Here We Go Again!

Here We Go Again!                                                                                           30 July 2020

A report by the Dubai Statistics Centre showed that the real estate sector’s Q1 growth was 3.7% higher, year on year, contributing 8.0% to Dubai’s GDP. In 2019, it was estimated that real estate activities grew 3.3%, and contributed 7.2% of Dubai’s GDP, with an added value of US$ 8.0 billion, according 10.7% to Dubai’s overall economic growth. Q1 also witnessed a 30.4% annual growth in cash sales – the best first quarter for ready home cash sales since 2014 – and this would have been higher if not for the Covid movement restrictions introduced in mid-March. Although Q2 figures were lower, overall results point to the fact that there will be a bounce back, as business returns to the new form of normalcy, assuming no further lockdowns.

The DLD report indicated that there were 15.0k transactions, totalling US$ 13.1 billion, in Q1 and 7.8k, worth US$ 6.7 billion, in Q2. The DLD noted that the local real estate market saw 22.8k transactions totalling US$ 19.8 billion in H1– not a bad return considering the onset of Covid-19, starting mid-March. It seems that a combination of the government’s stimulus packages and initiatives, along with very low interest rates and competitive prices, may be working.

When it came to Q2 mortgage registrations, the top three locations were Hadaeq Sheikh Mohammed bin Rashid, Me’aisem First and Jabal Ali First with 205 transactions (US$ 93 million), 113 (US$ 31 million) and 107 (US$ 43 million). The top three locations, with regard  to H1 sales, were Dubai Marina, Business Bay and Al Merkadh, with 1.5k, 1.3k and 1.2k sales, valued at US$ 920 million, US$ 450 million and US$ 687 million respectively.

According to Chesterton’s Q2 report, apartment rentals declined by 3.9% in Q2, with much bigger declines noted in The Views and The Greens, both with double-digit drops. Villa rentals fell by an average 2.6% in Q2, with The Springs down 3.3%; over the past twelve months, The Springs and The Meadows recorded falls of 12.2% and 12.7%, with The Lakes recording the lowest annual decline, as the average was around 10%. The past six months have seen a noted improvement in The Meadows and The Lakes, down by 2% and 4%, although The Springs dropped 6%. There have been reports that prices in Emirates Hills may have dipped up to 20% over the past twelve months.

It is reported that GEMS schools will reopen across the UAE in September, following the recent issue of a 100-plus set of health and safety guidelines by Dubai’s school regulator, in relation to the start of the new academic year. The Knowledge and Human Development Authority (KHDA) has yet to specifically confirm that Dubai schools can reopen but it seems that GEMS, and other private school, expect a positive decision from the authority and are taking action accordingly.  In April, GEMS Education announced that it would offer 20% – 50% tuition fee cuts for families impacted by Covid-19.

After twenty-seven months, DEWA has commissioned a new US$ 91 million 400/132 kV substation in Dubai South which has a conversion capacity of 2020 megavolt-amperes (MVA) and a 2.4 km overhead lines link with the grid. With this latest addition, the agency has twenty-three 400/132 kV substations, with four more being built. It is estimated that power transmission network under construction total US$ 2.7 billion, including the final testing of 11 new 132/11 kV substations costing over US$ 400 million.

A major local social event has become the latest victim of the current pandemic, with the cancellation of the 51st Emirates Airline Dubai Rugby Sevens due to run for three days between 26-28 November. This Tuesday also saw the demise of a popular restaurant and bar located in Media City. Located on the 43rd floor of the Media One Hotel, (and hence the name Q43), it was a popular after-work hangout for office staff working in the environs. Q43, operated by Solutions Leisure Group, which also owns Asia Asia, Lock, Stock and Barrel and STK brands, is the latest such outlet to close. There is no doubt that the F&B sector has been battered, facing monthly losses of up to US$ 300 million in staff salaries, housing and benefits, excluding rents and operational costs.

The interbank lending rate has slipped to a several-year low, settling at 0.75% and 1.1% for the six-month and one-year rates respectively – down from the 2.20% and 2.28% rates earlier in the year; the three-month and one-month rates are currently at 0.62% and 0.33%. For some, this is good news as EIBOR is used for various lending rates which will normally result in lower mortgage and lower business costs.

DIFC and Jiaozi Fintech Dreamworks signed a Memorandum of Understanding that will support the UAE in facilitating the ‘Belt and Road’ economic initiative. The partnership, with one of China’s first Fintech innovation and entrepreneurship platforms, will also assist the Dubai centre, already in the world’s top ten FinTech hubs, to further strengthen and enhance relationships with the global financial community. DIFC, already home to over two hundred FinTech related companies, will also benefit from a myriad of opportunities offered by its new Chinese partner.

DIFC will be the MENA base for Startupbootcamp, one of the global industry-focused start-up accelerators and part of the corporate innovation and venture development firm Rainmaking. This is another step by the centre, which is currently involved in a three-month programme to help local start-ups, to enhance its international stature as a leading player. Startupbootcamp, a venture, launched in 2018 and involving Visa, HSBC and Mashreq, has already helped twenty payments, lending and Islamic digital banking FinTech start-ups.

Following a decision by the DIFC Courts, it seems that BR Shetty is facing a global freezing order on his assets, at the request of Credit Europe Bank (Dubai) which claims that the founder of NMC Health, has defaulted on a loan of more than US$ 8 million. The bank has indicated that two security cheques, apparently signed by Mr Shetty, have been “dishonoured upon presentation due to insufficient funds”. The claim also included New Medical Centre Trading and NMC Healthcare, saying that they “are jointly and severally liable” for the repayment of money initially secured through a 2013 credit agreement. The bank claimed Mr Shetty “has now fled the jurisdiction of the UAE to India” and that there was a risk of his “substantial” assets in the UAE being dissipated.

Always one known to empower his employees to move out of their comfort zones, Mohamed Alabbar has suspended all job titles across the Emaar Group, including his own ‘Chairman’ title, with business cards now showing only an employee’s name and their department. He wants to focus on ‘talent not titles’, as the group reassesses its business strategy going forward post Covid-19. In a staff memo he noted that “the recent pandemic has forced us to pause and reflect on every aspect of our business. The products we produce, the systems we use, the people we employ – and most importantly, the culture we create. The challenges we face now will be greater than ever.” With a proven track record, there is no doubt that the man, formerly known as the Chairman, will succeed in making Emaar a somewhat different, more efficient and better business entity.

Network International has invested US$ 288 million for a 60% stake in the DPO Group, Africa’s largest online commerce platform. This funding will be financed from a 10% equity placing of the Dubai-based enabler’s existing issued share capital, US$ 50 million vendor consideration shares issued to Apis Partners and US$ 13 million issued to DPO co-founders. DPO, which covers nineteen countries on the continent and services 47k merchants, has recorded annual growth in excess of 30% over the past two years, with 2019 revenues at US$ 16 million.

DP World posted an 8.8% decline, to 16.7 million shipping containers, in Q2 container volumes, with the outlook remaining uncertain, as infections begin to rise again in certain countries. The global port operator noted that the biggest fall was in the Asia Pacific and Indian subcontinent, with container numbers down 12.2% to 7.2 million. H2 figures were 5.3% lower at 33.8 million containers. The company has also announced that it has agreed to purchase a 60% stake in South Korea’s UNICO Logistics Co. Ltd. This is a continuum of the Dubai company’s strategy to add to its global network to enhance connections for both end-users and cargo owners, by improving efficiencies in the supply chain. The eighteen-year old South Korean company has twenty-five subsidiaries, in twenty countries, and is one of the largest independent NVOCC (Non-Vessel Operating Common Carrier) in the country, with links in the expanding transcontinental rail freight market, including the Trans-Siberian Railway and Trans China Railway.

For the fifth month in a row, UAE petrol prices will remain the same, with Special 95 and diesel retailing at US$ 0.490 per litre and US$ 0.561 in August. It is exactly five years ago that previously subsidised fuel prices were aligned with market prices; at the time, Special 95 and diesel were selling at US$ 0.586 and US$ 0.545 in August 2015.

In line with other local banks that reported last week, Commercial Bank of Dubai posted declines in both H1 revenue and net profit – down 6.5% to US$ 385 million and 24.3% to US$ 144 million. With operating expenses dipping 9.9% to US$ 105 million, operating profit came in 5.2% lower at US$ 280 million. Net impairment allowances, driven higher by the negative economic impact that Covid-19 has had on businesses and households in the emirate, were 30.1% higher, at US$ 135 million, whilst the non-performing loan ratio increased by 103 bps to 6.97% over the six months to 30 June. At H1 end, gross loans were 4.2% higher, compared to 31 December 2019, at US$ 18.2 billion.

DFM has seen its H1 net profit jump 21.0% to US$ 21 million, as revenue, driven by higher trading volumes, increased by 11.0% to US$ 49 million; H1 trading value was 25.0% higher at US$ 8.4 billion, compared to the same period in 2019. Q2 profit was 20.0% higher at US$ 12.0 million, with revenue up 8.5% to US$ 25.0 million. The bourse’s general index slumped by 36% in Q1 but had recovered somewhat by the end of Q2, improving by 16%. By the end of July YTD, the bourse was 64 points (3.2%) from its 01 January start of 1,987.

The bourse opened on Sunday 26 July and, 60 points (3.1%) lower the previous four weeks shed 2 points on the shortened week to close on 2,051 by 29 July – a day earlier than normal because of the Eid Al Hada break. Emaar Properties, US$ 0.04 lower the previous fortnight, closed down US$ 0.01 on US$ 0.70, whilst Arabtec, up US$ 0.09 the previous three weeks, remained flat at US$ 0.25. Wednesday 29 July saw the market trading at 297 million shares, worth US$ 80 million, (compared to 127 million shares, at a value of US$ 41 million, on 23 July).  For the month of July, the bourse lost 14 points (0.7%) from its opening 2,065 reading. Emaar opened the month at US$ 0.75 and shed US$ 0.05, whilst Arabtec headed in the other direction, climbing US$ 0.09 from it July opening of US$ 0.16.

By Thursday, 30 July, Brent, US$ 3.69 (9.3%) higher the previous fortnight closed up US$ 0.44 (1.0%) at US$ 43.75. Gold, having climbed US$ 98 (5.4%) the previous week, had another positive week, climbing US$ 62 (3.3%), by Thursday 30 July, to US$ 1,960.  Oil output has fallen to a nine-year low, with Opec+ agreeing to cut production levels by 9.7 million bpd. Curbs are being lowered to 7.7 million bpd from this Saturday, 01 August as demand begins to move higher, as lockdown restrictions are being lifted.

In 2019, there was an 18.0% surge in global sukuk issuances to US$ 145.7 billion, of which US$ 38.5 billion (26.4%) were international and the balance of US$ 107.2 billion domestic. This was the highest value of annual sukuk issuance ever since its 2001 launch. International issues were 16.6% higher, with an 18.9% hike for domestic, driven by three countries accounting for 84.1% of the total – Malaysia (US$ 54.0 billion), Saudi Arabia (US$ 18.9 billion) and Indonesia (US$ 17.3 billion). US$ 76.4 billion or 81.3% of domestic issues were long-term sukuk.

Rio Tinto has posted a 20.0% fall in H1 profit to US$ 3.3 billion driven by significant declines in copper and aluminium prices, even though Chinese demand nudged iron ore prices were 1.0% higher, year on year. The miner’s underlying earnings — excluding a range of one-off costs — were down just 4.0% to US$ 4.75 billion. Despite the rather large decline in profit, the company will still pay a US$ 1.55 interim dividend. The efficiency of Rio Tinto can be seen that it is estimated that its iron ore production costs are US$ 14.50, and the spot price is currently US$ 100.

L Catterton seems set to bring the Australian swimwear brand Seafolly back into its fold, after June’s appointment of KordaMentha as voluntary administrators of Seafolly and sister brand Sunburn. The Australian investment group’s portfolio also includes Jones the Grocer, RM Williams and 2XU. The liquidator decided to appoint L Catterton the preferred bidder, out of fifteen formal expressions of interest for the iconic beachwear brand, because “it provided the best return to all creditors including its suppliers”. The bid may have been enhanced by its promise to forgo any payments it might have been entitled to as the brand’s major creditor; stakeholders will vote on the arrangement on 03 August.

Huawei has become the biggest seller of global smartphones, shipping 55.8 million devices in Q2, compared to Samsung’s 53.7 million, mainly attributable to the fact that China was the first country to come out of lockdown. The Chinese telecom actually reported a 27% decrease in overseas shipments, more than offset by the fact that Huawei accounts for 70% of all smartphones sold in China. Its main competitor, Samsung was hit hard by Covid-19, with shipments dropping by up to 30% but still saw Q2 operating profit 23% higher, driven by the increasing number of the population working from home. Demand for computer chips has seen margins improve, as prices nudged higher, whilst orders for cloud applications, relating to remote working and online education, moved higher; people staying at home and utilising internet-based services, including video conferencing and movie streaming, added to Samsung’s revenue stream. Other leading memory chipmakers, such as rival Korean producer SK Hynix and US firm Micron Technology are benefitting for the same reason, with the former posting a tripling of Q2 profits. Samsung will launch its new Galaxy Note and Galaxy Z Fold handsets in Q3.

It appears that Boeing will delay the debut of its new 777X jet by up to a year, (as the coronavirus crisis has seen customers cut back on potential orders), to see what direction the industry will take post Covid-19. The current US-Sino spat has also resulted in certain Chinese orders in doubt until trade normalcy returns. It is reported that Emirates, the biggest customer for the plane, does not expect delivery until next year. The manufacturer, already behind schedule because of issues with its GE9X engines and other glitches, is continuing with the 777X test flights. As this will be the first new jet to be introduced since the grounding of the 737 Max, it is expected that it will face extra scrutiny from not only the US Federal Aviation Administration but also other global aviation regulators.

BA’s parent company, IAG, (which also owns Iberia and Air Lingus), is looking at a US$ 3.3 billion rights issue to strengthen its balance sheet, battered and bruised by the impact of Covid-19. Unlike other major carriers, such as Deutsche Lufthansa, Air-France KLM and major US carriers, BA did not receive direct state aid; however, it did benefit from government wage support programmes. IAG has extended its global commercial partnership with American Express for an air miles deal and will receive a payment of almost US$ 1.0 billion. Having posted a Q1 operating loss before exceptional items of US$ 630 million (Q1 2019 – US$ 158 million profit), and because of the impact of the pandemic, the airline has introduced a tough cost reduction strategy including staff cuts, retiring its fleet of 747s, three years earlier than planned, and deferring delivery of sixty-eight aircraft. The bad news is that BA will make an even bigger quarterly loss in Q2 and, with passenger demand not expected to return to 2019 levels until 2023, further major group-wide restructuring measures will be required.

The Johnson government introduced a surprise and sudden 14-day quarantine last Saturday on people arriving in the UK from Spain, (and is currently closely monitoring Germany and France, as cases increase there). This followed a spike in that country’s coronavirus cases, with more than nine hundred new cases reported on Friday, and officials warning a second wave could be imminent, as major cities have seen cases surge. Tui, the UK’s biggest tour operator, cancelled all flights to mainland Spain until 09 August but will continue to travel to the Balearic and Canary Islands as from Monday.  Other operators including BA, Ryanair, easyJet and Jet 2 will maintain normal scheduling, although easyJet is cancelling all its Spanish holidays. Airlines and the travel companies were unanimous in expressing disappointment at the government decision, with some suggesting that testing should be introduced at airports to avoid the need to self-isolate automatically.

Consequently, London-listed shares of airlines and tour operators fell sharply on Monday dealing a blow to an industry, already reeling from the downturn. The likes of EasyJet, IAG, On The Beach, Ryanair, Tui and Wizz Air were all down between 4% – 13% on the day.

Tui is set to close over 32% of its 500+ UK outlets but hopes that the 630 staff involved will be  with redeployed in a mix of sales and home-working roles and in remaining stores; it has already shut overseas customer services centres in Mumbai and Johannesburg. In May, the tour company announced that 8k worldwide jobs would be lost in a major restructuring programme to cut costs. There is no doubt that Covid-19 has accelerated customers’ purchasing habits with the trend moving to on-line – rather than to face – meetings.

The latest major retailer to announce staff cuts is Selfridges, with 450 retrenchments, (14% of its workforce), as annual revenue is set to be “significantly less” than last year, as a result of not only Covid-19 but also fundamental changes in shopping habits which had been evident for some time. Senior management realise the need to restructure the company so as it keeps ahead of its competitors and embraces the impact of e-commerce on the way the High Street operates in the future. The double whammy of the scarring impact Covid-19 will have on the economy – including the retail sector – and the need for rapid change and restructuring of the business at the same time, will see Selfridges, and others, experiencing their worst year ever.

The existing backers of troubled Debenhams have started plans that they hope will see new owners in place by the end of September. There could be various outcomes, including a sale to a third party, a potential JV with new investors or the current owners retaining ownership. Even before the onset of Covid-19, Debenhams had been struggling with the shift to online shopping and being taken over by lenders last year, and the pandemic has only exacerbated their problems. Potential suiters include a Chinese consortium and billionaire Mike Ashley, who owns rival House of Fraser and has failed in earlier bids to buy Debenhams. Since lockdown restrictions have been eased, the retailer has reopened 124 of its 142 shops.

Lloyds Banking Group posted a pre-tax  H1 loss of US$ 780 million, as its impairment provision for bad debts jumped to US$ 3.2 billion, pushing its total provision to nearly US$ 5 billion, as income fell 16.0% to US$ 9.6 billion; its net interest margin fell 20 basis points to 2.59% The UK’s largest bank made a US$ 3.8 billion profit last year. On the news, the bank’s shares dipped 9.0% to an eight-year low.

In a bid to sell Asda in the UK, Walmart has requested interested parties, reportedly including the likes of private equity firms Apollo Global Management, Lone Star Funds and TDR Capital, to submit second-round bids by early September. The UK grocery unit, which has been on the market for at least the past two years, could be worth as much as US$ 10.0 billion. A proposed 2018 agreement to sell to J Sainsbury for US$ 9.4 billion was scuttled by UK antitrust authorities.

With online food sales almost doubling during the pandemic, Amazon has decided it wants some of the action in the UK and its ambitious aim is to be serving millions by year-end. Amazon Fresh, (founded in 2016 and with an estimated fifteen million customer base), is to offer same or next-day grocery deliveries for customers in London and the Home Counties. To date, shoppers have had to subscribe to Amazon Prime and also to pay a monthly fee or a charge per order but from Tuesday all orders above US$ 52 have been delivered free. It has about 10k products, including fresh, chilled and frozen food, and aims to roll out the same quick and free grocery service to “multiple cities” by the end of this year. There is no doubt that the latest move by Amazon will disrupt the market, as their ambition is usually to be the biggest player in every “game” it plays; Amazon Fresh has no need to – and has not – given sales figures or customer numbers since its inception. The worrying factor for competitors, with Amazon now after a bigger slice of this fast-expanding market, is that the tech giant does not need to make a profit which will make it very difficult for grocers to compete in the online sales sector.

Having apparently agreed a US$ 450 million deal to acquire Newcastle FC from Mike Ashley, in April, a Saudi Arabian-backed consortium has ended its bid. The agreement was being discussed under the EPL’s owners’ and directors’ test and has dragged on since then. It appears that the three entities involved – Saudi’s SWF, PIF, PCP Partners (including Amanda Staveley) and Reuben Brothers – ran out of patience and pulled out the deal with “regret”. There is every chance that American entrepreneur, Henry Mauriss, may enter the race to buy the club. There had been opposition by various groups to the takeover and there is every possibility that the “suits” did not want to get embroiled in any potential political problems – and sat on the fence for too long.

It has been reported that, in H1, 381k cars were manufactured in the UK – 42% lower than the total this time last year, and the lowest in sixty-six years; during the period, it is estimated that 11.3k jobs have been lost at carmakers and companies which supply them with parts and services.  In June, car production was 48% lower at 56.6k. The sector has been hit with a triple whammy – Covid-19, the possibility of Brexit tariffs on the horizon as the UK leaves the EU starting 01 January 2021, and the fact that global sales have been heading south for some years. At the beginning of the year, the UK was looking at producing two million vehicles – now it seems that this figure could be less than half that number.

With Nissan forecasting an US$ 4.5 billion loss this year (to 31 March 2021), its shares have plunged by 10% in Tokyo, as the virus plays havoc with its turnaround plans (post Carlos Ghosn) and sales expected to be the lowest in a decade. Japan’s second largest carmaker is worried that a second wave of the pandemic would cause even further devastation for the company, as well as the global industry which is already struggling. With June quarter sales 50% lower in the US and 40% down in China, global sales were off 48%. Even with a four-year plan to cut production by 20% and slash costs, figures like these will see the carmaker continuing to post losses in the future. With its YTD share price down by a third, and its liquidity tightening, it seems that Nissan may just run out of time to introduce the changes that it needs to turn the company back on track.

McDonald’s has had a turbulent few months since the onset of Covid-19, reporting a 23.9% slump in Q2 same-store sales and its worst quarterly results since 2005. The main drag on revenue was a 41.4% plunge in its international operated markets. The situation will improve, as the fast food company confirmed that all but 4% of its international operations are now open and that its US domestic market is almost back to normal, with June sales only 2.3% lower, year on year.

Najib Raza, Malaysia’s PM for nine years to 2018, has been found guilty on all seven counts, in his first of several corruption trials, and sentenced to twelve years in jail for abuse of power and ten years for each of six counts of money laundering and breach of trust. Najib had been leader of the UNMO party, which lost power in the 2018 election after ruling the country for all sixty-one years since its independence from the UK. This case centred around the 1MDB state-owned wealth fund scandal and involved US$ 10 million transferred from the fund to Najib’ personal account. Set up in 2009, when the accused was PM, the 1 Malaysia Development Berhad was supposed to be used to boost Malaysia’s economic development but six years later, worries began that payments to banks and creditors were being missed. Since then, both Malaysian and US authorities believe that US$ 4.5 billion had been hived off into private hands and used to illicitly purchase luxury real estate, a private jet, Van Gogh and Monet artworks – and even to bankroll the film, ‘Wolf of Wall Street’. Strangely, the former PM, had been cleared of all allegations by Malaysian authorities while he was still in office.

There could be some pointers for the local economy on what is happening on the Australian employment front. It has been reported that more than 56% of the early coronavirus recession job losses (of 800k) were under-30s and that this group had seen almost zero real wage growth since the GFC. However, this ratio is swinging more to the older group who will also feel the pinch, when the recovery hits in, as employers will focus on more tech-savvy younger hires. At the start of the crisis in March, job losses were linked to businesses that were forced to close facilities such as shops, restaurants, gyms and theatres, as well as the travel and hospitality sectors witnessing revenue streams almost drying up.

Now other sectors – including accounting, legal and other professional offices, media and retail – are beginning to see jobs being shed, most of which will never be replaced. Now it is the turn of the older age group, in the higher-skill sectors, to face the brunt of the redundancies; they are losing jobs at a greater rate than the other skill levels in the same age group. It appears that the big companies and major professional offices have begun culling at the senior level and there is every chance that many of those white-collar vacancies have either been lost forever or will be replaced by younger – and cheaper – staff.

However, there is no doubt that the economic scarring will be faced across the whole economy and history shows that the young will also not miss out from the carnage. Australia’s Productivity Commission forecasts that Covid-19 will reshape the workforce, just as it has done in previous downturns. The report indicated that following the GFC, “from 2008 to 2018, young people had more difficulty getting jobs in the occupations they aspired to. And, if they started in a less attractive occupation, it was even harder than before 2008 to climb the occupation ladder.” It opined that after the GFC, although it took five years for employment for people aged under 35 to recover, it involved more casual work (with less full-time positions) and lower pay. The GFC post-decade also saw ten years of zero real wage growth for those between 20-34 and for those in the 15-24 age bracket a large decline in full-time work and an increase in part-time work.

In the US, the Republicans are planning to spend an additional US$ 1 trillion to ameliorate the economic damage from Covid-19 which will include a further US$ 100 billion for schools and extra US$ 1.2k stimulus payments to most of the country’s citizens. (It is no coincidence that presidential election day is less than one hundred days away). The plan will also include legislation to protect businesses from workers’ coronavirus health claims. To date, the Trump administration and the Fed Reserve have pumped in more than US$ 2.4 trillion into the economy but this has evidently not been enough. Indeed, the Fed has just extended its emergency lending facilities, another three months to 31 December, in a further bid to help the economy ride out this deepening crisis. Meanwhile, the US$ has slipped to a two-year low, as the Fed’s action shows  that it is in no rush to raise historically low interest rates, trading on Thursday at US$ 1.304 to sterling and US$ 1.179 to the euro, and preferring to let inflation move higher than it has previously indicated.

Over the past week, more than 1.4 million people have filed new unemployment claims, with the economy having lost over fifteen million jobs since February and 20% of its workforce collecting unemployment benefits. It has been estimated that over 50% of US adults have seen incomes cut since the onset of the pandemic. However, there is a worry that the current benefits result in an estimated 66% of recipients getting more from unemployment than they do from actually working which may encourage some to remain unemployed.

The Institute for Fiscal Studies has estimated that, to date, UK government measures to fight the impact of Covid-19 have cost the UK taxpayer almost US$ 250 billion, equivalent to 9% of the country’s GDP. New measures introduced this week by Rishi Sunak include new financial assistance for the arts sector to add to the already introduced Coronavirus Job Retention Scheme, some tax holidays and deferrals for business and additional welfare benefits. It has been estimated that the US has already pumped in US$ 2.3 trillion into Covid-19 related measures, equating to 11% of its GDP, with most of the funds going into the likes of the Coronavirus Aid, Relief, and Economic Security Act, or Cares Act as well as more than US$ 500 billion extra for individuals in the form of tax rebates and unemployment benefits.

In Germany, government spend has been estimated at around 5% of GDP to cover extra spending on healthcare and vaccine research. It has also introduced Kurzarbeit which assists businesses to retain workers by putting them on shorter hours, while covering some of the worker’s loss of income. There have also been grants to SMEs and self-employed people, along with interest-free tax deferrals, as well as a temporary reduction in value added tax. To date it has increased its overall spending by about 5% of its GDP but further increases will be seen in August. Measures taken include postponement of tax and national insurance payments, extending unemployment benefits, boosting national insurance and further financial support for SMEs and the self-employed.

What is common to all four economies is that governments have poured in billions of dollars to try to negate the impact of Covid-19. Only time will tell whether these actions, and the amount of money used, have been the right approach. What is certain is that there will be a huge debt having to be repaid by the respective governments – and it is usually the poor taxpayer left to pick up the pieces. At the same time, banks will be left with huge impairment losses – as many loans cannot be repaid. No guesses who will bail out the banks.

The German economy shrank at its fastest rate on record amid the impact of Covid-19 . Official data shows a “massive slump” in household spending, investment in equipment and machinery and in exports and imports. The country, the world’s fourth largest economy, is a leading export nation, and has been badly hit by global trade being ravaged by international trade disruptions. There are signs that the worst could be over, unless there is a second wave of the pandemic which is on the cards as Germany has recently seen a rise in its infection rate. Latest figures indicate an uptick in industrial production and retail sales, but whatever happens the German economy will be scarred and, although it will climb out of recession next quarter, it will be a long time before it returns to pre-Covid levels.

If the news from Germany was bad, what can be said of the US economy’s Q2 performance, as it shrank by a record 32.9% annual rate (9.1% on the quarter) and the three times worsethan the previous 10% record set in 1958.  Some of the fall has been blamed on reduced spending on healthcare and consumer goods. Like Germany, economists expect a bounce back in Q3 but that comes with the rider that increased virus cases do not result in further shutdowns.

Heads of the four leading US tech companies – Jeff Bezos, Mark Zuckerberg, Sundar Pichai and Tim Cook – have appeared before lawmakers in Washington. There are concerns that the four companies – Amazon, Facebook, Google and Apple – have been abusing their power to quash competition and with being involved in anti-trust behaviour. There is an increasing number of lawmakers leaning to introducing tougher regulations to curb the power of these companies that some feel are too big to fail, with some even calling for a break-up of these tech monoliths. Democratic David Cicilline said that a year-long investigation had concluded the online platforms had “wielded their power in destructive, harmful ways in order to expand”. Not surprisingly, all four insisted they had done nothing illegal and stressed the American roots and values of their firms. There are also concerns that they do not do enough to remove hateful rhetoric and false information and sometimes show political bias. One certainty from this e-meeting is that nothing will be done, and these tech companies will just carry on as before.

There are reports that Swiss prosecutors have launched legal proceedings against Fifa president Gianni Infantino, relating to an alleged secret meeting with the Swiss attorney general Michael Lauber. Subsequently, the lawyer has offered to resign for covering up the meeting and lying to supervisors about investigations into corruption surrounding the world football body which has not been immune from scandal in the past. The case is being led by special prosecutor Stefan Keller, who has now opened proceedings against both men and will review criminal complaints against them and others. Here We Go Again!

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Go Your Own Way!

Go Your Own Way                                                                                         23 July 2020

Latest figures from Moody’s Investors Service just confirm a 30% fall in Dubai property prices since mid-2014 and the sector is currently still in bear territory in an economic environment rattled by Covid-19 and sluggish oil prices. Until the supply/demand returns to some form of equilibrium, which can only arise if supply falls and demand increases, then slower home sales and lower rentals will continue. The agency does not see an improvement over the next twelve-eighteen months but that seems fairly pessimistic, especially if Dubai can ramp up its tourism and retail sectors, whilst introducing measures to boost consumer confidence battered by the current crisis. Moody’s expects Dubai homebuilders’ gross margins will continue to decline, as sales prices head south in a weakening market.

Over the past four months, most of which time the emirate was in lockdown, Nakheel managed tosell almost 250 properties, valued at US$ 163 million, 205 of which were for ready-to-occupy villas. The most popular location was Nad Al Sheba, where the developer sold out phases one and two last month and just released phase three. Al Furjan was also another sought-after location, with thirty-five ready homes sold since March.

The DIFC is proceeding well to achieve its 2024 target of tripling its size, as H1 figures indicate a 25% jump in the number of firms operating rising by 310 to 2.6k, of which 820 are financial firms; over the past six months, 87 Fintech firms, including Ripple and Kofax ME, joined the free zone – a 74% increase. New arrivals included the likes of Decimal Factor Funding Souq, Gazprombank and Tata Asset Management. It was estimated that the total size of the wealth and asset management industry expanded to US$ 422 billion, with other activities rising to US$ 276 billion.  

The ravaging impact of Covid-19 has had on the aviation sector can be seen from just two statistics from Dubai International. Before the pandemic, the airport dealt with 1.1k flights every day that fell to just seventeen a day as soon as lockdown was introduced in mid-March. In the monthof May the total number of passengerswas 44k – equivalent to what the airport was used to handling in four hours of a normal day. Now Emirates is slowly trying to return to some form of normalcy and has introduced a limited network which will see the carrier flying to fifty-eight cities – almost one third of the total 157 it was operating pre-pandemic.

Probably it is a good time for the Dubai Chamber of Commerce and Industry to look into the problem of late payments to subcontractors and suppliers, and a way to solve this long-standing problem which has a negative impact on the sector and has been a drag on Dubai’s economy. One of its main aims is to create “tools and processes” so that the settlement of outstanding bills can be speeded up. A recent Chamber study noted that 72% of the total value of outstanding business-to-business invoices were overdue, taking an average 94 days to settle, compared to 52% across the rest of Asia – some way off the thirty-day target pledged by the Dubai government.

After a couple of weather delays, the first Arab mission to Mars launched on Monday, making the UAE the first Arab country to send a probe to the red planet. The Al-Amal (‘Hope” in English) probe joins similar Chinese and US expeditions, all taking advantage of the unusual closeness of the two planets – Earth and Mars – being only 55 million km apart. If all goes to plan, Hope will start orbiting the planet next February and will spend the next Martian year (687 earth days) orbiting the planet, with the aim of studying its weather dynamics.

It seems that the Dubai could be one of the first out of recession, as economic activity improves on the back of monetary and fiscal support, along with restrictions being increasingly eased due to a reduction in the number of Covid-19 infections. Countries, such as the UK and Australia, will not feel the real pinch until October, when their government furlough schemes, which have helped “shelter” their economies during the pandemic, are lifted. Dubai took the hard decision not to follow suit but did introduce major economic stimulus measures and bank support initiatives, (such as zero interest funding to banks to boost lending growth), to underpin the market and boost investor confidence. Undoubtedly, the emirate has not escaped the negative economic impact of Covid-19 and there have been inevitable retrenchments and business closures.  Now it has to get the services sectors up and running as quickly as possible and, with a government, known for quick and decisive decision-making, this will be done. On top of that, if energy prices head north, the country’s economy will receive a fillip, with oil around the US$ 60 level.

Emirates became the first global airline to allow customers to claim US$ 642k in medical expenses, plus IUS$ 428 per day for fourteen days, if they were to be diagnosed with Covid-19 during their travel while away from home, regardless of class of travel or destination. This will be effective until 31 October, with the cover remaining valid for 31 days. Emirates’ chairman, Sheikh Ahmed bin Saeed Al Maktoum, hopes this move will boost confidence for international travel with passengers “seeking flexibility and assurances should something unforeseen happen during their travel.” This innovative move will surely boost the number of tourists holidaying in the emirate.

According to the online learning platform Coursera, the UAE is a global leader in business talent and is ranked fifth worldwide in business skills like management, marketing and sales. In its 2020 Global Skills Index, the country comes to 50th in data science which emphasises mathematics and statistics and underpins automation.

The recently introduced Emirates Loto has been temporarily suspended so that a planned system upgrade can be implemented. The weekly fatwa-approved lottery draw, with potential cash prizes of up to US$ 13 million, is expected to return in Q4. The last draw, at the beginning of the month, saw two punters, selecting five of the six drawn numbers, each winning US$ 136k.

Arabtec, the country’s largest-listed contracting company, with a workforce of more than 45k, announced that its subsidiary, Target Engineering Construction Company, had been awarded a US$ 53 million contract for the replacement of storage tanks at Saudi Aramco’s Ras Tanura refinery in Saudi Arabia.

Etisalat posted a 3.0% hike in H1 profit (after royalty payment) to US$ 1.25 billion, on revenue of US$ 7.0 billion; consolidated EBITDA (earnings before interest, tax, depreciation and amortisation) came in with a 52% margin, totalling US$ 3.6 billion. The group has a subscriber base of 146 million, of which ten million access free browsing to over eight hundred websites related to education, health and safety.

There were disappointing – but expected – results from some of Dubai’s financial institutions this week. Because of the Covid-19 impact on the liquidity and profitability of their personal and business clients, as well as historic low interest rates, all banks have had to review their potential bad debts that will inevitably head north resulting in a jump in impairments -and much lower margins.

Emirates NBD reported a 45% slump in H1 profit to US$ 1.1 billion, distorted by the fact that last year’s comparative figures included a non-repeated gain on disposal of its stake in Network International; if this were excluded, the profit decline would have been 24.0%; Q2 profit was 57.8% lower at US$ 545 million. It did see a massive increase in its impairment provisions from US$ 335 million to US$ 1.14 billion.  Dubai’s largest bank saw its total income 33.0% higher at US$ 3.4 billion, driven mainly by higher fee income from the inclusion of its Turkish unit, DenizBank and its net interest margin rising to 2.84%. By 30 June, the bank’s total assets were 2.0% higher, at US$ 189.1 billion, and is loans up 1.0% to US$ 125.6 billion, but customer deposits were 2.0% down at US$ 125.6 billion.

Meanwhile, its sister bank, Emirates Islamic, posted an H1 profit of just US$ 3 million (H1 2019 – US$ 183 million), as its total income declined 15% to US$ 300 million. Its total assets dropped 1.0% to US$ 17.5 billion whilst its balance of customer accounts remained flat at US$ 12.3 billion, although, with a headline financing to deposit ratio of 90%, it remains in a healthy liquidity position.

Mashreq posted a 56.0% slump in H1 profit to US$ 146 million, with impairments more than doubling to US$ 266 million, while total operating income slid 8.0% to US$ 763 million. The bank, controlled by the Al Ghurair family, reported that there were jumps of 8.3% in customer deposits to US$ 26.9 billion, and 8.7% in total assets to US$ 47.2 billion; loans and advances remained flat at US$ 20.8 billion. Q2 profit slumped 86.0% to US$ 23 million, on a 13.0% income decline, to US$ 354 million, as impairment allowances rose 158% to US$ 155 million.

Dubai Islamic Bank reported a 23.0% fall in H1 net profit to US$ 572 million, on total income of US$ 1.9 billion. UAE’s largest Sharia-compliant lender posted a 192% jump in impairment losses to US$ 572 million, as operating expenses rose 22.0% to US$ 401 million. Over the six-month period, the bank’s net financing and sukuk investments were 29.0% higher at US$ 64.6 billion and customer deposits 26.0% higher to US$ 56.3 billion. Earlier in the year, DIB acquired rival Noor Bank to create one of the largest global Islamic banks, with more than US$ 75 billion in assets. Last month, the bank closed a US$ 1.0 billion five-year Sukuk with a profit rate of 2.95% which was 4.5 times oversubscribed.

Following recent problems with some stakeholders requesting the regulator to investigate valuation calculations by Emirates Reit and its fund manager, Equitiva, the board is discussing whether to delist from Nasdaq Dubai. Some feel that operating as a private Reit could be in the “best interests” of the fund, with “advantages of remaining publicly listed heavily outweighed by the disadvantages.” The “problems” have seen its share price on Sunday trading at US$ 0.15, whereas its net asset share value was US$ 1.41, “exacerbated by a cyclical downturn in the UAE real estate sector and a challenging operating environment.”

Dubai-listed Amanat Holdings has signed an SPA (sale and purchase agreement) with Study World Education Holding Group to divest of l its Middlesex University Dubai campus; no financial deals have been released to date but there would be an update if and when there were any material developments. The six-year old Dubai-listed company, with interests in both education and healthcare, acquired the Dubai campus, with 3.5k students, for US$ 100 million in 2018, from the liquidators of private equity firm Abraaj Group. Study World Education, founded by Indian businesswoman Vidhya Vino, operates schools in Dubai, India, Sri Lanka and Malta.

The bourse opened on Sunday 19 July and, 60 points (1.4%) lower the previous three weeks remined flat on 2,053 by 23 July. Emaar Properties, US$ 0.03 lower the previous week, closed down US$ 0.01 on US$ 0.71, whilst Arabtec, up US$ 0.05 the previous fortnight, continued its recent good run and gained US$ 0.04 to US$ 0.25. Thursday 23 July saw the market trading at 127 million shares, worth US$ 41 million, (compared to 193 million shares, at a value of US$ 45 million, on 16 July). 

By Thursday, 23 July, Brent, US$ 1.13 (2.8%) higher the previous week closed US$ 2.56 (6.3%) higher at US$ 43.31. Gold, having shed US$ 6 (0.9%) the previous week, had its best week for some time climbing US$ 98 (5.4%), by Thursday 23 July, to US$ 1,898.  The safe-haven commodity is nearing the US$ 1.9k level for the first time since 2011, mainly caused by the deterioration in US-Sino relations which has added a further dimension to fears of a global economic recovery, following the negative impact of the coronavirus pandemic.

In a US$ 5 billion share sale announced this week, Chevron has acquired Noble Energy in the energy industry’s first major deal since the onset of Covid-19 and the largest since Occidental Petroleum acquired Anadarko Petroleum in 2019. This will see Chevron’s proven reserves jump 18% and enhance its presence in the heartland of the US shale boom, (which is currently in a major downturn), in both the Denver-Julesburg Basin of Colorado and the Permian Basin.

Despite the Covid-19 impact, Rio Tinto posted a Q2 1.5% hike in iron ore shipments to 86.7 million tons, driven by Chinese efforts to ramp up infrastructure and construction spending to boost its flagging economy. Iron ore is an integral part of the world’s biggest miner and iron ore accounts for more than 80% of Rio’s underlying earnings. The miner reported a 3% decline in Q2 production of mined copper.

It is reported that, although the Tata Group stated that no decisions had been made,  two blast furnaces in Port Talbot could be closed, (to be replaced by electric arc furnaces), with the loss of “thousands and thousands” of jobs. The unions are concerned that they have not been involved in any discussions with Tata management, but the company has been in talks with the UK government. Steel production is the mainstay of the local economy, accounting for about 50% of all jobs in the Welsh town and it is easy to see the devastating effect that any closures would have on the community. It is no secret that the steel industry was struggling even before the onset of Covid-19 and since then customer demand has plummeted.

Because of the impact that Covid-19 has had on the aviation sector, BA has decided to retire all its remaining thirty-one 747s, with immediate effect. The airline, which is the largest operator of the plane known as ‘queen of the skies’, has been badly hit by a drastic downturn in travel and the new environment is pointing to fewer passengers and fewer planes. Furthermore, the 747 was far less efficient than the latest twin-engine models and more expensive to operate than the likes of the Airbus A350 and the 787 Dreamliner. IAG, the owner of BA, had originally planned to run the jumbo until 2024 but Covid-19 has brought the date forward. According to Moody’s, airline passenger demand will not recover to pre-coronavirus pandemic levels until the end of 2023 – and that is dependent on the availability of a vaccine.

In the UK, Azzurri Group has announced that it will close 25% of its 300 Zizzi and Ask Italian restaurants that could result in 1.2k retrenchments but keep 5k in work, driven by the impact of Covid-19. The group, which also owns Coco Di Mama, has been sold out of administration to Tower Brook Capital Partners. Only last month, The Restaurant Group, which owns Frankie and Benny’s, reported the closure of 125 location and the loss of up to 3k jobs.

Dyson confirmed nine hundred redundancies of which two thirds will be in the UK, as the coronavirus impact speeds up the company’s restructuring plans; it has a global work force of 14k, (in eighty countries), with 4k in the UK. Because consumer shopping habit are turning to online, most of the retrenchments will be in the retail and customer service roles. Most of Dyson products are designed in its two UK technology campuses but manufacturing takes place in Asia. Last year, the tech company pulled out of making electric cars because it was not “commercially viable”, although it had developed a “fantastic electric car”.

Covid-19 has helped boost buy now, pay later service Klarna which has seen its revenue booming, with the UK company reporting increases of 105% in running shoes, 60% in beauty product sales and “significant uplift” in purchases of bicycles and cycling accessories. However, the company has had to tighten its buying rules to try and maintain potential bad debts to a minimum (currently less than 1%) because of the financial uncertainty arising from the lockdown. In recent years, the number of such on-line companies, including ClearPay and Laybuy, has grown and are now being used by over eight million customers. The industry grew an estimated 39% last year and is expected to double in size by 2023.

In the UK, clothing companies, including Boohoo and Quiz, have been accused of using unethical suppliers in Leicester, where there are fears that factory workers have been underpaid, exploited and unprotected from Covid-19. The UK minimum wage is US$ 11.15, whilst there are reports that Quiz has suspended a supplier after it was found paying just US$ 3.84 an hour to make its clothes. It is estimated that up to 20k in Leicester alone have been “enslaved”, with employers using forced labour, debt bondage and mistreatment as normal behaviour. So many would have known what has been going on for years, but it seems, just like the “child grooming” scandals, they just turned a blind eye and let this scandal continue. The National Crime Agency has also confirmed it is investigating Leicester’s textile industry over allegations of exploitation.

Latest data shows that the UK retail sector returned to almost pre-lockdown levels in June with a 13.9% rise, month on month, following record falls in April and a partial recovery in May. However, there has been a marked change in customer shopping habits, with food and online sales up, while clothing was still “struggling”. In comparison with February, the volume of food sales was 5.3% higher, while non-store retailing grew by 53.6%; on-line sales continue to go from strength to strength, now accounting for almost 32% of the total retail business. However, non-food stores, including department stores and clothes shops were still 15% lower than in February, as reports indicate that shoppers are in for more staples and fewer impulse purchases; the knock-on effect on the High Street is that sales are down by about a third.

However, with retail only accounting for about 20% of the economy, the latest “flash” PMI rose to 57.1 in July, up  from June’s 47.7 – the first time since February the level has been above the threshold level of 50, which delineates between expansion and contraction. On the surface, it seems that the economy has recovered well but the scars will remain for some time and a total recovery will take a lot longer. Manufacturing and construction are slowly returning to some sort of normalcy but when they can reach pre-Covid levels remains to be seen and a clearer picture will emerge only after the government furlough schemes are closed down in October. Another problematic factor is “social spending” and whether services spending in restaurants, bars and hotels will ever return to their previous levels especially with social distancing still in place. Even in the unlikely event of restrictions being lifted, an expected doubling in the unemployment rate will surely have a negative effect, as discretionary spending will be reduced.

Having jumped more than 60% YTD, Netflix shares took a tumble, plunging almost 15% last Friday, on the back of disappointing Q3 subscriber forecasts of 2.5 million, with the market expecting double that number; its market value stood at US$ 232 billion after posting an increase in Q2 revenue to US$ 6.2 billion. There is no doubt that all is not well at the world’s largest paid streaming service, as H1 saw 10.1 million new subscribers bringing the total to 193 million, driven by the Covid-19 lockdowns which saw so many being forced to stay at home – and signing up. To be fair to the company, it did warn as early as April that this rapid growth could not continue but investors thought otherwise.

Goldman Sachs has finally settled with the Malaysian government over its role in that country’s 1MDB corruption scheme. It has agreed to a US$ 3.9 billion settlement after it had been accused of misleading investors when it helped raise US$ 6.5 billion for the government fund, with prosecutors claiming that billions of dollars were ultimately stolen – including by some of the bankers involved – to buy art, property, a private jet and super-yacht as well as to help finance the Wolf of Wall Street film. There is no doubt that the bank’s reputation has been sullied by the scandal, with twelve of its executives charged in Malaysia last year. The bank still faces possible charges in the US related to the deal, which prosecutors estimate earned the firm abouEU Stimulus, t US$ 600 million., with a penalty that could wipe out its Q2 profit.

It is estimated that short sellers have lost US$ 1.5 billion betting against Moderna, as it has climbed 370% to a market cap of US$ 36 billion. The high-flying vaccine developer biotech has reportedly developed a Covid-19 vaccine, with the company set to shortly start a final-stage study. By last Friday, the biotech, having surged 6.9% to a record level two days earlier, saw a 13% boost to its share value.

Ant Group, owned by Alibaba, has finally announced its long awaited IPO, with a dual listing on the Shanghai and Hong Kong bourses; its listing had been delayed until the country’s dominant mobile payments company had “secured the full support of Beijing”. Two years ago, Ant was valued at US$ 150 billion but now it seems that the valuation will be on the top side of US$ 200 billion. Although it has changed its name from Ant Financial to Ant Group – and stressing that it is primarily a tech company – it still has 600 million users depositing funds into its Yu’E Bao money market fund, as well as providing digital financial services, such as online lending and insurance.

The ATO has summarised the results of the 14.3 million Australians who completed their tax returns for the year 2017-18, and interestingly seventy-three of the country’s millionaires did not pay any tax and the richest Australians earned thirteen time more than the poorest. The study also noted that the Sydney’s Double Bay was the suburb with highest average taxable income, at US$ 170k and Queensland’s Muttaburra the lowest at US$ 10k. The report also looked at taxable income with the medical profession – including surgeons, anaesthetists and internal medicine specialists – taking the top three highest incomes, with the first at US$ 282k. The lowest-earning professions were dominated by hospitality, with fast food cooks at the bottom of the ladder with a taxable income of just over US$ 13k. 14.9k Australians posted taxable incomes of over US$ 700k (AUD 1 million) and averaged a total tax rate of 42.5% , although seventy-three “millionaires” did not have any tax to pay. However, this group did make tax-deductible gifts and donations totalling nearly US$ 1.0 billion.

The report also confirmed that negative gearing remains a popular tax break, with 59% of the country’s 2.2 million landlords declaring a net loss on their investment properties. 81.8% of landlords had mortgages from which they could claim interest paid as taxable deductions. The average landlord claimed US$ 9k, US$ 3k and US$ 7k, for interest, capital works and “other deductions”, totalling US$ 19k on income of US$ 15k. It does seem strange that overall there were rental losses of US$ 85 million claimed but only US$ 14 million profit reported.

There are concerns that at least 1k Australian businesses could be engaged in insolvent trading, as government stimulus measures may be keeping these zombie businesses afloat. Recent data has seen about 8k companies going into administration every year – latest figures show that, despite Covid-19, that number is 7.2k – 12% lower than the previous year. There are real fears that companies still trading, when technically insolvent, can rack up additional debts that may never be repaid when they finally go under. The Australian Restructuring Insolvency and Turnaround Association estimates that at least 20% of Australian businesses, trading through the pandemic, may be in the position where they would otherwise be trading insolvent without temporary legal changes, plus government and bank financial support.

Such companies have also benefitted from the JobKeeper scheme, without which the country’s unemployment level would be north of 11% from its current 7.0% level. Worryingly, latest statistics point to the fact that there are thirteen job hunters for every vacant position across the nation and one recruiting firm estimates that the average number of applicants for each job is now nearing three hundred. The pandemic has indeed knocked business confidence on the head and with it reluctance to hire until times get better – a typical chicken and egg scenario.

Following the government’s U-turn in relation to the operations of Huawei in the UK, it seems that the Johnson administration may bow to US pressure and ban TikTok’s plan to base its international HQ in the country. It is reported that Washington may only allow ByteDance, TikTok’s owner, to keep operating if it splits from China and becomes a US company. Discussions continue between the UK’s Department for International Trade and the Chinese video sharing app, but tensions between the two governments remain high and there are fears that the Huawei spat may expand a tit-for-tat economic war. Australia has had major problems with China and has suffered economically as a consequence and if that were to happen with the UK, then that would spell big trouble for the economy.

Just like some Parisian streets, the EU has managed to cobble together an agreement on a massive US$ 1.2 trillion stimulus package for their coronavirus-blighted economies, after five days of oft-bitter arguments. Any deal was held up by a group of fiscally frugal northern nations, led by the Netherlands, who were against the amount of the package that would be spent on free grants rather than loans. It was no surprise that two of the leading proponents for dishing out grants were France and Poland. Evidently, Emmanuel Macron was so upset at “sterile blockages” by the “frugals”, that he reportedly banged his fist on the table (sacre bleu) and Polish Prime Minister Mateusz Morawiecki branded them “a group of stingy, egotistic states”. It is no surprise to see his country being the top beneficiary of the recovery package, receiving tens of billions of euros in grants and cheap loans. Other ‘fudges’ to the original proposals saw the non-repayable grants being cut by US$ 180 billion to US$ 635 billion and the same amount added to the original repayable loans balance, whilst Hungary and Poland, who were going to veto the agreement if funds were made conditional on upholding democracy, got away with diplomats patching up some sort of agreement. Go Your Own Way!

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Riders On The Storm

Riders On The Storm                                                                                        16 July 2020

According to reports this week, JLL estimate that 12k units were handed over in Q1, a long way short of the 83k that was forecast at the beginning of the year – and well before the onset of Covid-19. Market stabilisation was expected to be ushered in prior to – and because of – Expo 2020, (subsequently delayed for a year), with a feeling that the real estate market was well into the bottom of its cycle and finally ready to see the process start to nudge northwards. The pandemic, which will see the loss of thousands of businesses, and up to a possible 400k jobs, has resulted in the cycle getting deeper and that any recovery will now take a lot longer to gain traction, as prices continue declining. In other words, it will not be before next year until prices come off their bottom and there could be further falls before then.

A recent Bayut/Dubizzle report indicates that Dubai H1 property prices shed less than 4.0%, with some locations posting a period of stability, when compared to H2 2019. The market has been in a downward spiral for the best part of six years and any hope of a turn in fortunes in 2020 were dashed by the onset of Covid-19. Over the six-month period, the Dubai Land Department recorded 15.9k sales transactions, valued at US$ 8.9 billion. The survey noted that Dubai Marina, Downtown Dubai, Arabian Ranches and Palm Jumeirah were the more popular buying locations, with renters more interested in the likes of Jumeirah Village Circle, Dubai Marina, Mirdif and Jumeirah. The average prices per sq ft of established residences in Arabian Ranches, Palm Jumeirah and Dubai Marina were US$ 244 (up 1.6%), US$ 552 (flat) and US$ 339 (2.2% lower) respectively. For rentals, JVC remains the favoured location for apartments, as does Mirdif for villas. Despite initial estimates of a flood of new properties entering the market this year, only 5.6k were handed over in Q2, with a further 38k slated for H1; there is no chance of this happening.

Dubai’s Crown Prince and Chairman of Dubai Executive Council, Sheikh Hamdan Bin Mohammad bin Rashid Al Maktoum, approved a US$ 308 million stimulus package to further assist the ravaged-hit Dubai economy for the next three months. For the hospitality sector, measures introduced include a 50% refund on the 7% municipality fees charged on sales, for the next three months, with the ‘Tourism Dirham Fee’ halved until 31 December. Private schools will be exempted from commercial and educational licence renewal fees until the end of the year, whilst the government has taken steps to expedite payments in both the medical and construction sectors. When it comes to international trade, fines can be paid in instalments with some of them reduced by up to 80%. To date, the Dubai government has pumped in US$ 1.7 billion to try and get the economy back on track.

It seems likely that Boeing will be unable to start delivery to Dubai of the 115 777Xs next year as planned because of the impact of Covid-19, which closed down production, and the fact that there is a lengthy certification process involved; this has arisen following the shenanigans surrounding the March 2019 grounding of Boeing’s 737 Max, after two fatal crashes. Emirates is the main customer for the new jet and will have to consider options if its debut is delayed, one of which is to swap some of the model for Boeing’s 787 Dreamliners. One thing that Covid-19 has taught the aviation sector is that smaller planes are better matched to the “new” demand, and the 787 seems to fit that bill. The Dubai airline had already converted some of its initial 2013 order for the Dreamliner, after the original 777X 2020 delivery date was pushed back a year, following delays to the plane’s General Electric Co. turbines.

With Airbus terminating the A-380 program earlier than expected, with the last of the 252 planes coming of the production line in 2022, Emirates has had to rethink its stance on the super jumbo. The airline, not only the 777X leading customer but by far the biggest in the world for the A380, expects delivery of three planes this year, probably in November, and the final two next year; these new planes will have premium economy seats, as part of its configuration, whilst some of the existing fleet will also be retrofitted with “new” seating.  It aims to maintain all 115 of its A380 fleet and expects to have 70% of them operational by the end of the year. The airline, along with all major global carriers, has been ravaged by the pandemic and has had to take drastic action, including ways to streamline operations and increase efficiencies. One possibility could be combining the back-office operations with flydubai, whist maintaining two separate companies and identities.  (Interestingly, Emirates A380 returned to the skies yesterday for the first time since 25 March, with EK001 departing for London Heathrow).

It has been reported that the airline will probably end up having to cut staff numbers by 15% to 51k, as it slowly recovers from having to ground most of its fleet at the height of the Covid-19 crisis. A reported 700 of the airline’s 4.5k pilots were given redundancy notices last week, which means at least 1.2k have been told their jobs are going since the coronavirus crisis started. This comes after the airline was “heading for one of our best years ever”, before the onset of the pandemic.

NMC Healthcare has opened its 17th CosmeSurge Hospital brand in Jumeirah. Specialising in cosmetic surgeries, the US$ 18 million facility hopes to tap into increased demand from local residents, as well medical tourism once that sector recovers from the impact of Covid-19. The hospital, with eight in-patient rooms, aims to provide the best treatment available.

In one month, from 15 June, troubled developer, Union Properties has seen its share value fall by 26.0% to trade on 15 July at US$ 0. O77, not helped by financial troubles, legal disputes and a supply imbalance in the Dubai property market. UPP is in the last throes of its debt restructuring, as its financials have continued to deteriorate; last year, it posted a 15.6% revenue decline to US$ 115 million, resulting in a US$ 61 million loss compared to a US$ 17 million profit a year earlier. Its balance sheet debt stands at US$ 490 million, with cash in hand of only US$ 71 million. The developer is hoping for a favourable outcome in its US$ 409 million legal arbitration case and this, allied with a successful debt restructuring program, could change the developer’s fortunes but this will not occur until late next year, if at all.

It is reported that a group of shareholders have called on the Dubai Financial Services Authority (DFSA) to carry out an investigation into Emirates REIT and its treatment of its investment properties’ valuations, as well as its fund’s operating expenses since April 2014. The group has called for an urgent “independent valuation”, requesting that, to avoid any bias, there should be no interference from the fund’s manager, Equitativa.

The bourse opened on Sunday 12 July and, 31 points (1.4%) lower the previous fortnight, was 29 points off (1.4%), to close on 2,053 by 16 July. Emaar Properties, US$ 0.02 higher the previous week, closed US$ 0.03 lower on US$ 0.72, whilst Arabtec, up US$ 0.02 the previous week, continued its recent good run and gained US$ 0.03 to US$ 0.21. Thursday 16 July saw the market trading at 193 million shares, worth US$ 45 million, (compared to 290 million shares, at a value of US$50 million, on 09 July).  

By Thursday, 16 July, Brent, US$ 3.14 (7.3%) lower the previous week closed US$ 1.13 (2.8%) higher to US$ 40.75. Gold, having gained US$ 91 (4.4%), the previous five weeks, was US$ 6 (0.9%) lower, closing on Thursday 16 July, at US$ 1,800. 

Although oil demand will remain below pre-pandemic levels for the rest of the year, Opec expects a growth of seven million bpd, with demand up to 97.7 million bpd, by next year. The cartel expects 2020 demand to decline by 8.9 million bpd, slightly up on the previous forecast because of a marginal increase expected from the OECD region offsetting downward adjustments in other countries. This figure is 0.8 million bpd less than the 9.7 million bpd production cuts, as Opec tries to reduce oil inventories and support the energy industry, rattled by a record plunge in demand and prices. At yesterday’s joint ministerial monitoring committee, Opec+, an alliance of oil producers led by Saudi Arabia and Russia,  decided to ease previous output restrictions, starting next month, from the existing 9.7 million bpd to 7.7 million bpd, as the demand for crude returns, amid the lifting of movement restrictions in many countries.

To finalise a deal made last year, BP has paid US$ 1.0 billion to India’s Reliance BP Mobility Limited (RBML). This gives the UK oil giant a 49% share in a new fuels and mobility JV with India’s largest private sector company, Mukesh Ambani’s Reliance Industries, that will hold the majority 51% stake. The new company hopes to ramp up its current network of fuel retail sites from 1.4k to 5.5k over the next five years, that will see payroll numbers quadrupling to 80k over that period; it also expects to expand its presence in airports by 50% to forty-five.

Over the next twenty years, it is forecast that the country will see a six-fold increase in passenger cars, to become the fastest-growing fuels market in the world.

Despite the impact of Covid-19 and the downturn in energy prices, Moody’s indicate that GCC banks have adequate capital, underpinning their solvency, helped by their combined 2019 aggregate net income of US$ 34.7 billion. It forecasts that 2020 profits will decline because “the economies of all six GCC countries will contract, sapping the banks’ two main income streams – interest on loans, and fees and commissions – while provisioning charges for loan losses will rise sharply.” The local economies will feel the negative creditworthiness impact of both corporate and domestic borrowers which will overspill into a significant bounce in non- performing loans, requiring increased provisioning charges, which will come in at a much higher level than the 2019 Moody’s rated banks figure of US$ 11.7 billion. Banks’ profits could be at least 20% lower by year end.

On the aviation front, Virgin Atlantic has announced a US$ 1.2 billion private bailout rescue package, after the Johnson government had refused any direct assistance. The airline resolved an issue that had seen US$ 250 million being held back by credit card processors. A US hedge fund and Richard Branson both came up with fresh lending of US$ 250 million, with relief on some US$ 500 million owed to Delta (delaying marketing fees and other dues) and payment concessions made by some jet-leasing firms.

South African Airlines’ creditors and the unions have agreed to a US$ 1.6 billion rescue plan for the country’s flag carrier that will see the workforce depleted by almost 80% to just 1k in the future; unions only agreed when the severances packages were improved. The only remaining problem is that the over-stretched National Treasury will have to find US$ 600 million more than previously allocated to SAA; indeed, the finance minister, Tito Mboweni, has already voiced his reluctance to put any more money into a business that has not made a profit over the past decade.

To nobody’s surprise, the UK government has banned companies from buying any new 5G equipment from Huawei after 31 December 2020 and they also have to ensure that they are not carrying any of the Chinese firm’s 5G kit after 2027. It is thought that this move will delay the UK 5G roll-out by up to a year and could cost US$ 2.5 billion. The ban does not apply to Huawei’s other equipment and the firm will be able to sell its smartphones to consumers, and dictate how they will run, and will not have to remove any of its 2G, 3G and 4G equipment. The UK has followed in the steps of the US, citing that old chestnut, “national security issues” as the reason for the decision.

In what is the largest corporate acquisition this year, Analog Devices has agreed to pay US$ 20.0 billion for Maxim Integrated Products in an all-stock deal that has created a company, valued at US$ 68.0 billion. Maxim shareholders, whose market value was at US$ 17.0 billion last Friday, will hold a 31.2% stake. Both companies make analogue chips, with Maxim, specialising in chips for car, the health service and mobile phones, posting revenue of US$ 2.3 billion last year, whilst half of Analog’s US$ 6.0 billion was derived from industrial clients. This follows two high profile mergers over the past fortnight – Berkshire Hathaway’s US$ 9.3 billion purchase of Dominion Energy’s natural gas transmission business and Uber’s US$ 2.7 billion purchase of Postmates. This is a positive indicator that the M&A sector is shaking off a listless start to the year and the impact of Covid-19.

One company that has Covid-19 to thank for a welcome boost to their revenue is WeWork, now aiming to have a positive cash flow in 2021, a year earlier than expected because of strong demand for office space since the onset of the pandemic. The New York-based company has also taken strong cost cutting measures including retrenching 8k of its workforce, selling off non-core assets, renegotiating office rents and shedding other costs under its  Bolivian-born Executive Chairman, Raul Marcelo Claure; he is also  chief executive officer of SoftBank Group International and chief operating officer of SoftBank Group Corporation. He was appointed last October to oversee the company after its disastrous IPO a month earlier that forced the shareholders to push out co-founder Adam Neumann; at the time, WeWork was privately valued at US$ 47 billion – today it has a more realistic US$ 2.7 billion market cap.

The Softbank CEO admitted that the group’s biggest error was its US$ 10.0 billion investment in the office-sharing group, WeWork. However, Softbank has had a phenomenal four months that has seen shares of the Japanese tech conglomerate recover by 143% to a twenty-year high. This comes after its founder, Masayoshi Son, suggested he had been misunderstood like Jesus Christ. Since mid-March, some high-profile investments in its US$ 100 billion Vision Fund, including Uber and Slack, have doubled. Subsequently, the tech company, which promised that it would raise US$ 41.0 billion to spend on buybacks and reducing debt, has managed to merge its stake in Sprint with T-Mobile, selling part of its holding for US$ 23.2 billion, and sold down some of its stake in Alibaba; this has seen it reach 90% of its US$ 41 billion target.

One share that has gone through the roof is the one year old buy now, pay later company, Sezzle. On 23 March, the share was trading on the ASX at US$ 0.24. Earlier this week, the US company was trading at a mouth-watering US$ 5.90 – an increase in excess of 2,500% in less than four months.  Such tech stocks are performing well, not only in Australia, where the ASX tech index is 12% higher over the past five months, but also in the rest of the world including the US, where the Nasdaq has hit record levels, and is almost 15% higher YTD. Even thoughSezzle posted a 58% increase in Q2 merchant sales to US$ 272 million (and 348.6% higher over twelve months), its user base up two and a half fold, along with a 243.2% hike in its payment platform, the massive jump in its share price cannot be justified and has all the hallmarks of a tech bubble in the making. Once everyone jumps on to the bandwagon, it is past the time to leave the party. When the bubble bursts, it will not be a pretty sight.

Three major US banks – Wells Fargo, JP Morgan Chase and Citibank – have already booked US$ 28.0 billion for current and future losses in Q2. JP Morgan, setting aside US$ 10.5 billion for potential credit losses, comes on top of the US$ 8.3 billion impairment provision already made in Q1.  All three posted much lower quarterly returns. JP Morgan saw profit dive by over 50% to US$ 4.7 billion, Citigroup, 73% lower at US$ 1.3 billion and Wells Fargo a loss of US$ 2.4 billion (compared to a quarterly profit of US$ 6.5 billion last year) – and its first deficit since the 2008 GFC. This is a sure indicator that companies and households are struggling to pay their debts and the banks’ raised impairment losses point to the fact that Covid-19 has – and will continue to – put the brakes on the US economy.

Yet again Westpac appears to be heading for further trouble as a legal firm is taking a class action against the bank on behalf of thousands of Australians who took out car loans that allowed dealers and brokers to charge customers an interest rate above the base rate set by the bank and take a cut of the difference to receive a bigger commission. Known as “flex commission”, (and outlawed in November 2018), Westpac is not the only financial institution to set exorbitant interest fees, with cases of customers being charged between 6.5% and 15.5% interest over and above the base rate. Described as “rip-off loans”, banks have been criticised for lack of transparency and for breaching their fiduciary duties to act fairly and honestly when providing loans. As usual, it was the consumer who paid the cost for not knowing of these underhand arrangements that allowed the dealer to secure the highest rate possible. On being asked whether his bank’s actions could have encouraged dealers to make inappropriate loans, so as to secure a commission, the then-chief executive, Brian Hartzer, haughtily replied, “I couldn’t say. I’m not a car dealer.”

The EU had a big loss this week as the Luxembourg-based General Court confirmed that Apple does not have to pay US$ 14.4 billion that the EU Commission had claimed  the tech company owed, having had an illegal sweetheart tax deal with Irish authorities. The court said that “the Commission did not succeed in showing to the requisite legal standard that there was an advantage.”  The initial decision against Apple came in 2016 when it was ordered to repay the US$ 14.4 billion in Irish back taxes Apple posted, probably a little tongue in cheek that “this case was not about how much tax we pay, but where we are required to pay it. We’re proud to be the largest taxpayer in the world as we know the important role tax payments play in society.”

The US has introduced a 25% tariff on French goods, in response to the Macron government’s insistence on taxing the giant tech companies such as Amazon, Facebook and Google. This will be delayed for six months because the French have yet to collect its digital tax. The tariff will be levied on items such as handbags and soap, but the likes of French cheese and wine are currently not on the list. The French administration has confirmed that “if there is no international solution by the end of 2020, we will, as we have always said, apply our national tax”. The Trump government pulled out of OECD discussions last month after it failed to reach an agreement on developing a global levy.

Google is set to invest US$ 10 billion through the India Digitisation Fund over the next several years to build products and services for India, help businesses go digital and use technology “for social good”. The country is – and will continue to be – a lucrative market for tech companies like Google, with 500 million of its almost 1.4 billion population active internet users, as well as 245 million YouTubers. The Indian-born CEO of Alphabet, (of which Google is a subsidiary), Sundar Pichai, has had talks with Prime Minister Modi about overhauling the country’s digital infrastructure and “leveraging the power of technology to transform the lives of India’s farmers, youngsters and entrepreneurs”. He also said the fund would focus on four areas so as to:

enable “affordable access and information for every Indian in their own language” (it is estimated that English now accounts for only 34% in the country’s overall content consumption)     

“build new products and services that are deeply relevant to India’s unique needs”        

empower local businesses who want to go digital

“leverage technology and AI for social good”

In the UK, the Financial Reporting Council has admonished the country’s biggest auditors for an “unacceptable” decline in the quality of their work, with a third of their audits falling below the expected standard.  The Big Four firms – Deloitte, EY, KPMG and PwC – along with BDO and Grant Thornton have been told that a higher number of audits required significant improvements, indicating that the agency was “concerned that firms are still not consistently achieving the necessary level of audit quality.” Three of these firms – PwC, KPMG and Grant Thornton – were hauled over the coals, with 45% of the latter’s audits surveyed “requiring improvements”, as did 29% for EY and 24% for KPMG. The same three had come in for sharp criticism for their involvement in high-profile corporate failures at Thomas Cook, Carillion and Patisserie Valerie.

For the year 2019-2020, there was a 6.4% increase in remittances into Pakistan, totalling US$ 23.1 billion, and this despite the negative impact of Covid-19. If June statistics are anything to go by, this annual figure is set to grow by even more, as the State Bank of Pakistan announced that monthly remittances were 50.7% higher, year on year, at US$ 2.5 billion, of which 17.5% of the total (US$ 432 million) emanated from the UAE – 33.5% higher than the previous month. Such remittances provide a cushion for the economy which contracted 0.4% last financial year ending 30 June.

Driven by an extended lockdown, that ravaged the economy with businesses closing down and retail spending tanking, Singapore has plummeted into recession. Q2 saw the city state contracting by a massive record 41.2%, quarter on quarter, (and 12.2% year on year), in what will be the worst recession since independence from Malaysia in 1965. These disastrous figures could indicate that Singapore might be worse hit than its neighbouring countries, as it relies heavily on global trade and manufacturing exports. Initial figures from Japan and China point to a 20% decline and a slight growth respectively. It seems that the US$ 67 billion, equivalent to 20% of its GDP, the Singaporean government spent on stimulus measures may not have been large enough.

China continues to pump in funds to boost its economy, with H1 bank lending reaching a record US$ 1.73 trillion. Governor Yi Gang has confirmed that the central bank will keep the financial system liquidity in H2, as the economy improves, but the QE programming cannot go on forever and some analysts are discussing when the tap will be turned off. The bank has already extended loans to companies, impacted by Covid-19, and cut lending rates and banks’ reserve requirements but has yet to follow other countries’ measures such as slashing rates to almost zero and introducing massive bond buying sprees. Whether this will take place in China remains to be seen. However, latest figures see China escaping a technical recession as its economy grew by 3.2% in Q2 – a figure much higher than many analysts had expected and having all the hallmarks of a V-shaped recovery for the world’s second biggest economy.

IMF’s managing director Kristalina Georgieva noted that there were signs of recovery but warned the global economy is ‘not out of woods yet’ and will face ongoing problems, including the possibility of a second wave. That being the case, she is recommending that governments maintain their support programmes, even as restrictions are being eased. She is also concerned about the future of some G20 SMEs, suggesting that for this sector, the number of bankruptcies could triple this year, rising to 12% of the total compared to 4% last year, with Italy the worst hit. Services sectors will suffer the most, with liquidations rates above 20%.

The global agency estimated that the world economy will shrink 4.9% this year and that it will lose more than US$ 12 trillion over the next two years. Some other indicators are causing concern that could scar certain countries’ economies for some time in the future, as 170 countries will be left worse off by Covid-19 and end the year with a lower per capita income. Two problem areas are debt and employment. The global debt levels now stand at over 100% of GDP and Economics 101  indicates that the only way that governments can manage such huge balances is via higher taxes or cutting public services; maintaining the level at these historical highs – even more attractive with interest rates so low – does not seem viable to Treasury mandarins the world over. It is time that economists looked closer at the long-standing and traditional viewpoint that public deficits are inherently bad and should be avoided at all costs. Covid-19 may force a welcome and belated rethinking of this theory. Even though restrictions are being lifted and more people are returning to work, unemployment rates continue to be worryingly high and are unlikely to return to pre-crisis levels in the short term. It has been said that the US lost more jobs this March and April than it had created since the end of the 2008 GFC.

The latest IMF forecast sees 2020 4.7% falls in the economies of the ME and Central Asia, driven by the double whammy of Covid-19 and lower oil prices – 2.0% higher than in April; next year, a 5.4% recovery is on the cards, despite downside risks still remaining. Global uncertainty is still present, more so in the ME, because of both the pandemic impact on businesses, now and in the short-term, is still unknown as is the possible volatility risks in the oil market on global trade. There has been more than US$ 11 trillion poured into global economies to try to limit the economic fallout from Covid-19 that has, to date, infected 12.8 million and killed 568k.

It is patently obvious that the UK has to plan for a post-pandemic economy, with a priority on quickly repaying the expected US$ 465 billon it will borrow this year. This will lead to higher taxes and a massive cut in public spending for an economy that is set to slump by 12.4% this year and see its public debt equating to 104.1% of GDP. Promises to pump in extra funds into the embattled NHS, as well as the prospects of having to pay extra costs of an ageing population and an increasing number of unemployed, (still at an estimated 12.0% by the end of the year and 10.1% in 2021), will push up public spending in certain sectors that will have to be met by reducing spending in others to meet that particular deficit and more to cut back the massive public debt. The situation will not be helped by the fact that business indebtedness will rise to record levels, which will see less tax revenue being generated, and other companies falling by the wayside. It has been estimated that to return UK’s debt level to an “acceptable” 75% of GDP would require an extra US$ 75 billion (via tax rises or public spending cuts) every year until 2070! However, as indicated above, the government would do well to look at this debt problem from a different angle, as it tries to solve the conundrum of managing and controlling falling tax revenue and rising public costs.

In the four months to 30 June, UK payroll numbers fell by 649k, although the overall jobless rate was unchanged. The headline unemployment remains steady at 3.9%, to the surprise of many who thought it would surge; however, the fact that 11 million are still on the government furlough scheme skews the employment statistics. A look at the number of hours worked gives a clearer picture – weekly hours worked since the onset of Covid-19 have tanked by 16.7% to 877.1 million hours, equating to its lowest level since 1997. To make matters worse, the average real pay is 1.3% lower than a year earlier. The simple truth is that there are not many jobs around for anyone – and a storm is coming with the worst-case scenario being an October unemployment level of over four million Riders On The Storm.

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If I Could Turn Back Time! 09 July 2020

If I Could Turn Back Time!                                                                09 July 2020

The latest Property Finder report points to a June improvement in the Dubai property sector, as month on month sale transactions were 60% higher. Low prices encouraged the increased demand that saw 570 sales a week, climbing 11% each of the last three weeks of the month. However, because of the lockdown since mid-March, quarterly transactions, at 5.6k, were 46.1% lower than the Q1 total of 10.3k; the first two quarters of 2020 saw values of US$ 5.9 billion and US$ 3.0 billion. The market has been struggling since 2014 – and although the pandemic has tried to put another nail in its coffin, there are signs that stability is returning at last. The top three locations for off plan transactions, accounting for over 36.5% of the market, were MBR City, JVC and Downtown Dubai. Apart from the pent-up demand, following lockdown, other drivers for the increased business include record low interest rates, attractive mortgage offers from the banks and property prices at 2014 base levels.

Although many “experts” are announcing the death for office space, with Covid-19 indicating that many could work just as well – or even better – from home, CBRE expects demand to remain intact. However, the consultancy reckons that when some sort of normality returns to the workplace, the demand for space may actually increase. There are many who consider that businesses may take up less space in the future as economic uncertainty, leaner workforces and continued cost-cutting make working from home a viable option for many. The opposite side of the argument is that future office space needs to ensure safer working conditions, and social distancing, which, in turn, should theoretically result in the need for more space. It will be some time before anyone really knows which direction the market will take.

According to the UN Conference on Trade and Development, and under a worst-case scenario, the GCC’s tourist sector could be on the receiving end of a US$ 50.7 billion deficit to their combined GDP, due to the impact of Covid-19. The biggest loser will be the UAE, with a possible loss of US$ 30.5 billion which would be lower if the impact is considered. “moderate” at US$ 10.2 billion or US$ 20.3 billion if ‘intermediate’; the three scenarios are based on standstill time periods – four months, eight months and a year above. But a more bullish outlook forecasts a recovery as soon as Q1 next year whilst, by the end of 2021, business will return to pre-Covid levels. 2018 figures indicate that tourism accounted for 11.1% (US$ 45.0 billion) of the UAE’s GDP. Tuesday, 07 July, was the official start to receiving international tourists again, after almost four months since the March lockdown and could prove a catalyst for an uptick in the sector. Today, 09 July, saw the start of the 23rd  Dubai Summer Surprises, and seven weeks of huge discounts and promotions until 29 August, which will help move the sector forward.

The region’s first e-hospital is to be launched, with patient access to 2k international doctors from a wide range of worldwide hospitals, offering medical advice ranging from consultations, diagnosis, treatment and medication. Mulk Healthcare is confident that telehealth will be a major future disrupter, and that with the decline in the demand for the traditional face to face interaction, digital healthcare is set to grow exponentially.  The Mulk E-Hospital app provides the full 360 degrees of healthcare from consultation to post hospital care.

In KPMG’s annual Autonomous Vehicles Readiness Index, the UAE moved up one place in the ranking to eighth in the world. The country scored highest (of the thirty countries) when it came to change readiness for new technology infrastructure, mobile data speeds and the readiness of people to embrace driverless cars. The survey looked at whether countries are not only prepared but also whether they are open to AVT (autonomous vehicle technology). Singapore, followed by the Netherlands, Norway, the US and Finland made the top five, whilst the UAE came in ahead of UK and Denmark. The country has announced that it expects 25% of its transport will be autonomous by 2030. Only four months ago, the capital’s Mubadala joined a US$ 2.25 billion consortium investing in Alphabet’s autonomous vehicle technology, Waymo.

The DED special start-up licence, enabling new companies to conduct business activities online, and across social networking accounts, has witnessed an 83% growth in H1 to over 1.9k – no mean achievement considering the Covid-19 impact over the past four months. Dubai Economy also issued 577 Trader Licences, up 163% compared to H1 2019, and is keen to cement the emirate as the leading destination for regional e-commerce and a commercial hub for consumers. Dubai’s commercial agency also provides on-going support to these licence holders by linking them, and signing partnerships, with government and the private sector. “Lifestyle Coaching” is the most popular of the 382 activities, with ten the permitted number of activities in a single licence.

In a major restructuring move this week, HH Sheikh Mohammed bin Rashid Al Maktoum announced that half the federal agencies would merge with each other or within ministries, creating both new government ministerial positions and executive heads in specialised sectors. He reiterated the need for “a government that is faster in decision-making and is more up to date with changes and better in seizing opportunities and in dealing with the new stage in our history”. He also warned that “the new government has one year ahead to achieve the new priorities and the continuous changes will remain the motto of the next stage.”

Among the new ministries are that of State for Digital Economy, Artificial Intelligence and Remote Work Applications and that of Industry and Advanced Technology, tasked with developing the industrial sector in the country. Mergers will see the Ministry of Energy and Ministry of Infrastructure become one, as will the National Media Council and the Federal Youth Foundation with the Ministry of Culture. Other mergers will see the Federal Authority for Electricity and Water (FEWA), Emirates Post and Emirates Institution of Transportation and Emirates Real Estate Corporation come under the Emirates Investment Authority, under the chairmanship of the Minister of Economy. This Ministry will have three senior ministers – Economy, State for Business and Small and Medium Enterprises and State for Foreign Trade. The Insurance Authority is to be merged with the Securities and Commodities Authority, whilst the National Qualifications Authority will be merged with the Ministry of Education.

Business confidence is slowly returning to Dubai’s non-oil private sector economy, with June’s IHS Markit PMI rising to the threshold 50 level – up from last month’s 46 mark and an bringing an end to three months of disastrous returns, after Covid-19 ravaged the emirate’s economy. There was no surprise to see payroll numbers falling, whilst business activity nudged higher, as new work and output ticked up at a “solid rate”. Supplier prices increased in the month, leading to overall expenses nudging higher, whilst the rate of inflation was eased by additional salary cuts and lower workforce numbers. Although improvements were noted in the construction, retail and wholesale sectors, travel and tourism (an integral part of Dubai’s economy) remained entrenched in negative territory. However, with Dubai opening up to international visitors on Tuesday, for the first time since mid-March, and other countries relaxing travel restrictions, there is a valid expectation that a recovery is on the cards. Both local airlines are ramping up their schedules with Emirates resuming flights to fifty-two destinations and Flydubai to twenty-four locations.

It does also appear that the country is beginning to start its long economic road to normality, as June’s IHS Markit UAE Purchasing returns to positive territory with a 50.4 reading – 50.0 is the threshold between expansion and contraction. As a result of the recent lifting of many of the lockdown restrictions, the economy has picked up with new business on the rise, along with foreign new orders. June was the first month this year that the indicator moved upwards. However, firms continued to cut costs as both remuneration levels and workforce numbers once again headed south – an indicator perhaps that the recovery will take some time before ‘business returns to normal’. Furthermore, rising input demand saw a jump in purchase prices, which led to increasing total costs. Rising input demand meanwhile resulted in a rise in purchase prices, increasing overall costs for the second month running, as selling charges rose again for the twenty-first consecutive month. In order to attract more revenue, some companies continue to offer promotional prices.

Nomad Homes has secured seeding of US$ 4 million, led by Comcast Ventures and a range of international venture capitalists. The Dubai-based proptech, only founded last year, has developed an online real estate platform that brings the entire experience of buying and renting homes to interested parties. The platform provides potential buyers with all the requirements, including tools, virtual tours, and digital document signing, to offer an end-to-end online experience. The company will partner local realtors and its revenue stream comes from taking a commission percentage.

Amazon has opened a home services division, dealing with various professional services such as house cleaning, electronics repair, car wash, pet grooming and smart home services. has been launched after Souq rebranded Helpbit which has now been integrated into Amazon’s ecosystem. Helpbit was launched by Souq in 2016 as an independent portal and had been offering different types of home services to users across UAE. All the services have fixed prices, with Amazon working with various service providers that will be vetted by them.

The bourse opened on Sunday 05 July and, 26 points (1.2%) lower the previous week was 5 points off (0.2%), to close on 2,082 by 09 July. Emaar Properties, US$ 0.03 down the previous week, regained US$ 0.02 to US$ 0.75, whilst Arabtec, US$ 0.01 lower the previous week, gained US$ 0.02 to US$ 0.18. Thursday 09 July saw the market trading at 290 million shares, worth US$ 50 million, (compared to 280 million shares, at a value of US$ 61 million, on 02 July).  

By Thursday, 09 July, Brent, up US$ 3.49 (8.9%) the previous week, shed most of that gain trading US$ 3.14 (7.3%) lower to close on US$ 39.62. Gold, having gained US$ 75 (4.4%), the previous four weeks, was US$ 16 (0.9%) higher to close on Thursday 09 July, at US$ 1,806.

After being dubbed “The Queen of the Skies” for the past fifty years, and having been on life support for several years, the end of Boeing’s 747 is nigh, with Covid-19 having hastened its departure. During the epidemic, it was estimated that 91% of 747s, and 97% of the European jumbos were parked. The plane-maker has just fifteen unfulfilled orders and its production schedule sees one 747-8 freighter being made every two months; twelve of the planes are heading to UPS and the remaining three to Russia’s Volga-Dnepr Group. Interestingly, the last passenger 747 was built in 2017 for Air Force One. It appears that both the last 747 and Airbus 380 will be completed by early 2023, having been superseded by the smaller, and more fuel-efficient, twin-engine jets – Boeing’s 777 and 787 Dreamliner, along with Airbus’ A320, A330 and A350. Over the years, 1,557 747s have been manufactured, of which 457 remain in service, far outnumbering the 242 380s ever made to date. Since, 2007, it is estimated that Boeing has lost US$ 40 million on each 747 that has been built, whilst Airbus has spent over US$ 22 billion, on its jumbos, and has only ever broken even between 2015-2017 in its 20-year history.

For three months of the YTD, Airbus has failed to secure any aircraft orders, with only net orders of 298 aircraft this year. In May and June, the plane maker delivered sixty jets, as the industry continued to be battered by the collapse in global air travel and the demand for new planes nose-diving. It is estimated that Airbus will do well to deliver six hundred planes this year, whilst 2021 could see handovers drop to around 350. Boeing is also reeling and, by the end of May, had seen orders for 602 planes, mostly the 737 Max, cancelled; the grounding of the Max for more than fifteen months allows buyers to walk away, without incurring penalties.

One of the world’s largest airlines has notified 36k employees (45% of their workforce) that they could lose their jobs, once the federal aid expires in September. United confirmed that 3.7k have already taken voluntary separation packages and warned that “the reality is that United simply cannot continue at our current payroll level past October 1 in an environment where travel demand is so depressed.” It expects that travel demand will remain moribund until a vaccine becomes readily available and the market does not like what it sees – YTD, its share value has tanked by 62%. The other two leading US carriers, Delta and American, share the same problems, with the former informing 2.6k pilots about a possible furlough and American indicating that it has 20k more employees than it needs to operate its much-reduced timetable.

According to its auditors, Ernst & Young, the survival of Asia’s biggest budget airline, Air Asia, is in “significant doubt”, as its current liabilities were US$ 430 million higher than its current assets. Like any other global carrier, Air Asia, founded by its current chief executive, Tony Fernandes, (also co-owner of Queens Park Rangers FC), has been badly impacted by Covid-19. The pandemic has resulted in a slump in passenger traffic, because of the severe travel restrictions, which in turn has led to a major drain on the airline’s liquidity and a record quarterly loss of US$ 188 million.

It is reported that HSBC is planning to cut 33% of its Paris-based investment banking and markets team over the next two years. In an announcement, the bank said it aims to “reallocate capital and resources to overcome the structural challenges in this business, to focus on profitable activities, reduce the cost base and thus safeguard our competitiveness.” Earlier in the year, the bank confirmed plans that it would be reducing staff numbers by 12.8% to 205k to save costs, as it faces historically low rates, for the foreseeable future, expensive IT investment and a turbid economic environment. It is also looking at divesting its 250-branch French retail banking arm.

Deutsche Bank will have to pay a US$ 150 million fine for “significant compliance failures”, as it failed to properly monitor the bank’s dealings with convicted sex offender Jeffrey Epstein. Evidently, it dealt with hundreds of transactions for the disgraced paedophile, including payments made to Russian models and US$ 800k in “suspicious” cash withdrawals. The bank worked with the financier, said to be worth over US$ 800 million, and helped him transfer millions of dollars, including US$ 7 million to resolve legal issues and more than US$ 2.6 million in payments to women, covering tuition, rent and other payments.

The bloodbath on UK’s High Street continues, with news that Boots is set to make 4k staff redundant and John Lewis a further 1.3k as it closes eight stores. The country’s largest pharmacy is also looking at cutting more staff at its head office and stores as well as to shut forty-eight of its six hundred Boots Opticians practices; last year, the retailer announced plans to close two hundred outlets. Even before the onset of Covid-19, both retailers were in trouble and the pandemic has just brought their restructuring plans forward. Most of the Boots stores remained open during the crisis but the footfall was “dramatically reduced” and quarterly revenue in all Boots UK outlets was 50% lower, and 70% at Boots Opticians.

The pandemic has claimed yet another US economic victim, with Brooks Brothers being laid low, joining the likes of J Crew, JC Penney and Neiman Marcus who have recently filed for bankruptcy protection. The firm, one of the country’s oldest clothing brands, being founded in 1818, has already closed some of its five hundred global stores, 50% of which are in their home base country. The company, formerly owned by Marks & Spencer for thirteen years to 2001, and then sold on to Italian businessman Claudio Del Vecchio, is hoping to find a buyer but this could take time.

Travelex has had a difficult H1, starting the year with a cyber-attack, which paralysed the firm’s systems and a US$ 7 million demand from cyber pirates, followed by liquidity constraints, as a consequence of the collapse into administration of BR Shetty’s NMC Health business and the Covid-19 pandemic, which took off 90% of its customer base revenue at airports. The firm posted a Q1 loss of US$ 56 million, as revenue dipped 36.0% to US$ 140 million, which resulted in its net debt jumping 55.0% to US$ 415 million. Acquired by BR Shetty in 2014 for US$ 1.25 billion – and valued at over US$ 1.5 billion when it was listed on the London Stock Exchange in May 2019 – it was worth only US$ 97 million when its shares were suspended ten months later in March 2020.

With its lenders agreeing to take full control of Travelex, the deal sees its debt level reduced by 84%, as US$ 400 million Senior Secured Notes were converted into equity; a US$ 84 million cash injection will also be implemented. The other part of the restructure of the company, previously owned by BR Shetty’s Finablr Group, sees the company split between an Initial FundCo arm focused on servicing the wholesale foreign exchange market, (as well as its retail businesses in the ME and Turkey, Asia Pacific, Nigeria and Brazil),  and an Optional FundCo business concentrating on its UK, North American and European retail markets.

Never in Fitch’s 104-year-old history has the agency downgraded thirty-three sovereign ratings, whilst putting forty countries on negative outlook. If global governments cannot bring down their ever-growing debt levels, and government finances continue to be stretched, there is every chance that further country downgrades will be on the cards. Fitch mused that up to 60% of these ratings will experience further downgrades over the next twelve months and that an economic relapse is more likely than a faster than expected recovery.

The Australian Tax Office is in court trying to extricate US$ 650 million, (US$ 150 million in back taxes and US$ 500 million in interest), from Alcoa, claiming that the aluminium giant has been under-pricing alumina sales that finally ended up with Aluminium Bahrain, also known as Alba; the case has rumbled on for more than twenty years. The Australian company, 60% owned by Alcoa and 40% owned by ASX-listed Alumina, could also face further administrative penalties. The ATO has increased its pressure on tax avoiders and is using transfer-pricing laws under previous governments, as well as stronger anti-avoidance laws introduced in 2016, to crack down on alleged multinational tax avoidance. Since legal cases are inevitably time consuming and expensive, it seems the tax agency favours out of court settlements; in the June 2019 tax year, it settled with ninety-eight companies, ending up receiving US$ 1.4 billion from initial assessments of US$ 2.5 billion and over the past four years, US$ 7.6 billion out of US$ 12.0 billion.

Next week sees the so-called EU meritocracy meeting to finalise its US$ 840 billion economic recovery plan to revise the bloc’s economy, after months of pandemic-induced fiscal hibernation. There are still major obstacles, mainly from the ‘Frugal Four’ – the Netherlands, Austria, Denmark and Sweden – who are against the plan to dish out grants to those countries hit worse by Covid-19. They are in favour of amending the proposal so that loans – which have to be repaid – are used instead of grants that do not have to be repaid by the recipient counties, but then becomes a burden for the bloc as a whole. The leader of this group appears to be Mark Rutte, the Dutch Prime Minister, who is also advocating that recipients should carry out sweeping economic reforms to their bureaucratic and oft-archaic tax, pension and labour systems. Some hope there, with countries like Greece and Spain pleading such action would be “politically unacceptable”. In true EU style, there will be a last minute patched up agreement that will see the Euro on the backfoot for a time.

Despite several states reporting a pickup in coronavirus cases, US unemployment benefits applications declined by 1.3 million this week, with continuing claims down to 18.1 million against market expectations of 18.8 million. The markets responded with this better than expected news and it seems that investors now seem to be focusing on the benefits of economies slowly returning to some form of normality, rather than the rising number of cases in some locations – and the possibility of a second wave. Time will tell whether this is the right road to choose.

There are reports that the Johnson government may pull the pin on its arrangement with China’s Huawei technology in its 5G network by the end of the year. It would seem that, based on US sanctions, the Chinese company will be prevented from using US IP which could have a “severe” impact on the firm and could make the use of its technology “untrusted”. The initial government decision to invite Huawei limited access in UK’s 5G network irked the Trump administration and there has been tension in bilateral relations since then.

With the pandemic still killing Its citizens, there are some who think that the Chancellor’s move to cut his furlough scheme in October, a tad early. However, this week he did introduce a US$ 37.5 billion boost to the economy, so as to keep millions returning from furlough into unemployment, with measures including:

  • a US$ 2.6 billion “kickstart scheme” to create more jobs for young people, subsidising 16-24 year olds in six-month work placements
  • a temporary stamp duty holiday, costing US$ 4.6 billion, to provide a welcome boost to the property market
  • cutting VAT on food, accommodation and attractions from 20% to 5%, costing US$ 0.8 million
  • a US$ 1.2k job retention bonus for every staff member kept on for three months, when the furlough scheme ends in October, that could cost as much as US$ 11.8 billion if every one of the 9.8 million furloughed workers are brought back to employment
  • costing US$ 0.6 million, an “Eat Out to Help Out” 50% discount, of US$ 12 per person, which could help protect 1.8 million jobs in the F&B sector
  • a US$ 2.0 billion package for the arts and heritage sector
  • a wider US$ 3.8 billion plan to cut emissions, including US$ 6k vouchers for energy-saving home improvements
  • a pledge to provide 30k new traineeships

With the latest boost this week, the total cost of supporting the pandemic-hit economy stands at US$ 240 billion which somehow has to be repaid by the taxpayers who will have to see more of their earnings going to the public purse, with future increased tax measures a certainty. This level of spending equates to over US$ 3.7k for every person in the country and has risen by over 40% in one month. Prior to the pandemic it was estimated that the annual deficit to March 2021 would be US$ 68 billion – now it is forecast to be in the region of US$ 440 billion. Over the past two months, the economy has lost eighteen years of gains – and maybe there is worse to come!

A salutary message from Australia to those businesses to be careful what they wish for. When news of the effects of Covid-19 started to become more of a reality in March, hoarding became a reality, with households preparing for movement restrictions and lockdowns. Although common to many countries, it was Australians that hit the world headlines by their penchant to target toilet paper and soon none could be found on supermarket shelves. This was the time that subscription companies like No Issues and Who Gives a Crap saw their order books increase at least fifty-fold. In the first two weeks of the lockdown, No Issues went from an annual couple of hundred online orders to a massive 10k orders, with a workforce of only seven. On 03 March, Who Gives A Crap saw an 1,100% in business, with 10k daily orders. The demand was so high that they were unable to keep up with orders, resulting in long delays, and a dissatisfied customer base, either complaining or demanding refunds. A short-term massive boost will inevitably come back and bite you if not handled properly, and if there are insufficient systems and people in place to deal with such an event.  There has to be some sort of sympathy for small companies that find themselves out of their depth in such extraordinary circumstances. If I Could Turn Back Time!

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Video Killed The Radio Star 02 July 2020

Latest data from Mo’asher, the official index of the Dubai Land Department, saw a 0.54% hike to 1.121, put down to pent up demand from the government’s easing of restrictions; for apartments, the index was at 1.189 and villas 1.060, its highest figure since last November. May sales figures of 1.44k transactions, with receipts of US$ 673 million, brought the five-month YTD total to 13.6k, valued at US$ 7.6 billion. Of the May sales, 66.5% were off-plan and 33.5% were existing homes. The DLD report added “there are increased opportunities for buying in the market due to the relaxed mortgage cap and the best mortgage products and interest rates we have seen in 15 years.”

Although still awaiting further details, Dubai Summer Surprises will go ahead from next Thursday, 09 July to 29 August, with more than 700 retail brands already signed up to offer promotions across more than 3k outlets, with discounts of up to 75%. Obviously, this year’s event will be different to those of previous years, with extra health and safety precautions in place. Since 02 June, Dubai malls and shopping centres have been allowed to reopen at 100% capacity.

Flydubai will resume flights initially to twenty-four destinations starting on 07 July, and increasing to sixty-six through the summer period, dependent on countries being able to open up and accept international travel.; bookings started on Tuesday. On the same day, Dubai’s Supreme Committee of Crisis and Disaster Management posted that residents can start returning home “provided the destination countries agree to receive them.”  Under strict new regulations, Dubai is set to open up for overseas visitors as from 07 July, after being closed since 25 March. Both incoming tourists and residents will be required to produce a medical certificate, showing a negative Covid-19 test result, within the past four days – or undergo a mandatory PCR test at the Dubai airports. Those found ‘positive’ will have to be isolated “at an institutional facility provided by the government for 14 days at their own expense”.

Following federal cabinet approval this week, UAE now has six national airlines, as Wizz Air Abu Dhabi joins Emirates, Flydubai, Etihad Airways, Air Arabia and Etihad Airways’ low-cost joint venture with Air Arabia. The Hungarian-based low-cost airline, in a venture with Abu Dhabi state holding company ADQ, has already applied for an air operator’s certificate from the UAE’s aviation regulator. The new venture is expected to launch a bigger than first anticipated operation from Abu Dhabi, with a fleet of A321neo aircraft.

HH Sheikh Mohammed bin Rashid al Maktoum has paid tribute to Saeed Lootah, who died this week at the age of 97. He tweeted that, “I have known in him a bright mind, wisdom and tranquillity” and that “he was a self-made merchant, with a mark on Dubai’s economy.” The entrepreneur founded the world’s first Islamic Bank, setting up Dubai Islamic Bank in 1975, to provide a Sharia-compliant alternative to conventional banking. Earlier this year, DIB acquired Al Noor Bank that created a financial institution, with assets of US$ 75 billion and one of the largest Islamic banks in the world. Mr Lootah also established a construction company, S.S. Lootah Contracting Company, as a joint venture with his brother Sultan in 1956. Over the years it has expanded into a myriad of sectors, including realty, education, healthcare, financial services and energy. He also set up Dubai Medical College and Dubai Pharmacy College. He has seen Dubai grow and was one of its pioneers noting that “In the old days, traders were different than today. Today traders want to make money, but the early traders wanted to build up the world.”

There was no surprise to see that Dubai’s GDP posted a 3.5%, Q1 decline, not helped by the arrival of the pandemic, leading to the emirate taking a hit from mid-March, with lockdowns and other restrictions. Furthermore, being a leading global trade hub did not help matters as international trade and the global economy were both badly impacted, with the knock-on effect being felt here in Dubai. Although still a major player in the local economy, accounting for 23% of Dubai’s GDP, trading contracted 7.5% in the quarter, with transport/logistics 5.5% lighter, but still accounting for 12.1% of GDP. The biggest loser, in percentage terms, was hospitality (hotels and F&B), declining 14.8% on the year; last year, it contributed 5.1% to the economy. The agricultural, manufacturing, construction and utility sectors, which between them added 20.5% to Dubai’s economy last year, posted a marginal annual dip of 0.5%. Not to be outdone, the banking and insurance sectors, which contributed 11.6% to Dubai’s well-being in 2019, nudged 0.3% higher, compared to Q1 2019. The healthcare and education sectors had mixed results with the former declining 3.7% and the other 1.1% higher, year on year. Even the public sector, accounting for 5.1% of Dubai’s GDP, managed a 0.6% improvement.

A 2018 IMF report indicated that Dubai, and its various related entities, had debts of US$ 123 billion, equating to 110% of the emirate’s GDP. This week, one of those entities, Dubai World, made its final creditors’ payment of US$ 8.2 billion, two years ahead of schedule – the final repayment of a ten-year 2011 loan, following the GFC, which left the company teetering on bankruptcy. Dubai World used funds from various sources to finally settle the debt, including US$ 6 billion from Port and Free Zone World, various asset sales, including the sale of Economic Zones World for US$ 2.7 billion, dividends from associated companies, including Infinity World, and a US$ 3 billion Dubai Islamic Bank loan.

With little or no flights, it seems that the busiest people at Emirates have been the accountants. It is reported that, over the past two months, the carrier has processed almost 650k refund requests, worth US$ 518 million.

In a bid to assist their drivers’ finances, Careem, in association with Visa, has offered its drivers real-time access to their daily trip earnings. The cashless payments service will start in the UAE in Q3, to be followed by Saudi Arabia, Egypt, Jordan and Pakistan. The new system will give the drivers instant cash, instead of the current time lag in paying drivers that ranges from hours to days, depending on the market. Visa estimate that digital payments now represent at least a third of all face-to-face transactions, in nearly fifty countries, with the UAE figure higher at 50%.

For the third month in a row, UAE July fuel prices will remain unaltered, with Special 95 and Diesel selling at US$ 0.490 and US$ 0.561 per litre respectively.

Nasdaq Dubai added a further US$ 2.5 billion worth of Sukuk listings to its expanding portfolio which now totals US$ 71.1 billion. The three Indonesian government Sukuks – a ten-year US$ 1 billion bond and two US$ 750 million (one of a five-year maturity green issuance and the other for thirty years), were 6.7 times oversubscribed. The Indonesian government is the bourse’s largest sukuk issuer on two counts by both value (US$ 17.5 billion) and number of listings (fourteen).

In June, non-Arab foreigners accounted for 30% of the trade, valued at US$ 1.7 billion, conducted on both the Dubai and Abu Dhabi bourses, with this sector preferring the Dubai market for purchases, at US$ 436 million and Abu Dhabi for sales at US$ 490 million. The total trades came in at US$ 5.5 billion, of which 61.4% was at the DFM.

Damac Properties is one of Dubai’s largest privately-owned property companies, with more than 1.4k employees and a presence in six countries. As of 31 March, it had about 4.4 million square metres of projects either in planning or in progress. It is reported that Hussain Sajwani, the founder and 72.2% major shareholder, is weighing up a bid to take the company private but this was later denied by company secretary, Magdy Elhusseiny.

The bourse opened on Sunday 28 June and, 192 points (9.7%) higher the previous five weeks failed to continue its recent good form, down 26 points (1.2%), to close on 2,087 by 02 July. Emaar Properties, US$ 0.02 higher the previous week, was US$ 0.03 lower at US$ 0.73, whilst Arabtec, up US$ 0.01 the previous two weeks, shed US$ 0.01 to US$ 0.16. Thursday 02 July saw the market trading at 198 million shares, worth US$ 61 million, (compared to 280 million shares, at a value of US$ 59 million, on 25 June).  The bourse gained 94 points in the month from 1,971 to 2,065 but was well down (25.3%) from 2,765 to 2,065 YTD.  Emaar ended the month up US$ 0.06 from its monthly opening of US$ 0.69 to close the month on US$ 0.75, but a YTD slump of US$ 0.35 from its 01 January opening of US$ 1.10. Meanwhile, Arabtec’s 30 June price of US$ 0.16 was up US$ 0.01 on its 01 June opening of US$ 0.15 and YTD US$ 0.20 lower from its opening year balance of US$ 0.35.

By Thursday, 02 July, Brent, down US$ 2.58 (6.2%) the previous week, regained that loss and more, up US$ 3.49 (8.9%) to US$ 42.76. Gold, having gained US$ 55 (3.2%), the previous three weeks, was US$ 20 (1.1%) higher to close on Thursday 02 July, at US$ 1,790. Brent had started the month on US$ 35.49 and the year on US$ 66.67and closed 30 June at US$. 41.15. Gold had started the month on US$ 1,737 and the year on US$ 1,517 and closed 30 June at US$ 1,800.

Latest data indicates that OPEC has cut its members’ production levels to 22.7 million bpd, its lowest level since the 1991 Gulf War. The group reduced output by almost two million bpd in a further attempt to flatten the supply/demand curve, and bring some sort of equilibrium to the market, caused by global lockdowns, travel restrictions and business closures.

In the US, Chesapeake Energy Corp has sought protection from bankruptcy by a Chapter 11 filing in a Texan court. The country’s sixth largest natural gas producer, US$ 10 billion in debt, has dealings with drilling firms and gas transporters that could be badly impacted if the company goes under and cancels regulated natural gas contracts in a bankruptcy court. This will be a serious problem for leading energy service and pipeline companies, already reeling from the recent collapse in oil prices – and an even bigger one for banks who have major exposure in the shale sector.

Last month, BP announced that it had cut the value of its assets by US$ 17.5 billion and this week it was Shell’s turn to warn that it may have to reduce the value of its assets by US$ 22.0 billion. It also forecast that the oil price will hover around US$ 35 this year, US$ 40 in 2021 and up to US$ 60 in the longer term. Since Covid-19, demand for oil has slumped, as many countries initiated lock down and travel restrictions, resulting in air travel slumping by over 85%. There is no doubt that the future for fossil fuels is uncertain and oil companies are beginning to hedge their bets much sooner because of the impact of the pandemic.

Ineos, owned by British billionaire Jim Ratcliffe, is set to invest US$ 5.0 billion to acquire BP’s global petrochemicals business, as the petro-giant transits to its new strategy of low carbon energy and becoming net carbon neutral by 2050. The chemicals business, specialising in aromatics and acetyls, has a big footprint in Asia and has an annual production of 9.7 million tonnes of petrochemicals.  In 2005, Ineos, acquired BP’s chemicals subsidiary Innovene. BP has now divested all its standalone petrochemical assets, having shed US$ 15 billion worth of assets throughout 2019 and 2020.

In the aviation sector, Airbus confirmed that it will have to slash 15k jobs from its current payroll of 134k, of which 1.7k would be from its UK operations in Broughton and Filton, involved mainly with commercial aircraft.; talks with the various unions involved are continuing. Since the onset of Covid-19, and global air traffic tanking by more than 90%, the end-users – the global airlines – are not only reluctant to buy new aircraft but are also haemorrhaging cash reserves because their fleets still need maintaining and lease payments/loans serviced.  With production dipping by more than 40%, the industry does not expect any resemblance to pre-Covid 19 activity retuning until 2023. Other aviation-linked companies also announced inevitable redundancies – Air France/KLM, 6.5k jobs, and EasyJet a further 2k, as well as closing three UK bases.

Tesla has overtaken Toyota to become the world’s most valuable carmaker, after its market cap touched US$ 209.5 billion, eclipsing its Japanese rival by some US$ 4.0 billion. This sort of valuation turns Economics 101 on its head, when Toyota has sold thirty times more cars (10.5 million to Tesla’s 367k) and had revenue of US$ 281.2 billion – almost eleven times greater than the electric carmaker’s US$ 24.6 billion. After years of never making a profit, Tesla has turned in three consecutive growth quarters, but the money will be on the Japanese conglomerate to return to its number one position before long.

Last year, Amazon boosted its investment in the car sector, taking positions in electric truck maker Rivian and participating in a US$ 530 million funding round in self-driving car start-up Aurora. Now, it is reported that Amazon will pay over US$ 1.2 billion to acquire Zoox, an early developer of self-driving cars. The two entitles would combine resources to create a ride-hailing fleet that would compete with the sector leader, Alphabet’s Waymo, as well as for Amazon to add the vehicles to their delivery fleet. The six-year old company was valued at US$ 3.2 billion, after a 2018 funding round, but plans to launch a pilot programme for its ride-sharing services were aborted due to Covid-19; in April, 100 employees were retrenched. The pandemic has only highlighted the fact that the industry was already facing problems and even the US$ 30 billion Waymo has not expanded operations elsewhere since its 2018 launch in Arizona.

Probably the clearest sign that the UK retail sector is in deep trouble comes with news that Intu, with US$ 5.8 billion worth of debt, has gone into administration after failing to reach an agreement with its creditors. The firm, which runs seventeen shopping centres around the UK, including the Trafford Centre, the Lakeside complex, Nottingham’s Victoria Centre and Braehead, also announced that its share listings on the London and Johannesburg bourse had been suspended. It is estimated that, in the last quarter, only 18% of commercial rents were collected and there are worries about the future of the 2.5k staff working for Intu and the 130k jobs in the wider supply chains. Although the company has gone into administration, the shopping centres are separate companies, owned by banks and other lenders, and are still open for business. Last Friday, Intu had a market value of just US$ 20 million, a frightening fall from its 2006 valuation of US$ 16.3 billion. The problems facing Intu and other mall operators, including online sales and a slump in rental income, (by 37% to US$ 390 million), will only get worse but the reality is that there is too much retail space in the UK.

Another week, another set of bad news for the UK High Street. This week sees the demise of Byron Burger as it tries to appoint administrators, most probably KPMG, to protect it from creditors while it seeks a rescue deal. The restaurant chain, with 1.2k staff and 52 outlets, is reportedly in discussions with three potential suiters and is hopeful that it can be sold as a going concern. Similar chains had been struggling even before the onset of Covid-19 and the virus has only exacerbated their troubles. In May, for example, Casual Dining Group, owner m of Café Rouge et alia, appointed administrators.

SSP, which has Upper Crust, the Caffè Ritazza chain, deli operator Camden Food Co. and luxury bar chain Cabin in its portfolio, announced that 5k UK jobs could be at risk, if the pace of recovery in the country does not speed up. SSP is very closely knitted to the travel sector and employs 39k staff worldwide across, with 2.8k outlets in thirty countries, including the US, China and India.  With the huge reduction in UK passenger traffic, the firm confirmed that only ten of its 580 food and drink outlets were currently open but they expect the number to rise to 25% of its total food and drink outlets across the UK, mostly at railway stations and airports, to be open by Q4. You know when times are bad when your April and May revenue figures were 95% down on the same two months in 2019.

As noted in an earlier blog, Primark, owned by Associated British Foods, has seen monthly sales sink from US$ 815 million to zero overnight, as Covid-19 restrictions saw its UK, US and European stores closed; strangely, the shop does not have any on-line trading, claiming they would be unable to keep prices for its clothing as low if it that service were introduced, but does sell gift cards via its website. The company indicated that it would had to have laid off a lot of its 68k workforce, if it were not for various governments’ furlough schemes. As well as Primark, which contributes about two-thirds of the group’s revenue, ABF also owns food brands including Twining’s tea, Blue Dragon sauces and Ovaltine and is lucky in as much it has cash reserves of US$ 1.0 billion and an agreed US$ 1.4 billion loan facility. ABF shares were trading yesterday at US$ 2.43, giving a market cap of US$ 19.2 billion – down 28.2% on February – with H1 profits lower by 44.2% at US$ 270 million.

This week, as reality starts to hit home, and the furlough buffer begins to be tapered down, there has been a catalogue of redundancies and administrations confirmed by some big High Street names, including:

  • Harveys – into administration but still trading, with 240 job cuts and 1.3k positions under review
  • Bensons for Beds – in a pre-pack administration, the existing owners bought back the furniture chain but 35% of its 242 outlets will close
  • Casual Dining Group – 91  (Café Rouge and Bella Rouge) outlets will close immediately, and 1.9k of the firm’s 6k staff will lose their jobs
  • TM Lewin – weeks after being bought by a private equity company, the shirt and suit maker will close all its sixty-six stores and retrench 86% of its workforce with the remaining to focus on on-line shopping
  • Cath Kidston – its sixty UK stores, employing 900, will not reopen, having fallen into administration, with only its brand and online shop being bought
  • John Lewis – will close stores but numbers, and job losses, have yet to be confirmed
  • Arcadia – the Topshop owner is looking at 500 job losses
  • Harrods – have plans for about 700 job cuts.

The UK High Street is not the only one in the world suffering from the impact of the pandemic, high property rents and the rise of e-commerce. In Australia, Seafolly became the latest retailer probably to go under as it enters into administration. With forty-four local stores and twelve overseas, it joins a raft of other Australian retailers, including rival brand, Tigerlily and G-Star Raw, that have collapsed over the past two years. For the time being, the stores will continue to operate, having all recently reopened, following the lifting of lockdown restrictions. Although May retail sales rebounded – up 16.3% over the previous month – Australian Bureau of Statistics showed they were well down compared to May 2019.

According to official figures, 594k people lost their job in April and a further 228k in May. With job losses expected to worsen, there are certain sectors that have been hit worse than others, with retail, tourism and travel taking the brunt of the damage.

Even before the onset of the pandemic, retail was struggling with many issues including high, and often long-term, property rents, declining consumer confidence and e-commerce. Earlier the likes of Colette, Harris Scarfe, Jeanswest, Bardot and G-Star Raw had all entered into administration, as Myer, Kathmandu and Rip Curl announced store closures.  Despite a Q1 boost in revenue, ahead of lockdown restrictions, with supermarkets having a boost with groceries and other household items being hoarded, the next quarter witnessed falls in revenue. Woolworths will eliminate 700 warehouse jobs in Melbourne and Sydney because of automation taking over. In May, Wesfarmers confirmed that up to 167 Target and Target Country stores would be closed or be converted to Kmart stores.

In the travel sector, Qantas has already retrenched almost 4.9k staff and last week announced it would slash 6k permanent jobs, whilst Virgin, recently purchased by Bain Capital, has temporarily stood down 10k (80%) of its staff. Australia’s largest travel agency, Flight Centre, has made 6k staff, either permanently or temporarily out of work, as it tries to get to grips on what to do with the closure of international borders and coronavirus restrictions affecting the domestic tourism market.

In the finance sector, there have been cuts announced by the larger firms, as lower revenue and dipping profits become the order of the day. To date, 80% of KPMG staff have taken a voluntary 20% salary cut for four months until September, with the firm announcing it was cutting 200 professional positions. PwC and Deloitte have announced staff cuts of 400 (5%. of its payroll) and 700 (7%). On the sporting field, Rugby Australia has lost 40% of staff numbers in a move to save US$ 4 million from its payroll.

Media has not escaped, with News Group announcing cuts as it moved from print to digital, with staff numbers falling 71% to 375 in the regional and community divisions of the organisation and a further 100 from the metropolitan papers.  Meanwhile, the ABC has confirmed 250 jobs will be cut as the broadcaster’s budget has been slashed by US$ 60 million.

Another major pandemic causality has been education as enrolments dried up resulting in revenue shortfalls across the board. As examples, three universities – Wollongong, Charles Sturt and Central Queensland – are planning to cut up to 300, 150 and 300 positions respectively. A May Rapid Research Information Forum paper estimated that 21k full-time university jobs were at risk, including 7k in research-related academic positions.

It is interesting to note how the ASX200 fared over Australia’s financial year ending 30 June. Energy stocks performed the worst – down by 34.1% over the year’s trading, followed by Financial, Industrial, Communications, Utilities, Materials and Consumer Discretionary – all lower by 25.4%, 17.3%, 12.3%, 8.2%, 6.8% and 2.6% respectively. The only winners were Healthcare, Technology and Consumer Staples, all three higher by 25.8%, 15.1% and 7.6% respectively. It would have to be a fool to forecast what will happen this coming year.

Since the enforced lockdown of all its global shows, and zero revenue since then, Canada’s Cirque du Soleil is taking drastic action to avoid bankruptcy and is to cut 3.5k jobs after striking a deal with existing shareholders. They have decided to take over all the Group’s liabilities and invest a further US$ 300 million in a bid to restructure the entertainments firm, as well as setting aside US$ 20 million to provide additional relief to affected employees and contractors. The Quebec-based company, which is also receiving a US$ 200 loan from the province’s government and is set to shed 95% of its staff, is best known for its acrobatic touring circuses, including six in Las Vegas. It also has musicals – including Michael Jackson One and The Beatles Love. The company expects to rehire “a substantial majority” of terminated employees when normal operations return.

Not surprisingly, the US trade deficit increased for the third consecutive month in May, by US$ 54.5 billion, or 9.7%, as both imports and exports headed south by 0.9% to US$ 199.1 billion and by 4.4% to US$ 144.5 billion, respectively. Import and export levels were at their lowest sinceJuly 2010 and November 2009 respectively. The total trade figure, (export plus import values), was 28.0% down, year on year and reflects how global trade has been impacted by the pandemic. The President would not be too happy to see that the May trade deficit with China was 7.3% higher at US$ 27.9 billion.

In June, there were record returns, with  4.8 million jobs created – the best ever month since records began in 1939, as lockdowns were lifted in many states, leading to the reopening of retail, factories and restaurants. Last month, there had been 2.5 million new jobs, with a marked increase in consumer spending. Two million jobs were added in leisure/hospitality and 740k in retail. Despite this better than expected news, there was only a small decline, to 1.4 million, in initial claims for unemployment, whilst in certain states, including California, Florida and Texas, there is a possibility of scaling back and delaying reopening of retail/F&B because of the possibility of fresh coronavirus outbreaks. However, the jobless rate is above 11% and the employment figures are still fifteen million short of what they were pre Covid-19.  Wall Street was happy with the news as the Nasdaq celebrated by posting a record high 10,269 points.

The UK economy is at its worst level since Q3 1979 and, when compared with the same three-month period a year ago, the economy shrank by 1.7%, with the services sector, which accounts for 75% of the UK economy shrinking by 2.3%; production and manufacturing were down 1.5% and 1.7%. March turned out to be an economic nightmare, as the economy contracted 6.9%, with consumer spending falling sharply in Q1, at US$ 26 billion, equating to 3.8% of GDP. Q2 figures, which will take in the full hit of the pandemic, will be catastrophic especially the monthly data has already reported a 20.4% slump in April – the largest monthly drop on record and equating to three times greater than the falls recorded during the 2008-2009 GFC. Some pundits consider that this has pushed sterling in a vulnerable position that could lead to a depreciation if a second wave emerged or no deal was signed with the EU by the end of the year. Others think the opposite could happen as many EU countries are struggling and if anything amiss happened, the euro could take a tumble. However, there is every chance that come Q3, the UK economy will bounce right back, perhaps up 10%.

 Although big tech companies have been heavily fined by many global authorities, the likes of Facebook, YouTube and Google, seem to be treating them with disdain, as penalties have had little impact on their modus operandi. There has been a feeling that, like some banks, they are above the law and too big to fail. Despite every attempt to curtail their monopolistic activities, governments have failed whilst to date their coffers continue to be boosted by companies seeing a cheaper and more effective way to boost their sales.

Only last month, this blog posted that Amazon was in line for a potential US$ 18 billion fine by the EU for anti-competitive behaviour and the 2016 case, when the EC fined Apple US$ 14.4 billion for lowering its effective corporate tax from 1.0% to 0.005% and ordered the US behemoth to pay the money back to the Irish government; the appeal against the verdict is still ongoing. Last month, European authorities fined Google – for the third time since 2017 – US$ 1.9 billion for antitrust violations in the online advertising market. In 2019, Facebook was fined US$ 5 billion after violating a 2012 consent order concerning user privacy. It is also reported that the US House Judiciary Committee is concerned about increasing examples of anti-trust behaviour and could be planning to call the likes of Apple, Google, Amazon and Facebook to disclose internal documents about their digital markets.

However, these government dealings and fines seem to be like water off a duck’s back to these tech giants but now they appear to be very worried because they have started losing revenue. More than ninety companies, including Coca Cola, Ben & Jerry’s, Hershey, Verizon, Starbucks, Honda, Ford, Adidas, HP, Unilever and Levi Strauss, have stopped advertising, temporarily at the moment, in support of the #StopHateforProfit campaign which accuses Facebook of not doing enough to stop hate speech and disinformation. Last Friday alone, Facebook lost US$ 56 billion in its market value (8.3%). The cyber world has finally found an instrument that could change the way these tech companies have been operating on their own terms, as data privacy intrusions, fake ads, corporate malpractices and political shenanigans had proliferated without too much interference to rectify problems. Facebook can ill afford to lose advertising revenue as it accounted for 98.5% of its total global revenue of US$ 70.7 billion; Google’s ad revenue was almost double at US$ 134.8 billion. Will boycotts be an effective way to cut the size and impact that these tech giants have had in the past – and continue to do so – where global government and regulatory action has patently failed? Could boycotts be a modern version of  Video Killed The Radio Star?

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Do You Know Where You’re Going To?

Do You Know Where You’re Going To?                        25 June 2020

It has to be Dubai when it is announced that the emirate will have the first-ever climate-controlled ‘Raining Street’ which will see year-round rain along a 1 km boulevard. Developed by the Kleindienst Group and located in their US$ 5 billion The Heart of Europe project, it will reduce the summer temperatures to 27 degrees in a place that can sometimes top 50 degrees. The Raining Street, inspired by a 150-year-old architectural concept of Austrian architect, Camillo Sitte, will be a major tourist attraction in The Heart of Europe, located on a cluster of seven islands, four kilometres off Dubai’s coast.

Business is picking up in the local real estate sector, with news that for the first nineteen days of June, there were transactions totalling more than US$ 1.4 billion, well up from the US$ 763 million over the same period in April. Although off plan sales were lower, mainly due to the absence of new project launches, 429 ready properties were sold up to 19 June, compared to 675 for the whole of June 2019. After almost three months of lockdown, Dubai is ready to open up its economy once again, as the government takes major steps to ease restrictions. Over the past weeks, shops and malls have started to open up and this week, commercial establishments and offices are operating at full capacity. On 07 July, Dubai will be ready to welcome international tourists. Big steps like these only serve to boost consumer confidence and puts Dubai on the road to recovery.

Valustrat, which tracks realty values across the emirate, sees the market starting to move in the right direction, as there has been an improvement in the uptake of Dubai properties. The first three weeks of June has already seen a 9.0% improvement, compared to the whole of May. Sales, which subsequently saw a 50% fall, had tanked following the government’s March decision to close non-essential establishments, suspend all international passenger flights and restrict the movement of residents.

Since the lockdown started to be eased, Azizi has reported a rebound in sales and enquiries and is even hiring 100 employees to push the sale prospects of the developer’s fifty-four apartment buildings, still under construction. This is a courageous move in a market that seems to have a supply/demand inequilibrium, with an oversupply that could well continue to push prices lower, more so as the current pandemic has seen many companies laying off workers or cutting pay packages. Whether the 10% population shrinkage, expected by some analysts, actually happens remains to be seen. However, the doomsayers, who tend to knock Dubai at every opportunity, have to remember that the whole world has been impacted by Covid-19 and the emirate is not the only housing market to have suffered. Reports from both UK and Australia point to the fact that house prices there will come under downward pressure and that, partly because of an anticipated rise in unemployment and a fall in consumer confidence, their housing markets will not return to early 2020 levels for some time.

One hotel group is confident that the sector will bounce back quicker than most expect. Rotana hopes to return to 2019 levels of occupancy and profits by the end of 2021, as international travel restarts. Rotana’s CE, Guy Hutchinson, is “cautiously optimistic” about the return of visitors to the country, once they are allowed in as from 07 July, after an enforced absence of almost four months. He reckons that pent up demand for travel will result in a quick return of both business and leisure visitors.

The government continues its fine balancing act of weighing up the pros and cons of  easing lockdown restrictions with those of opening up the economy, On Sunday, new travel rules were announced, with residents being allowed to travel overseas and for tourists to visit Dubai after a three month pandemic-driven break following borders closures from 19 March. All returning travellers must fill in a health declaration form before their journey to confirm they are virus-free and then undergo a Covid-19 screening test on arrival.

To help its with Saudi Arabia’s strategy to enhance its connectivity with its neighbours, DP World has tied up with Mawani (Saudi Ports Authority) to launch a new shipping line which will connect three ports – Jebel Ali, Jeddah Islamic and Egypt’s Sokhana. This will be the Mawani’s fourth shipping line venture. Last December, DP World, one of the world’s biggest ports operators won a 30-year old BOT (build-operate and transfer) to develop and manage the Jeddah port, and is slated to invest up to US$ 500 million to improve and modernise the Saudi port.

Arif Naqvi seems to have been a bit of a chancer and now it appears that he is having the last throw of the dice to escape extradition from the UK to the US where he would face fraud and money laundering charges. Now his lawyers are arguing that he should be tried in London arguing that most of Abraaj’s operations were carried out in the UK and that should be the ‘forum’ where the case should be heard. The 59 year old founder of the disgraced Abraaj Group, which at one time claimed that it was managing over US$ 14 billion in assets, was brought down in June 2018 following an audit, commissioned by a group of investors, including Bill and Melissa Gates, into the mismanagement  of a US$ 1 billion health fund.

There was a US$ 500 million Sharjah Islamic Bank Sukuk listed on Nasdaq Dubai this week, with the money raised being used for strategic development. The five-year Sukuk, which brings its total listing on the local bourse to US$ 2 billion, was seven times oversubscribed. The latest trade sees the total value of Sukuk listed in Dubai at $69.3 billion, ensuring the emirate remains one of the world’s largest Sukuk centres.

The bourse opened on Sunday 21 June and, 183 points (9.7%) higher the previous four weeks nudged up 9 points (0.4%), to close on 2,087 by 25 June. Emaar Properties, US$ 0.04 lower the previous week, was up US$ 0.02 to US$ 0.76, whilst Arabtec, up US$ 0.01 the previous week, remained flat at US$ 0.17. Thursday 25 June saw the market trading at 280 million shares, worth US$ 59 million, (compared to 211 million shares, at a value of US$ 81 million, on 18 June).

By Thursday, 25 June, Brent, up US$ 3.82 (10.0%) the previous week, shed some of that gain, down US$ 2.58 (6.2%) to US$ 39.27. Gold, having gained US$ 20 (1.2%), the previous fortnight, was US$ 35 (2.0%) higher on the week to close on Thursday 25 June, at US$ 1,770.

Six global investors – Global Infrastructure Partners, Brookfield Asset Management, Singapore’s GIC, Ontario Teachers’ Pension Plan Board, NH Investment & Securities and Snam – have become a 49% partner with ADNOC. The Agreement sees the formation of a newly formed subsidiary, ADNOC Gas Pipeline Assets, worth US$ 20.7 billion. The new consortium will have twenty-year lease rights to 38 pipelines, with a volume-based tariff subject to a floor and a cap. The Abu Dhabi 51% partner will retain ownership of the pipelines and have full operational controls.

Next month, Segway will stop production of its iconic two-wheeled personal transporter, which has carried millions of standing passengers on a wide platform. Since it was introduced twenty years ago, it has been popular with tourists in major global cities, and with many police and security services, but failed in its main aim to revolutionise the way people moved around. However, it was seen to be challenging to handle and was banned in some locations. Now with this revenue accounting for just 1.5% of the company’s revenue, and its scooter range more profitable, the company has taken Segway off its production schedule.

Following a reported US$ 4.4 billion quarterly loss – including a massive US$ 2.0 impairment charge – Carnival Corporation has confirmed that it has a preliminary agreement to sell six vessels, as it seriously looks at downsizing its fleet. The Miami-based cruise ship operator, which has been mauled by Covid-19, and cannot predict when operations will restart, has seen revenue slump by 85% to just US$ 700 million, as its adjusted net loss per share, expected at US$ 1.95, came in at US$ 3.30. The company has ongoing monthly costs of US$ 250 million and has a total of US$ 7.6 billion in available liquidity. Its rival
Norwegian Cruise Line Holdings will not start operations until October at the earliest.

Germany’s Bayer is planning to spend US$ 16.9 billion to settle 100k US lawsuits alleging the company’s weed killer, Roundup, causes cancer and settling other claims relating to environmental damage in the US. The global pharmaceutical giant, which acquired Monsanto – the maker of Roundup – for US$ 63 billion in 2018, is still facing thousands of other claims which may cost a further US$ 1.8 billion, including US$ 800 million to settle claims, involving the highly carcinogenic substance polychlorinated biphenyls (PCBs), and US$ 582 million relating to damage caused to crops after the weed killer Dicamba drifted onto nearby farms, killing plants not resistant to the herbicide.

After resigning as boss of Wirecard last Friday, when auditors found US$ 2.2 billion missing, 50 year-old Markus Braun has been arrested by German authorities for inflating the company’s finances to fool stakeholders, including investors and customers, that its finances were stronger than they really were. The missing money was supposedly being held by two Asian banks, set aside for ‘risk management’, and now the company has admitted that “there is a prevailing likelihood that the bank trust account balances in the amount of Eur 1.9 billion do not exist”. Since the scandal broke, its market value has tanked by over 80% and the company that was valued at over US$ 24 billion, on its debut on the Dax 30 share index two years ago, is now worth less than US$ 3 billion, and still falling.  It seems that Munich prosecutors have been investigating four board members, including founder Braun, over the past year for “market manipulation” and the London’s Financial Times has been running several articles of internal problems within Wirecard. It appears strange that any action had not been taken a lot earlier – and questions will have to be asked why?

Another German company in trouble is Lufthansa, with reports that it will mothball its fleet of fourteen A380s for at least two years – and maybe for ever – if long haul travel does not return to 2019 levels. Europe’s biggest carrier has already confirmed that it will retire half of its Airbus jumbos. The airline has indicated that the remaining A380s will be relegated from its primary airport Frankfurt  to Munich, noting that “the chance that we will again operate any A380 (from Frankfurt) is close to zero”, but if there’s enough demand on “thick” routes, such as New York and Chicago, they might fly from Munich. Covid-19 could be the main reason behind a premature end to the reign of the A380, as both Air France is phasing out the jet and Emirates, its largest operator, is reportedly considering plans that could see 65 jumbos retired.

There were suggestions that the US$ 10.1 billion Lufthansa government bailout could hit the buffers, as only 38% of shareholders had registered to vote at today’s EGM which meant that 66.6% had to agree to approve the motion. If registration had topped 50%, then a simple majority would have won the day. If this did not happen, then the German flag carrier would have inevitably tipped into insolvency. There were concerns that  the company’s principal shareholder, Heinz-Hermann Thiele, with a 15% stake,  who had voiced his concerns that the government taking a 20% stake for the cash injection would dilute existing shareholdings,  could  scuttle the May deal in order to reopen talks for a better arrangement.  However, at today’s meeting, he voted to approve the term of the government bailout deal and so it was passed without any problems.

Meanwhile, the troubled carrier will close SunExpress, its charter venture with Turkish Airlines, with a loss of 1.2k jobs, as it cuts its costs and network, as a consequence of falling passenger demand. The airline was used by German tourists, going mainly to Egypt and Bulgaria, and it will redeploy its fleet, with Lufthansa taking over all seven of its Airbus 330s, whilst Turkish will use the eleven Boeing 737s. Europe’s biggest airline could lose up to 22k jobs as it has already closed its Germanwings discount division and plans to cut its own fleet to 100 aircraft.

The Royal Mail, which posted a 2.0% fall in profit, for the year to 31 March, to US$ 226 million, is planning to cut 2k management positions, (about 20% of the management workforce), as it tries to get to grips with Covid-19 reality. Job losses will hit senior roles, with half the number set to face retrenchment and, on the back-office jobs in finance, IT and commercial, whilst front line workers will escape most of the flak; the job cuts will save Royal Mail over US$ 170 million this financial year. The pandemic has seen the recent downward trends of post continue at a quicker rate. Senior managers have been trying to pull the organisation into a better operating unit, with a leaner top management structure, but according to its chairman, the ‘company had “not adapted quickly enough to the changes in our marketplace of more parcels and fewer letters”.

Intu Properties has warned that it could go under within days if it cannot obtain further funding. The struggling shopping centre group, which boasts the likes of Manchester’s Trafford Centre and Essex’s Lakeside in its extensive portfolio, posted a US$ 2.5 billion loss last year, on top of a US$ 1.5 billion deficit in 2018. If talks with lenders break down, it could be as early as tomorrow, 26 June 2020, that its malls may start to close. However, Intu is still hoping to arrange a ‘standstill agreement’ with its creditors.

The latest in a very long line of UK High Street retailers having to call in administrators is JD Sports-owned Go Outdoors. After their appointment, the parent company, which initially paid US$ 140 million, in 2016, for the company that specialises in camping equipment, bikes and clothes, has now bought back the firm for US$ 70 million, in what is known as a pre-pack administration. With 2.4k staff working in 67 stores, Covid-19 has just crystallised ongoing cost problems in the sector, largely attributable to high, and normally inflexible, long-term rents. JD Sports has taken on all the liabilities and continue to pay wages and suppliers of the company. Recent times have seen Cath Kidson, Laura Ashley and the UK arm of Victoria’s Secret call in administrators and only last week, Pounsdstretcher launched a company voluntary arrangement (CVA).

A week after Wagamama, Pizza Hut and other food chains warned Boris Johnson that the sector faces mass job cuts, without more help, it is reported that Pret a Manger is struggling. It seems inevitable that there will be job cuts as global weekly sales, with outlets in the UK, US and France, have slumped by 85% to around US$ 3.8 million; its US operations managed sales of just US$ 125k in a week’s trading. Although the sandwich chain has reopened more than three hundred UK stores, they are only offering takeaway or delivery services. Pret is also continuing discussions with all their UK landlords with the aim of cutting rental costs.

One industry that was in turmoil even prior to the onset of Covid-19 – and now devastated with slumping demand – is steel. Consequently, Indian-owned Tata Steel, UK’s largest steelmaker, is seeking a government bailout package, estimated at US$ 625 million; if successful, it will save 8k UK jobs in Port Talbot, other sites in Wales, Hartlepool and Corby. The company has struggled to make a profit in recent years, posting a 2019 loss of US$ 460 million, as it has also been battered by rising production costs and international competition. It is reported that the government loan could be converted into equity at a later date, if the company could not repay the debt.

Nine months ahead of his initial target of making his company debt free, Mukesh Ambani has already raised the required US$ 23.0 billion to realise his goal, after a rights issues and divesting some of his assets, including a stake in its energy business to BP. India’s richest man has enticed investors such as Facebook and  Saudi Arabia’s Public Investment Fund, to put money into his digital business, Jio Platforms, as he tries to transform his energy-led empire; with these latest investments, totalling US$ 30 billion in 2020,  Jio is valued at US$ 164 billion. On Friday, 19 June, shares of Reliance jumped 3.3% to a record high, giving the Group a market cap of US$ 146 billion. It is reported that Ambani’s latest target could be acquiring stakes in some units of Indian retailer, Future Group, which already has a partnership with Amazon.

The IMF has lived up to its reputation of probably being the worst global predicter, as it amends its April forecast for the world economy. It estimated then that the global and UK 2020 contractions would be 3.0% and 6.5%, now amended to 5% and 10% respectively. The IMF always gives a specific forecast for sixteen individual countries, each one, with the exception of China (which is expected to grow by 1%) they expect to contract; the largest change in the two months came from India which in April was expected to have marginal growth, now superseded with a 4.5% contraction. The more dismal news emanates from a sharper downturn than the earlier forecast envisaged.

On Thursday, Qantas announced that, with smaller revenues (because of lower demand) expected over the next three years, it had been forced to lay off 6k staff, (about 20% of its total payroll), as it had to cut costs to reflect the decreasing size of the company. Meanwhile, the airline (and its subsidiary, JetStar) will leave 15k workers on the government furlough scheme. With Australia’s virus curve flattening faster than most other countries, Qantas expects domestic demand to return to some sort of normalcy by 2022. However, with borders remaining closed until next year – and the collapse in global air travel – “international travel revenue” has sunk almost without trace. Currently, with the exception of New Zealand, all overseas flights have been cancelled until October at the very earliest and probably well into 2021. Apart from the payroll number reductions, other cost cutting measures introduced include raising a further US$ 1.3 billion in equity, as well as grounding up to 100 planes, including its A380 fleet, and deferring the purchase of new planes.

Bain Capital has reached an agreement with Virgin Australia’s administrators to take over the airline after its private equity rival Cyrus Capital Partners withdrew its offer. However, bondholders, who stand to lose a large part of their US$ 1.4 billion investment in Virgin as a result of its collapse, are still considering whether to put an offer directly to Virgin Australia’s creditors at their meeting to vote on the Bain deal.

Covid-19 could play a big role in the possible demise of two of Australia’s retail giants – David Jones and Myer. This comes after the country’s largest trade credit insurer, QBE, announced it would no longer cover the two department stores because they estimate that the default risk is too high. Both department stores reject the risk of default, but analysts say voluntary administration remains a real option for them as they struggle to survive Cobvid-19. A glance at their finances shows how bad things have become. Six years ago, Woolworths South Africa acquired David Jones for US$ 2.2 billion and now its value has more than halved. Myer, whose latest revenue is roughly the same as it was ten years ago, has seen its share value 94% lower, at US$0.17, than its price when first listed in 2009. Both retailers have been struggling for several years and were probably on life support even before the onset of Covid-19. The three final nails in their coffins could well be the growing influence of e-commerce, the rise of speciality stores and the high property leases.

The Fair Work Commission has raised the national minimum wage by US$ 9.10 a week, (a 1.75% increase), which will see two million Australians benefit starting 01 July; this equates to a minimum weekly wage of US$ 525, as the nation deals with its first recession since 1991. The commission was also concerned that the Covid-19 had had an “unprecedented” shock on the job market but considered an increase a necessity because, if not, some families could be forced into “poverty”.

Reality is beginning to hit home in Australia, as it has started to dawn on some that the government debt could top US$ 700 billion, five times more than the balance immediately following the 2009, and this will have to be repaid. At the onset of the pandemic, the federal government was already hocked to almost US$ 400 billion, at a time when the housing market was experiencing high levels of owner-occupier mortgage stress. There is no doubt that Australia has so far managed to put a lid on the virus but now it has to deal with an economic pandemic exacerbated by the fact that all its trading partners are being impacted in the same way. Global consumer confidence will be at an all-time low because of the massive effect it is having on the worldwide economy and on its major trading partners, so global trade will remain sluggish for some time. This is a depression that Australia does not need.

One country that also depends heavily on tourism for its economic survival is Thailand which now sees a Covid-19 driven slump in future visitor numbers; in 2019, the sector contributed 18% to the country’s GDP, this year, it is expected to be only 6%. Tourist chiefs are now changing their strategy, targeting big spenders, seeking privacy and social distancing, rather than the mass tourism of the past. Initially it is thought that visitors may be required to pass Covid-19 screenings, both before travelling and upon arriving, and will have to remain in a single location for a minimum time period before being allowed to travel to other islands. This year, the target is for just 10 million visitors – compared to 40 million in 2019 – generating US$ 39.6 billion, 59% lower than last year’s return. The Thai government has introduced stimulus packages, equivalent to 15% of the country’s GDP.

It has been estimated the US administration has pumped in US$ 2.6 trillion, equating to about 14% of the country’s output, since Covid-19 reared its ugly head in the country. Bizarrely, the Treasury actually managed to pay a massive US$ 1.4 billion to dead people because it did not check death records  when posting stimulus cheques to the population; to date, 160 million pandemic cheque payments have been made, totalling US$ 280 billion, equal to about 11% of the total already injected to shield the economy. There are also worries that the Paycheck Protection Program for small businesses – a low-cost loan fund that accounts for 26% of US pandemic spending – could be prone to fraud or inflated applications.

A recent UK survey concluded that lower-income households are twice as likely to have increased their debt levels, since the start of Covid-19, as they have been using their savings and borrowing more. The Resolution Foundation also noted that workers in shut down parts of the economy have average savings of US$ 2.4k, whereas those working from home had a buffer of US$ 5.8k. The think tank also discovered that the country’s wealth gaps had grown, with London and the SE accounting for 38% of all wealth – up from 28% over the past decade.

A word of caution for the UK Chancellor as he mulls over whether to cut the UK VAT rate in an attempt to boost flagging consumer confidence. Germany has already knocked 3% off its VAT rate and the temptation for Rishi Sunak is to do likewise, as it is easy to implement almost immediately and can then be reversed with the same ease. At the time of the GFC, the then Chancellor Darling knocked 2.5% off VAT. A study found that it was an expensive exercise, with an upfront US$ 15.6 billion cost over two years, equating to 50% of the Chancellor’s stimulus package. Perhaps the government will take a selective stance and target any cuts to pubs and restaurants and leave current rates for on-line sales. If the High Street returns to trading with mega sales and big discounts, then a 2.5% VAT reduction may have little impact on actual sale volumes.

After borrowing a record US$ 68.5 billion in May (nine times higher than last year), the UK debt, standing at US$ 2.4 trillion, is now worth more than the country’s economy. Whilst the government coffers have continued to suffer from falling receipts – including Income from tax, National Insurance and VAT – public spending has soared. The UK financial year starts in April, and the first two months, April and May, have already seen a record deficit of US$ 128.3 billion, compared to just US$ 20.7 billion for the same period in 2019. Latest estimates show the deficit at the end of the financial year, 31 March 2021, will be US$ 368.6 billion – an amount that somehow has to be repaid.  Chancellor Rishi Sunak has a fine balancing act in front of him – he has to kick start the economy but in a gradual and safe fashion. Even when the lockdown is eased further, there is every chance that more public money will be needed. Whether this means tax cuts, or more direct spending, remains to be seen but it will be deemed as necessary as lack of any action will only damage the scarred economy even further. Tough choices lay ahead for the Chancellor and the question to him and the UK government is Do You Know Where You’re Going To?

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Only Time Will Tell!

Only Time Will Tell!                                                                       18 June 2020

Nakheel has posted villa sales, totalling US$ 63 million, over the past three months, as demand jumps with consumers beginning to adapt to the ‘new normal’; of that total, US$ 40 million (70 villas) were in Nad Al Sheba and a further US$ 40 million (20 units) in Al Furjan. The developer confirmed that 70% of Nad Al Sheba villas, and 95% of the 400 plus villas in Al Furjan, have now been taken.

It is reported that the government will allow select categories of locals and. expats to travel to certain overseas destinations as from Tuesday. Travellers will have to adhere to regulations laid down by the Ministry of Foreign Affairs and International Cooperation, the Federal Authority for Identity and Citizenship, and the National Emergency Crisis and Disaster Management Authority.

To the surprise of many, there will be four new schools opening in Dubai for the next academic year, hopefully starting in September. Dubai’s Knowledge and Human Development Authority said that there are currently 209 private schools, with about 300k students, of which thirty have been added in the last three years. The four new schools, that will add a further 4.1k capacity, will be located in Abu Hail, Dubai Silicon Oasis, Jebel Ali and Al Rashidiya, offering a choice of UK, US and Indian curricula. Last year there was a 2.1% growth in enrolments.

This week, the Dubai Diamond Exchange (DDE) opened for business, in line with the easing of restrictions across the emirate. Latest figures indicate that, in May, diamond prices nudged 0.6% higher. Diamonds play an important role in the emirate’s traded commodities which contributed US$ 100 billion to the Dubai economy, a 9.0% increase on the year.

Over the first five months of the year – and despite the impact of Covid-19 – Dubai Economy posted a 68% jump in renewed licences to 64.6k; of that total, 44.1k were auto renewed. This has come a long way from the days when a renewal took four visits and seven steps which can now be done by one call to 6969. This is an example of the ambition of the Dubai government to become smarter and to go 100% paper free by the end of the next year.

HH Sheikh Mohammed bin Rashid Al Maktoum chaired a cabinet meeting on Sunday which approved a scheme to offer bonuses to staff working in vital sectors for their dedication during the crisis. To qualify, staff must have worked at least for two months under the emergency conditions. The Dubai ruler added that “it is our duty to appreciate everyone who contributed and participated in bearing the burdens with us during the crisis… And we say to everyone, the UAE is always the best,” At the same meeting, it was agreed to set up a national platform for processing digital payments, Al Etihad, with the aim of providing services in a “safe, fast, and secure manner”.

The inflow of foreign direct investment into the country jumped by over 34% to US$ 14 billion last year, driven by major US investments in Abu Dhabi’s energy sector. According to a UNCTAD (UN Conference on Trade and Development) report, the UAE accounted for 50% of total regional investment whilst it surpassed Turkey to become the largest ME recipient of foreign investment. Meanwhile, FDI outflow was 5.5% higher at US$ 16 billion.

At a recent meeting, the Board of the Central Bank of the UAE reviewed the utilisation of the Targeted Economic Support Scheme and noted that to date, 16 June, seventeen of the twenty-six banks had utilised TESS and had drawn down their 100% facility; 140k of eligible customers have already benefited from the TESS liquidity facility. 88% of the US$ 14 billion liquidity facility has already been utilised by the banks.

Although still tracking in negative territory, May’s IHS Markit Dubai PMI increased 4.3 to 46 but was still below the 50.0 threshold that differentiates growth from contraction. Dubai’s economy is still reeling from the pandemic that has led to weak consumer demand, further cuts in the job market, softer falls in new business, subdued consumer confidence and a slow market response. Bullish Dubai is positive that it will come out of the crisis with its economic guns blazing, the only question is when, not if.

The IMD’s World Competitiveness Yearbook has placed the UAE as the ninth most competitive country in the world, ahead of the likes of the US, UK and Germany; Singapore topped the rankings, followed by Denmark, Switzerland and Netherlands. The Swiss business school classifies countries based on economic performance, government efficiency, business efficiency and infrastructure, using twenty other sub factors and 338 competitive indicators. The country was placed fourth globally for economic performance and was the best in the world in 23 indicators, including an absence of stifling bureaucracy, better immigration laws, low central government foreign debt and the number of women in parliament.

According to Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the Islamic Economy contributed US$ 11.4 billion, (9.9%) to Dubai’s GDP in 2018 – a 2.2% year on year increase. Dubai’s Crown Prince added that the emirate is well placed to lead the sector’s contribution to revitalise the regional and international economy in the post-Covid-19 phase. Of that total, F&B, the financial sector, hospitality and manufacturing contributed 43%, 26%, 17% and 14% respectively. S&P Global Ratings forecasts that the US$ 2.4 trillion global Islamic finance industry will grow at a reduced pace, with sukuk volumes shrinking, as the global economy slows down caused by Covid-19.

Dubai-based Careem has rolled out its new Super App across thirteen markets quicker than expected because of the impact of Covid-19. The app, backed by a US$ 50 million investment, combines all the ride-hailing company’s services, including deliveries and payments, and is aimed at boosting its profit margins. The Uber subsidiary will bring enhanced efficiency to the operation that will result in improved economies of scale. During the pandemic, its core ride-hailing business tanked 90% and its delivery business by 60% – and a speedy recovery to pre-Covid 19 levels is remote.

According to the Liquidators, it is alleged that the founder of disgraced Abraaj Group, Arif Naqvi, currently under house arrest in London, may have stolen US$ 385 million from his company – somewhat more than the US$ 250 million first estimated earlier by US prosecutors.  Evidently, Naqvi was reportedly involved in more than 3.7k transactions to cover up his criminal methods as he moved the “illegal” funds to his personal accounts. At that time, the company was managing more than forty private equity funds, with over US$ 14 billion in assets. The firm has already been fined US$ 315 million for deceiving investors and misappropriating their funds. 

Another executive, Egyptian Mustafa Abdel-Wadood, who used to work with the Egyptian arm of EFG Hermes was arrested last year in New York, as he was on a trip to the US with his wife and son. The executive, who is under house arrest, had four bail guarantors, including Naguib Sawiris, a former chief executive of Orascom Telecom and the Sawiris family owned Orascom conglomerate. Abdel-Wadood joined Abraaj Group from Egyptian investment banks EFG‐Hermes, where he was chief executive for the UAE, and prior to that, head of investment banking; earlier, he had spent eight years at the Orascom Group and was also a founding board member of Orascom Telecom. He will be sentenced in September. This has all the makings for a future Netflix documentary.

The bourse opened on Sunday 14 June and, 144 points (7.5%) higher the previous three weeks traded up 39 points (1.9%), to close on 2,078 by 18 June. Emaar Properties, up US$ 0.13 the previous four weeks, was US$ 0.04 lower atUS$ 0.74, whilst Arabtec, down US$ 0.01 the previous week, was US$ 0.01 higher at US$ 0.17. Thursday 18 June saw the market trading at 211 million shares, worth US$ 81 million, (compared to 310 million shares, at a value of US$ 84 million, on 11 June).

By Thursday, 18 June, Brent, down US$ 2.15 (5.4%) the previous week, closed US$ 3.82 (10.0%) higher at US$ 41.85. Gold, having gained US$ 18 (1.0%), the previous week, nudged US$ 2 higher to close on Thursday 18 June, at US$ 1,735.

The impact that Covid-19 has had on the oil sector can be seen from comparing the yearly demand falls in Q1 and Q2 of 6.4 million bpd and 17.3 million bpd respectively. For the whole of 2020, OPEC has forecast an annual fall of 9.1 million bpd, (comprising 5.2 million bpd in the OECD countries and the balance from the rest of the world), to 90.1 million. To maintain some sort of viable equilibrium, OPEC+ recently agreed to extend production cuts of 9.7 million bpd, until the end of next month and to keep a handle on production in a tapered manner until April 2022. The UAE is on side with these current production cuts and is on record that it targets a five million bpd capacity by 2030 – in April, it reached 4.2 million bpd, whilst current figures are just shy of 2.5 million bpd.

With global governments seemingly hell bent to speed up plans to slash carbon emissions, BP has cut its price forecast by 30%, forecasting Brent crude to be around the US$ 55 mark for the next thirty years. A week after cutting 10k of its workforce, BP has indicated that it will reduce its value of its assets by between US$ 13 billion and US$ 17.5 billion, as it will have to become a “leaner, faster-moving and lower cost organisation”. At the peak of the pandemic, Brent was trading at less than US$ 20 – 67% lower than its January average prices. There is no doubt that Covid-19 has ushered in a new reality and a different mindset to how we deal with climate change and a consequent lesser reliance on fossil fuels. It seems that in this sector, BP is leading the way and time will tell if their approach, to a harsh new reality for big oil, is right and whether other conglomerates will follow.

Jaguar Land Rover is expected to lose 1.1k jobs, as India’s Tata Motors Ltd raised its cost-cutting target by US$ 1.2 billion to US$ 6.0 billion, over the next nine months, in an attempt to survive the damage caused by the coronavirus outbreak; the luxury carmaker has already achieved 70% of this ambitious target. The twin aims for JLT is to conserve cash and prioritise capex, even though it has cut this year’s budget to US$ 3.0 billion. JLR posted a US$ 600 million loss, attributable to a US$ 960 million hit because of Covid-19. Meanwhile, parent company, Tata Motors reported a 27.7% quarterly fall in revenue to US$ 8.2 billion and a loss of US$ 1.2 billion.

The UK’s biggest builders’ merchant, Travis Perkins, with 165 branches, has announced plans to shed 2.5k, (9%) of its workforce, as it forecast that the UK recession will continue well into next year. The group, which also includes Wickes, Toolstation and Tile Giant, reported that May sales volumes were 40% lower, year on year, but have been recovering in June, as branches started to reopen.

Wirecard, a German blue-chip Dax 30 company, and valued at US$ 30 billion, has seen its share value tank by 60%. This came about after the auditors EY refused to sign off the accounts, citing it was unable to confirm some of the company’s bank balance of US$ 1.9 billion – or 25% of its total balance sheet. The company said there were “indications that spurious balance confirmations had been provided” by a trustee “in order to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts”.

Despite its share price hitting a record high last week, all is not well with Jeff Bezos’ tech conglomerate in Europe, with the EU seriously considering charging Amazon for anti-competitive behaviour. It could get in real trouble – and in line for potentially huge penalties that could be as high as US$ 18 billion – because it has got so big that it is now in a position to run an online store and also to sell its own products on the same platform. Because Amazon has access to sensitive data – such as prices and volumes – of its rivals, it is thought that it could have an unfair advantage on the market as it will always be ahead of its competitors; it will also have the chance to promote its own products at the expense of third parties. Other countries will inevitably follow the EU’s lead and it is already reported that US authorities are not only looking into the tech giant’s practices relating to third-party sellers but also the alleged anti-competition of big tech firms, like Facebook and Google.

Another tech giant in the news was Apple, claiming that its App Store ecosystem had US$ 519 billion of trade in 2019, 85% of which the company did not take a commission; this figure excludes sales generated by the Android and Windows versions of the same products. Of that total, physical goods and offline services accounted for US$ 413 billion, whilst digital goods and services accounted for US$ 61 billion. It is alleged that Apple, with a market cap of US$ 1.5 trillion, has a bigger margin, estimated at 30%, than any other company from the mobile phone market and there are calls that it should lower the fees it currently charges. The US House Judiciary Committee is concerned about increasing examples of anti-trust behaviour and could be planning to call the likes of Apple, Google, Amazon and Facebook to disclose internal documents about their digital markets We will then see if they are too big to fall.

Apple’s troubles were not confined to one side of the Atlantic as it is facing two EC probes – that other services cannot use the iPhone’s tap-and-go facility and the second being restrictions on third party developers utilising iPad and iPhones. Executive Vice President, Margrethe Vestager, is handling the cases and she is reportedly worried about the increasing power of big tech platforms. This follows the 2016 case, when the EC fined Apple US$ 14.4 billion for lowering its effective corporate tax from 1.0% to 0.005% and ordered the US behemoth to pay the money back to the Irish government; the appeal against the verdict is still ongoing.

Some European countries are upset with the tech giants, including Amazon, Apple, Facebook and Google, and their shenanigans to reduce their tax bills in an immoral and unethical – but usually perfectly legal – fashion. Finance ministers from France, Italy, Spain and UK have been in discussions with the US and others on an equitable way online sale should be taxed. The UK Chancellor, in a letter with others, has indicated that the coronavirus crisis has made tech firms “more powerful and more profitable” and that the tech giants need “to pay their fair share of tax”. However, the US Trade Representative Robert Lighthizer has accused other nations of ganging up to “screw America”.

Over the past four months of the year, it is reported that Blackrock, which manages some US$ 6.5 trillion in assets, has deployed capital of almost US$ 18 billion in Europe, of which about 50% headed for the UK. The capital was split between roughly 4:1 between credit and equity, as 50% of the funds resulted from companies raising money after the impact of Covid-19. The US asset manager bought 3.4 million shares in cinema owner Everyman Media, and now is its second biggest investor, and 21 million shares in SSP Group, bringing its stake to 12.65%. Because of the current situation, desperate companies were in the market and utilised the bigger investors to raise funding quicker than the normal time period of several months.

The World Travel and Tourism Council estimates that more than 197 million jobs could be lost within the travel and tourism sector if Covid-19 movement restrictions continue, wiping US$ 5.5 trillion off global GDPs. Only two months ago, the same body put that figure at almost half – 100.8 million.  It also estimated that both international and domestic tourism would decline by 73% and 64% respectively. However, if curbs were lifted sooner, 99.3 million jobs within the industry could be saved, with the hit on global GDP reduced to US$ 2.6 trillion. Last year, this sector, that contributed 10.3% of global GDP, generated 25% of all new jobs and supported one in ten jobs.

Notwithstanding New Zealand, Qantas has cancelled all international flights until late October, as the Morrison government indicated that Australian borders will remain closed, for general travel, for the rest of the year. Both Qantas and its subsidiary, Jetstar, are ramping their domestic flights, with passenger numbers doubling over the past week to 64k. The nation’s tourism minister, Simon Birmingham, has also encouraged Australians to take their holidays within the country this year and admitted that “in terms of open tourist-related travel in or out of Australia, that remains quite some distance off”. Australian carriers will continue to make losses for the rest of the year and be part of a global industry that could post losses of more than US$ 84 billion.

The Australian Bureau of Statistics confirmed that the country’s May unemployment rate rose from April’s 6.4% to 7.1%, estimating a further 228k jobs were lost last month; the figures indicate that since March, 835k have lost jobs. However, there are some positive indicators – such as job ads and payrolls – that point to the fact that job losses may have already bottomed out. The number would have been worse were if not for the fact that there was a surprise 0.7% fall, to 62.9%, of people looking for work – the lowest level since in January 2001. In two months, the total of people in work had dropped 3.8% to 58.7% and the underutilisation rate – covering the unemployed and underemployed – hit a record 20.2%; the ABS estimates that around 20% (2.3 million) of the working population have been impacted by either job loss, or had less hours than usual for economic reasons, over the previous two months.

There are reports that the RBA, fearing a sharp fall in housing prices, was considering a housing market halt, (similar to stock market trading during emergencies), so as to avoid perceptions of a coronavirus-inspired housing market crash. Minutes of the board’s 05 May  meeting, released publicly, noted “demand for both new and established housing had fallen” and declining incomes, confidence and population growth “were expected to affect demand for new housing for an extended period”. However, whilst internal correspondence highlighted the deteriorating situation in construction, falling incomes/confidence and that house prices could sink by up to 15%, the RBA painted a more positive picture. It is thought that the central bank’s reports on the deteriorating situation in construction had affected the announcement date of the Government’s HomeBuilder program, offering recent grants on new housing, which was announced on 03 June. CBA, the country’s largest lender, holding the highest number of mortgages of all lenders, warned house prices could fall 32% in a “prolonged downturn,” under a “worst-case” scenario. It is estimated that one in fourteen mortgages are currently “paused” by the major banks, equating to 429k mortgages, valued at US$ 105 billion.

To add to their troubles, it has been reported that the country is being targeted by an ongoing sophisticated state-based cyber hacking exercise. According to Prime Minister Scott Morrison, the hacking was widespread, covering “all levels of government”, as well as essential service providers and businesses, and that the frequency of attacks had been increasing in recent times. He was almost certain that this is being carried out by a state “because of the scale and nature of the targeting and the trade craft used”. That being the case, the likely contenders are China (who have been at loggerheads with the Australian government over many issues), Iran, North Korea and Russia.

The IMF has confirmed what many already knew – that there is a “striking divergence” between financial markets and the real economy. One just has to look at the global bourses which are still going gangbusters and compare that to the doom and gloom surrounding global economies, reeling from the impact of Covid-19. The world body is concerned that if there is a second wave of the pandemic and economies worsen, there is every chance of greater volatility and sharper corrections. As an example, although the Fed is predicting a 6.5% decline in GDP this year, the S&P 500 has climbed 37% to recoup most of its losses since the start of the crisis. Despite the injection of at least US$ 10 trillion by central banks and governments, from all around the world, the IMF reckon that at least 170 countries (90% of total nations) will be worse off economically by year end.

Following big falls on the global markets last Thursday, because of rising cases of Covid-19 and a bleak view on the US economy, Friday 11 June saw a mini bounce back with shares ending higher, driven by a University of Michigan report of a bigger than expected jump in consumer confidence. All three US bourses posted 1% plus hikes, with the FTSE 100, the Cac and Dax all trading higher – by 1.74%, 2.0% and 1.25% respectively.

Although there has been a marked bounce back in US retail shopping in May – 17.7% higher month on month – it is still 6.0% lower on the year, with some sectors such as clothing, retail and bars declining even further; online sales were 30.0% higher. The good news may be a harbinger of things to come and point to the fact that the recovery in the world’s leading economy may come quicker than many have predicted – and just in time to push Donald Trump over the line for another four years, come November. With the US unemployment rate surprisingly down to 13.3% in May – and the economy adding 2.5 million jobs – it seems that the predicted 40% economic contraction will actually come in at a much lower rate. However, the Federal Reserve Chairman, Jerome Powell, did warn that “significant uncertainty remains about the timing and strength of the recovery” and that a “significant number” of the more than 20 million people who have lost jobs in recent months are unlikely to return to work any time soon. For the 13th straight week, US unemployment figures have topped more than one million, with 1.5 million Americans filing for unemployment last week, higher than expected; these claims remain more than double the 38-year old record. Today’s Labor Department’s report showed that nearly 20% – more than 29 million – were collecting jobless benefits as at 30 May.

Official data points to more than 600k UK workers losing their jobs in the three months to 31 May, whilst there are 2.8 million people claiming work-related benefits., jumping 23% in May. This is really bad news but unfortunately, it is inevitable that worse is to come, more so in October when the wage support schemes are pulled. Not surprisingly, there was a massive fall in job vacancies between March and May – which declined by 476k to 365k – whilst the number of hours worked sank by a record 94.2 million to 959.9 million hours.

As evidence grows that the Covid-19 hit on the economy may be less severe than first thought, the Bank of England has decided to pump a further US$ 125 million into the economy; this brings the bank’s quantitative easing programme to US$ 900 billion. That is a lot of money to lift the country’s economy out of probably its worst ever recession. This comes days after its governor Andrew Bailey confirmed that the BoE was ready to take all the required action to get the economy back on track after it was announced that the UK economy had contracted by 20.4% in April. Even though the outlook is still uncertain, there are still positive indicators, such as a pick-up in housing activity and a recovery in consumer spending. Earlier estimates suggested a massive 25% contraction in Q2 but now that looks it will come in at a much lower figure. However, the jobs market will take a lot longer with the prospect of higher and more persistent unemployment a reality and will take a long time to recover. Nobody really knows how long the recovery will take – Only Time Will Tell!

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Staircase To Heaven

Staircase To Heaven                                                                                     11 June 2020

Dubai developer Croesus Holdings has been locked out of two of their completed low-rise projects, valued at US$ 27 million, in Majan, by Dubai Walls Contracting over a dispute relating to costs. Apparently, this is the latest of a number of potentially damaging disputes between the two major stakeholders in the sector – developers and construction companies. In this case, the developer has indicated its willingness to settle the dispute over differences between completion certificates and the developer’s estimates. It is reported that both projects have been sold to a third party and the deal may turn sour, if there is no early settlement, and if it has to go down the legal route, there could be a delay of up to eight months.

Dubai dropped two places to 23rd in Mercer’s Cost of Living Survey of 209 global cities, with its neighbour Abu Dhabi dropping six positions to 39th. Using New York as the base measure, the ranking records prices of hundreds of items in ten categories over the past three months to May. The five most expensive locations were Hong Kong, Ashgabat (Turkmenistan), Tokyo, Zurich and Singapore. The cost of living is the cheapest recorded in the emirate in five years, driven by a softer real estate sector and subsequent deflation.

 Mercer also posted that 69% of GCC companies plan to adjust one or more elements of their compensation and benefits policies to partially alleviate the damage caused by Covid-19. It seems that the majority of companies have introduced salary cuts, intending for them to remain in place until at least September. However, sectors, including travel and retail, that saw revenue almost dry up when lockdown was introduced in mid-March, have had to take drastic action including, retrenchment, furloughing and putting staff on unpaid leave. It is reported that 28% of UAE companies have already brought in salary cuts.

This week, Emirates announced a further round of redundancies, following an earlier one on 31 May, as the realisation for the need of a leaner entity becomes more apparent; no figures were released but is thought to include all divisions. The world’s biggest long-haul airline, with a 60k payroll, including a reported 21k cabin staff and 4k flight deck, has already reduced wages and grounded most of its passenger fleet to preserve cash. As with other major airlines, Emirates has to cut costs to remain viable; two major cost drivers are fuel and payroll and, as the airline can do little, (maybe a little hedging),  on the price of aviation fuel, it has to focus on culling staff numbers. The Dubai government indicated in March that it would financially support the airline because Emirates is such an integral player and probably the main contributor to the success of the emirate’s economy.

Tata Asset Management is the latest international group to open an office in DIFC, as it tries to expand its business, which includes mutual funds, portfolio management services, alternate investment funds and offshore funds in the MENA region. The company, a subsidiary of the 150-year old Indian conglomerate, has more than US$ 27 billion worth of assets under its management. Last year, its new base, DIFC, saw a 25.4% increase in the number of firms to over 2.4k, including 737 active global financial firms, up 18.0% on the year.

Dubai Islamic finalised a US$ 1 billion five-year sukuk, with an attractive 2.95% profit rate, that had the order book top US$ 4.5 billion, with 170 interested investors which indicates that Dubai is still a – and maybe the – place to consider for international investors. The sukuk was issued as a drawdown under DIB’s US$ 7.5 billion Trust Certificate Issuance Programme, which is listed on Euronext Dublin and Nasdaq Dubai. Earlier in the year, DIB acquired its rival Noor Bank to become one of the largest global Islamic banks, with more than US$ 74.8 billion in assets.

Commercial Bank of Dubai, 20% owned by the Investment Corporation of Dubai, becomes the latest UAE lender to extend foreign ownership of its shares to 40%, from 20%. According to its chief executive, Bernd van Linder, “it will allow us to broaden our investor base as well as sustain capital inflows in the UAE.” Earlier in the year, both the Dubai Islamic Bank and Abu Dhabi Islamic Bank, lifted their foreign ownerships to 40%.

In order to widen its reach and become a bigger and more diversified conglomerate, it has been decided that Meraas will become part of Dubai Holding which “is set to combine a complementary suite of services and expertise to diversify the economy and maximise their competitiveness in the global marketplace”.  Last year, Meraas, which already has a presence in several sectors including real estate, healthcare, retail and hospitality, signed a US$ 1.4 billion agreement with Canada’s Brookfield Asset Management to manage and grow a portfolio of retail assets.

Dubai Holding owns major companies including the Jumeirah Group (with twenty-four hotels in their portfolio), Dubai Properties and the Tecom Group that owns and operates ten sector-focused business clusters, including Dubai Internet City and Dubai Media City. Dubai Properties has numerous developments in JBR, Business Bay, Dubai Creek and Dubailand. The tie up with Meraas will expand its portfolio by adding resorts, like Pearl Jumeirah and Jumeirah Bay, as well as other projects such as City Walk, La Mer and Bluewaters Island.

This week, the DIFC invested in four “innovative” FinTech start-ups – Sarwa, FlexxPay, Now Money and Go Rise – in pre-series A to series A funding from the free zone’s US$ 27 million FinTech Fund that was rolled out last year. The hub, whose main aim is to improve the personal finances of regional residents, is considered to be in the top ten global FinTech hubs. The initial financing will assist these four start-ups with their expansion plans. Sarwa is a roboadvisory wealth management entity, whilst Now Money helps low income employees, by providing payroll services to regional companies and app-based accounts with physical debit cards and remittance options. FlexxPay is a cloud-based B2B employee benefits platform and Go Rise offers migrant workers affordable insurance options, retirement planning and the ability to pay for products in instalments.

Still in negative territory, Dubai’s non-oil private sector economy moved higher from 41.7 to 46.0 in May, at a time when restrictions started to be lifted, with a softer pace in both output and new business. However, one of the main drags continues to be weak consumer demand, at a time when further declines were seen in travel/tourism (posting a sharp fall for the third month in a row), construction (reporting its steepest slump in new work) and wholesale/retail. Although consumer confidence has been badly dented, during the lockdown, and will take time to return to pre-Covid-19 levels, there is every chance that the only way seems to be up for the Dubai economy. At the same time, the UAE’s PMI data nudged 2.6 higher to 46.7.

In a bid to build its market share, Islamic insurance company Dar Al Takaful has invested almost US$ 60 million is acquiring competitor Noor Takaful, in a deal that has already received the regulatory approval of the Securities and Commodities Authority and the UAE Insurance Authority. The cash deal will be bank-financed. Noor Takaful is part of Noor Investment Group, which in turn is owned by the Investment Corporation of Dubai, which earlier in the year sold Noor Bank to Dubai Islamic Bank. The fragmented insurance sector, which comprises sixty-two traditional and Islamic operators, thirty of which are listed on local markets is ripe for consolidation. Last year, these listed companies posted a 22.0% increase in combined net profit to US$ 436 million, as their gross written premiums came in 8.3% higher at US$ 6.5 billion.

In 2019, Embattled Drake & Scull reversed its terrible figures of a year earlier, by posting a US$ 71 million profit on revenue which dipped 14.7% to US$ 186 million, with other income generating US$ 36 million; last year, it reported that it had combined losses of almost US$ 1.4 billion. Its chairman, Shafiq Abdelhamid, commented that the company had been “dealing with the huge losses recorded in 2018, and the burden left by the previous management.” In 2019, DSI initiated legal action against the former management and started a major debt restructuring programme. That year also saw a 16.0% reduction in its negative equity to US$ 1.1 billion and the MEP-focused company had a backlog of US$ 170 million.

The bourse opened on Sunday 07 June and, 144 points (7.5%) higher the previous three weeks traded up 64 points (3.1%), to close on 2,039 by 11 June. Emaar Properties, up US$ 0.06 the previous three weeks, was US$ 0.07 higher atUS$ 0.78, whilst Arabtec, down US$ 0.03 the previous five weeks, was US$ 0.01 higher at US$ 0.16. Thursday 11 June saw the market trading at 552 million shares, worth US$ 81 million, (compared to 310 million shares, at a value of US$ 84 million, on 04 June).

By Thursday, 11 June, Brent, up US$ 8.74 (11.6%) the previous three weeks, has had its day in the sun and closed US$ 2.15 (5.4%) lower on US$ 38.03. Gold regained most of the previous week’s US$ 20 (1.1%) loss, gaining US$ 18 (1.0%) on the week to close on Thursday 11 June, at US$ 1,733.

It has been confirmed that BP will slash 10k jobs, (14% of its workforce and 30% of its top 400 positions), as Covid-19 continues to maul the global economy; it joins other petro-giants, such as Royal Dutch Shell, Chevron and Marathon Oil, who are all readying themselves to slim down as they prepare for a major transition in the sector. These redundancies do not apply to BP gas stations, who had already seen a pay rise in April. The gravity of the situation is demonstrated by the fact that 36.4% of BP’s US$ 22.0 billion annual costs are manpower-related and that in Q1, its net debt jumped by US$ 6.0 billion; it is spending a lot more than it earns.

Bombardier, with plants in Northern Ireland employing 3.6k, has announced that it would be cutting 2.5k global jobs, within its aviation division; most of the redundancieswill be in its home base, Canada. The lockdown saw the NI operation wound down, but with the easing of rules, currently 50% are back at work. However, it seems that the NI operation is still up for sale, following a company announcement in May 2019. Bombardier is expecting a 30% slump in business jet deliveries in 2020.

PCP Capital Partners have begun a US$ 19.5 billion civil claim against Barclays in relation to an investment deal with Qatar, accusing the bank of hiding the terms of a lucrative deal with the Gulf state. It seems that the UK bank had agreed to a US$ 2.4 billion 2008 unsecured loan to Qatari parties but concealed this information from all other stakeholders, including PCP who had introduced UAE investors to Barclays, who “subscribed” to invest £3.25 billion. The terms were supposedly the same for both investors, but it seemed that this may not have been the case. Barclays reportedly agreed to pay an US$ 320 million additional fee for advisory services and a “yet further fee of US$ 80 million” and provided “an entirely unsecured loan” of US$ 2.4 billion. Barclays capital-raising operation in the Gulf, of US$ 4.8 billion from Qatar and US$ 4.2 billion from Abu Dhabi, saved it from a UK government bailout. This case was brought after four of the bank’s executives were acquitted after an eight-year criminal probe and trial which ended in February.

Just Eat has agreed to acquire Grubhub for $7.3 billion in a deal that creates one of the world’s largest meal-delivery companies. Uber had been in merger talks for some time with Grubhub but there were doubts that it would be acceptable to US regulators, as well as other issues remaining unsettled. They had even agreed on a ratio, valuing Grubhub’s shares at 1.925 to Uber’s 1.0.  Grubhub had started in 2004 and in 2013 merged with Seamless to become a dominant force in the online food delivery sector but has since gone through difficult times. It has seen its US market share drop in recent times to just 23%, third behind DoorDash, the current leader, and Uber. Jitse Groen started Takeaway in 2000 in The Netherlands and, only two months ago, finally acquired Just Eat for US$ 8.0 billion, following UK regulatory approval. It is well known that industry profit margins, if they do exist, are wafer thin; even though both Grubhub and Uber posted 8% and 52% revenue hikes, to US$ 1.6 billion and US$ 4.7 billion respectively, both companies posted net losses. There is no doubt that consolidation is the only route to viability and profitability in this very competitive market.

There are reports that The Restaurant Group has decided that up to 120 of its 600 UK outlets will not open after the lockdown, with the resultant loss of 3k jobs. The group, which currently has 22k employees on furlough, owns Frankie & Benny’s and Garfunkel, with the former expected to bear most of the redundancies. The group also owns the Wagamama chain and some pubs but these are not expected to be impacted at this time. Earlier in the year, and before the onset of coronavirus, the company’s Chiquito’s fell into administration which then saw the permanent closure of 75% of its eighty outlets.

Other UK retailers were in trouble this week, following a big queue of already failed retail names. Quiz reported that it would go into administration, closing all its 82 outlets before buying them back so it can negotiate better rental terms with its landlords. 10.1% of the 915 employees will face redundancy. The retailer was in trouble well before the onset of Covid-19, as less people were shopping in their stores. Meanwhile, Monsoon Accessorize said its current structure was “unviable”, following the lockdown, and has put its assets into administration. Interestingly, it has sold the assets to a business controlled by Peter Simon, the founder and owner of the chain. The new set-up will renegotiate with landlords to obtain improved rentals for its 162 shops – and if successful safeguard 2.3k jobs.  This is just the tipoff an iceberg -there is worse to come for the UK High Street.

Despite Inditex posting its first ever quarterly loss, as its revenue sank 44.1%, year on year, to US$ 3.7 billion, resulting in a US$ 450 million deficit, it did see its April online sales surge 95%. The owner of Zara, as well as the Bershka and Pull & Bear brands, is now looking at a future that will see online sales rising from its current 14% to 25% in 2022. During that time period, as well as closing 1k smaller stores, it plans to invest almost US$ 1.0 billion on big, centralised stores and its online platform.

Eight hundred jobs are at risk, with news that the UK arm of Victoria’s Secret, with 25 shops, has gone into administration; most of the employees were furloughed, prior to the appointment of Deloittes as administrators. The chain, famous for its fashion shows and edgy lingerie, had already been reeling from changing consumer tastes and weakened spending even before the advent of Covid-19 and had been branded as sexist, outdated and lacking diversity. The last annual reports, for February 2019, posted an operating loss of US$ 205 million. All shops will remain closed, as the administrators either find a suitable buyer or negotiate with landlords for lower rents; however, on-line trading remains open. Victoria’s Secrets is not the only fashion firm struggling, as both Cath Kidston and Laura Ashley have called in administrators since the beginning of coronavirus.

Mulberry is planning to cull 25% of its 1.4k global workforce, as a result of the impact of Covid-19, and with the ongoing prospect of social distancing measures, allied with reduced tourist and footfall levels,  its income would continue to be affected. The 49-year old high-end fashion band has 120 outlets in 25 countries and ships its luggage and handbags to 190 countries. Earlier this year, Sports Direct’s Mike Ashley, who also owns Frasers Group retail business, bought a 12.5% stake in the Somerset company which also runs concession outlets within the House of Fraser and also throughout the John Lewis’s department stores.

There are reports that there could be a mega pharma merger in the offing between AstraZeneca and rival drug maker Gilead Sciences. With the UK-based firm valued at US$ 140 billion, along with Gilead’s valuation of US$ 96 billion, this could turn out to be the biggest ever health-care deal on record. AstraZeneca has developed treatments for conditions from cancer to cardiovascular disease, whilst Gilead has recently had its coronavirus drug, remdesivir, approved by the US Food and Drug Administration. Not only would this merger, if it were to go through, be almost triple the 2019 Bristol-Myers Squibb’s US$ 74 billion takeover of Celgene, it would be in the top ten M&As in history. Over the past twelve months, the share values in both companies have headed north – the UK drug maker by 41% and the US potential partner up 19%, but still a third lower than its 2015 highs. To date, 2020 has proved a disappointing year for M&As, with volumes already 45% lower year on year, including only US$ 100 billion worth of deals in April and May – it lowest two-month total this century.

One of the biggest sectors to have been ravaged by Covid-19 has been aviation, as passenger traffic has ground to a halt. The scale of the damage can be gleaned from IATA’s two latest forecasts. In February, the world body, with 290 member airlines, estimated that 2020 global airline revenues would decline by US$ 29 billion; its latest figures have risen to a massive US$ 419 billion. This is 50% lower, year on year, driving losses to US$ 84 billion, as passenger numbers halve to 2.25 billion. Covid-19 will be responsible for erasing fourteen years of growth returning the airline sector to 2006 levels.

Most major airlines have already instigated redundancies that seem to range from 15% to 30%, whilst many have already been recipients of state aid. They include the likes of Air-France-KLM – US$ 11.0 billion, American – an estimated US$ 10.0 billion, Cathay Pacific – US$ 5.0 billion, Delta – US$ 5.4 billion, Lufthansa – US$ 10.1 billion, Norwegian – US$ 1.6 billion, Southwest – US$ 3.2 billion and United – US$ 5.0 billion. It appears that many airlines have already started the painful task of culling staff numbers, with percentages of between 15%-30%. Lufthansa, for example, has said that it will cut over 16% of its 135k global payroll. In the UK, 25k of staff belonging to BA, Ryanair and EasyJet are on government furlough and 39k jobs are at risk. To date, BA has announced cuts of 12k (28.6%), Ryanair – 3k and EasyJet 4.5k – 30%.

Because of its reliance on its services sector, which makes up 75% of the country’s economy – and was badly hit by lockdown measures – the OECD considers that the UK will be the hardest hit of all major economies, coming out of the pandemic. According to their survey, the UK will see an 11.5% slump this year, (and 14.0% if a second wave occurred), slightly worse than some of the EU economies including Germany, France, Spain and Italy. In April, the UK economy shrank by 20.4% – the largest ever monthly contraction – and by 10.4% for the quarter ending 30 April. The fall is estimated to be triple that of the decline seen at the time of the GFC in 2009.

US unemployment rates surprised the market by actually declining to 13.3%, as non-farm payrolls, including employment in the goods, construction and manufacturing sectors, rose 2.5 million. It was noted that there were marked labour market increases in sectors such as leisure and hospitality, construction, education and health services, and retail trade. This figure is a sure indicator that the economy is improving, and the economic Covid-19 impact may not be as bad as many experts had predicted. Friday’s surprise news impressed the markets, with all three major bourses up in 05 June trading – Dow by 3.15% to 27,111, S&P 2.62% to 3,194 and the Nasdaq by 198 to 9,814.

However, on Thursday, 11 June 2020, global markets went into decline, driven by fears that a second wave of the pandemic is a possibility and that would have an even more damaging economic effect than the first. Even if that were not to happen, there is a growing realisation that a global recovery will take a longer time than most analysts currently think. The three main US bourses had their worst trading day in weeks, with the Dow Jones Industrial Average down almost 7%. In Europe, there were 4% plus losses seen on all stock exchanges with 4% plus losses on the UK’s FTSE 100, the Dax in Germany and France’s CAC 40. There has been heavy selling on the Australian market after the ASX 200 had gained more than 27% since its late-March lows.

The US Labor Department reported that a further 1.5 million people filed new unemployment claims last week, so that there are still more than 30 million collecting benefits. Federal chairman, Jerome Powell, added a caveat to policymakers’ forecast that the unemployment rate could remain above 9% by the end of the year, adding that it could be optimistic.

The UK government has been accused of”a flagrant abuse of public money”. for handing out US$ 20 billion in cheap loans, with limited conditions attached, to fifty-three well-known firms that some may think should not have benefitted from the government’s largesse. They included US$ 1.2 billion to BASF, a German chemicals giant, US$ 2.4 billion to BA, US$ 720 million to each of Ryanair and EasyJet and US$ 360 to Hungary’s Wizz Air; other beneficiaries included M&S, Asos, John Lewis, Tottenham Hotspur and Nissan. The Bank of England’s Corporate Covid Financing Facility was set up, with the intention to assist companies, having a major impact on the economy, get through the crisis, whilst protecting thousands of jobs. It is noted that BASF only employs 850 in the UK and that BA, EasyJet and Ryanair have recently announced redundancies numbering 12k, 4.5k and 3k respectively.

Latest UK figures, as at 07 June, indicate there are 8.9 million workers covered by the government’s furlough scheme, equivalent to 25% of the country’s workforce, and costing the government to date US$ 25.5 billion. The Self-Employed Income Support Scheme, for self-employed workers, has had 2.6 million claims, costing US$ 9.0 billion, that is paid out every three months amounting to 80% of previous average profits. By October, the Office for Budget Responsibility estimates that it will have cost the government nearly US$ 150 billion – money that would not have been spent if Covid-19 had not arrived; this will equate to 15.2% of the UK economy.

As expected, Brexit negotiations are moving at a snail’s pace, to the point that the basic structure of what needs to be done has yet to be completed, with every possibility that the UK will finally leave the EU without an agreement. However, it seems that discussions are going well with other countries, such as the US and Japan, and there are hopes that several free trade deals will be on the table this year. Current figures show that trade with Japan topped US$ 38 billion, with 9.5k UK companies exporting to Japan. If negotiations are successful, it is hoped that it will make it easier for the UK to join the eleven-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which would boost its total trade access in the Asia-Pacific region.

Tomorrow Boris Johnson is to meet the presidents of the EU institutions and will repeat that the UK will not request a Brexit extension after 31 December, despite the end of June deadline to agree to a further delay of up to two years. No agreement would result in both sides having to trade on less lucrative WTO terms, which would include tariffs. In 2017, Michel Barnier, the chief EU negotiator, famously posted his schematic diagram known as the “Barnier staircase”, indicating that if Brexit went ahead “Britain would be treated like any other third country with no special favours”. He indicated that the UK would have to make do with a plain FTA (free trade agreement), similar to previous EU agreements with Canada and South Korea. Then the French diplomat held all the aces in the pack and was dealing to a weak and vacillating UK prime minister, who had previously voiced her Remain preference. Now the EU negotiator has ruled out the possibility of an FTA and seems to be dealing with a weak hand. Barnier’s staircase may well become Johnson’s Staircase To Heaven.

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Chiquitita                                                                                       04 June 2020

The latest Cavendish Maxwell’s Property Monitor reported that Dubai property prices have lost 8.3% in value over the past twelve months, (an improvement on the 9.7% decline in 2018), but nudged 0.5% higher, month on month; prices rose to US$ 236 per sq ft. Because of the lockdown in April, physical viewing numbers suffered, so that 72.1% of deals were for off plan transactions; with restrictions easing, there will be a swing back to resale properties. In April, for the obvious reasons, sales deals were markedly down at 1.8k – 43% lower compared to a month earlier. Almost half the off-plan sales emanated from Dubai Properties (including La Vie (JBR), Madinat Jumeirah Living and Villa Nova) and Emaar’s Dubai Harbour and the Opera District).

Deyaar Development posted Q1 revenue of US$ 27 million and a profit of under US$ 1 million, as it made a US$ 3 million impairment provision on its investment properties. In February, it completed and handed over Dania district, the second phase of its six-building, 570 residential unit project, Midtown. The Dubai property developer also launched the project’s third phase – Noor District will house 593 units in seven buildings.

Microsoft opened its first ever artificial intelligence centre, Microsoft Energy Core, located in Dubai Internet City, and ready to start developing AI-focused technology in September. Its main function is to develop new AI technologies that could be used in the energy sector globally. The US tech giant has joined with ten other partners – Honeywell, Rockwell Automation, ABB, Sensia, Accenture, Aveva, Emerson, Schlumberger, Maana and At the same time, Microsoft also launched an AI Academy to provide digital skills to energy industry workers. BIS Research expects that spending on energy-related AI is expected to reach US$ 7.8 billion, within four years.

It was announced this week that The Big 5 event will not take place in November, as originally scheduled, but has been moved to September 2021. The four-day gathering for the construction sector, which comprises five specialised shows, is the largest regional exhibition that last year attracted 67k buyers, suppliers and experts. Although The Big 5 has been moved, Cityscape Global, is still scheduled to be held in November. A global conference of 12k chambers of commerce, that was due to take place next February, has been moved to November 2021 to coincide with the new dates for Expo 2020.

On 21 May 2020, Emirates restarted scheduled passenger flights to nine selected destinations, with these return flights continuing until the end of June. The selected destinations were London Heathrow, Frankfurt, Paris, Milan, Madrid, Chicago, Toronto, Sydney and Melbourne. This week, the airline announced that it would be servicing a further sixteen more locations as from 15 June – Bahrain, Manchester, Zurich, Vienna, Amsterdam, Copenhagen, Dublin, New York JFK, Seoul, Kuala Lumpur, Singapore, Jakarta, Taipei, Hong Kong, Perth and Brisbane. Emirates will be utilising their Boeing 777-300ER aircraft on these flights.

After posting a historic low of 44.1 in April, May’s Dubai PMI produced an improved mark of 46.7 and, although still in negative territory, it demonstrated that the economy may well be off its bottom. Although input prices are nudging higher, staffing cuts continue, sales revenue remain turbid and new orders plunge to new depths. Despite the lockdown easing, and businesses opening up again, many companies have yet to see the expected improvement in demand, with a marked decrease in new order volumes. It is still too early to comment whether the worse is over and what the recovery will bring and when it will occur.

The Central Bank reported that it was holding US$ 101.1 billion in total foreign currency assets – a 1.6% increase, year on year. There were also rises in current account balances (US$ 90.4 billion) and deposits with foreign banks (US$ 81.0 billion). The central bank’s held-to-maturity securities was at US$ 6.1 billion, with other foreign standing at US$ 4.8 billion.

Dubai Investments, which has the Investment Corporation of Dubai holding a stake, has declared a 2019 US$ 0.0272 dividend – equating to US$ 116 million. The Dubai-listed company has a myriad of interests, including in the real estate, construction, education, healthcare, food & beverage and financial sectors. The group, with a share capital of US$ 1.23 billion, has stakes in thirty-five companies, including DIP, Al Mal Capital, Emirates Float Glass and Emicool.

May trading on the DFM saw a pick-up in foreign buying, as overseas investment returned to almost 50% of its January total, when the monthly net gain was US$ 150 million. Since January 2019, foreign investment had climbed by US$ 627 million, with buying of US$ 10.7 billion outpacing sales of US$ 10.1 billion. March and April witnessed net outflows of a record US$ 208 million and US$ 49 million respectively whilst in May, there was a US$ 56 million gain.

The bourse opened on Sunday 31 May and, 66 points (3.5%) higher the previous fortnight, went through the 2,000 mark to be 78 points to the good (4.0%), closing on 2,039 by 04 June. Emaar Properties, up US$ 0.03 the previous fortnight, was US$ 0.03 higher atUS$ 0.71, whilst Arabtec, down US$ 0.03 the previous four weeks, was flat at US$ 0.16. Thursday 04 June saw the market trading at 310 million shares, worth US$ 84 million, (compared to 337 million shares, at a value of US$ 118 million, on 28 May). In May, the bourse opened on 2027, but shed 256 points (22.7%) to close the month on 1,971. Emaar started the month at US$ 0.74 and lost US$ 0.05 to close May on US$ 0.69, with Arabtec also down US$ 0.04 from US$ 0.19 to US$ 0.15.

By Thursday, 04 June, Brent, up US$ 3.64 (11.6%) the previous week, closed US$ 5.10 (14.5%) higher on US$ 40.18. Gold, US$ 7 (0.4%) higher the previous week by US$ 16 (1.0%), was US$ 20 (1.1%) lower on the week to close on Thursday 04 June, at US$ 1,715. Brent opened the month trading at US$ 26.48 and gained US$ 9.01 (34.0%) in the month of May to close on 31 May at US$ 35.49. The yellow metal headed in the same direction, from its US$ 1,694 opening for the month, to close May up US$ 43 (2.5%) to US$ 1,737.

Renault announced plans to save US$ 2.2 billion, as part of a new cost cutting exercise which will also see 4.6k employees made redundant and up to six plants closed; it will also see the French carmaker focus more on electric vehicles. Notwithstanding the impact of Covid-19, Renault, 15% owned by the French government, was already struggling as sales dipped and now is to cut production capacity by 18% to 3.3 million units by 2024. The carmaker has about a 4% share of the global market and saw sales 3% lower last year, and 25% down in Q1. The days when Carlos Ghosn, the former disgraced head of a three-way alliance between Renault, Nissan and Mitsubishi, had grandiose expansion plans, to make 5 million vehicles, have disappeared and Renault have admitted “we have to change our mindset” and come “back to bases.”

Bentley is to cut 1k jobs (25% of its UK workforce), as it tries to come to grips with the economic meltdown resulting from Covid-19. The Crewe-based luxury car maker, owned by Volkswagen, which has been struggling the last few years, had seen vehicle sales 5% higher last year at 11k. The outlook for the industry is bleak, at least in the short-term, with latest figures showing that May UK registrations, at 20k, were the lowest May figure since 1952. This week, Aston Martin announced 500 redundancies and UK car dealership Lookers closed more showrooms, with plans to cut a further 1.5k jobs.

April passenger demand for air travel, measured in revenue passenger kilometres, slumped 94.3%, year on year, but subsequently daily flights have recovered somewhat, rising 30% by 27 May. IATA also noted that international passenger demand tanked 98.4% and capacity by 95.1%; domestic flight demand was 86.9% lower. International passenger traffic numbers fell around the world – ranging from Europe’s 99.0% to 97.3% in the ME. This week, it forecast that global airlines were expected to lose US$ 314 billion in passenger revenue this year – down 55% from 2019.  No wonder then that many airlines have already declared bankruptcy, while others have secured large government bailout packages and introduced massive cost cutting. Such an example is Lufthansa, which reported a US$ 2.4 billion Q1 loss, that has initiated sweeping job cuts, with plans to sell of non-strategic assets to help repay a US$ 9.8 billion German government bailout loan.

The shortlist of potential buyers for Virgin Australia has been narrowed down from twenty to two – Bain Capital and Cyrus Capital Partners – with a final decision expected by the end of the month.  Australia’s second airline to Qantas went into administration in April, with debts of over US$ 4 billion, owing to 12k creditors, including staff. Regulators will probably require that the “new” airline maintains a full-service line (to give Qantas some competition and hence lower prices to consumers), with unions wanting built-in protection for their members. Cyrus Capital already has links with Virgin founder, Richard Branson, but that will have little effect on the final decision, whilst Bain is probably the favoured of the two; the US company has been using the services of Jetstar’s ex-CE, Jayne Hrdlicka, who could well be the new CEO come 01 July.

In a bid to improve his liquidity base, Richard Branson is looking for a further US$ 200 million, as he tries to sell a share in his Virgin Galactic Holdings, which is valued around the US$ 1 billion mark. Any money raised will be used “to support its portfolio of global leisure, holiday and travel businesses that have been affected by the unprecedented impact of Covid-19.” He has also pledged Necker Island (located in BVI) to support his global businesses, (worth an estimated US$ 20 billion), that have been affected by the unprecedented impact of Covid-19.”

It seems that the world’s biggest luxury goods firm, LVMH, may pull out of its US$ 16.0 billion takeover of Tiffany, that was supposedly finalised last November. Now, probably put down to Covid-19, the French company has this week said it would not now buy Tiffany shares on the open market. This seems a logical choice as Tiffany’s shares have sunk by 15.5% from their November price of US$ 135 to about $114 a share this week. Tiffany’s has 300 stores and employs 14k, whereas the larger French predator has 4.6k global outlets, employing 156k; its brands include Louis Vuitton, Kenzo, Tag Heuer, Dom Pérignon, Moet & Chandon and Christian Dior.

Gap posted a quarterly (to 31 May) loss of US$ 932 million., compared to a US$ 227 profit a year earlier, due to store closures because of the coronavirus pandemic; net sales fell by 43%. The clothing retailer, with 2.8k US outlets, of which more than half have reopened, also provided for a US$ 250 million write off of non-essential goods it holds. Gap is being sued by one of its landlords, Simon Property Group, for non-payment of US$ 66 million in rent relating to 390 stores it operates in Simon’s malls that had been closed during the lockdown.

There have been very many losers as a result of the pandemic but one company that has benefitted has been Zoom Video which posted a 135 times, year on year, Q1 profit hike to US$ 27 million, although revenue only jumped 169% to US$ 328 million. Zoom expects Q2 revenue to increase to US$ 500 million and an annual figure of US$ 1.8 billion, compared to US$ 622 million for their financial year ending 31 January 2019. Its share value has tripled to US$ 208 since the beginning of the year.

As business travel continues to recover, Marriott has reopened all of its 350 hotels in China, with a 40% occupancy rate; in late January, the rate was at just 7%, at the peak of the Chinese crisis.  The world’s third largest hotel chain noted that the impact of Covid-19 has been greater than 9/11 and the 2008 GFC combined. At the same time, Hilton also opened all their 255 Chinese properties. It is inevitable that it will take several years for hotels to return to “normal” occupancy levels, and will probably be the slowest sector to recover, compared to the likes of factories and production that seem to be quicker to get back to some sort of normality.

Following the continent’s biggest IPO of the year, at US$ 2.6 billion, shares in the Dutch coffee giant, JDE Peet, surged 13% on its first day of trading on the Amsterdam bourse last Friday, valuing the business at US$ 17.2 billion. The new business is largely part of the Reimann family’s investment firm JAB Holding which, in recent years, had acquired Keurig Green Mountain and Caribou Coffee, with investors hoping that it can now play on the global stage with Starbucks and Nestle. In 2019, the company, which also owns supermarket brands, including Douwe Egberts, Jacobs and Kenco as well as US retailers Peet’s and Intelligentsia, had revenue totalling US$ 7.6 billion.

According to the Institute of International Finance, last month, flows to emerging markets tanked 78% to just US$ 4.1 billion, with emerging market debt attracting 83% of the total and equities the balance, as the latter’s negative trend continued. Flows to China equities showed a US$ 4.8 billion net inflow, whilst outflows amounted to US$ 4.1 billion. Although some counties, such as India and Brazil, have yet to see the worst of the pandemic, it is abating in many of the G20 bloc countries, initially driving confidence forward; however, as US-Sino relations again deteriorate, this time driven not driven by tariffs but by disputes over Hong Kong and the World Health Organisation, emerging markets are still depressed.

The IIF also forecast that global remittances may fall by as much as 30% this year, which will have a negative impact on the major recipient countries, mostly classed as emerging markets. This was slightly more than the earlier World Bank estimate of a 20% decrease and a lot worse than the 5% decline seen after the 2009 GFC. The IIF noted that the countries most exposed to the pandemic, and oil price falls, are the economies that account for the bulk of global remittances. Another unfortunate fact was that Covid-19 badly impacted employment levels in industries that rely on migrant workers such as hospitality, retail, tourism and transportation which bore the brunt of lay-offs, thus reducing the amount of moneys sent “home”.

Moody’s continues to maintain India on a negative outlook, as the ratings agency downgraded India’s foreign currency and local currency long-term issuer ratings by one notch to Baa3 – the same rating given by S&P and Fitch. The agency is wary of India’s ability to cope with the challenge of implementing policies to mitigate the impact of Covid-19 and to deal with further stress in its financial sector. For over two months, the world’s fifth biggest economy has been in lockdown, that brought the economy to its knees, but Moody’s was keen to point out that this was not the main reason for its action; it is worried about “vulnerabilities in India’s credit profile that were present and building prior to the shock” as well the Modi’s government’s “slow reform momentum”. However, Covid-19 will probably stymie the country’s short-term growth in 2021, which will follow an estimated 4.7% contraction this year.

It appears that despite its troubled economy, there are strong buying opportunities in US realty, as many ME SWFs continue to show interest in certain sectors, such as select multi-family, office and industrial segments. Hotels are a definite no-no, with estimates that 35% of them will never reopen after the pandemic abates. Earlier in 2020, Bahrain’s Investcorp invested US$ 164 million in two US properties, whilst last November, the alternative asset manager, whose principal shareholder is Abu Dhabi’s Mubadala, paid US$ 800 million for 126 industrial properties. Two local entities, Gulf Islamic Investments and Abu Dhabi Investment Authority, have paid out US$ 230 million for a New York commercial property, and completed the purchase of 330 Madison Avenue in Manhattan. Returns from property in US real estate tend to be more attractive than the global average.

On Tuesday, the Reserve Bank maintained rates at a record low 0.25%, with the Australian dollar trading at US$ 68.13 – 23.6% higher than its mid-March level of just US$ 55.10. The main driver behind the dollar surge is that China, the first major power to recover from Covid-19, has renewed its almost insatiable need for Australian minerals, specifically iron ore and copper. Iron ore is trading around the US$ 100 mark – its highest level in nine months – and China accounts for 70% of the world’s seaborne iron ore trade and has more than half the global number of steel plants. Iron ore accounts for 16% of Australia’s exports, so any movement upwards is often reflected in similar moves with the currency. This is a major factor for the Q1 current account surplus widening to US$ 5.7 billion, equivalent to 1.7% of the country’s GDP, and the first time Australia has recorded twelve consecutive months of current account surpluses. Meanwhile, copper – at US$ 2.48 a pound – is more than 25% higher than three months ago.

As indicated, part of the Australian economy has bounced back with other sectors remaining in the doldrums. Whilst Chinese industrial production in April was 3.9% higher, year on year, retail was 7.5% lower. In addition, the economy will also benefit as commodity prices, including cotton futures, sugar futures and copper, move higher. There is a feeling that consumer confidence is heading north again after almost three months of lockdowns. The economy will suffer because of the travel ban – last year, Australians spent US$ 34 billion, when on foreign holidays, as overseas visitors increased the local sector’s revenue by US$ 41 billion, resulting in a net inflow of US$ 7 billion. It is certain that Australia will go into recession at the end of Q2 for the first time in twenty-nine years but there is every chance that the dollar will remain nearer the US$ 0.68 level, and be one of the stronger currencies in the developed world; interest rates will stick at 0.25%. Perhaps Australia will leave the pandemic in a better shape than most others – assuming US-Sino relations improve and there is not a second-wave outbreak.

However, for others, life in the lucky country remains downbeat. Two Australian economic sectors are facing an even bleaker future if the government’s JobKeeper, its US$ 40 billion monthly wage subsidy which assists some three million Australians, is pulled in September, as planned. Furthermore, latest figures from Digital Finance Analytics indicate that, by the end of May, the percentage of households in mortgage stress had reached 37.5%, equating to 1.42 million households. This will inevitably skyrocket, once the JobKeeper payment ends in September and then expect to see the number of defaults heading north. Both tourism and construction are forecasting that 400k jobs might go if the scheme is not extended and both are calling for increased government support, with the building sector looking for a US$ 85 million bailout. It is estimated, by the Tourism and Transport Forum Australia, that the industry, which employs 660k direct jobs, is losing over US$ 6 billion every month.

The Congressional Budget Office estimates that it will cost US$ 7.9 trillion, and take until 2030, for the US to recover from the impact of Covid-19 that will skim an annual 3% off the country’s economic output, worth an estimated US$ 20 billion until then. Already it has seen trillions of dollars pumped into the economy, to try and keep it afloat over the past three months, and 40 million + claiming unemployment benefits. It is estimated that the May unemployment level will top 20% when figures are released tomorrow – four and half times bigger than March’s 4.4%, then a fifty-year low. The Congress is still discussing whether to implement a further US$ 3 trillion stimulus package, as well as renewing several soon-to-lapse federal aid programs. Chinese tensions are beginning to rise with the latest move seeing the US banning passenger flights from China from 16 June, in retaliation to Beijing refusing to let US airlines resume flights to China.

The eurozone economy contracted more than expected in Q1 – and at the sharpest pace on record – losing 3.8% of its value, with worse to come in Q2. Some countries fared worse than others, with the three sick men of Europe, France, Spain and Italy, all down by 5.8%, 5.1% and 4.7% respectively. Even powerhouse Germany, which has yet to release Q1 figures, saw unemployment rising by 373k in April but still at a relatively low level. The fact is that the bloc’s economy is in freefall despite the massive amounts of money being thrown at it by the ECB and other agencies. Just months after implementing a US$ 830 billion rescue package, the central bank announced a further US$ 670 billion increase in its bond buying programme to US$ 1.3 trillion, as well as extending the programme a further six months to June 2021. Spending at these levels could easily see the value of money decreasing, push government bond yields deeper into negativity and increase the worries of long-term inflation. Even the sanguine President Christine Lagarde is warning that eurozone economic growth could fall between 5% and 12% this year and that could easily lead to a weakening euro by the end of 2020 which may also suffer when the UK finally leaves the shackles of the EU.

Some members of the bloc are not happy with the terms of the recently introduced US$ 560 billion bailout package initiated by Germany and France. Prime Minister Giuseppe Conte reckoned that the funds are not enough to keep Italy’s – and the bloc’s – economy afloat and that the EU had reacted too slowly to save members’ ailing economies, and also had not provided enough assistance. He also noted that “some EU countries are continuing to exert pressure for a ‘business-as-usual’ European budget and a modest recovery fund.” The other side of the argument sees the Frugal Four – Austria, Denmark, the Netherlands and Sweden – arguing that they would prefer offering loans, rather than grants, and were opposed to a common borrowing fund.

In a late move to incentivise the German economy, Chancellor Angela Merkel has agreed to a US$ 146billion stimulus package, designed to boost short-term consumer spending, (including a US$ 360 payment to every child), and to ensure businesses restart investing. Some of the measures included a temporary reduction in VAT as well as increased investments in G5 data networks, railways and electric vehicles. One noticeable absentee is the auto industry that failed to get direct government support for purchases of conventional cars. To date, Germany once again has led the EU by introducing funds of more than US$ 1.4 trillion to fight the pandemic – the most by any country in the bloc.

It is reported that The Bank of England governor is warning the country of the possibility of a no-deal Brexit if talks with the EU mandarins break down. Andrew Bailey has called on financial firms to be ready for ensuring that the UK’s financial system could deal with such a consequence. Not helped by Covid-19, and despite on-going negotiations, with the UK and the EU in their fourth set of talks, there is still no sign of an early agreement. However, sticking points remain, such as common standards on the environment and labour markets along with access to fishing grounds. The BoE has, in the past, confirmed that in the case of a no-deal Brexit, most risks to cross-border financial trade have been mitigated and that the UK banking system would be strong enough to deal with it.

Nationwide reported that May UK house prices dipped 1.7%, month on month, the largest monthly fall since 2009, and saw annual house price growth halved to 1.8%. This follows April figures that showed property transactions had dropped 53%, compared to the same month in 2019. There was also a warning that “the medium-term outlook for the housing market remains highly uncertain.” Although some point out that, once the shock of the pandemic has passed, there will be a rebound, whilst others expect that the decline will continue for the rest of the year. The logic points to an actual decline in prices, on the back of lower household incomes, allied with a worsening in consumer confidence. BoE statistics show that there were 15.8k mortgage approvals in April – the lowest monthly figure since records began in 1993 – and a massive 80% lower than two months earlier in February.

As expected, Chancellor Rishi Sunak confirmed that the state furlough scheme, (by which the government contributes 80% of an employee’s monthly pay up to US$ 3k), will come to an end in October. In the meantime, as from August employers will have to pay their employees’ NI and pension contributions, then 10% of the pay in September, followed by 20% the last month of the scheme. Some 8.4 million have availed of the government initiative, which is expected to have cost US$ 96 billion when it comes to an end. It will prove a difficult manoeuvre for the Chancellor, who has to avoid crashing the economy, whilst withdrawing the very generous – but very expensive and very necessary – furlough scheme. Nobody yet knows how many of the 8.7 million jobs will disappear come October. An extra 300k more workers were furloughed over the past week, bringing the total to 8.7 million and an extra 200k claiming self-employed applying for government grants brings the total to 2.5 million; this has seen UK businesses borrow US$ 37 billion so far during the crisis.

Opened 42 years ago by Chaudary Abdul Hameed, it seems that Covid-19 may claim one of Dubai’s major culinary, cultural and tourist destinations. It is reported that Ravi Restaurant is struggling because of the lockdown, with revenue on some days as low as US$ 272 (1k dirhams). Ravi’s is internationally famous for its authentic Pakistani food, that is served at unbelievably low prices by friendly, efficient staff, (numbering 70), in a no-nonsense environment. The founder can still be seen at the Satwa restaurant most days although his son, Waheed, is now the MD of the business. He has admitted that “we have been very badly affected by this” and that “it has come to a point where we are selling off personal assets to repay debts”. Like many other businesses, a rent reduction/relief would help both his operations in both Satwa and Karama. It is hoped that we have not seen the last of Ravi’s chicken hani, mutton kebabs and Chiquitita.

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The Lights All Went Out in Massachusetts

The Lights All Went Out In Massachusetts                                                28 May 2020

According to Property Finder, and despite the Covid-19 economic impact, there were still 1.8k property sales last month, worth US$ 1.0 billion, of which 70% were off-plan and the rest in the secondary market. JLL estimates that 12k units were handed over in Q1, as average sale prices came in 7% lower, year on year, on concerns that there is an oversupply of properties in Dubai.

One developer moving forward is Kleindienst Group, confirming that the first occupiers of villas in their Heart of Europe project in Dubai’s World Islands will move in by year-end. The development of the World Islands was completed as long ago as 2003 and handed over to various developers five years later. Kleindienst is also developing two hotels, Portofino and Cote D’Azure, together with 1.5k rooms, sea-horse villas, now selling at over US$ 5 million, and ten ‘palaces’, with private beaches, that have all been sold. One of the more expensive properties, already bought for US$ 27 million, is a beach palace on ‘Sweden Island’. Currently, there are a reported 1.2k workers on site in the process of completing the two hotels, as well as building hundreds of smaller villas and apartments.

Accor expects the local hospitality sector to bounce back slowly – taking between 18 to 24 months – once airline schedules are returned to pre-Covid-19 levels, driven by pent up demand from both business and tourism sectors. The French hospitality group notes that the UAE will be the quickest in the MENA region to return to 2019 levels because of its resilience and that the emirate has always been a touristic hotspot and business hub. Dubai’s hospitality sector has probably been hit as hard as any other in the world when all travel came to a complete standstill because of enforced lockdowns and travel restrictions. According to the World Travel and Tourism Council, there will be a US$ 2.1 trillion loss in tourism revenue and about 75 million global jobs will be lost in the sector. Accor has already closed 67% of its 5k properties worldwide, of which 350 are in the MENA region, and has furloughed, or temporarily laid off, 200k or 75% of its staff. The company, whose brands include Raffles, Fairmont, Sofitel, Ibis and Mercure, has 64 UAE properties, with a further thirty to be added over the next three years.

Dubai tourist chiefs will be closely watching Spain to see whether they can lean any valuable lessons when it opens up the country to foreign visitors in July. The government there has agreed not to introduce a 14-day quarantine, as has been the case in the UK. Spain relies so much on tourism, which provides more than 12% of its GDP, that opening up the economy, despite the risks involved, was seen as an economic necessity. Last year, the country attracted 80 million visitors, many of whom were from the UK; currently once such visitors return from Spain, they will have to self-isolate for fourteen days. Unfortunately, the same rule would apply to UK holidaymakers coming to Dubai which would have a negative impact on numbers who would have otherwise chosen the emirate as their vacation choice. The flip side of the coin would see the usual high number of UAE visitors to the UK drop significantly, as they have to isolate for two weeks on their arrival to the UK. No wonder business groups are petitioning the Johnson government to amend these regulations, suggesting a more “targeted, risk-based” approach.

There has been no change to petrol prices for June, as May prices had remained flat, following a 10% decline in April. Special 95 and diesel pump prices will retail at US$ 0.491 and US$ 0.561 respectively. The stations will welcome the increase in business, as lockdown restrictions are beginning to ease and some sort of normality is returning to everyday life.

Still pleading his innocence, following the collapse of NMC Healthcare, its founder, BR Shetty has indicated that because his UAE bank accounts have been frozen, he cannot pay salaries for some of his companies, including Neopharma and others. He seems to be admonishing banks for “without proof, they have taken this action” to freeze his accounts, even though NMC was placed into administration, with debts of US$ 6.6 billion owed to more than eighty lenders, of which US$ 2.0 billion is due to UAE banks. Mr Shetty is blaming seventeen ex-staff members – with their details forwarded to local authorities – for involvement in siphoning money, including share sales and equity collar transactions carried out in his name that generated a reported US$ 500 million over a two-year period. Another group company, and also listed on the London Stock Exchange, Finablr, that also owns UAE Exchange, has had its shares suspended since March, after it was found that previously unreported debts of US$ 1.0 billion had been discovered.

As it continues to maintain its confidence in the sector, Yellow Door Energy is planning to raise a further US$ 100 million in debt finance, partly because of an estimated 18% reduction in 2020 revenue, attributable to the pandemic. The Dubai-based company, with interests in Bahrain, Egypt, Jordan and Saudi Arabia, still expects to have about US$ 110 million of projects operating come the end of 2020, as well as to reach 100MW of capacity, with 55MW under construction. The five-year old company, spun off then by solar energy investor Adenium Energy Capital, has investors, including the International Finance Corporation, Mitsui & Co and Norway’s Equinor Energy Ventures. Although global bodies, such as the World Economic Forum, are worried that Covid-19 might be a catalyst to slow down the drive to clean energy growth, the company is confident that business will remain on track, as it continues to focus on existing markets. Currently, it has three on-going projects in Pakistan and is “actively looking for new investments”.

A decade after a significant project had been completed, Union Properties has lodged a claim that “is related to construction work for a significant project that was completed around ten years ago”. Surrounded by a little bit of mystery, the concerned parties – a UP subsidiary and an entity that carried out the work – have yet to be named, as is the project concerned. However, what is known is that an arbitration process, to recover about US$ 409 million, has been initiated by a UP subsidiary. The company also announced that it will not “spare any effort in pursuit of the collection of the amount owed, and is taking the proper legal procedures, which are in the interests of the company’s shareholders”. In 2019, the embattled developer posted a US$ 60 million loss, following a US$ 17 million profit in 2018.

Amanat Holdings, currently listed on the DFM and an investor in healthcare and education businesses, plans to move its headquarters to Abu Dhabi and list its shares on the Abu Dhabi Securities Exchange. The nature of its businesses has obviously been negatively impacted by Covid-19 and has resulted in the need to cut costs and restructure the business model. One of its first measures has seen top management take voluntary pay cuts and, with no redundancies currently necessary, this has allowed the senior team to remain together to look for growth opportunities and additional regional investments. Amanat, which posted a 40% jump in 2019 profit to US$ 11 million, already holds shares in Middlesex University Dubai, Abu Dhabi University Holding Company and Jeddah’s 300-bed hospital, International Medical Centre.

Although Q1 revenue was 33.9% higher at US$ 327 million, Damac announced a US$ 26 million loss for the quarter, (compared to an US$ 8 million profit last year). The two main drivers for the deficit were impairment provisions of US$ 35 million, against the value of development properties, and a US$ 14 million charge in relation to trade receivables. Its share value at the close of trading last Thursday was US$ 0.169, equating to a market value of US$ 1.0 billion. Cognisant of the fact that there is an apparent oversupply in the local market, the chairman, Hussain Sajwani, has reiterated that “in 2020, we will remain focused on delivering projects that are already in our development pipeline,” as Damac tries to bring the supply/demand curve to some sort of equilibrium. In Q1, the developer delivered 650 units in its Akoya master community.

Because of the Eid holiday, the bourse opened on Wednesday 27 May and, 45 points (2.4%) higher the previous week, after two days’ trading was 21 points to the good (2.4%), to close on 1,961 by 28 May. Emaar Properties, up US$ 0.01 the previous week, was US$ 0.02 higher atUS$ 0.68, whilst Arabtec, down US$ 0.02 the previous three weeks, was US$ 0.01 lower at US$ 0.16. Thursday 28 May saw the market trading at 337 million shares, worth US$ 118 million, (compared to 252 million shares, at a value of US$ 101 million, on 21 May).

By Thursday, 28 May, Brent, lower by US$ 0.08 the previous week, closed US$ 3.64 (11.6%) higher on US$ 35.08. Gold, down the previous week by US$ 16 (1.0%), nudged up US$ 7 (0.4%) on the week to close on Thursday 28 May, at US$ 1,735.

It seems that the Macron government will bailout Air France, with a US$ 7.7 billion finance package on condition it halves its carbon dioxide emissions by 2024. To meet this target, the carrier would have to “drastically” reduce domestic air traffic – a heavy price to pay since last year it was already losing US$ 220 million on its domestic network. In Q1, it posted a US$ 2.0 billion loss and, because of the lockdown restrictions, is currently operating only 5% of its usual schedule. By the end of next month, it hopes to have 15% of its scheduled flights operating.

Having closed its budget airline Germanwings last month, Lufthansa has negotiated a US$ 9.6 billion state rescue deal to save it from collapse, with the government becoming a 20% shareholder, which it proposes to sell within three years. Part of the package also includes a US$ 6.3 billion non-voting capital, which can be converted to an additional 5% equity stake, which would then allow the government to veto any hostile takeover bid. The deal, which has saved 10k jobs, still has to be ratified by the shareholders and the EC. The Merkel government has set up a US$ 120 billion fund to shore up, and “save” legacy companies, such as Lufthansa, that had been viable prior to the pandemic.

A decision by Germany’s highest court has paved the way for 60k similar cases to take similar action against Volkswagen, who seem to have already agreed to offering affected motorists a one-off payment.   It ruled that VW had to pay compensation, being partial reimbursement with depreciation taken into account, to a buyer of one of its diesel minivans, fitted with emissions-cheating software. It has already paid out a massive US$ 33 billion in fines, compensation and buyback schemes over the past five years and has already settled a US$ 910 million separate class action by 235k German car owners. It is now facing similar action in the UK where 90k are chasing the German car giant (including its other brands – Seat, Skoda and Audi) for damages. The company – and some of its senior employees – are paying the price for using illegal software, by fitting a “defeat device”, which alerted diesel engines when they were being tested.

There are reports that SoftBank’s Vision Fund could be retrenching almost 10% (500) of its workforce, as it comes to terms of horrific Q1 figures when, because of the declining value in start-ups, it racked up losses of US$ 18 billion. This came after a US$ 17.7 billion loss for the US$ 100 billion Vision Fund, attributable to the writing down of the value of investments, including WeWork and Uber. SoftBank founder Masayoshi Son estimates that of the eighty companies in its portfolio, led by ex-Deutsche Bank’s Rajeev Misra, 18.8% will probably go bankrupt. Son realises that it is difficult to find new investors when results are so bad and so has to invest internal money – he has plans to divest US$ 42 billion in assets, including a near 50% stake in dog-walking start-up Wag Labs, to finance stock buybacks and pay down debt.

April saw UK car manufacturing in dire straits in a month that only 197 premium and luxury sports vehicles were produced – 99.7% lower than a year earlier. Last year, the UK manufactured 1.3 million vehicles, of which 82% were exported, although exports did decline 14.7%. In March, manufacturing was 37.6% lower at 79k, with Q1 figures 13.8% lower at 319k, whilst exports hovered around the 79% level. Now the aim of the industry is to ramp up manufacturing, as quickly as possible, as it could have already lost 400k sales equating to US$ 15.0 billion in revenues and also valuable exports.

Chief Executive Andy Palmer has paid the ultimate price for being in charge of a company that had seen its share price nosedive 94% since its October 2018 listing. The Aston Martin boss had been in charge for the past six years and the carmaker was struggling even before the coronavirus crisis hit sales, with its share price trading at just US$ 0.42. In Q1, unit sales halved to just 578 units., with the losses seven time higher at US$ 143 million. In January, the 107-year old company raised emergency funding of US$ 500 million, of which 37% was attributable to Lawrence Stroll, part owner of Racing Point Formula 1; the deal will also see a rebranding of his F1 team to Aston Martin next year.

Another UK car maker in trouble is McLaren which plans to slash its 4k workforce by 30%, as sales have slumped and advertising revenue tanked, having been “severely affected” by the crisis. The supercar maker has been impacted by F1 racing being suspended and slowing car sales; its 800-strong workforce at its Formula 1 operation will see cuts of about 9% initially, but because of a recently introduced sport-wide budget cap will see more redundancies next year. All F1 teams – including Mercedes Ferrari and Red Bull – will have to adhere to the new rules that includes reducing head counts.

To the dismay of so many Australians, Wesfarmers, the owner of the much-loved Target brand, has either to close – or rebrand – 167 Target sites. Since Target is operating in the same sector as its more “successful” sister, Kmart, the owners have decided to rebrand 92 of the stores and close the remaining 75. Kmart was always considered the “higher-priced”, but more popular alternative, with the Australian public whilst moving away from successful collaborations with designers such as Stella McCartney. Where Kmart was successful, was with their embracing online trading and convincing the public that it had a preference for the Kmart brand. Now that consumer confidence is at an all-time low, and wages growth stalled, it is logical why Wesfarmers has decided to opt for Kmart, especially with increased competition from the likes of Uniqlo and H&M. There is no doubt that with overall retail spending falling by US$ 215 billion – with online trading currently growing at 10% – the retail pie will only accommodate a certain balance of consumer spend and this is going south so that physical stores will suffer and close.

A major Australian “cock up” has seen the number of people on JobKeeper reduced from 6.5 million to 3.0 million and that the cost to the government of running the scheme being cut from US$ 80 billion to US$ 43 billion. According to the ATO, the error was caused by some 1k businesses wrongly filling out their applications and, in true bureaucratic style, the problem has been deftly handballed away from their court. However, they did concede that the application form “could have been more straightforward”. It seems that many businesses filled out how much financial assistance they expected to receive rather than how many employees they though would be eligible.

Japan is set introduce a further US$ 1.1 trillion stimulus package, following a similar package rolled out in April, as it tries to cushion the severe impact Covid-19 has had on the country. US$ 333 billion of the total will be for direct spending, including increased medical funding, student support and subsidies for struggling companies.  The Abe government has now spent the equivalent of 40% of Japan’s GDP on fighting the pandemic and, to fund these packages, Japan will issue US$ 310 billion in government bonds. These developments come at a time when the world’s third largest economy is now in technical recession and heading for a major slump.

As widely expected, Argentina failed to meet Friday’s deadline and has defaulted on about US$ 500 million in bond payments. The government’s initial offer of restructuring some US$ 65 million in foreign debt was roundly rejected, whilst the Exchange Bondholder Group, a major group of eighteen investment institutional creditors has confirmed its commitment to counter proposal to provide “significant debt relief to Argentina and beyond doubt provides a sustainable debt structure for Argentina in respect of Exchange Bonds”. This is the country’s ninth sovereign default and an agreement of sorts is expected in days despite an “important distance” left to reach a deal between both parties.

To help their economy to weather the Covid-19 storm, Chinese authorities have announced US$ 430 billion worth of stimulus funding, as the economy contracted 6.8% in Q1. The money will be spent by local governments to help with the survival of private companies, to prevent job losses and to ensure the public’s basic needs are met.  More interesting is the fact that the Party failed to set a future growth target, which has been the norm for some time, citing it would be focussing all its efforts on fighting the pandemic. Although it was the first country to come out of the pandemic, having been the first to suffer, it has struggled to get the economy going. It was estimated that 30% of the country’s 442 million workers lost their jobs, at least temporarily during the Chinese lockdown, and that 25 million jobs may have gone for good.

There are concerns of China’s role in possibly not sharing all the relevant details of the initial Covid-19 breakout in Wuhan last December. Now the country has angered world powers again by passing a national security law to crack down on political freedoms in Hong Kong. Donald Trump will again be centre stage and there is no doubt that, just as last year when the US/Sino tariff war disrupted global trade, the global economy will suffer at such a critical time. Any ramp-up of tensions between the two superpowers will have a negative knock-on effect on the global economy at a time when it will be trying to recover from Covid-19.

For the first time since the onset of Covid-19, the US has posted a decline in jobless numbers – a sure indicator that people are starting to return to work. The number of ongoing benefit claims has declined to 22.1 million – a surprise to many who thought that this number would continue to rise. Weekly jobless claims, of 2.1 million were reported, as at 23 May, bringing the total from mid-March to 40.7 million. The beginning of June could see a US unemployment rate of 20%.

Dubbed Next Generation EU, the bloc has finally agreed to a major US$ 825 billion recovery plan, two thirds of which will be in grants and the balance in loans. With this boost, and the initial US$ 600 billion initial rescue package, along with the proposed 2021-2027 US$ 1.2 trillion budget, it hopes that the total of US$ 2.6 trillion is enough money to “throw” at the problem to “kick-start our economy and ensure Europe bounces forward”. Although the two major players, Germany and France, have agreed to raising money on the capital markets, all 27 member states have to agree to the proposal and there are still the so-called “Frugal Four” – Austria, the Netherlands, Denmark and Sweden – continuing to object to both taking on the debt for the poorer countries and cash handouts to relatively poorer countries, rather than low-interest loans. “Problem” countries include those with high government debt to GDP – Greece (177%), Italy (135%), Portugal (118%), Belgium (98%), France (98%), Spain (96%) and Cyprus (96%).  All this money has to be repaid and could take up to thirty years, with the EC considering ways of raising the money including a carbon tax, a digital tax and a tax on non-recycled plastics.

With many outlets still closed, UK retail sales plummeted last month by 18.1%, with clothing sales faring even worse by almost 50%. However, one glimmer of hope was that online shopping accounted for a record 30.7% of total sales, with all items, excluding clothing or household goods, posting record highs. As a direct result of the lockdown, the number of shoppers visiting UK High Streets, retail parks and shopping centres fell by 80%, compared to 41.3% a month earlier. Primark is a good illustration of the economic damage being wreaked on the sector and has posted monthly sales down from an average US$ 780 million to almost zero.

Latest figures indicate that 8.4 million UK workers are now covered by the government’s furlough scheme, (costing US$ 18 billion, so that those affected can receive 80% of their wages up to a maximum US$ 3k), whilst 2.3 million self-employed workers have made claims costing US$ 8.1 billion. These and other costs are expected to total US$ 150 billion, with the annual borrowing bill equating to 15.2% of the country’s GDP.

The UK government is racking up huge amounts of debt, as public borrowing surged to US$ 75 billion in April – a record monthly high, caused by heavy public spending, including the furlough scheme that has been extended to October, to ease the impact of the coronavirus crisis. It is now estimated that the deficit could near US$ 360 billion – this means that the UK government is forecast to spend more, as a result of Covid-19, than it will earn, as tax revenue tanks; for example, April VAT revenue was negative, as collections were less than refunds.  This new figure is five times more than was forecast at the time of the March budget – and could be even worse come the end of the fiscal year. As a result of the borrowing, total public sector debt, at the end of last month, rose to US$ 2,266 billion – US$ 142 billion higher than in April 2019 – and equating to about US$ 34k per person in the country. Even with low – and even negative – interest rates, the money has to be repaid. This rate of spending cannot go on ad infinitum and the time will come when the painful decision has to be made to turn the spending tap off. Then when the pandemic abates, both the state and business will be saddled with falling revenue and increasing debt; the amount required to refloat the sinking UK economy will be astronomic, bearing in mind that even before Covid-19, UK businesses were carrying an estimated US$ 125 billion in unsustainable debt. 

There is no doubt that history repeats itself – this time it seems that the UK government could imitate a model once undertaken by the Iron Lady, Margaret Thatcher, some forty years ago. Then her government supported various prominent troubled UK companies by investing state funds, often by way of offering convertible loans or taking an equity share, and then selling their share, more often than not, for a profit. A win win for both stakeholders – the company received much needed backing to carry on business and the government not having to pay out on benefits, whilst still continuing to receive tax receipts. There could be up to US$ 30 billion set aside for the government to assist otherwise stable UK companies, impacted by Covid-19, with a cash boost. Stellar names such as Rolls Royce, Jaguar Land Rover, Virgin Atlantic and British Aerospace could already be in the queue to take advantage of “Project Birch”. It will enable the Chancellor, Rishi Sunak, to handle bailouts on a case-by-case basis of viable companies, whose failure will “disproportionately harm the economy”.

Thomas Edison must be turning in his grave with news that the company he founded has sold its lighting business, (along with smart home goods), to Savant Systems, for an undisclosed amount. General Electric has been struggling with falling cash flows and sluggish demand. The company was established in 1892, even though Edison had created the first practical commercial incandescent lamp, thirteen years earlier. Lightbulbs had been the centre of its business but GE struggled to keep up with the times, particularly when it came to LED. Since then, GE has been transforming itself into a more focused industrial company primarily on making jet engines and power-generation equipment and lighting became an increasingly small part of its business. Now with the final demise of this part of Boston-based General Electric, it seems The Lights All Went Out In Massachusetts.           

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