike in the number of H1 trademark infringement cases, with its Intellectual Property Protection section resolving 186 cases (cf 151 in H1 last year).  The top three countries lodging cases were US, France and Switzerland with numbers of 37, 33 and 21 respectively. Furthermore, there were 38 and 22 cases involving cosmetics and personal care products. Over the period, there was a 63% increase in trademark files registered on the DED’s ‘IP Gateway’ portal, as global trademark owners registered over 4.7k brands; more than 50% were lodged by three countries – US, UAE and Germany, with 1,482, 742 and 325 files.

A major scam, involving 6k tonnes of missing rice, is being investigated by Dubai Police. The fraud was reportedly carried out by six men and two companies, as well as staff at a money exchange house. The suspects, purporting to represent a Dubai trading company, duped millions of dollars when as many as 23 TTs were cancelled after their cheques bounced. When the real traders travelled to Dubai to check on the situation they found that the Al Qouz warehouse, which should have had 250 containers full of rice, was empty; furthermore, the Dubai trading company’s office in JLT was also left vacant.

Dubai Police has also warned residents to be aware of other scam artists, using counterfeit foreign money, being offered at above normal rates. Last year, the authorities seized over US$ 272 million (one billion dirhams) and arrested 471 suspects, with 500 cases of counterfeit bills being detected. (This scam is somewhat bigger than the Italian suit man who has been around for at least twenty years).

Although the country’s population has only grown 5.2% to 9.543 million over the past four years, the number of road traffic deaths in the UAE has fallen by 34.2% to 468 in 2018. With the number of vehicles on the road increasing significantly over that period, the number of serious accidents dropped 24.1% to 3.7k. The government is on track to meet its 2021 target of reducing its road mortality rate to three per 100k.

The fuel price committee has set September pump prices in a monthly process, that started in August 2014, of adjusting prices according to market conditions. Special 95 and diesel have both fallen by 4.4% to US$ 0.589 and 1.7% to US$ 0.648.

Mars has become one of the first global companies to take advantage of the country’s new foreign direct investment (FDI) laws that allow them 100% ownership for the first time ever; in the past, 51% local ownership was mandatory. The privately-owned food company has invested US$ 150 million since setting up in Jebel Ali Free Zone in 1993. Its range of brands include Dolmio and Uncle Ben’s, as well as pet food brands Whiskas, Royal Canin and Pedigree. Following its US$ 23 billion 2017 acquisition of chewing gum maker Wrigley, it boasts five of the top ten confectionery brands in the country – Galaxy, Snickers, Bounty, M&M’s and Extra.

A Dubai-based start-up could save delivery drivers almost US$ 7k a year, with the September launch of UAE-designed electric scooters, costing from US$ 4.0k to US$ 4.5k. The savings would come from reduced maintenance, no fuel charges and no registration charges – and taking polluting motorcycles off the road will lead to cleaner air. One Moto hopes that it could sell up to 50k units over the next three years as it looks to regional expansion.

The recently launched Dubai-based Galaxy Racer Esports is to host the world finals of the third annual Girlgamer e-sports festival in December. The event, at Meydan Grandstand, will see nine five-player teams battling it out to see who will win in the games of League of Legends and CounterStrike Go. The company hopes to encourage and develop local talent in the ever-growing e-sports sector and although it attracts a global audience of 454 million, and revenue in excess of US$ 1.1 billion, there is a lack of infrastructure, funding and opportunities in the region. Galaxy Racer eSports hopes to change all that.

The UAE is the first Gulf country to introduce Indian Rupay, that country’s answer to Mastercard and Visa, which was launched by Prime Minister Narendra Modi in Abu Dhabi last Saturday. Within weeks, the Rupay card will be accepted by 175k merchant locations of 21 businesses and 5k ATMs in the UAE.

Following initial reports in May, GEMS Education confirmed that it had completed the acquisition of Saudi Arabia’s Ma’arif Education, through a joint venture with Hassana Investment; no financial details were made available. Working with the Kingdom’s largest private school group, having 22k students, the Dubai-based schools operator plans to invest up to US$ 800 million, over the next decade, to acquire and develop more than fifty schools; these would educate more than 100k students across the country.

Emaar Misr has rejected an “utterly false” claim by Egyptian businessman, Wahid Raafat, involving more than 400 acres of land where it is building the up-market Marissa residential and leisure development. The Egyptian subsidiary of Emaar Properties has a portfolio, valued at US$ 3.2 billion, in the country and has claimed that it bought this parcel of land by way of a public government auction.

A unit of Arabtec Holding has been awarded a US$ 112 million by Emaar Misr to build two urban projects, comprising 449 residential units, in Cairo. The same company was awarded a US$ 26 million contract in February for 42 units. Emaar Misr has already completed 6.5k units in the huge project and expect to deliver a further 800 prior to year end.

Emirates Reit posted a 96% year on year slump in H1 profit to just US$ 1 million, largely attributable to a US$ 5 million revaluation impairment on a portfolio of around US$ 1 billion; revenue was 7% higher at US$ 36 million. It is to invest US$ 52 million over the next six months on buying properties in what continues to be a buyers’ market, as prices still remain stubbornly low. It is focusing its acquisition efforts on education and office buildings in Dubai and is reportedly near to completing deals.

MAF Group has posted 1.0% increases in both H1 revenue, at US$ 4.8 billion, and profit of US$ 571 million in what the company said was because of “challenging market conditions and more cost-conscious consumer behaviour across the region”.

Although there were more than 100 million visitors and occupancy was at a credible 93%, MAF – Properties recorded revenue of US$ 572 million, 3% down on the same period in 2018. Meanwhile, its hotel operations saw occupancy 2% higher at 78% but RevPAR (revenue per available room) fell in line with the market. However, MAF – Ventures fared better posting 16% increases in both revenue and profit to US$ 354 million and US$ 37 million respectively. With weak consumer confidence abounding, it was no surprise that, despite the opening of new stores in Egypt, revenue was flat at US$ 3.9 billion, with profit dipping 1% to US$ 164 million.

DP World and the Zhejiang China Commodity City Group Company signed a 70:30 agreement to develop a “smart” wholesale and retail traders’ marketplace in Jebel Ali Free Zone. Construction of the first phase, covering 220k sq mt and with an estimated US$ 150 million investment, will start in Q4, to be completed by the end of 2021.  The whole development, which will have an area of over 800 km sq mt, will take a little longer. This is yet another example of the increasing trading relations with China which is expected to double over the next two years to US$ 70.0 billion.

The bourse opened on Sunday 25 August and, having shed 131 points (4.7%) the previous three weeks, lost a further 10 points (0.4%) to 2769 by 29 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.01 lower to close on US$ 1.35, with Arabtec also down US$ 0.01 at US$ 0.44. For the month of August, Both Emaar and Arabtec lost ground – by US$ 0.16 and US$ 0.04 respectively but YTD, Arabtec jumped US$ 0.22 whilst Arabtec lost US$ 0.08 from their 01 January openings of US$ 1.13 and US$ 0.52. Thursday 29 August witnessed low trading conditions of 159 million shares, worth US$ 45 million, (compared to 70 million shares, at a value of US$ 29 million on 22 August).

By Thursday, 29 August, Brent, having gained US$ 2.61 (1.5%) the previous fortnight, was US$ 1.09 (1.8%) higher at US$ 61.08. Gold lost US$ 23 (1.5%) the previous week, but regained all that and more, closing US$ 29 (1.9%) higher on Thursday at US$ 1,537. 

Naspers, South Africa’s largest company by market value, has created Prosus, a new entity, containing assets including a stake in China’s Tencent, as well as international interests in industries such as online food delivery and classified advertising. When it lists on the Amsterdam stock market, with a stock value in the region of US$ 100 billion, it will become the third largest traded behind Royal Dutch Shell and Unilever. The parent company is valued in excess of US$ 34 billion, and owns 31% of the Chinese tech giant, will retain a 73% stake in the new entity.

Not helped by falling sales in the UAE, Ace Hardware International Holdings, Ltd, which manages operations outside the USA, posted a US$ 10 million decrease in Q2 revenue, although the Group reported a 6.3% hike in total revenue to US$ 1.7 billion. The world’s largest retailer-owned hardware cooperative, which has 17 distribution partners worldwide and 5.2k outlets globally, saw profit dip 1.8% to US$ 54 million.

US toymaker, Hasbro, has agreed to pay US$ 4.0 billion for Entertainment One, the studio that makes the Peppa Pig and PJ Masks children’s shows. The world’s largest toy maker, in terms of stock market value, has paid a 26% premium for a company that has respected scripted and unscripted TV production and development capabilities, which include animated and live action shows. Now Hasbro will be in a position to make larger films, previously having had to license its characters to studios. Weak sterling made the deal more favourable for Hasbro, (as did the sale of UK pub operator Greene King to Hong Kong’s Li family for US$ 3.3 billion).

US fashion retailer Forever 21 is considering a possible Chapter 11 bankruptcy filing, as it has failed to negotiate a refinancing package with possible lenders. Founded by Do Won Chang in 1984, the Group has over 800 outlets mainly in the US but also globally; it is one of the biggest mall tenants in the country and if it were to go under, it would join a raft of other household names which have recently dropped out from the US High Street.

Johnson & Johnson have been fined US$ 572 million by an Oklahoma court for its role in fuelling the opioid addiction crisis in that state; the case was the first of many thousands that will be filed against opioid makers and distributors. It is estimated that over 6k have died in Oklahoma (out of a country total of 400k) from opioid overdoses. Earlier in the year, OxyContin maker Purdue Pharma and Teva Pharmaceutical settled out of court for US$ 270 million and US$ 85 million. All monies collected will be used for the care and treatment of opioid addicts. The same week, Purdue Pharma, facing over 2k lawsuits linked to its painkiller OxyContin, is reported to be offering between US$ 10 billion and US$ 12 billion to settle out of court.

China’s Fosun Tourism, a major shareholder, looks likely to step in and save the 179 year-old Thomas Cook, after agreeing a rescue deal also involving banks and a majority of its bondholders. This would see the Chinese group investing US$ 545 million for at least 75% of the tour business and 25% of the group’s airline; banks and bondholders would put in the same amount, in return for at least 75% of the tour business and 25% of the group’s airline. This would be at the at the expense of other shareholders. (Fosun owns Wolverhampton Wanderers FC and the Club Med holiday business).

Eleven years after Altria, the biggest investor (35%) in e-cigarette market leader Juul Labs, spun off the Philip Morris business, the two tobacco giants are discussing a merger that would create a mega company, valued at US$ 208 billion with Marlboro-maker Altria worth US$ 88 billion and the other party US$ 120 billion. The fact that the industry itself is declining, with global tobacco sales falling 4.5% last year, is the main driver behind the potential merger. Both companies have been investing in other areas – PMI its own e-cigarette division and Altria in wine, beer and cannabis companies, as well as Juul.

There are always winners and losers when shares, commodities and currencies rise and fall. For example, Emirates NBD acquired Turkey’s Denizbank earlier in the year and saved US$ 400 million on the deal because of the devaluation of the lire – paying 15.5 billion lire. On the other side of the coin is billionaire Ferit Sahenk, the owner of Dogus Holdings, which has in its portfolio the Nusr-Et steakhouse, popularly known by its founder chef’s meme Salt Bae, as well as interests in other restaurants, entertainment outlets, marinas and car-distribution businesses. Now with the fall in the lire, he is struggling to repay his euro loans and has recently been selling assets, valued at US$ 694 million. The Turk wants to cut his euro debt to US$ 1.7 billion by the end of next year.

Germany’s economy is heading for further contraction and an inevitable recession come 30 September. Final analysis confirmed that GDP shrank 0.1% in Q2 and 0.4%, year on year. Because of various external factors, such as the US-China trade war, slowing global trade and Brexit, there was no surprise to see exports falling 1.3% on the quarter and at a faster rate than imports dipping 0.3%.

In its latest report, Bundesbank hinted that there is every chance that Germany will witness another contraction of its GDP that would put the country into a technical recession following Q2’s negative 0.1% decline. It must be inevitable that the Merkel administration will introduce a significant fiscal package to try and boost an economy that has seen the business climate falling as pessimism among companies fell to its lowest since the 2009 GFC.

On the side-lines of last week’s G7 meeting, the US and Japan agreed in principle to a bilateral trade deal which could be signed next month at the UN’s General Assembly in New York by Donald Trump and Prime Minister Shinzo Abe. The agreement covers agriculture, industrial tariffs and digital trade which would see Japan buy excess US corn, the sale of which has been badly hit by the trade war with China. Currently, the US exports US$ 14 billion worth of agricultural products – this deal would add a further US$ 7 billion.

In the latest tit-for-tat trade war, Donald Trump has levied a further 5% duty on some US$ 550 billion in targeted Chinese goods, bringing the tariff on imports worth US$ 300 billion to 15% and US$ 250 billion to 30%. This follows China unveiling retaliatory tariffs of US$ 75 billion of US goods. Following the news, both the Nasdaq Composite and S&P 500 fell – by 3.0% and 2.6% – as did US Treasury yields and crude oil. On Monday, the ASX, Australia’s stock market, lost US$ 16.5 billion, on opening, whilst the Aussie dollar sank below US$ 0.67.

On the news that Her Majesty, The Queen, had acceded to Boris Johnson’s request to suspend parliament from 09 September to 14 October, sterling plummeted below US$ 1.22. This move would reduce greatly the opposition parties to prevent the country falling out of the EU on 31 October, without a divorce agreement. There are critics of a no-deal Brexit that argue that such a clean break from the bloc would devastate the UK economy and send it falling into recession. Among them, the man with many hats – ex-Chancellor of the Exchequer, Phillip Hammond, who had backed Remain in the Referendum, but then confirmed he would support the withdrawal of the UK from the EU, saying “No ifs, no buts, no second referendums” in 2017. Now he appears to be on the other side of the fence again, showing his True Colours.

Posted in Uncategorized | Leave a comment

The World’s Gone Crazy!

The World’s Gone Crazy!                                          22 August 2019

Property Finder reports that villa transactions have increased 35% in H1, although prices are 4.3% lower than H2 2018, to US$ 233 per sq ft, driven by more affordable properties entering the market; three of the more popular  communities are Dubai South, Dubailand and Town Square, taking business away from the likes of JLT. Sales price declines were more felt in Damac Hills, Emirates Hills and Green Community Motor City, with falls of 8.2%, 6.6% and 5.4% respectively. Prices in locations such as Living Legends, District One, Mirdif and Green Community DIP remained flat.

H1 apartment sale prices fell 3.9% compared to H2 2018 (and 11.7% over the past two years), with sales transactions 5% lower. 6.5%+ declines were seen in Al Sufouh (10.5%), Remraam (9.6%), Downtown Dubai (7.4%), Old Town (7.2%) and Jumeirah Lakes Towers (6.5%). Prices remained flat in Mirdif, Jumeirah Village Triangle, Dubai South, Arjan and Al Furjan.

Azizi Developments still plan to deliver 4k residential units from nine of its Dubai projects by the end of 2019; five are located in Al Furjan. The developer has already completed thirteen projects comprising 41 buildings and six shopping centres.

Damac is in discussions with DICO Properties to acquire two plots of land in Al Sufouh and Business Bay; no financial details were made available. The developer posted an 86.6% slump in Q2 profits to US$ 14 million, with revenue down 45.0% to US$ 265 million. In H1, Damac delivered almost 1.5k units (1.0% lower than the same period in 2018) which included the first phase of its signature master development Akoya, and two of its projects – Ghalia and Tower 108.

Paramount Dubai will launch the emirate’s first Hollywood-themed hotel one month later than planned at the end of next month. The property, located in Business Bay, has 823 rooms and features immersive video walls in the lobby and a Paramount Screening Room. Its superior rooms will be based on a number of the studio’s epic films, including the Great Gatsby Suite and The Godfather Suite.

Maison Privee has signed a preferred partner relationship with Gulf Sotheby’s International Realty that will see the vacation rental provider for the luxury hospitality sector manage a US$ 100 million portfolio of several Palm Jumeirah luxury signature villas. Maison Privee aims to become the largest operator of luxury properties in the country and deals like this might see this happening sooner than many expect. Buoyed by last year’s US$ 4 million Series A funding, it is building the right infrastructure to support faster growth.

According to KPMG’s Global Construction Survey, the sector is expecting growth of between 6–10% this year, as well as being confident that governance and technology are likely to play a significant role in the near future. The report’s findings include that technology – including the use of robots, smart tools and equipment as well as unmanned aerial vehicles – will lead to many jobs, currently undertaken by labour, being automated.

However, it faces two main threats – time and cost overruns as well as obtaining finance.

Dubai saw its H1 visitor numbers jump 3.0% to 8.4 million, with the three leading source markets being India, Saudi Arabia and the UK, with 997k, 755k and 588k respectively.  A positive sign is the 11.0% increase in Chinese numbers to 501k which will continue to head north in the future. The emirate now has 714 touristic properties, with a room portfolio of over 118k – 6.0% up over the past year; average hotel occupancy stands at 76%, with 15.7 million occupied room nights, a 5.0% annual increase.

In H1, Dubai’s Department of Economic Development issued a record 14.7k new licences, of which 7.6k were commercial and 6.7k professional. The five leading nationalities applying for new licences were Indians, Bangladeshis, Pakistanis, Egyptians and British. The DED also announced that every day at least one coffee shop and two restaurants open in Dubai, with 258 restaurants and 169 coffee shops starting business in the first four months of the year.

Over the past twelve months, the UAE central bank has reduced its holdings of the US Treasuries by US$ 8.1 billion (13.6%) to US$ 51 5 billion – and 3.2%, month on month – making it the 22nd on a global ranking. Rather surprisingly, Japan, with US$ 1.12 trillion, edges out China’s US$ 1.11 trillion, as the global leaders of foreign holders of the US Treasuries.

Emaar Properties posted a 51.6 % hike in H1 Dubai sales to US$ 2.6 billion, helping the company achieve profits of US$ 847 million. Total H1 revenue, including international operations, was at US$ 3.2 billion with a US$ 13.4 billion sales backlog. Its international operations saw revenue contribution 12.5% higher at US$ 475 million accounting for 14.8% of total sales. It is estimated that the developer’s investment in other subsidiaries – including its hospitality & leisure, entertainment and commercial leasing business and Emaar Malls – contributed US$ 965 million, equating to 31% of total revenue.

The H1 results also indicated the progress of two other projects in which the developer was involved. In April, it acquired the final 35% of development management company Mirage that it did not already own for US$ 18 million, having paid US$ 34 million for the initial 65% in October 2015. Mirage, founded by Dene Murphy in 1995, has already developed several high hospitality projects such as the Opera House, The Address Downtown and The Island.

It also shed more light on its May US$ 6.8 billion Mina Rashid JV with DP World, entailing a mixed-use project comprising a yacht club, 12.6k sq mt of new beachfront and a waterfront retail and leisure scheme, billed as “The Dubai Mall by the sea”. It is reported that Emaar took control of the venture in June paying US$ 348 million for land and agreeing to share 30% of any future profits made from Mina Rashid over the project’s lifespan.

Topaz Energy and Marine, which was acquired for US$ 1.1 billion by DP World last month, saw Q2 revenue climb 42.4% to US$ 121 million, driving net profit after exceptions to US$ 25 million (compared to a US$ 1 million loss in the same period in 2018). Over H1, revenue was up 56% at US$ 235 million, with EBITDA 83% higher at US$ 141 million.

Meanwhile DP World posted a 10.8% hike in H1 revenue to US$ 3.4 billion, (some of which was attributable to recent acquisitions), as profit jumped 26.8% to US$ 753 million. Despite the uncertainty facing global trade, because of global trade disputes and regional geopolitics, the port operator is confident of reaching its year end targets. With its 2019 capex guidance still at US$ 1.4 billion, DP World has further investments planned in the UAE, Posorja in Ecuador, Berbera in Somaliland, Sokhna in Egypt, and London Gateway.

The bourse opened on Sunday 18 August and, having shed 104 points (3.6%) the previous fortnight, lost a further 27 points (1.0%) to 2769 by 22 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.05 lower to close on US$ 1.36, with Arabtec flat at US$ 0.45. Thursday 22 August witnessed very low trading conditions of 70 million shares, worth US$ 29 million, (compared to 91 million shares, at a value of US$ 34 million on 15 August).

By Thursday, 22 August, Brent, having gained US$ 0.85 (1.5%) the previous week, was US$ 1.76 (3.0%) higher at US$ 59.99. Gold, having jumped US$ 117 (8.3%) the previous fortnight, lost US$ 23 (1.5%), to close on Thursday at US$ 1,508. 

In September 2017, an engine explosion on an Air France A380 took place over Greenland, with a titanium alloy part, the centrepiece of a 3 mt- wide fan, falling to the ground. This has recently been recovered and has led investigators to study a possible manufacturing flaw that could possibly lead to urgent checks on dozens of Airbus superjumbos, that have carried out a certain number of flights.  BEA, the French air accident agency, reported a “sub-surface fatigue crack” on the recovered part and the US engine maker was preparing checks.

The Australian Securities and Investments Commission is suing one of the four big banks in the country, National Australian Bank, over failures with its defective home loan “introducer’ programme. The allegations are that the bank accepted sometimes false information and documents from third party introducers (including accountants, tailors, gym workers and real estate agents) who were not licensed to engage in credit activity. This case revolves around commission being paid by sixteen bankers to 25 unlicensed people involving 297 loans between 2013-2016.  However, ASIC believes that over this time period, the practice brought in 46k loans, worth US$ 16.8 billion for NAB, who could now be facing fines of up to US$ 350 million for their shady operations.

It seems that Deutsche Bank has got off lightly, having only been fined US$16 million to settle a US regulator’s allegations that it hired relatives of overseas government officials to win business between 2006-2014; most of the “hiring” was carried out in the Asia Pacific-region and Russia. Not surprisingly, the bank, which created false books and records that concealed corrupt hiring practices, agreed to settle the case without admitting or denying wrongdoing.

Although 2018 salaries for UK chief executives dropped 13%, they are still a staggering 117 times more than the average full-time worker – US$ 4.27 million v US$ 36k. The CIPD report also noted that last year, only six of the FTSE 100 companies were run by a woman, compared to seven the year before. There are some who think that the fat cat bosses are more concerned with maintaining share prices on the high side, so as to boost their annual bonuses, whilst not focussing on the long-term health of their company. However, it is unlikely that the status quo will change and that the average worker will have to continue to graft for more than a century to earn the same pay a CEO gets in just a year.

Thailand is reeling from the current global trade tensions that have been impacting on the country’s exports so that recent estimates of 2.2% growth are now likely to contract by 1.2%. Trade is not being helped by the fact that the baht has gained more this year, against the greenback, than any other regional currency. Growth is also being impacted by   smaller gains from tourism (annualised growth slowed to 1.1%), and domestic consumption, with high household debt restraining consumer spending. However, there are hopes that a US$ 10 billion government stimulus package may have a positive effect.

President Hassan Rouhani could be planning to slash four zeroes from the Iranian currency which would devalue the rial and rename it as toman. If this were to go ahead, it would return the currency name ‘toman’ that has not been used in the country since 1930. Some consider the move as the president’s way of helping the nation deal with increasing prices, particularly when the rial has fallen from 116,500 to 32,000, to the greenback, in the four years since the previous US president, Obama Barrack, signed the nuclear deal. With unemployment at over 12% (and under 25 – 25%) and the inflation at 40.4% monthly, the economy is certainly tottering.

In July, Japan’s merchandise trade deficit came in at US$ 2.34 billion, as both annualised exports and imports sagged – by 1.6% and 1.2% respectively.

Eurozone’s June current account surplus fell 39.4% to US$ 20.4 billion compared to the previous month – its lowest level since January 2017. Over the past twelve months, the current account surplus dipped 18.7% to US$ 353 billion, equating to 2.7% of the total bloc’s GDP, (compared to 3.4% in June 2018). Another worrying indicator saw eurozone’s headline inflation slow 0.3%, month on month, to 1.0% – its lowest since November 2016; this time last year, inflation was more than double at 2.2%.

Despite all the negative news surrounding Brexit, it is interesting to note that the UK tech sector continues to attract foreign investment, with a record US$ 6.6 billion posted in the first seven months of 2019; this is more than any other European country and is more than the amount invested per capita in the US tech sector. 55% of funds come from US and Asian firms which is 27.6% higher than this time last year. Two of the biggest deals involved US$ 800 million by Japan’s Softbank in UK’s Greensill and also US$ 400 million by the same company, in liaison with Singapore’s Clermont Group, in digital-only bank, OakNorth Bank.

As his first four-year tenure as president comes to an end next year, Donald Trump wants to keep the US economy in a strong position. There is no doubt that his massive 2017 tax cuts boosted the economy and accelerated both the local and global stock markets. Now he is considering a new, temporary payroll tax cut and a possible reduction in capital gains tax. The president is also keen to see a further rate cut but even though that is out of his hands, it will be probably occur in the coming weeks. More light may be shed at the weekend, when Fed chief, Jerome Powell (who the president has compared his handling of the economy to a “golfer who can’t putt”), speaks at a convention of global bankers in Jackson Hole Wyoming.

Ahead of this meeting taking place tomorrow, the IMF has indicated that it does not believe that the recent global spate of monetary policy easing – often resulting in weakening currencies – will be enough to improve most countries’ trade balances. Recently, Donald Trump has been tweeting that both China and the EU have been engaging in currency manipulation to benefit their exporters.

To show how crazy the financial world has become is to see that 30% of the global, tradeable bond universe is being sold with a guaranteed loss attached to the coupon, equating to a massive US$ 16.7 trillion deficit. So much for Economics 101 that has always taught US government bonds to be the safest investment! Now it seems that more and more central banks are looking at zero (or negative) rates which defies economic protocol that has always paid investors for putting their money into banks. It might be only a matter of time before banks start picking up tabs for customers’ mortgages. The World’s Gone Crazy!

Posted in Uncategorized | Leave a comment

Handle With Care

Handle With Care                                                           15 August 2019

Property Finder came out with staggering figures relating to Dubai’s reality, indicating that in H1, 21k residential units were completed, (16k apartments and 5k villas/townhouses), and that a further 38k are scheduled for delivery by the end of the year. If all are handed over, that would mean 59k additional units to what many perceive is an already overcrowded portfolio – equivalent to 9k more than the four-year total that had been handed over in the previous four years. To the casual observer, this would indicate a further deterioration in the sector, with prices still heading down, as they have done when only 15k were being handed over in 2015, 2016, 2017 and 23k in 2018.

Last year, 23k units were added to the emirate’s portfolio bringing the total to 597k at the end of 2018, comprising 485k apartments, 105k villas and 7k Arabic houses.  Over the past three years, the population has increased by 10.3%, 10.3% and 7.3%, with the number jumping 30.5% from 2.446 million in 2015 to 3.192 million by the end of 2018.

Say 30% of the population live in camps or staff accommodation, that leaves 70% of Dubai’s population (2.23 million) in the housing market (either as tenants or landlords). Assuming 3.5 to a unit equates to a demand of 638k units (2.234 million divided by 3.5). If these figures are correct – a population of 3.2 million, 30% of which require housing units, the average “unit” houses 3.5 people and that the 2018 number of units was 597k – then, at the end of 2018, demand (638k) was 6.9% greater than supply (597k).

Eshraq Investments has awarded the construction contract for its Jumeirah Rise project in Jumeirah Village Circle. The Abu Dhabi-based investment company is to build two mixed use tower and one hotel apartments, that will have a 36k sq mt total leasable area footprint. It also indicated that its residential apartments in DIFC have an almost 100% occupancy rate.

InterContinental Hotels Group is to manage a new 170-key Holiday Inn property, located on Deira Islands, and due to open in 2023; it will feature the usual accoutrements and become IHG’s sixth regional midscale hotel. The operator currently has a 92-property portfolio, with a further 38 to open over the next four years. 

Hong Kong-based AS Watson, which operates twelve different brands in twenty-five locations, is reportedly interested in entering the UAE market. The health and beauty retailer, that owns chains such as Superdrug, is confident that, despite the current softening in the retail sector, it could take advantage of cheaper rents. It also noted that in a slowing market, that could affect personal care product sales, it will not impact on cosmetics as much. Indeed, on a global scale, the beauty industry tends to be more resilient than many others, with annual growth of up to 5% reported. The retailer is hoping that the well-known ‘lipstick effect’ – that consumers will continue to buy luxury items (but cheaper ones), even when there is a crisis – holds true in Dubai.

It is reported that Kanoo Travel is to sell a 65% controlling interest to American Express Global Business Travel (GBT) for an undisclosed fee. The new JV will provide managed travel and events services to regional clients. Kanoo Travel, one of the largest ME travel management networks, has been a key member of GBT’s global travel partner network for many years.

Owing to the 45-day closure of one of its two runways, DXB H1 passenger traffic dipped 5.6% (year on year) to 41.3 million, as the number of flights came in 11.6% lower at 178k. Despite this “enforced” decline, Dubai International still remains the world’s busiest international airport by traffic volume. India, UK and Saudi Arabia are again the top three destinations, with 5.7 million, 3.1 million and 2.8 million customers respectively. Cargo also suffered for the same reason (and maybe from a sluggish global trade environment as well) and was down 18.3% to 1.036 million tonnes, with the number of bags, handled by the 175 km long baggage system, 3.9% lower at 35 million.

According to a recent Dubai Economy/Visa study, the UAE boasts the most advanced e-commerce market in the MENA. It forecasts that the sector will have an annual 23% growth rate over the next three years and, that by the end of 2019, transactions will top US$ 16 billion. One interesting statistic is that the average deal size in the UAE is US$ 144 – a lot higher than the US$ 79 and US$ 26 found in mature and emerging markets respectively. Furthermore, e-commerce penetration, at 4.2%, is more than the MENA average of 1.9% (and the GCC’s 3.0%). In the year to February 2019, apps for both food delivery and ride-hailing doubled their e-commerce share to 2.0%. There is no doubt that the expanding e-commerce sector in Dubai is boosting local economic growth.

One sector that seems to buck the current trend of flat or declining profits is banking, and latest figures serve to reemphasise this point, when looking at H1 results from those eighteen banks listed on the two UAE bourses. It is estimated that the combined H1 net profit of the listed banks jumped 16.7% to US$ 6.7 billion. The increase was seen more on the DFM, where Dubai seven banks’ profits were an impressive 32.4% higher at US$ 3.5 billion, whereas the eleven banks on the ADSE showed only a 3.5% rise to US$ 3.2 billion. Emirates NBD contributed 58.1% (a 50.0% hike to US$ 2.0 billion) of the Dubai total, whilst First Abu Dhabi Bank was responsible for a 54.6% share of Abu Dhabi’s total at US$ 1.7 billion.

Although Q2 revenue shot 54% higher to US$ 13 million, Dubai investment bank Shuaa Capital posted a US$ 9 million loss, compared to a US$ 4 million profit a year ago. Over H1, revenue was 61% higher at US$ 28 million but still recorded a loss of US$ 15 million, following a US$ 7 million profit in H1 2018. The main driver was a 46% jump in expenses including finance costs, 120% higher, and a US$ 3 million impairment provision, now standing at US$ 5 million. Last month, the shareholders agreed to Abu Dhabi Financial Group taking over the firm in a reverse takeover, creating a new entity, with US$ 12.8 billion of assets under management, of which the major share of US$ 11.5 billion being introduced by ADFG.

Amanat Holdings PJSC posted a 28% increase in H1 total income to US$ 17 million, as profit was 26% higher at US$ 10 million. If the Royal Hospital for Women & Children was taken out of the equation, since it only opened in Q1 and carried forward pre-operating losses, the profit would have been 56% to the good. 85% of the total income was attributable to income from associates and subsidiaries (compared to 49% a year earlier), as the US$ 327 million invested in four portfolio companies started to pay dividends. As at 30 June, the company carried an excess cash balance of US$ 146 million.

H1 results for Damac Properties showed revenue of US$ 518 million and a US$ 22 million profit; during the period, the developer delivered nearly 1.5k units and had sales totalling US$ 490 million, as it launched its latest project, Zada in Business Bay, and had its first handover in Akoya. At the end of June, the company saw its total assets 2.0% lower at US$ 24.7 billion, whilst its gross debt fell by 25.5% to US$ 1.2 billion.

Arabtec Holding reported a 47.2% decline in Q2 net profit of US$ 7 million, with revenue falling 8.4% to US$ 597 million; H1 profit slumped 49% to US$ 16 million. The Dubai-listed contractor reduced its debt by US$ 102 million in the first six months and despite the decline in new awards during H1, its backlog remained strong at US$ 3.8 billion.

In line with other developers, Deyaar Development posted disappointing H1 profit numbers, down 44.5% to US$ 10 million although revenue moved higher by 7.5% to US$ 92 million (with Q2 revenue 17.6% higher at US$ 44 million). The Dubai-listed property firm expects better results, as it launches its next hospitality project, in partnership with Millennium Hotels and Resorts Middle East and Africa, and sees the first Midtown district, Afnan, in its final stages.

The bourse opened on Tuesday 13 August, after the extended Eid Al Adha break, at 2838, and having shed 62 points (2.1%) the previous week lost a further 42 points (1.5%) to 2796 by 15 August 2019. Emaar Properties lost US$ 0.04 the previous week and shed a further US$ 0.03 to close at US$ 1.41, with Arabtec flat at US$ 0.45. Thursday 15 August witnessed very low trading conditions of 91 million shares, worth US$ 34 million, (compared to 194 million shares, at a value of US$ 64 million on 08 August).

By Thursday, 15 August, Brent, having lost US$ 4.67 (7.5%) the previous week, gained US$ 0.85 (1.5%) to US$ 58.23. Gold, having jumped US$ 96 (6.8%) the previous week, rose a further US$ 21, trading 1.4% higher on Thursday at US$ 1,531. 

The world’s biggest profit-making company disclosed its financial results for the first time ever. Saudi Arabia’s Aramco posted an 11.0% dip in H1 profits to US$ 46.9 billion, as its earnings before interest and tax declined 9.0% to US$ 92.5 billion; the main driver to these decreases was falling energy prices. However, free cash flow headed north – up 7.0% to US$ 38.0 billion – with H1 capex 12.1% lower at US$ 14.5 billion. The energy giant is planning to acquire 20% of India’s Reliance Industries’ oil-to-chemicals business at an enterprise value of US$ 75 billion.

Apple’s ranking in global smartphone Q2 sales dropped to fourth, as it posted a 14.6% decline to 35.3 million units. It is estimated that the three leading companies – Samsung, Huawei and Oppo – accounted for over 52% of the global market, with shipments of 75.1 million, 58.7 million and 36.2 million respectively. Overall, there was an estimated 4% fall in smartphone sales, driven to some extent by older iPhone users keeping their phones for a longer time to avoid buying new, expensive models. Despite the ongoing trade tariff war with the US, it is interesting to note that Chinese tech firms – Huawei, Oppo, Vivo, Xiaomi and Realme – now account for 42% of the global smartphone market, a record figure that is set to grow in the future.

A unit of Macquarie Group is to spend almost US$ 2.0 billion to acquire a 40% stake in a UK offshore wind farm from utility, Iberdrola. The Spanish company expects the sale to meet its 10 GW of offshore wind power target over the coming years. It is estimated that the East Anglia One site profit-making will generate income of up to US$ 500 million, when it starts operating next year. Wind power is becoming more prevalent on a global scale and provided more than half of the UK’s energy needs last week.

With a July vacancy rate of 10.3%, the number of empty shops in the UK High Street hit a four-year high, with monthly footfall 1.9% lower – its worst performance since 2012. Interestingly, although High Street traffic was down 2.7%, footfall in retail parks increased by 1.2%. Last year, the Centre for Retail Research estimated that 2.5k mostly medium or large retail businesses failed, with this year expected to end with even worse figures.

With an estimated capitalisation at over US$ 211 billion, Bitcoin accounts for nearly 75% of the global market – and is ten times the size of its closest competitor, Ether. Last week, the cryptocurrency traded 14% higher on the week, whilst most of its rivals saw their value drop. Maybe this asset class, like gold and government bonds, is benefitting from investors looking for a safe haven to place some of their funds. One fact is certain – Bitcoin is operating in a volatile market and although it is trading this week at US$ 12k, earlier in the year it was worth only US$ 3.6k but just two months ago in June was US$ 10.4k higher at US$ 14.0k.

In 2009, the then Prime Minister Najib Razak established the 1MDB state fund and has been accused of pocketing US$ 681 million from the sovereign wealth fund, to which he pleaded not guilty earlier in the year. Now the country’s regulators have charged seventeen current and former Goldman Sachs bankers in connection with their roles “in arranging, structuring, underwriting and selling the three bonds” that raised US$ 6.5 billion for the SWF. Because of the “severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds”, convictions could result in prison sentences of up to ten years and fines of at least US$ 250k.

The RBA governor, Philip Lowe, has not ruled out having to cut Australian rates from its current 1.0%, or even introducing quantitative easing, if further measures are needed to stimulate the country’s flagging economy. The central bank has just reduced its 2019 growth forecast (again) by 0.25% to 2.50% but upped its 2020 unemployment rate to 5.25%, as wage growth remains moribund at 2.3%. Apart from a global slowdown, that has a negative impact on the country’s three main sectors – mining, agriculture and tourism – the central bank is concerned about consumer spending, (this has remained flat despite lower interest rates and tax cuts), and high levels of household debt. The 1.5% inflation rate is still some way off the bank’s 2.0% target (and is unlikely to be breached for at least another eighteen months). It is all but certain that rates will again be cut this year and when that happens, the currency will continue to remain south of US$ 0.70.

Once again, South Africa is going through turbulent economic times, as the rand becomes the world’s worst-performing emerging market currency, driven by not only a trade slowdown, and the threat of a global recession, but also domestic issues. This has led to its currency recently losing 10% in value, (now trading at 15 to the US$), unemployment rising to a worryingly high 29% and domestic growth contracting this year by 3.2%; latest figures indicate that this year, the country may only manage a 0.7% GDP increase. Factors, such as national power utility Eskom having had approached the government for assistance, with its massive US$ 7.8 billion debt, do not help and are an indicator why most credit ratings agencies, excluding Moody’s, have assigned the country’s bonds junk status.

On Monday, following negative primary election results for President Mauricio Macri, Argentine’s economy took a battering on both the stock market and currency fronts. Some of the country’s most traded stocks slumped by almost 50%, as the main Merval index closed down 31%, whilst the peso initially lost 30% in value to a record low before closing the day 15% lower to the greenback. With the country going to the polls in October, Alberto Fernández is now seen as the frontrunner for the presidential race. If he were to win, it will be the end of four Macri years and of his unsuccessful pro-business agenda that has failed miserably to save the Argentine economy. The country is in recession, with a 22% H1 inflation rate and more than 30% of the country’s population living in poverty.

Germany’s trade surplus narrowed in H1, as strong domestic demand led to imports growing faster than exports, adding to signs that Europe’s largest economy is slowly reducing its dependence on foreign sales. It seems that the German government is finally heeding the long-time urgings of both the IMF and EU to focus more on domestic demand for a way to stimulate global growth and reduce its economic imbalances. For the past eight years, Germany’s current account has been above the EC’s indicative 6% of GDP level but has fallen from 8.9% in 2015 to 7.4% last year. Now, driven by a sluggish global economy, Brexit uncertainty and trade tariffs, its export-reliant economy is unfurling to the point that H1 imports were 3.0% higher at US$ 622.2 billion, whilst export growth was up by only 0.5% to US$ 745.4 billion (but still US$ 123.2 billion above imports). In June, the trade surplus was at US$ 20.2 billion – narrowing, year on year, by 11.4% to US$ 122.7 billion – as the current account surplus dipped 3.2% to US$ 141.1 billion.

As expected, the German economy contracted in Q2 by 0.1%, compared to the previous quarter, driven by a marked decline in exports, down 6% on the year. Germany is the world’s third largest exporter after the US and China and is often badly hit by a global slowdown. The economy narrowly missed a recession (marked by two successive quarters of negative growth) last year but, with early signs for Q3 looking ominous. Europe’s powerhouse economy could hit the buffers. However, Chancellor Angela Merkel considers that the economy will move north this year and feels there is no need for any further stimulus. She may be in for a shock.

Official figures confirmed that the UK economy contracted by 0.2% in Q2 – for the first time since 2013 – following a 0.5% expansion the previous quarter. If the next quarter’s figures fall into negative territory, the country will enter a technical recession. Like most other global economies, the UK is being hit by slower global growth, as well as the added factor of Brexit uncertainty. Basic economics teach that the main factor that impacts market decisions is uncertainty; this will disappear one way or another, by 31 October and when that specific impediment is removed, the country will move forward at a faster rate than other countries. Prime Minister Boris Johnson has also promised a fiscal stimulus package to cope with Brexit, and a no-deal split, that will have the double whammy of improving consumer spending and a probable 0.25% rate cut by the Bank of England.

UK wage growth continued its upward trend in June, with a growth of 3.9% – the highest in eleven years – as the 76.1% employment rate, equating to 32.8 million, was the best recorded since records began in 1971. However, the Q2 unemployment rate shrank 0.2% – the first contraction recorded since 2012. Despite this improvement, it must be remembered that pay levels have yet to return to their pre-downturn peak. However, since March 2018, wage growth has been at a faster rate than inflation. These figures show that the UK economy continues to confound its growing number of critics and has built up an impressive head of steam.

Outgoing EC president Jean-Claude Juncker has confirmed that “we are not prepared to hold new negotiations on the withdrawal agreement but only to make certain clarifications in the framework of the political declarations that regulate future relations between the United Kingdom and European Union”. He also commented that a no deal (which now seems to be the likely outcome) would hurt the UK more than the rest of Europe. He remarked that “if it comes to a hard Brexit, that is in no one’s interest but the British would be the big losers. They are acting as though that were not the case, but it is.”. . . .”We are fully prepared even though some in Britain say we are not well set up for a ‘no deal’. But I am not taking part in these little summer games.” The sooner he goes the better.

For the sake of “health, safety, national security and other factors”, Donald Trump has decided to delay tariffs on some Chinese imports, including mobile phones, laptops, video game consoles and certain clothing items, until mid-December. However, 10% tariffs, totalling US$ 300 billion, imposed on some items, will go ahead next month. In return the US President expects something in return and there are hopes that China may decide to “buy big” from US farmers.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

Latest data point to the fact that US economic growth will slow in Q3 to 1.8%, following annualised returns of 3.1% and 2.1% in Q1 and Q2. Based on these estimates, annual growth at the end of December is expected to be 2.5%, driven by the ongoing tariff war with China and the resultant slowdown in global trade, which has seen 2019 worldwide growth forecasts cut to 3.2%. Despite the Fed lowering borrowing costs in July, yields on government debt have touched three-year lows, including 30-year Treasury bonds approaching a record 2.106% low; indeed, every government security– ranging from one month to thirty years – are all trading below the 2.25% level. This is another sign that there will be another rate cut by the end of next month at the latest.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

The dreaded “inverted yield curve” has reared its ugly ahead again and inevitably it is the harbinger of bad economic news. In a nutshell, this occurs when a government’s bond interest rate is lower for say two years than it is for ten. (In normal times, the longer the term of the bond, the higher the interest rate). It does not happen often but when it does it is followed by a marked slowdown or even a recession. This week, the event happened in both the US and UK and financial markets have flashed a warning sign to all stakeholders – Handle With Care!

Posted in Uncategorized | Leave a comment

Handle With Care

Handle With Care                                                           15 August 2019

Property Finder came out with staggering figures relating to Dubai’s reality, indicating that in H1, 21k residential units were completed, (16k apartments and 5k villas/townhouses), and that a further 38k are scheduled for delivery by the end of the year. If all are handed over, that would mean 59k additional units to what many perceive is an already overcrowded portfolio – equivalent to 9k more than the four-year total that had been handed over in the previous four years. To the casual observer, this would indicate a further deterioration in the sector, with prices still heading down, as they have done when only 15k were being handed over in 2015, 2016, 2017 and 23k in 2018.

Last year, 23k units were added to the emirate’s portfolio bringing the total to 597k at the end of 2018, comprising 485k apartments, 105k villas and 7k Arabic houses.  Over the past three years, the population has increased by 10.3%, 10.3% and 7.3%, with the number jumping 30.5% from 2.446 million in 2015 to 3.192 million by the end of 2018.

Say 30% of the population live in camps or staff accommodation, that leaves 70% of Dubai’s population (2.23 million) in the housing market (either as tenants or landlords). Assuming 3.5 to a unit equates to a demand of 638k units (2.234 million divided by 3.5). If these figures are correct – a population of 3.2 million, 30% of which require housing units, the average “unit” houses 3.5 people and that the 2018 number of units was 597k – then, at the end of 2018, demand (638k) was 6.9% greater than supply (597k).

Eshraq Investments has awarded the construction contract for its Jumeirah Rise project in Jumeirah Village Circle. The Abu Dhabi-based investment company is to build two mixed use tower and one hotel apartments, that will have a 36k sq mt total leasable area footprint. It also indicated that its residential apartments in DIFC have an almost 100% occupancy rate.

InterContinental Hotels Group is to manage a new 170-key Holiday Inn property, located on Deira Islands, and due to open in 2023; it will feature the usual accoutrements and become IHG’s sixth regional midscale hotel. The operator currently has a 92-property portfolio, with a further 38 to open over the next four years. 

Hong Kong-based AS Watson, which operates twelve different brands in twenty-five locations, is reportedly interested in entering the UAE market. The health and beauty retailer, that owns chains such as Superdrug, is confident that, despite the current softening in the retail sector, it could take advantage of cheaper rents. It also noted that in a slowing market, that could affect personal care product sales, it will not impact on cosmetics as much. Indeed, on a global scale, the beauty industry tends to be more resilient than many others, with annual growth of up to 5% reported. The retailer is hoping that the well-known ‘lipstick effect’ – that consumers will continue to buy luxury items (but cheaper ones), even when there is a crisis – holds true in Dubai.

It is reported that Kanoo Travel is to sell a 65% controlling interest to American Express Global Business Travel (GBT) for an undisclosed fee. The new JV will provide managed travel and events services to regional clients. Kanoo Travel, one of the largest ME travel management networks, has been a key member of GBT’s global travel partner network for many years.

Owing to the 45-day closure of one of its two runways, DXB H1 passenger traffic dipped 5.6% (year on year) to 41.3 million, as the number of flights came in 11.6% lower at 178k. Despite this “enforced” decline, Dubai International still remains the world’s busiest international airport by traffic volume. India, UK and Saudi Arabia are again the top three destinations, with 5.7 million, 3.1 million and 2.8 million customers respectively. Cargo also suffered for the same reason (and maybe from a sluggish global trade environment as well) and was down 18.3% to 1.036 million tonnes, with the number of bags, handled by the 175 km long baggage system, 3.9% lower at 35 million.

According to a recent Dubai Economy/Visa study, the UAE boasts the most advanced e-commerce market in the MENA. It forecasts that the sector will have an annual 23% growth rate over the next three years and, that by the end of 2019, transactions will top US$ 16 billion. One interesting statistic is that the average deal size in the UAE is US$ 144 – a lot higher than the US$ 79 and US$ 26 found in mature and emerging markets respectively. Furthermore, e-commerce penetration, at 4.2%, is more than the MENA average of 1.9% (and the GCC’s 3.0%). In the year to February 2019, apps for both food delivery and ride-hailing doubled their e-commerce share to 2.0%. There is no doubt that the expanding e-commerce sector in Dubai is boosting local economic growth.

One sector that seems to buck the current trend of flat or declining profits is banking, and latest figures serve to reemphasise this point, when looking at H1 results from those eighteen banks listed on the two UAE bourses. It is estimated that the combined H1 net profit of the listed banks jumped 16.7% to US$ 6.7 billion. The increase was seen more on the DFM, where Dubai seven banks’ profits were an impressive 32.4% higher at US$ 3.5 billion, whereas the eleven banks on the ADSE showed only a 3.5% rise to US$ 3.2 billion. Emirates NBD contributed 58.1% (a 50.0% hike to US$ 2.0 billion) of the Dubai total, whilst First Abu Dhabi Bank was responsible for a 54.6% share of Abu Dhabi’s total at US$ 1.7 billion.

Although Q2 revenue shot 54% higher to US$ 13 million, Dubai investment bank Shuaa Capital posted a US$ 9 million loss, compared to a US$ 4 million profit a year ago. Over H1, revenue was 61% higher at US$ 28 million but still recorded a loss of US$ 15 million, following a US$ 7 million profit in H1 2018. The main driver was a 46% jump in expenses including finance costs, 120% higher, and a US$ 3 million impairment provision, now standing at US$ 5 million. Last month, the shareholders agreed to Abu Dhabi Financial Group taking over the firm in a reverse takeover, creating a new entity, with US$ 12.8 billion of assets under management, of which the major share of US$ 11.5 billion being introduced by ADFG.

Amanat Holdings PJSC posted a 28% increase in H1 total income to US$ 17 million, as profit was 26% higher at US$ 10 million. If the Royal Hospital for Women & Children was taken out of the equation, since it only opened in Q1 and carried forward pre-operating losses, the profit would have been 56% to the good. 85% of the total income was attributable to income from associates and subsidiaries (compared to 49% a year earlier), as the US$ 327 million invested in four portfolio companies started to pay dividends. As at 30 June, the company carried an excess cash balance of US$ 146 million.

H1 results for Damac Properties showed revenue of US$ 518 million and a US$ 22 million profit; during the period, the developer delivered nearly 1.5k units and had sales totalling US$ 490 million, as it launched its latest project, Zada in Business Bay, and had its first handover in Akoya. At the end of June, the company saw its total assets 2.0% lower at US$ 24.7 billion, whilst its gross debt fell by 25.5% to US$ 1.2 billion.

Arabtec Holding reported a 47.2% decline in Q2 net profit of US$ 7 million, with revenue falling 8.4% to US$ 597 million; H1 profit slumped 49% to US$ 16 million. The Dubai-listed contractor reduced its debt by US$ 102 million in the first six months and despite the decline in new awards during H1, its backlog remained strong at US$ 3.8 billion.

In line with other developers, Deyaar Development posted disappointing H1 profit numbers, down 44.5% to US$ 10 million although revenue moved higher by 7.5% to US$ 92 million (with Q2 revenue 17.6% higher at US$ 44 million). The Dubai-listed property firm expects better results, as it launches its next hospitality project, in partnership with Millennium Hotels and Resorts Middle East and Africa, and sees the first Midtown district, Afnan, in its final stages.

The bourse opened on Tuesday 13 August, after the extended Eid Al Adha break, at 2838, and having shed 62 points (2.1%) the previous week lost a further 42 points (1.5%) to 2796 by 15 August 2019. Emaar Properties lost US$ 0.04 the previous week and shed a further US$ 0.03 to close at US$ 1.41, with Arabtec flat at US$ 0.45. Thursday 15 August witnessed very low trading conditions of 91 million shares, worth US$ 34 million, (compared to 194 million shares, at a value of US$ 64 million on 08 August).

By Thursday, 15 August, Brent, having lost US$ 4.67 (7.5%) the previous week, gained US$ 0.85 (1.5%) to US$ 58.23. Gold, having jumped US$ 96 (6.8%) the previous week, rose a further US$ 21, trading 1.4% higher on Thursday at US$ 1,531. 

The world’s biggest profit-making company disclosed its financial results for the first time ever. Saudi Arabia’s Aramco posted an 11.0% dip in H1 profits to US$ 46.9 billion, as its earnings before interest and tax declined 9.0% to US$ 92.5 billion; the main driver to these decreases was falling energy prices. However, free cash flow headed north – up 7.0% to US$ 38.0 billion – with H1 capex 12.1% lower at US$ 14.5 billion. The energy giant is planning to acquire 20% of India’s Reliance Industries’ oil-to-chemicals business at an enterprise value of US$ 75 billion.

Apple’s ranking in global smartphone Q2 sales dropped to fourth, as it posted a 14.6% decline to 35.3 million units. It is estimated that the three leading companies – Samsung, Huawei and Oppo – accounted for over 52% of the global market, with shipments of 75.1 million, 58.7 million and 36.2 million respectively. Overall, there was an estimated 4% fall in smartphone sales, driven to some extent by older iPhone users keeping their phones for a longer time to avoid buying new, expensive models. Despite the ongoing trade tariff war with the US, it is interesting to note that Chinese tech firms – Huawei, Oppo, Vivo, Xiaomi and Realme – now account for 42% of the global smartphone market, a record figure that is set to grow in the future.

A unit of Macquarie Group is to spend almost US$ 2.0 billion to acquire a 40% stake in a UK offshore wind farm from utility, Iberdrola. The Spanish company expects the sale to meet its 10 GW of offshore wind power target over the coming years. It is estimated that the East Anglia One site profit-making will generate income of up to US$ 500 million, when it starts operating next year. Wind power is becoming more prevalent on a global scale and provided more than half of the UK’s energy needs last week.

With a July vacancy rate of 10.3%, the number of empty shops in the UK High Street hit a four-year high, with monthly footfall 1.9% lower – its worst performance since 2012. Interestingly, although High Street traffic was down 2.7%, footfall in retail parks increased by 1.2%. Last year, the Centre for Retail Research estimated that 2.5k mostly medium or large retail businesses failed, with this year expected to end with even worse figures.

With an estimated capitalisation at over US$ 211 billion, Bitcoin accounts for nearly 75% of the global market – and is ten times the size of its closest competitor, Ether. Last week, the cryptocurrency traded 14% higher on the week, whilst most of its rivals saw their value drop. Maybe this asset class, like gold and government bonds, is benefitting from investors looking for a safe haven to place some of their funds. One fact is certain – Bitcoin is operating in a volatile market and although it is trading this week at US$ 12k, earlier in the year it was worth only US$ 3.6k but just two months ago in June was US$ 10.4k higher at US$ 14.0k.

In 2009, the then Prime Minister Najib Razak established the 1MDB state fund and has been accused of pocketing US$ 681 million from the sovereign wealth fund, to which he pleaded not guilty earlier in the year. Now the country’s regulators have charged seventeen current and former Goldman Sachs bankers in connection with their roles “in arranging, structuring, underwriting and selling the three bonds” that raised US$ 6.5 billion for the SWF. Because of the “severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds”, convictions could result in prison sentences of up to ten years and fines of at least US$ 250k.

The RBA governor, Philip Lowe, has not ruled out having to cut Australian rates from its current 1.0%, or even introducing quantitative easing, if further measures are needed to stimulate the country’s flagging economy. The central bank has just reduced its 2019 growth forecast (again) by 0.25% to 2.50% but upped its 2020 unemployment rate to 5.25%, as wage growth remains moribund at 2.3%. Apart from a global slowdown, that has a negative impact on the country’s three main sectors – mining, agriculture and tourism – the central bank is concerned about consumer spending, (this has remained flat despite lower interest rates and tax cuts), and high levels of household debt. The 1.5% inflation rate is still some way off the bank’s 2.0% target (and is unlikely to be breached for at least another eighteen months). It is all but certain that rates will again be cut this year and when that happens, the currency will continue to remain south of US$ 0.70.

Once again, South Africa is going through turbulent economic times, as the rand becomes the world’s worst-performing emerging market currency, driven by not only a trade slowdown, and the threat of a global recession, but also domestic issues. This has led to its currency recently losing 10% in value, (now trading at 15 to the US$), unemployment rising to a worryingly high 29% and domestic growth contracting this year by 3.2%; latest figures indicate that this year, the country may only manage a 0.7% GDP increase. Factors, such as national power utility Eskom having had approached the government for assistance, with its massive US$ 7.8 billion debt, do not help and are an indicator why most credit ratings agencies, excluding Moody’s, have assigned the country’s bonds junk status.

On Monday, following negative primary election results for President Mauricio Macri, Argentine’s economy took a battering on both the stock market and currency fronts. Some of the country’s most traded stocks slumped by almost 50%, as the main Merval index closed down 31%, whilst the peso initially lost 30% in value to a record low before closing the day 15% lower to the greenback. With the country going to the polls in October, Alberto Fernández is now seen as the frontrunner for the presidential race. If he were to win, it will be the end of four Macri years and of his unsuccessful pro-business agenda that has failed miserably to save the Argentine economy. The country is in recession, with a 22% H1 inflation rate and more than 30% of the country’s population living in poverty.

Germany’s trade surplus narrowed in H1, as strong domestic demand led to imports growing faster than exports, adding to signs that Europe’s largest economy is slowly reducing its dependence on foreign sales. It seems that the German government is finally heeding the long-time urgings of both the IMF and EU to focus more on domestic demand for a way to stimulate global growth and reduce its economic imbalances. For the past eight years, Germany’s current account has been above the EC’s indicative 6% of GDP level but has fallen from 8.9% in 2015 to 7.4% last year. Now, driven by a sluggish global economy, Brexit uncertainty and trade tariffs, its export-reliant economy is unfurling to the point that H1 imports were 3.0% higher at US$ 622.2 billion, whilst export growth was up by only 0.5% to US$ 745.4 billion (but still US$ 123.2 billion above imports). In June, the trade surplus was at US$ 20.2 billion – narrowing, year on year, by 11.4% to US$ 122.7 billion – as the current account surplus dipped 3.2% to US$ 141.1 billion.

As expected, the German economy contracted in Q2 by 0.1%, compared to the previous quarter, driven by a marked decline in exports, down 6% on the year. Germany is the world’s third largest exporter after the US and China and is often badly hit by a global slowdown. The economy narrowly missed a recession (marked by two successive quarters of negative growth) last year but, with early signs for Q3 looking ominous. Europe’s powerhouse economy could hit the buffers. However, Chancellor Angela Merkel considers that the economy will move north this year and feels there is no need for any further stimulus. She may be in for a shock.

Official figures confirmed that the UK economy contracted by 0.2% in Q2 – for the first time since 2013 – following a 0.5% expansion the previous quarter. If the next quarter’s figures fall into negative territory, the country will enter a technical recession. Like most other global economies, the UK is being hit by slower global growth, as well as the added factor of Brexit uncertainty. Basic economics teach that the main factor that impacts market decisions is uncertainty; this will disappear one way or another, by 31 October and when that specific impediment is removed, the country will move forward at a faster rate than other countries. Prime Minister Boris Johnson has also promised a fiscal stimulus package to cope with Brexit, and a no-deal split, that will have the double whammy of improving consumer spending and a probable 0.25% rate cut by the Bank of England.

UK wage growth continued its upward trend in June, with a growth of 3.9% – the highest in eleven years – as the 76.1% employment rate, equating to 32.8 million, was the best recorded since records began in 1971. However, the Q2 unemployment rate shrank 0.2% – the first contraction recorded since 2012. Despite this improvement, it must be remembered that pay levels have yet to return to their pre-downturn peak. However, since March 2018, wage growth has been at a faster rate than inflation. These figures show that the UK economy continues to confound its growing number of critics and has built up an impressive head of steam.

Outgoing EC president Jean-Claude Juncker has confirmed that “we are not prepared to hold new negotiations on the withdrawal agreement but only to make certain clarifications in the framework of the political declarations that regulate future relations between the United Kingdom and European Union”. He also commented that a no deal (which now seems to be the likely outcome) would hurt the UK more than the rest of Europe. He remarked that “if it comes to a hard Brexit, that is in no one’s interest but the British would be the big losers. They are acting as though that were not the case, but it is.”. . . .”We are fully prepared even though some in Britain say we are not well set up for a ‘no deal’. But I am not taking part in these little summer games.” The sooner he goes the better.

For the sake of “health, safety, national security and other factors”, Donald Trump has decided to delay tariffs on some Chinese imports, including mobile phones, laptops, video game consoles and certain clothing items, until mid-December. However, 10% tariffs, totalling US$ 300 billion, imposed on some items, will go ahead next month. In return the US President expects something in return and there are hopes that China may decide to “buy big” from US farmers.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

Latest data point to the fact that US economic growth will slow in Q3 to 1.8%, following annualised returns of 3.1% and 2.1% in Q1 and Q2. Based on these estimates, annual growth at the end of December is expected to be 2.5%, driven by the ongoing tariff war with China and the resultant slowdown in global trade, which has seen 2019 worldwide growth forecasts cut to 3.2%. Despite the Fed lowering borrowing costs in July, yields on government debt have touched three-year lows, including 30-year Treasury bonds approaching a record 2.106% low; indeed, every government security– ranging from one month to thirty years – are all trading below the 2.25% level. This is another sign that there will be another rate cut by the end of next month at the latest.

After two consecutive 0.1% rises the previous two months, US consumer price index climbed by 0.3%, in line with market expectations (and 1.8% year on year); the main driver was a 1.3% hike in energy prices which had dipped 2.3% in June, whilst food prices remained flat. However, the 2.2% annual rate of core consumer price growth was higher than expected and indicated that there are inflationary pressures at play. This is an indicator that an imminent rate cut is on the cards.

The dreaded “inverted yield curve” has reared its ugly ahead again and inevitably it is the harbinger of bad economic news. In a nutshell, this occurs when a government’s bond interest rate is lower for say two years than it is for ten. (In normal times, the longer the term of the bond, the higher the interest rate). It does not happen often but when it does it is followed by a marked slowdown or even a recession. This week, the event happened in both the US and UK and financial markets have flashed a warning sign to all stakeholders – Handle With Care!

Posted in Uncategorized | Leave a comment

Forever in Blue Jeans

Forever in Blue Jeans                                                        08 Aug 2019

According to the latest Savills report, Dubai has become the third most affordable city in the world for purchasing prime residential property, behind Cape Town and Kuala Lumpur, and the fourth for prime residential rental yields, at 4.6%. The consultancy estimates that Dubai prime prices have dipped almost 20% over the past five years (1.7% over the past decade and 1.6% since January 2019). Dubai’s prime property is priced at US$ 600 per sq ft – a long way off the likes of Hong Kong (US$ 4,730 and New York (US$ 2,520).

On 25 July, Damac Properties decided to introduce registration fees for external vendors and contractors as well as maintenance companies, including a US$ 5.44 fee for workmen and cleaners entering its buildings. After much consternation, plus resistance from residents and owners, this week the decision was reversed by the developer, although it will still proceed with a registration process.

Azizi Developments has launched a new retail division to add 329 shops to its growing portfolio of Dubai properties; all the outlets are located in its master-planned communities and residential towers. Azizi Retail will operate the units, of which 177 are located in Azizi Riviera, 70 in Al Furjan and 42 in Healthcare City, with the balance in other of its developments.

With its new Ibn Battuta store, Landmark Group’s Centrepoint hopes to combine both the online and offline retail segments. The First Store of the Future, covering 42.3k sq ft, will introduce modern features, such as digital interfaces and LED screens, along with mobile cashiers and dedicated personal stylists on-call in the store to assist customers.  The new outlet will also have a coffee station and a dedicated mother and baby room. The parent company is planning to add a further eleven outlets across the region that would bring its total retail space to 6.6 million sq ft.

The Indian state of Maharashtra officially launched hyperloop, as a public infrastructure project, becoming the first such project in the world. The government approved a DP World-Virgin Hyperloop One consortium to run the operation that will see the travel time between Mumbai and Pune reduced by at least 85% to just over thirty minutes; it expects that by 2026, passenger numbers will have almost doubled to over 130 million on this route alone, with tickets  aligned to typical rail – rather than plane – prices. Hyperloop speeds will top 1k kph.

There was disappointing news for Dubai’s cruise sector, as P&O Cruises cancelled its planned Dubai and Arabian Gulf programme from October until at least March next year, citing security concerns, following the recent tanker attacks around the Straits of Hormuz. The operator confirmed that all bookings would be cancelled, and guests given a full refund. Earlier, and before this announcement, figures showed that over the past 2018/2019 cruise season, Mina Rashid Cruise Terminal welcomed 846k cruise visitors on 152 ship calls – up from the previous year’s 559k on 110 calls – equating to a 51.4% hike in visitor numbers and a 38.2% rise in vessels. It was reported that an additional 211 ship calls had already been confirmed for the upcoming 2019/2020 season, starting in October. Over the past five years, since its inauguration, the Dubai terminal has received over 2.3 million visitors.

Dubai Aerospace Enterprise signed three agreements to raise US$ 490 million in funds to finance its ambitious expansion plans. Only last month, DAE, the region’s biggest plane lessor, raised a US$ 440 million syndicated bank loan. The 13-year old company’s fleet, at December 2018 year end, comprised 354 aircraft, valued at about US$ 14 billion; last month it announced that it had delivered and committed to deliver US$1.1 billion in aircraft assets during H1.

In June, Dubai’s Department of Economic Development issued 2.4k new business licences that generated almost 7.6k jobs; of the total, 58.5% were for professional services and 38.9% commercial. During the month, 22.8k registration and licensing transactions were completed. The top five nationalities securing licences were Bangladeshis, Indians, Pakistanis, Egyptians and British.

The Dubai economy is being hit from all sides so much so that the current slowdown can largely be attributable to external factors. This week, IATA indicated that ME carriers posted the sharpest declines in freight volumes globally in June, driven by escalating trade tensions and business uncertainty. Year on year, regional freight volumes were 7% lower. Likewise, the slowdown in global trade will have a negative impact on Dubai’s maritime sector. A strong greenback makes Dubai more expensive for most overseas visitors and this – allied with most countries posting lower growth – does not help the emirate’s tourism sector. Then there is the fall in energy prices and the last thing Dubai wants is to see Brent oil at US$ 57.38. If the government could dictate the price of oil, unfettered world trade and a weaker dollar, Dubai’s woes would soon go away.

However, June ME passenger numbers rebounded 8.1%; this followed a May lull (0.6%) attributable to the month-long Ramadan. Overall, growth has not been as strong as last year because of rising economic uncertainty and on-going US/Chinese trade tensions. Capacity was up 1.7% and load factor jumped 4.5% to 76.6%.

The UAE’s Federal Authority for Government Human Resources has declared a holiday for Eid Al Adha, officially beginning on the 9th of the Zul Hiijah and lasting until the Zul Hijjah 12. Both public and private sector workers will have a four-day break from this Saturday to Tuesday, 13 August.

The popularity and importance to the Dubai economy of the public transport system continues unabated, with latest H1 figures showing a 6.5% passenger ride increase to 296 million. In the first six months, March and January were the busiest, being used by 53.2 million and 51.7 million respectively. The three more popular modes of transport were the Metro, taxis and buses accounting for 34% (101.7 million), 30% (87.8 million) and 27% (79.3 million) of the total respectively. The balance was made up of e-Hail and smart car rental – serving 17.7 million – marine transport (7.2 million) and Dubai Tram (3.2 million).

Still on bail in London, awaiting US extradition hearings, disgraced founder of the Abraaj Group, Arif Naqvi, has been sentenced in absentia to three years in prison by a UAE court; the case involved a loan with low-cost carrier Air Arabia, of which he was a director.

Struggling Union Properties posted a Q2 loss of US$ 23 million (compared to a US$ 7 million profit in the same period in 2018); US$ 8 million of the deficit was attributable to a loss in the value of financial instruments held by the firm but the main factor was that its total of direct costs, finance costs and general and administrative expenses of US$ 44 million exceeded its US$ 29 million revenue stream which in itself was 15.5% lower, year on year. Looking at H1 returns, revenue was down 13.0% at US$ 57 million, with the developer posting a loss of US$ 22 million, compared to a US$ 57 million profit a year earlier. Its share value on Thursday was at US$ 0.093 – down 15.0% YTD.

DXB Entertainments posted a Q2 loss of US$ 63 million (10.1% lower than in 2018), as revenue dipped 5.4% to US$ 30 million, despite a 10% jump in visitor numbers to 641k. The theme-parks operator has not made a profit since its DFM listing in 2014 but hopes to reach break-even by H2 2020. It is reported that recently appointed CFO, Paul Parker, is leaving the company. By Thursday, its shares were trading at US$ 0.06 (down 4.4% YTD).

Emaar The Economic City, operating in Saudi Arabia, posted a 119.6% increase in H1 losses to US$ 27 million (H1 2018 – US$ 7 million), driven by higher financial costs and launching new operating assets; gross income was up 8.2% to US$ 56 million. Most of the damage was done in Q2, as a Q1 profit of US$ 3 million turned into a Q2 loss of US$ 31 million.

Emaar’s Egyptian unit, Emaar Misr for Development, posted a disappointing 91% fall in H1 profit to US$ 6 million compared to US$ 67 million over the same period last year; sales also headed south – down 17.1% to US$ 88 million. On a quarterly basis, Q1 posted a 16.8% decline in profits to US$ 25 million but deteriorated in Q2 to a US$ 19 million loss – from a Q2 2018 profit of US$ 55 million.

Emaar Properties posted a 3.1% decline in H1 profit to US$ 847 million, as revenue fell 4.0% to US$ 3.2 billion, driven by the double whammy of declining revenue and rising costs. By 30 June, the developer estimated a US$ 13.4 billion sales backlog, which will help drive revenue over the next four years, and that H1 sales, at US$ 1.7 billion, were up 52% over the same period in 2018; it also has a land bank of 1.6 billion sq ft.

Emaar Development recorded a 23.3% decline in H1 profit to US$ 376 million, as revenue fell 11.0% to US$ 1.7 billion. However, the developer, majority-owned by Emaar Properties, indicated that with a US$ 10.2 billion sales backlog, it will result in “remarkable revenue recognition” in the coming three to four years. In H1, sales were 50% higher at US$ 9.4 billion, as it launched sixteen new projects, totalling US$ 8.8 billion.

Meanwhile, Emaar Malls saw its H1 profits 3.0% higher at US$ 308 million, as revenue grew 6.0% to US$ 607 million. Its retail portfolio – including Dubai Mall, Dubai Marina Mall and Souq Al Bahar – maintained an impressive 92% occupancy level whilst footfall came in 2% higher at 68 million. 59.1% of the division’s revenue (US$ 359 million) emanated from its hospitality & leisure, entertainment and commercial leasing business. When combined with the revenue from Emaar Malls, its contribution to the group’s top line was US$ 965 million – or nearly 32% of the total; the group’s international operations contributed US$ 475 million (a 12.5% increase on a year earlier).

Commercial Bank International reported a 49.4% slump in H1 net profit to just US$ 11 million, although operating profit came in 5.2% higher at US$ 56 million. The main drivers were a 13.7% decline in operating expenses, to US$ 48 million, with net income/commission up 6.9% to US$ 29 million. Its Capital Adequacy Ratio in H1 2019 remained stable at 14.7%.

The bourse opened on Sunday 04 August at 2900 and having gained 239 points (9.0%) over the past month gave back 62 points (2.1%) to 2838 by 08 August 2019.  Emaar Properties closed down US$ 0.04 at US$ 1.44, with Arabtec US$ 0.03 lower at US$ 0.45. Thursday 01 August witnessed low trading conditions of 194 million shares, worth US$ 64 million, (compared to 115 million shares, at a value of US$ 46 million on 01 August). The bourse will be closed next week until Wednesday because of the Eid Al Adha festival.

By Thursday, 01 August, Brent, having gained US$ 1.27 (1.9%) the previous fortnight, entered bear territory, shedding US$ 4.67 (7.5%) to US$ 57.38. Gold, having gained US$ 30 (2.1%) the previous week, went US$ 66 better, trading US$ 4.6% higher on Thursday at US$ 1,510.

For a company that has never made a profit, it was no surprise to see Uber’s Q2 loss widening to a record US$ 5.2 billion, (compared to US$ 878 million a year earlier); the main driver was a US$ 3.9 billion of share-based compensation expenses, related to its stock market listing earlier in the year. It also posted a 147% increase in costs to US$ 8.7 billion, as the company spent an increasing amount in R&D. Although revenue rose 14.4% to US$ 3.2 billion, Uber’s growth slowed in face of heavy competition. Its shares slumped 13% in after-hours trading.

Honda posted a 29.5% decline in Q2 profits to US$ 1.6 billion, as revenue dipped 0.7% to US$ 37.0 billion, driven by disappointing sales in the US and India, along with an unfavourable currency exchange. Consequently, it lowered its profit forecast (for the year ending 31 March 2020) by 3.0% to US$ 6.0 billion which would still be 5.7% better than last year’s US$ 5.7 billion return. The Japanese automaker expects to sell 5.1 million vehicles and 20.0 million motorcycles this fiscal year.

Japan’s SoftBank Group posted a 257.6% hike in its first-quarter net profit to US$ 10.5 billion, attributable to delayed gains of US$ 8.0 billion, from its 2016 sale of Alibaba shares. Q1 sales to June (Japanese companies tend to have a 31 March year-end) rose 2.8% to US$ 21.9 billion, whilst operating profit dipped 3.7% to US$ 6.5 billion. The company is fast becoming more of an investment firm, than just a software entity, and last month said it would be involved in an US$ 109 billion investment fund with other tech firms, including Apple and Microsoft.

The day HSBC announced a 15.8% rise in H1 pre-tax profit to US$ 12.4 billion, and plans to cut staff numbers by 4k, its chief executive, John Flint, was surprisingly ousted from his position.It seems that he disagreed with chairman Mark Tucker who indicated that the bank needed a change in leadership to address a “challenging global environment”. The bank expects that the retrenchments will cost US$ 650 million in severance pay, with the same amount being saved on future annual payrolls.

In the UK, Tesco announced that it expects to retrench some 4.5k staff from its 153 Tesco Metro stores in its latest round of redundancies. Recognising that it was operating in an increasingly competitive and challenging retail environment, the supermarket giant indicated that it wanted stores to “serve shoppers better” and help to “run our business more sustainably”. Tesco, which employs about 340k, plans to introduce a “leaner” management structure, “faster and simpler” ways of filling shelves and staff working “more flexibly”.

There was a 1.4% fall to US$ 1.7 billion in the value of summer signings (compared to last season) before the EPL deadline expired at midnight. The three biggest spending clubs were Manchester United, Aston Villa and Everton paying US$ 177 million, US$ 160 million and US$ 152 million for new players. In regard to net spending (the balance between what was paid for new players and what was collected for exiting ones), the top three were Aston Villa, Arsenal and Manchester City (US$ 160 million, US$ 157 million and US$ 129 million). The bottom of the league in net spend were Chelsea, Crystal Palace and Liverpool with negative totals of US$ 79 million, US$ 49 million and US$ 12 million. Arsenal’s Alex Iwobi’s move to Everton, at US$ 41 million, was the biggest incoming EPL deal; Romelu Lukaku’s US$ 90 million deal from Manchester United to Juventus was the largest outgoing transfer.

Governor Shaktikanta Das did not surprise the market with a rate cut but did by the unconventional 35 basis points which saw the repo rate at 5.4%; this was the fourth rate reduction this year by the Reserve Bank of India, as concerns about the country’s economy mount. The RBI reduced its 2019 growth forecast by 0.1% to 6.9% – ambitious after Q1’s 5.8% and estimates that Q2 could be lower – and, with inflation remaining muted, but within its target range, more rate reductions are on the cards.

Other countries also decided that rates were too high in the current economic environment. New Zealand’s central bank decided to cut its rate by 50 bps – a rate that no analyst expected. It now stands at a historic low of 1.0% – the same rate as its neighbour, Australia.  On the back of New Zealand’s surprise move, the Aussie dollar slid to a decade-low of 66.77 to the greenback; a day earlier the RBA had kept rates on hold. This followed the Bank of Thailand surprising the market by cutting its benchmark by 25 bp – its first rate reduction since 2015 – whilst the Philippines also cut bank rates by 0.25% to 4.25%.

June average household spending in Japan posted a 2.7% year on year increase to US$ 2.6k, following a 4.0% rise the previous month; the average monthly household income jumped 3.5% to US$ 8.3k. Initial results for July saw the country’s service sector almost flat – but still registering growth –  with the Jibun Bank Services PMI 0.1 lower at 51.8. There are worrying signs that the economy is slowing, maybe to a recession, as the overall composite output index dropped 0.2 to 50.6, with job creation and demand rising but at a marked lower pace. With two main indicators pointing down – the leading index, which measures the future economic activity, by 1.6 to 93.3, and the coincident index, reflecting the current economic activity, 3.0 lower to 100.4 – the writing is on the wall. As relations with South Korea worsen by the day, and the imminent sales tax increase on the horizon, the economy is likely to move in one direction – and that is down.

Typical of most governments, Australian legislators are seen to be dragging their feet over the 76 recommendations emanating from the Hayne banking royal commission on the shady dealings of the country’s financial sector. Six months ago, and after a year in operation, it came up with 76 recommendations. To date, only seven have been acted on, two of which were to do nothing – keeping APRA and ASIC, and not amending the consumer credit laws. The conclusions also sought to act speedily by tough legislation, quick fixes and ensure better sector behaviour; unsurprisingly, the opposite has happened and there is every chance that some will never be implemented within the next five years. To the outsider, it looks as if the establishment has joined ranks to look after their own interests at the expense of the public good.

Expanding for the fourth straight month, the IHS Markit/Chartered Institute of Procurement & Supply services PMI increased by 1.2, month on month, to 51.4 in July; the main drivers behind the figures, that surprised the market, was a renewed increase in new work and weaker sterling helping to improve foreign demand. There was a slight easing in the rate of job creation as some businesses noted increases in payroll costs and fuel.

In contrast to a relatively strong services sector, UK manufacturing headed in the other direction – with production at a seven-year low. Overall, the economy is just keeping its head above the recession level, as July’s results were one of the worst months since the 2009 GFC. No wonder that, after a reasonable start to the year, the wheels are beginning to come off; the UK will be lucky to see a GDP growth of any more than 1.0% this year.

However, the euro area private sector is in an even bigger mess, as both the manufacturing and service sectors PMIs headed lower month on month in July – by 0.7 to 51.1 and 0.4 to 53.2 respectively. In typical Brussels fashion, blame is attributable to every factor possible, ranging from slower economic growth to geopolitical concerns and everything in between. Germany continues to be badly hit, expanding at its slowest rate in six years, with manufacturing output spiralling downwards and service sector growth slowing; the country’s final composite index fell 1.7 to 50.9 and moving inexorably to below 50 which will signify contraction.

A separate survey from IHS Markit showed that the June Eurozone construction PMI fell marginally by 0.2 to 50.6. Although France’s construction PMI rose 0.6 to 52.4, both Germany and Italy headed into contraction territory, with readings of 49.5 and 49.8 respectively.

In the US, July non-farm payrolls increased by 164k, down on the 223k monthly average attained in 2018 but still well above the estimated 100k required to maintain continuing growth in the working-age population. It is evident that the trade war with China is taking its toll especially on manufacturing (as production declines for the second straight quarter). With business investment also contracting, Q2 annualised growth of 2.1% was down on the 3.1% posted in Q1. With wage growth remaining moderate (average hourly earnings up US$ 0.08 – 0.3%), inflation, at 1.6%, is below the Fed’s 2.0% target; this could see another rate cut over the next six weeks.

This week, US/Chinese trade troubles took a worrying turn for the worse, with the yuan falling to just under 7 to the US$ – its lowest level in a decade. It was a studied move by the People’s Bank of China to limit the impact of the next round of tariffs. Using his Twitter account, President Trump lambasted China accusing it (maybe with some justification) of currency manipulation; Bank of China governor, Yi Gang immediately responded that  China would not use the yuan as a tool to deal with trade disputes, whilst President Xi Jinping upped tensions by requesting state-owned companies to suspend imports of US agricultural products. Consequently, the world’s stock markets and emerging market currencies went into a tailspin, with the main beneficiaries, at least in the short-term being gold, Japanese yen and US Treasury bonds.

Following a by-election defeat, Boris Johnson’s parliamentary majority has been cut to one and there is every chance that he is preparing for an early general election at the same time as readying the people for a 31 October Brexit. Since his elevation to the highest position in the land, he has continued to court the electorate by promising US$ 2.2 billion for the NHS, hiring 20k more police and boosting infrastructure spending, including on railways.

A BBC report on UK shopping habits has unearthed some surprising facts including that the British buy five times more clothes than they did in the 1980s and more than any of their European neighbours. Because of globalisation, and production in poorer countries, customers have more choice and lower prices. There is no doubt that after the 2014 fire in Bangladesh, that killed over 1.1k garment workers, the big retailers were forced to take action to improve terms and conditions. As wages moved higher in the country, the search was on for alternatives including Ethiopia where US$ 7 a week is about a third of the current rates in Bangladesh.

Apart from the human cost, questions need to be asked about the environmental damage. There are plausible claims that textile production contributes more to climate change than aviation and shipping combined which can be seen at all six stages of a clothing item’s life cycle – sourcing, production, transport, retail, use and disposal.

For example, when it comes to cotton, it is estimated that a single shirt and a pair of jeans can take up to 20k litres of water to produce. If that figure is staggering, then what about a polyester shirt made out of virgin plastics? This has a much larger carbon footprint and even more when dying fabrics and transporting come into the equation. At the other end of the cycle, a single washing machine load can release hundreds of thousands of microplastic fibres into waterways which then may end up in the food chain. Finally, a million tonnes of clothes are disposed of every year in the UK, 20% of which ends up as landfill.

The government, that has already suggested introducing more sewing lessons in schools (?), may have to look at an environmental tax on clothing; this may help in one way but, with the state of the UK high street and the need to boost consumer spending, it is unlikely to have much traction. With clothing demand forecast to rise by the equivalent of 500 billion t-shirts over the next decade, the obvious solution is to buy less and not to be Forever in Blue Jeans.

Posted in Uncategorized | Leave a comment