Handle With Care

Handle With Care                                                           15 August 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Handle With Care

Handle With Care                                                           15 August 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Forever in Blue Jeans

Forever in Blue Jeans                                                        08 Aug 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Play The Game

Play The Game                                                         01 August 2019

For a welcome change, there was some good news on Dubai’s realty front, with Allsopp & Allsopp noting that the rise in sales prices was “very encouraging for the market”, following months of falling prices. The firm noted that it had witnessed Q2 buyer registration 37% higher, year on year, and up 19% on the previous quarter, as tenant registrations rose 31 % on the year and by 16.5% on a quarterly basis, with transactions rising by 3%. These figures indicate “that the market is either at or heading towards the bottom of the price curve.” The consultancy also noted that there was a 23% increase in Q2 secondary market sales compared to Q1, while sales in the off-plan sector dropped by 30%.

Despite all doomsayers preaching that the end of the Dubai realty sector is nigh, there is still money to be made in the market. According to ValuStrat, the top ten net rental yields range from 6.0% to 8.2%, with International City, Remraam and The Greens posting 8.2%, 7.6% and 7.5% respectively. The average net returns are estimated to be 4.6% for villas and 5.8% for apartments. With rent being the highest cash outlay for many expats – and residential prices continuing to head south – it seems a no-brainer for many to consider buying, especially as interest rates are on a downward trend. Two main factors holding some potential buyers away from the market are job security and high down payment rates. There is no doubt that there has been – and is – an economic slowdown but history will tell that we have always lived in an economic cycle and things will change for the better. The other factor of high entry costs (including the requisite 25% bank down payment) could be changed tomorrow if authorities thought fit. When this happens, prices will automatically start moving north.

Deyaar Development is confident that it will complete two districts – Afnan and Dania – within its five million sq ft Midtown community mega development, by year-end; the whole development comprises 26 buildings. Located in Dubai Production City, Afnan’s seven buildings will house 659 apartments with Dania’s 579 apartments being in six buildings. The developer also announced that its other development – the 18-storey Bella Rose in Dubai Science Park and comprising 478 units – is 28% complete.

Nakheel has launched the first phase of its Nad Al Sheba gated community which will house 1.6k Mediterranean and Moroccan style 4-5 B/R villas. Annual rents start at US$ 32.4k and US$ 34.9k for the two villa models. The development will also have a 5km cycle and jogging track, pool and a community centre, with 200 retail outlets, currently under construction.

Kleindienst Group posted H1 revenue of US$ 155 million for villas in its The Heart of Europe project off the coast of Dubai. The developer, which estimates that here is a latent market demand for over 50k second homes in the UAE alone, announced that two of the islands, in the US$ 5 billion project, are almost 70% complete. Germany Island will have 32 villas, as well as twelve Floating Seahorse villas – underwater living residences. The heart-shaped Honeymoon Island will host over 100 Floating Seahorse villas, four restaurants and bars, adult infinity pool, children’s pool and play area, dive centre and health spa. Phase one is sold out with phases two and three underway.

The recently completed seven-storey Millennium Al Barsha Hotel, operated by Millennium Hotels & Resorts, is scheduled to open this month. The 4-star property, built by Dubai-based Deyaar, will house 109 serviced apartments (93 1 B/R and 16 2 B/R), and 299 hotel rooms (with 15 suites). The same combination was responsible for the Millennium Atria Business Bay, that opened earlier in the year, and will see Millennium Mont Rose serviced apartments in Dubai Science Park opening by year-end.

Luxhabitat reported that the highest value property sold in Q1 was for over US$ 20 million – at The One, Palm Jumeirah. Of the others in the top ten, four were in Emirates Hills (ranging from US$ 10 – US$ 17 million), two Palm Jumeriah Signature Villas (at US$ 11 million and US$ 13 million), a Royal Atlantis Residences apartment for US$ 12 million and two properties in Il Primo, Downtown Dubai for US$ 16 million and US$ 17 million.

In the prime residential market, Arabian Ranches 1, Jumeirah Golf Estates and Downtown Dubai saw transaction values grow by 45.5%, 42.1% percent and 40.5% respectively; values were 3.2% higher at US$ 2.8 million. In Q1, the value of transactions in the secondary market was 5.8% higher at US$ 3.7 billion, with off-plan transactions declining 11.8% to US$ 1.8 billion, quarter on quarter. In Q2, 1.7k villas and 6.4k apartments were sold.

It is estimated business tourism at Dubai World Trade Centre generated a record US$ 3.5 billion, equating to 3.3% of the emirate’s GDP. The latest Economic Impact Assessment’ report indicates that for every US$ 1 spent at the 97 large scale exhibitions and events held last year, a further US$ 4.4 in sales value was generated for ancillary sectors and Dubai’s wider economy. In addition, 1.6 million attended events, that created a total of 879k jobs, which generated an aggregate US$ 1.14bn in disposable household income.

Dubai’s hotels posted their worst quarterly results since 2009, with STR reporting a 0.9% decline in Occupancy to 67.1%, with supply outgrowing demand for the sixth consecutive quarter. Even worse news saw both Average Daily Rate (down 12.3% to US$ 140) and Revenue per Available Room (13.1% lower at US$ 94) at their lowest levels since 2003. It is reported that 500 jobs have recently been cut from Jumeirah Group’s payroll, attributable to a marked decline in the emirate’s tourism sector. The government-owned hotel chain has a portfolio of 24 properties in eight countries.

Most other sectors are feeling the pinch, driven by three main factors – regional geopolitical tensions, relatively low oil prices and a slowdown in global trade. The economy is still in a sluggish phase but could be moving off its bottom. The improvement will be helped by certain government measures, including reducing many business fees and issuing longer-term visas. In a move to attract more foreign investment, enhance the national economy, further boost the business environment and help with liquidity, the Ministry of Economy is to waive or at least reduce fees on 115 of its services, ranging from US$ 27 to US$ 1.4k. They include service fees relating to the national patent programme, trademarks, industrial license services, auditing accounts and commercial agencies.

On 01 August, petrol prices moved higher, following a decision by the UAE’s Fuel Price Committee. Special 95 and diesel will be 3.7% higher at US$ 0.616 a litre and 3.0% to US$ 0.659 respectively.

Al Maktoum International Airport benefitted by the recent closure of Dubai International for 45 days of runway closures, as its H1 passenger traffic increased by 141% to 1.2 million. Over the period, the airport handled 900k passengers (equating to its total 2018 number) and up to eighty daily flights, compared to its normal ten. Russia (with 293k passengers) Saudi Arabia, India and Germany were the top destinations. Citing a “softening of the overall air cargo market”, cargo declined 5.3% to 450k tonnes.

A partnership between Dubai-headquartered Jetex Flight Support and US start-up Wright Electric could see electric planes flying over the emirate as early as next year. Jetex has a network of fixed-based operators in nearly forty global locations and the latest agreement will see it install electric charging infrastructure for electric jets in its extensive network of FBOs; it will also invest in the production of the first electric private business jets.

It is reported that DSA Investments may be forming a venture with a South African labour union to bid for former Glencore coal mines that were sold in 2015 to the once powerful Gupta family. The JV between DSA’s subsidiary, Orchid Mining, and Nehawu Investment Holdings, is expected to bid for Teesta Exploration & Resources (Pty) Ltd, currently under administration. This coal asset had been owned by the Guptas and the son of then President, Jacob Zuma.

DEWA is to invest US$ 2.2 billion, over the next three years, building 68 132/11 kilovolt (kV) substations, as it continues to expand its infrastructure to meet Dubai’s growing power demand At the end of 2018, the emirate had 258 main substations, eighteen of which were commissioned last year at a cost of US$ 600 million. On a global efficiency comparison, DEWA performs well, having managed to reduce losses from electricity transmission and distribution networks to 3.3% (cf 6-7% in Europe and the US), while water network losses have been reduced to 6.5%, compared to 15% in North America. It also achieved the lowest customer minutes lost per year in the world, at 2.39, compared to 15 minutes in Europe.

Last week, Mohammed Alabbar’s Symphony Investments and others established a partnership across the MENA region and China with Didi Chuxing. This week, Toyota announced that it would be investing US$ 600 million in the Beijing-based mobile transportation platform with 550 million users. The Abu Dhabi-based JV will promote sharing economy and internet consumer services in the region. Compared to Uber, the Chinese firm is well ahead when it comes to numbers – 550 million users and 30 million rides per day dwarfs the US entity’s 93 million users and 17 million daily trips.

YTD total loans provided by Emirati banks were 4.3% higher, by US$ 19.2 billion to US$ 461.2 billion, of which loans provided to the private sector were 2.7% up at US$ 272.5 billion. Government and the public sector loans were 11.5% higher by US$ 54.9 billion.

The Dubai Financial Services Authority has fined the collapsed private-equity firm Abraaj Group US$ 315 million for deceiving investors and carrying out unauthorised activities. The authority’s chief executive, Bryan Stirewalt, reiterated that investigations will continue and “those guilty of wrongdoing will be brought to account.” However, the authority has admitted that “the question of whether the DFSA will ever recover any of the fines imposed on them is not clear, for the time being.”

It seems that the Abraaj executives must have been on a basic accounting course when it had insufficient funds to pay all of its creditors. (The top echelon had apparently taken a shed load of money for their personal use but wanted to keep the business afloat). The firm, that once “managed” funds of over US$ 14 billion, prioritised “payments in order of importance, noise makers and those that will come back, with the latest being legacy investors and passive voices.”

The DIFC registered 250 new companies – an 11.0% hike in numbers -bringing the total of active registered firms to 2.3k and a workforce up almost 3% to over 24k. Management is hoping to  increase the number of finance firms by 49% to 1k, to double employees to 50k and increase assets under management to US$ 250 billion by 2024.

Emaar Malls posted a 3.0% hike in H1 profit to US$ 308 million on the back of revenue, being 6.0% higher at US$ 609 million (with Q2 sales 8.0% higher at US$ 314 million). Occupancy amongst its properties – including The Dubai Mall, Dubai Marina Mall, Gold & Diamond Park, Souq Al Bahar and the Community Retail Centres – stood at a credible 92%; total footfall for the first six months of the year was at 2.0% higher at 41 million. The Emaar Properties subsidiary paid a 10% cash dividend of US$ 354 million for the fourth consecutive year.

Due to the implementation of the accounting standard IFRS16 (relating to the treatment of leases), Aramex posted a marginal 0.8% increase in Q2 profit to US$ 27 million. The logistics company posted a 2.5% increase in revenue to US$ 272 million that could have reached 7.0%, if not for currency fluctuations (mainly involving the Australian dollar and South African rand).  Its H1 revenue came in 3.2% higher at US$ 681 million.

DFM-listed Dubai Insurance posted a 49.4% rise in H1 profit to US$ 12 million on the back of a 66.1% jump in total comprehensive income to US$ 15 million. On a quarterly basis, consolidated interim profits nudged 1.9% higher to US$ 5 million. At the end of June, the firm saw its total assets 21.2% higher at US$ 436 million, compared to six months earlier.

The bourse opened on Sunday 28 July at 2851 and having gained 190 points (7.1%) over the past three weeks added a further 49 points (1.7%) to 2900 by 01 August 2019.  Emaar Properties closed US$ 0.06 higher at US$ 1.48, with Arabtec flat again at US$ 0.48. Thursday 01 August witnessed low trading conditions of 115 million shares worth US$ 46 million, (compared to 199 million shares, at a value of US$ 58 million on 25 July).

For the month of July, Emaar climbed US$ 0.29 to US$ 1.51 and US$ 0.38 YTD from its US$ 1.13 starting point. Arabtec was up US$ 0.07 in July to US$ 0.48 but down YTD by US$ 0.04 from its January opening figure of US$ 0.52. YTD, the bourse is trading 370 points (14.6%) higher from its January opening of 2530 and in July gained 259 points (9.7%) from 2659 to its month closing of 2918.

By Thursday, 01 August, Brent, having gained US$ 1.15 (1.9%) the previous week, nudged up US$ 0.12 (0.2%) to US$ 62.05. Gold, having shed US$ 26 (1.8%) the previous week, traded US$ 30 (2.1%) higher on Thursday at US$ 1,444. For the month of July, Brent shed US$ 0.63 (1.0%) to US$ 64.42 but for the first seven months of the year gained US$ 10.62 (19.7%) to US$ 64.42 from its January opening of US$ 53.80. Gold was flat for the month of July – up US$ 2.0 to US$ 1,416 – but gained US$ 131 (10.2%) from its year opening of US$ 1,285 to its 31 July close of US$ 1,416.

If the proposed merger between Just Eat and Dutch rival, Takeaway, takes place, it would create one of the biggest global food delivery firms, valued at US$ 10 billion and processing 360 million orders, worth US$ 8.2 billion. The UK company, which is thought to be the market leader in its home country but is facing stiff competition from the likes of Deliveroo and Uber Eats, trades in overseas locations such as Canada, Europe and Australia where it is known as Skip the Dishes, Just Eat and Menulog respectively. News of the possible merger saw the UK’s company shares jump 25% to almost US$ 10 which had fallen in May, following Amazon’s US$ 710 million investment in Deliveroo.

Airbus seem to be taking advantage of Boeing’s woes, posting a 72% rise in adjusted profit before interest and tax to US$ 2.2 billion. The plane-maker ramped up production of its Neo version of the A320 (a direct competitor to Boeing’s troubled Max 737), with almost 240 being handed over in H1. The company confirmed full year guidance that will see a 15% hike in EBITDA, 890 aircraft deliveries and over US$ 4.5 billion of free cash flow. Its shares have surged over 53% already this year, compared to Boeing’s 7.7%.

Another country has finally seen the light that all is not well with the global economy, by slashing its forecast to 0.9% (from an earlier 1.3%). The Japanese government pointed to weaker exports (at 0.5% compared to the 3.0% expected earlier in the year), as the main driver, not helped by the ongoing US-China trade spat. However, other pundits in the private sector were more pessimistic with predictions of almost half this new figure. In Q1, the world’s third largest economy posted annualised growth of 2.2% but this is expected to slow somewhat over the remainder of 2019, due to increasing external pressure. Latest figures from Japan see industrial output down 3.6% in June, following a 2.0% increase the previous month. On an annualised basis, industrial production slumped 4.1%.

On Monday, the Australian Stock Exchange hit a record 6,826 which had been set in November 2007, just before the GFC. By comparison, the US S&P Index took less than half the time (1,386 days v 2,974 days) to top its pre-GFC high of October 2007 and is now at nearly double that high at 3,026 points. It seems that the Australian companies pay out more dividends and faces higher interest rates which slows its growth somewhat.

Pending US home sales in June rose 2.8% to 108.3, after a 1.1% rise the previous month. The surprising – but welcome – news is an indicator that the US economy is still performing well. With job growth at record levels, and the stock market at an all-time high, along with historic low interest rates, it favours well for the sector in the coming months. Furthermore, after a poor June, with a consumer confidence reading of 124.3, July bounced back to 135.7 – its highest level in 2019. According to officials, “consumers are once again optimistic about current and prospective business and labour market conditions.”

The French economy is grinding to a halt and could prove another nail in the eurozone economic coffin, following a manufacturing slump in the bloc’s largest economy, Germany. Despite the Macron-enforced tax cuts (following the Yellow Vests protests) and a US$ 18.9 billion stimulus package, consumer spending growth has slowed. Q2 growth of only 0.2% disappointed the markets and, with the rest of the eurozone on a downward trend, the ECB chief pointed to another monetary boost by next month, warning the outlook is getting “worse and worse”; Q2 growth is estimated at only 0.2% with Germany now in probable recession.

Meanwhile, July eurozone business confidence fell 0.6, month on month, to 102.7 – a 40-month low. The decline was felt across the board with most indicators – including industrial sentiment, services confidence, consumer sentiment – all heading lower. Construction has been badly hit, with reports of a sharp decrease in managers’ employment expectations, and a marked deterioration in their assessment of the level of order books; the construction sentiment index decreased to 5.0 in July from 7.6 a month earlier. Euro area expanded at the slower pace of 0.2% in Q2, (following 0.4% in Q1), with inflation, at 1.1%, easing to a seventeen-month low, emphasising the need for an updated significant stimulus package; year on year, growth is at 1.1%.

On Wednesday, the Fed lowered the target range for federal funds rate by 25 basis points to 2% to 2.25% – its first rate cut since December 2008. Although not unanimous, with two members preferring no change, the reasons cited for the cut were the implications of global developments for the economic outlook, as well as muted inflation pressures.  Fed Chairman Jerome Powell did indicate that although their assessment of the economy remained largely unchanged, the rate cut was “essentially as a mid-cycle adjustment to policy.”

The CBI confirmed that the UK private sector activity has continued to fall in the quarter to July; with firms posting growth at -9% resulted in the ninth straight rolling quarter of either flat or falling volumes. However, there was a marked decrease in both distribution and manufacturing volumes, whilst services activity showed a slower decline. Whether the advent of a new Prime Minister will impact on these figures, over the next three months, remain to be seen.

Boris Johnson assumed the position of Prime Minister of the United Kingdom on 24 July and how things have changed since the departure of Theresa May. In his first Westminster address, he put the Brussels mafia on the back foot by saying (quite rightly) that “no country that values its independence and, indeed, its self-respect could agree to a treaty that signed away our economic independence and self-government, as this backstop does” The EU wanted a sovereign nation to surrender political control over parts of its territory in ways it could never recover – unless the EU gave permission. The EU will have to give leeway, including no back-stop and other amendments. At long last, Brussels will be dealing with an adversarial negotiator who will stand up to the likes of Jean Claude Juncker and Michel Barnier. The rules of engagement have changed and now on a level playing field, both parties can properly start to Play The Game.

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You Ain’t Seen Nothing Yet

You Ain’t Seen Nothing Yet                     25 July 2019

Having sold out phase 1 of its Seven City JLT project, Seven Tides has announced that 652 apartments have already been bought, with a value of US$ 82 million. The development will be home to 2.7k studio and 1-3 B/R apartments, with prices starting at US$ 113k, US$ 197k, US$ 272k and US$ 400k respectively. The Dubai developer, whose CEO is Abdulla Bin Sulayem, has advised that the completion of the US$ 272 million project, encompassing 3.5 million sq ft, will be at the end of 2021.

In Q2, the only significant addition to Dubai’s commercial sector was the expansion of Dragon Mall that brought the emirate’s portfolio to 3.8 million sq mt. According to JLL’s latest report, rents are 14% lower in primary malls and 24% down in secondary malls, over the past twelve months; during the same period, market rise vacancies have risen 4% to 18%. Naturally, the two worries facing the sector are an obvious over-supply issue and the growing prominence of e-commerce which will badly impact on future footfall for existing malls. New malls on the horizon include Meydan Mall, Dubai Hills Estate Mall and Nakheel Mall on Palm Jumeirah.

This week saw the launch of Dubai’s first official sales and rental price index with the DLD signing an MoU with Property Finder. The index, to be known as Mo’asher, will provide Dubai consumers with more transparency in their realty dealings and better insights to help them, when taking property-buying and renting decisions.

June’s Property Monitor’s Dubai House Price Index estimates that over the past two months, the average Dubai house has lost US$ 10k, now standing at US$ 670k; year on year, prices are 15.3% lower and 1.6%, month on month, with average house and apartment prices  now at US$ 1.19 million and US$ 455k respectively. Since starting the index in September 2015, it has seen falls of 22.4% and 21.4%. Losses were higher in locations such as Arabian Ranches, Discovery Gardens, Dubai Silicon Oasis, Emirates Living and IMPZ, with prices sinking by more than 16%.

In a strategic partnership between public and private sectors, Dubai Land Department has launched the Manzili initiative. It involves a calculator that displays all properties that match a customer’s financial capabilities and also taking in preferential options. These include the customer’s current financial situation, and their preferred options, including location, space and monthly savings capacity among other considerations. The Manzili team will also hold awareness workshops on financial management and real estate investment.

Emaar is moving into the sphere of advanced construction technologies, with news that the developer is to 3D print a model home in Arabian Ranches, using a yet unknown local contractor. With this advancement, Emaar will be able to reduce waste of construction materials and noise pollution, as well as to decrease costs and speed up construction delivery times.

As mentioned in a recent blog, Emaar Properties has now signed a preliminary agreement that will see it develop 10% of Beijing’s new Daxing International Airport, comprising a business and tourism complex. The entire project, that will cost US$ 11.0 billion, will integrate retail, entertainment, office, hotel, convention and leisure space. The airport itself could become the busiest in the world, as it will be able to handle up to 120 million passengers.

An MoU has been signed between Noon.com and China’s Neolix that will see autonomous delivery technology soon come to the streets of Dubai. The Beijing-based tech company, with over a decade in smart technology, will build the driverless vehicles. It is estimated that their introduction will see up to a 90% reduction in costs associated with the last mile of delivery. Its founder, and chairman of Emaar Properties, Mohamed Alabbar, did not divulge further details.

A UK private equity firm has reportedly assumed the management rights of two funds of Abraaj, with sizes of more than US$1 billion. Actis, which already manages more than US$ 12 billion of assets, acquired Abraaj Private Equity Fund IV and Abraaj Africa Fund III for an undisclosed fee. Liquidators of the embattled Dubai firm have been trying to offload the entity’s assets and this deal has been their first success. The Dubai Financial Services Authority confirmed it is investigating the collapsed Group and will be focusing on the buyout firm’s senior management and people who failed to report irregularities.  

The saga about the Sheikh and Newcastle FC continues, with the latest development being that Fortress Investment Group, an American hedge fund, is in talks with Sheikh Khaled bin Zayed Al Nahyan’s Dubai-based Bin Zayed Group. This is in relation to a potential US$ 350 million takeover of the EPL club, currently owned by Mike Ashley.  Whether the deal is kicked over the line before the start of the EPL season next month remains to be seen.

DP World recorded a 0.5% H1 rise in both gross container volumes, on a reported basis, and on a like-for-like basis at 35.8 million twenty-foot equivalent units. Although Asia Pacific, the Indian subcontinent and Africa performed well during the period, both UAE and Australia returned disappointing results because of a loss of lower-margin cargo and challenging market conditions. At a consolidated level, DP World’s terminals handled 19.5 million TEUs in H1, as Q2 consolidated volumes grew by 10.6% on a reported basis, but down 0.6% on a like-for-like basis.

Two agreements signed in Indonesia this week by HH Sheikh Mohammed bin Zayed Al Nahyan, and Joko Widodo, President of Indonesia, see DP World and Indonesian conglomerate Maspion Group aiming to create a US$ 1.2 billion container port and industrial logistics park in East Java. The Maspion International Container Port in Gresik, with a 3 million TEU capacity, and using electric power, will start commercial operations in H1 2022.

Emirates Islamic is the first bank to join the US$ 27 million Credit Guarantee Scheme, initiated by the Emirates Development Bank, that supports the goals of the National Agenda under UAE Vision 2021. The scheme will focus on SMEs, by offering new start-ups US$ 545k, through partner banks, with the EDB guaranteeing up to 85% of the amount. Existing SMEs can apply for up to US$ 1.4 million, with a 70% bank guarantee. SMEs form an integral part of the country’s economy, accounting for 94% of the total number of companies in the country and employing 86% of its private workforce. The aim of this new initiative is to drive the contribution made by SMEs to 70% of GDP by 2021.

Both major telecoms posted June results this week. Etisalat posted a 3.1% H1 profit rise to US$ 1.2 billion, as consolidated revenue reached US$ 7.1 billion, with EBITDA coming in 2.0% higher at US$ 3.5 billion. Globally, Etisalat now has 143 million subscribers, as its UAE base stands at 12.4 million.

Meanwhile, du posted a 2.5% increase in Q2 net profit, after royalty to US$ 126 million on the back of a 4.8% fall in revenue to US$ 869 million; H1 revenue and profit reached US$ 1.7 billion and US$ 249 million. Although fixed revenue climbed 5.8% to US$ 168 million, mobile revenue dipped 6.8% to US$ 460 million. A US$ 160 million interim dividend was announced, equating to US$ 0.035 per share. Capex investment was 93% higher in Q2 at US$ 78 million and US$ 127 for the six months to 30 June.

Noor Bank posted a 29% hike in H1 income to US$ 112 million, as revenue grew by 7.0%, on the back of income from net financing and investments, as well as non-funded income. The bank, which is in the process of a merger with Dubai Islamic, posted increases in total assets, customer financing and customer deposits of 4%, 5% and 11%.

Because impairment charges more than tripled to climb to US$ 37 million, Emirates Islamic posted a 5.3 % decline to US$ 71 million in Q2 net income. The Sharia-compliant subsidiary of Dubai’s biggest lender Emirates NBD did post a H1 profit of US$ 183 million, driven by a strong balance sheet and tighter cost control. Its total assets balance came in 5% higher at US$ 16.6 billion.

Mashreq posted a 5.2% hike in H1 profit to US$ 327 million, as total operating income dipped 1.3% to US$ 837 million. The Q2 return saw a 5.4% rise in profit to US$ 162 million, although the bank’s operating profit came in 3.4% lower at US$ 229 million. As at 30 June 2019, total provisions for loans and advances neared US$ 1.1 billion, equating to 128% coverage for non-performing loans, whilst Its non-performing-loans-to-gross-loans ratio declined slightly to 3.5%. Over the next five years, the Al Ghurair-controlled bank plans to invest US$ 136 million on digital transformation.

The DFM announced a 21.4% fall in H1 profit to US$ 18 million, with revenue of US$ 45 million. Trading revenue tumbled 31.5% to US$ 6.8 billion in line with 74% of global bourses which also saw half-yearly falls. However, the DFM General Index did advance 5% over the first six months of 2019, as its investor base climbed to 844k. Although owning just 17.5% in value, foreign investors have an active presence in 50% of trading.

The bourse opened on Sunday 21 July at 2763 and having gained 102 points (3.8%) over the past fortnight added a further 88 points (3.2%) to 2851 by 25 July 2019.  Emaar Properties closed US$ 0.10 higher at US$ 1.42, with Arabtec flat at US$ 0.48. Thursday 25 July again witnessed low trading conditions of 199 million shares worth US$ 58 million, (compared to 167 million shares, at a value of US$ 92 million on 18 July).

By Thursday, 25 July, Brent, having shed US$ 4.59 (6.9%) the previous week, gained US$ 1.15 (1.9%) to US$ 61.93. Gold lost some of the US$ 33 (2.3%) gained the previous week, closing US$ 26 (1.8%) lower at US$ 1,414, as it slid on Thursday by the most in a year after Trump and Xi’s trade truce renews investors’ confidence.

This week ,the International Energy Agency downgraded its oil growth forecast to 1.1 million bpd, attributable to the weakening global economy and declining Chinese demand. Last year, the IEA had 2019 forecast growth at 1.5 million bpd and earlier this year to 1.3 million bpd. Because of the changing circumstances, it is unlikely to see Brent climb much above US$ 70 unless a major incident happens – currently there is enough stock available, with any slack being taken up by rising US supply.

As prices of some items have risen at a quicker rate than the 2.0% UK inflation level, it is reported that Tesco has increased the price of more than 1k products over the past fortnight; shop prices for the likes of milk powder, potatoes and pork are all up by 11%. The main driver behind these increases is the recent fall in sterling making imports dearer. Tesco is confident that “for the majority of products that have increased in price over the last three weeks, we still beat or match the cheapest of the big 4”. However, it will still face tough competition from both Aldi and Lidl and has still some way to reach their own internal target of hitting profit margins of 3.5%- 4% by 2020.

As the Japanese car-maker posts a horrific 94.5% slump in Q2 profits to US$ 59 million, with revenue declining by 12.7% to US$ 15.9 billion, Nissan announced that it plans to cut 10.0% (12.5k) of its workforce. The embattled firm, which has seen poor sales returns in Europe and US, has not been helped by the scandal of financial misconduct charges against former boss Carlos Ghosn and rising costs, including exchange fluctuations. The car-maker has also been having problems with its 43% partner, Renault.

Since its October 2018 listing, Aston Martin has lost 45% in its share value, including 20% since it announced that it was cutting its 2019 sales forecast by around 10% to between 6.3k – 6.5k. H1 sales to Europe and MENA  have fallen by 19% and the UK 17%, with the luxury carmaker indicating  a “challenging external environment” had worsened, as had “macro-economic uncertainties”.

Boeing is expecting a Q2 loss as a result of a one-off US$ 4.9 billion charge, driven mainly by costs of compensating airlines for disruptions and plane delivery delays due to the March MAX grounding, and a further US$ 1.7 billion in costs due to the 737 MAX’s lower production rate. The US manufacturer is confident that the plane will return to the skies in early Q4, but some experts think it could be next year.

In Australia, a leading financial planner, who hosted his own TV show and wrote for top newspapers, has been banned for three years by regulator ASIC on providing financial services in the country. It was found that Sam Henderson “failed to act in the best interests of clients” or to “provide appropriate advice”. One of his clients would have been US$ 350k worse off if she had taken his advice.  He had also “recommended the use of in-house Henderson Maxwell products without providing product comparisons or justifying why the in-house products were better than his clients’ existing products”.

The Financial Planning Association were reluctant to act on the complaint so much so that after a year, it still had not been finalised. In trying to look after its prize member, the FPA not only went against the recommendation of its own investigation, it also wrote to the royal commission asking it to keep the matter under wraps. The association listed reasons for the need to keep the matter confidential, including that publication of Mr Henderson’s name would “cause significant damage to the reputation of Mr Henderson”!

Another Australian in the news is Mark Horton, who finished second in the 400m freestyle at the World Aquatic Championship. He refused to shake hands with the winner, China’s Sun Yang, who had previously refused to take a urine sample and then smashed vials of his own blood, when visited by dope-testers. The world governing body, FINA went soft on the suspect swimmer, so it was left to Horton to show his displeasure and for that he was accused of “unacceptable” behaviour. There are similarities between this and Australia’s FPA and there is something wrong when clean athletes are disciplined whilst little is done about cheats. Unfortunately, the sporting, political and financial world is full of such examples of corrupt practices.

Worried about certain online platforms being engaged in unfairly restricting competition, the US Justice Department is opening an investigation following “widespread concerns” about “search, social media, and some retail services online.” Although no names were mentioned, there is no doubt that tech giants such as Amazon, Apple, Facebook and Google will come under close scrutiny.

This week also saw Alphabet and Amazon release impressive Q2 figures, both with near 20%+ hikes in revenue – to US$ 38.9 billion and US$ 63.4 billion respectively. However, Amazon’s profit of US$ 2.6 billion disappointed the market as it focused on investing more to cut delivery times. On the flip side, Alphabet, profit tripled to US$ 9.9 billion with increased returns from both its traditional and new tech services such as AI.

Despite the Brexit hullabaloo, June UK retail sales recovered, up 1.0% on the previous month, attributable to the growth in average wages boosting household spending. Non-food sales were up 1.7%, compared to the lesser growth of 0.2% for food items. On an annualised basis, growth was at 3.6% in June (2.2% a month earlier). These figures may have helped the economy from slipping into contraction in Q2 and more of the same will help the country deal with all the problems expected pre the 31 October Brexit deadline.

A major indicator that all is not well with the world’s economy is that global manufacturing has almost hit contraction levels as it reached a three-year low. Germany is probably the main reason why European output has already moved into reverse gear. The latest JP Morgan global PMI is hovering around the 50 level – the demarcation point between expansion and contraction – and is almost guaranteed to drop within the next two months; already, the forward-looking “new orders” PMI has dropped under 50 – the first time this has happened since 2012. Consequently, many of the international central banks are considering rate cuts over the next three months, with South Korea, Indonesia and South Africa already on the bandwagon. The outlook is that business confidence is sliding and business investment is likely to stay weak for the foreseeable future.

Indeed, the ECB has warned it could cut interest rates to tackle a slowdown in the eurozone economy, attributable to a sluggish manufacturing sector, uncertainty about Brexit and global trade tariffs threatening to derail growth in the bloc. It may even be considering the reintroduction of QE that will see the central bank pumping money into the economy via the purchase of bonds and other assets. Its boss, the soon to be departed Mario Draghi, has indicated that “the outlook is getting worse and worse”.

Turkey announced that it had slashed its interest rate by an almost unprecedented 4.25% to 19.75%, only three weeks after the new central banker, Murat Uysal, took over the reins. The reasons behind the move, not surprisingly, were “weaker global economic activity and heightened downside risks to inflation.”

Following Jerome Powell’s recent warning that “uncertainties about the outlook have increased”, it is likely the US will soon see a rate cut. The US economy, per se, is in good health but it is being affected by weakness in other major economies and trade war worries.

The IMF has cut its 2019 and 2020 growth forecasts, both by 0.1%, for the global economy – to 3.2% and 3.5% – as growth “remains subdued” and there is an urgent need to reduce trade and technology tensions. Interestingly, it raised the UK growth estimates by the same amounts to 1.3% and 1.4%, based on the premise of a smooth Brexit but also highlighted a no-deal Brexit as one of the key risks to global economic growth, along with further US-China tariffs and US auto tariffs. US recent growth is expected to slow to 1.9%, as the boost, brought about by the tax cuts introduced by President Trump early in his tenure, loses its momentum.

The Brussels old boys club, led by EU’s chief Brexit negotiator, Michel Barnier, and Commission President Jean-Claude Juncker, have rebuffed the Brexit policy of new UK prime minister, Boris Johnson. In reiterating the EU’s position that the already-negotiated withdrawal agreement was the best one possible and that removing the backstop guarantee was unacceptable, the EU once again demonstrated their intransigence. They have indicated that the PM’s move to “getting rid” of the backstop was “of course unacceptable”, and labelling Mr Johnson’s speech “rather combative”. The next three months will be interesting and the message to the EU is You Ain’t Seen Nothing Yet!

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Wrong Side Of The Tracks

Wrong Side Of The Tracks 18 July 2019

According to Valustrat, average Dubai property prices have slumped 29.3% over the past five years, of which 11.5% has occurred this year and 2.9% in Q2; over the past three months, the declines have ranged from 1.2% to 4.2%. During the preceding twelve months, the best performing of the 26 locations analysed were villas in Palm Jumeirah and Al Furjan, as well as apartments in Dubai Sports City, which all recorded single digit falls. On the flip side, apartments in Palm Jumeirah, Discovery Gardens, and The Greens all posted 15%+ declines. In line with sales, rentals have also seen huge falls. – 26.1% since 2014, 10.7% for the past year and 3.4% in Q2. For those that think there are too many units in the emirate, it must be sobering to see that the consultancy estimates that only 8.5k have been completed so far this year – a long way off initial forecasts of 45k.

On the other hand, a JLL report indicated that both apartment sales and rents fell year on year by 9% and 11% respectively, as villas saw declines of 9% and 5% over the same period. The market is not expected to show much change over the next year and will continue to face downward pressure. However, there will be a shift to more people buying properties rather than renting, as the economics make the former more financially attractive.  Any hope of a boost from the Expo factor is becoming less likely, as its impact has already been factored in current prices.

Their report also expects that recent government initiatives will have a positive impact on Dubai’s real estate sector. The federal government has recently introduced customer-friendly schemes such as the freehold law and the permanent residence system called ‘Golden Card’, the visa fees exemption for children under 18 and free SIM cards for tourists on arrival.

To try and boost the realty sector, twenty foreign investors from across the world have been granted five-year renewable visas; the so-called golden visas were made available to real estate investors whose individual investments in the local real estate market exceeded US$ 1.3 million. Investors can also sponsor family members as part of the deal.

Having announced a bounce in Q1 sales to US$ 136 million, Sobha is targeting to be a US$ 1 billion company within two years. When this milestone occurs, the developer will be looking to a probable IPO. The company is currently developing an eight million sq ft waterfront community which, when completed in four years, will be home to 400 villas, 5k apartments, three hotels, two schools and a 150k sq ft community centre. Sobha is currently planning a second development in a new unnamed Dubai location, with land sales almost finalised.

Emaar is to start construction of the first residential cluster ‘Breeze’, located within its Creek Beach District, adjacent to the Ras Al Khor Wildlife sanctuary. The waterfront project will comprise three clusters of 1-4 B/R apartments, inspired by traditional Middle Eastern architecture. SSH will act as lead consultant, architectural partner and structural engineer.

Of the total H1 18.7k realty transactions, valued at US$ 11.0 billion, Emaar accounted for 25.5% of deals and 29.9% (US$ 3.2 billion) in value. The next two developers, some way behind, were Damac at 1.5k transactions (7.9%), valued at US$ 463 million (4.2%), and Nakheel with 1.1k deals (6.0%) worth US$ 600 million (5.6%). Emaar was also the runaway leader in the off-plan stakes, posting 3.6k transaction worth US$ 2.1 billion and accounting for 46% of the market transactions and 61% in value. They were followed some way off by Dubai Hills Estate LLC, with 1.1k transactions worth US$ 409 million, and Damac posting only 840 transactions, with a total value of US$ 235 million. Making the top five were Azizi (682 deal at US$ 118 million) and Dubai Properties selling 441 units worth US$ 210 million.

Oyo Hotels are launching its Capital O brand in the UAE, with two business premium properties – Capital O 167 Moon Valley Hotel Apartments in Bur Dubai and Capital O 187 Action Hotel in Ras Al Khaimah. Their product price range will be between US$ 55 – US$ 80. The Indian chain, with over 700 hotels in its home country, entered the UAE market last year and hopes to offer 12k rooms in 150 properties by the end of 2020.

Dubai’s June CPI fell by 2.68% to 107.95 over the previous twelve months. The main drivers pushing the inflation rate lower were declines in housing services etc (6.40%) and miscellaneous goods/services (2.26%). On the flip side, there were increases in recreation/culture and tobacco products of 3.29% and 1.93%.

The RTA is to hold its latest online number plate auction for 200 distinctive plates on Sunday. Whether this sale reaches the giddy heights of 2017, when an eighty-plate sale raised US$ 7.6 million (with R13 going for US$ 796k), remains to be seen.

Despite attempts by the local carrier Aeromexico, Emirates will launch a new flight to Mexico City, via Barcelona, starting on 09 December. Flying a two class Boeing 777-200LR, it will carry 302 passengers (including 38 in business class) and 14 tonnes of cargo. Emirates has been flying into the city for the past five years, as a cargo carrier, and last year carried over 22.5k tonnes. Because of the height of Mexico City (at 2.25k metres above sea level), it would have been impossible to fly direct so Emirates were allowed to introduce a fifth freedom flight which allows an airline to  fly between two foreign countries, so long as the flight originates or ends in the airline’s home country.

The RTA has announced that the work being carried out at the junction of Umm Sequim Street and Al Khail Road will be completed by the end of H1 2020. The project includes twelve bridges (spanning 3.7k sq mt) and ramps and will ease the traffic that will be generated when the two million sq ft Dubai Hills Mall opens and Dubai Hills Estate starts to fill up with new residents.

The Ministry of Economy has cancelled fees for 102 government services in the country, as well as halving eight service fees, in a move to boost the country’s business environment. No doubt these moves will help stimulate and strengthen economic growth and, hopefully, generate more job opportunities. Some of the fees that have been reduced include registration and renewal of a trademark or trademarks, down 33% to US$ 1.8k, and the fee for publishing official announcements by foreign private joint stock companies has been halved to US$ 2.7k.

Emirates NBD posted a 49.0% hike in H1 profit to over US$ 2.0 billion, as income climbed to US$ 2.6 billion – an 11.3% increase, compared to the same period in 2018. Net interest was 10.0% higher at US$ 1.9 billion, driven by a 13.0% growth in assets, although costs were up some 7.0% to US$ 780 million. There were also increases in loans by 3% to US$ 91.8 billion, with deposits 5% higher at US$ 100 billion.

This week, Dubai’s largest bank also announced plans to open twenty more branches in Saudi Arabia, in addition to the two already open in Jeddah and Khobar, Dubai’s biggest bank will also expand its operations in Egypt and only last month received regulatory approvals to buy Moscow-based Sberbank’s wholly-owned unit in Turkey.

The Ministry of Economy has cancelled fees for 102 government services in the country, as well as halving eight service fees, in a move to boost the country’s business environment. No doubt these moves will help stimulate and strengthen economic growth and, hopefully, generate more job opportunities. Some of the fees that have been reduced include registration and renewal of a trademark or trademarks down 33% to US$ 1.8k and the fee of publishing official announcements by foreign private joint stock companies has been halved to US$ 2.7k.

In Australia, a NSW government report has highlighted the regular occurrence of a “loyalty tax” in the insurance sector, with discounts bEmirates NBD DP World eing offered to new customers while long-term ones pay more for the same policy. It is estimated that in some cases the “gap” could be as high as 34%! The same practice seems to be prevalent in both the banking and energy sectors. In the UK, the CMA estimates the total cost of “loyalty taxes” – in mortgage, savings, home insurance, mobile phone contracts and broadband – is over US$ 5.3 billion a year. It would be interesting to see what is happening in the UAE.

Nasdaq listed a US$ 1.3 billion combined sukuk (US$ 1.0 billion) and conventional bond (US$ 300 million) package for DP World., making the port operator the bourse’s largest client with listings of US$ 8.1 billion.   Nasdaq, two-thirds owned by the DFM and the balance with Borse Dubai, is one of the largest global exchanges for Sukuk listings, with a total of US$ 62.4 billion.  

The Commercial Bank of Dubai confirmed that it had provided a secured credit facility to Abraaj Holdings, including a legal charge over shares that controlled Spinneys Egypt. When the Egyptian entity is sold, funds will be routed back to the bank in partial settlement of the debt. CBD also denied that it had ever owned the Egyptian supermarket.Nasdaq

Emirates NBD posted a 49.0% hike in H1 profit to over US$ 2.0 billion, as income climbed to US$ 2.6 billion – an 11.3% increase, compared to the same period in 2018. Net interest was 10.0% higher at US$ 1.9 billion, driven by a 13.0% growth in assets, although costs were up some 7.0% to US$ 780 million. There were also increases in loans by 3% to US$ 91.8 billion, with deposits 5% higher at US$ 1.0 billion.

This week, Dubai’s largest bank also announced plans to open twenty more branches in Saudi Arabia, in addition to the two already open in Jeddah and Khobar, Dubai’s biggest bank will also expand its operations in Egypt and only last month received regulatory approvals to buy Moscow-based Sberbank’s wholly-owned unit in Turkey.

Amlak Finance is confident that its second restructuring plan will soon be in place. The amended deal will see creditors rescheduling US$ 1.2 billion of loan repayments over the originally agreed period that ends in 2026. The company, 45% owned by Emaar, first agreed to new terms on US$ 2.7 billion of loans in 2014. The hope is that next year’s Expo and rising energy prices, may start to revive the lacklustre Dubai real estate sector which has seen property prices slump by nearly 30% since its 2014 peak.

Dubai Parks and Resorts has posted a 4.7% hike in Q2 numbers to 641k, helped by the fact that that 92k attended over a four-day June celebration for the Philippines Independence Day. Over the first six month of the year, numbers dipped 0.8% to 1.4 million; of that total around 40% were international visitors. In June, a new 579-key Rove Hotel opened and will be competition to the existing Lapita Hotel which saw H1 occupancy levels 8% higher at 63%.

The bourse opened on Sunday 14 July at 2686 and having gained 25 points (0.9%) a week earlier added a further 77 points (2.9%) to 2763 by 18 July 2019. Emaar Properties closed US$ 0.04 higher at US$ 1.33, with Arabtec up US$ 0.03 to US$ 0.48. Thursday 18 July again witnessed very low trading conditions of only 167 million shares worth US$ 92 million, (compared to 88 million shares, at a value of US$ 61 million on 11 July).

By Thursday, 18 July, Brent, having traded US$ 3.22 (5.1%) higher the previous week lost more than that this week, down US$ 4.59 (6.9%) to US$ 61.93. Gold closed US$ 33 (2.3%) higher at US$ 1,440, still driven by continuing tensions in the Gulf and trade worries.

It seems highly likely that Rio Tinto’s massive copper and gold mine in Mongolia could be facing a cost blow-out of almost US$ 2 billion, along with a thirty-month delay. The underground mine – a JV with Rio and a Canadian miner, along with the Mongolian government – could cost US$ 7.0 billion by 2023 as a result of the possibility of stability risk with the mine design. Worryingly, there is every chance that costs could rise even further.

Reports indicate that luxury department store Barneys New York Inc is going the way of Sears Holdings Inc, Toys “R” Us Inc and Gymboree Group Inc. The usual drivers of high rents and changing consumer demands are the reasons for the nearly century-old department store, considering a bankruptcy filing. Apart from its flagship department store on Madison Avenue in Manhattan, the retailer has other interests including BarneRio Tintoys Warehouse outlets, as well as Freds restaurants, in 28 nationwide locations.

Because of its backlisting by the Trump administration, Huawei is planning extensive layoffs in the country. The Chinese telecoms equipment company is looking to cutting large numbers from its 850-workfotrce R&D subsidiary, Futurewei Technologies. Although, the Commerce Department has put Huawei on its so-called entity list, Commerce Secretary Wilbur Ross has indicated that the government would issue licences to companies seeking to sell goods to Huawei where there was no threat to national security.

It is reported that Facebook could face a penalty of over US$ 5 billion to settle an investigation into data privacy violations in relation to its role with political consultancy Cambridge Analytica prior to the last US presidential election The Federal Trade Commission has been investigating allegations that the company improperly obtained the data of up to 87 million Facebook users. Facebook had signed a 2011 agreement which it was required to clearly notify users and gain “express consent” to share their data which in this case never occurred. The tech company has already provided for this fine in its previous accounts. Last October, Mark Zuckerberg received a slap on the wrist from the UK authorities who issued a US$ 650 million fine for a “serious breach” of the law.

Another problem facing Facebook is theFacebook US Treasury is concerned that, as is the case with other cryptocurrencies, its planned Libra e-currency could be used by “money launderers and terrorist financiers” and is was a national security issue. Indeed, US Treasury Secretary, Steven Mnuchin has indicated that he was “not comfortable today” about digital currency and that Facebook was a “long way away from” securing approval.

Christine Lagarde has resigned her position as MD of the IMF in a move that will speed up her likely appointment as head of the European Central Bank; it is a position she has held since 2011 when she replaced the disgraced Dominique Strauss Khan. Post-war protocol would point to an appointment of a European appointment as there is an unwritten agreement that a US candidate always fills the position at the World Bank, whilst the IMF nominee comes from the other side of the “pond”.

Pakistan’s central bank raised its main policy rate by 100 bp to 13.25%, attributable to increased inflationary pressures (currently at 8.9% but expected to climb as high as 12% this fiscal year), as higher utility costs kick in. Earlier in the month, the Imran Khan government received a US$ 6.0 billion IMF loan package that came with tough conditions aimed at increasing the country’s shrinking currency reserves (now at US$ 8 billion following receipt of the first tranche of the IMF loan) and cutting the country’s worryingly high fiscal and current account deficits. Over the next twelve months, GDP growth is expected to be 3.5%.

It seems that Germany’s economy will remain in the doldrums for the immediate future, with the Economic Ministry indicating that “the current economic indicators signal a subdued development in the second quarter”. After a relatively strong 0.4% growth in Q1, the Bundesbank downgraded its growth outlook for 2019 to 0.6% from 1.6% and that for next year to 1.2% from 1.6%. In line with other major countries, the economy is facing headwinds blown in by Brexit uncertainty, a slowing global trade and geopolitical factors.

As the lead indicator that US consumer spending is improving even more, retail sales (3.4% year on year) increased more than expected in June. Add rising underlying inflation and a tight labour market to the mix, it seems unlikely that the Fed will make any move to cutting rates at their 30 July meeting. This week, Jerome Powell indicated that the Fed would “act as appropriate” to protect the economy from the impact of the spat with China and slowing global growth. It must be remembered that comparative annual figures will be slightly skewed becauseof the impact of President Trump’s 2017 massive tax cuts losing their impetus and a slowdown in government spending.

Despite Brexit, UK annual wage growth at 3.8% was at its highest rate since 2008, as wages continue to outpace inflation which has been the case since March 2018. With a record 32.75 million in the workforce, 1.29 million were unemployed – its lowest level since 1992. Furthermore, the number of self-employed climbed above 1.5 million – more than double the figure of twenty-five years ago. Two recent initiatives have helped this improvement – the new National Living Wage and National Minimum Wage rates being introduced and some NHS staff receiving pay increases. The question now is for how long can it last?

In the UK, the Office for Budget Responsibility seems to have joined the “Brexit-fear camp”, by claiming that public borrowing could double to over US$ 78 billion next year if there is a no-deal with the EU. It based its forecast on assumptions, from the IMF, that a no-deal Brexit would cause a UK recession that would see a 2.0% GDP contraction next year. The IMF, not known for accurate predictions, expect that 4% tariffs will impact on UK’s trade, with the OBR concerned that “heightened uncertainty and declining confidence” would deter investment and that sterling will sink, resulting in a recession bigger than that of 2008. However, these warnings seem in line with the Bank of England’s and the Chancellor’s forecasts pre the Brexit referendum three years ago. Six months later, Mark Carney was left eating humble pie, admitting that his dire predictions of the economy had been hopelessly wrong and based on “wrong” assumptions. Once again, the so-called “experts”  are on the Wrong Side Of The Tracks.

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Lost in France

Lost in France                                                                    11 July 2019

Emaar launched its Seashore (Sirdhana by Emaar) development of 1-3 B/R apartments, located in Mina Rashid. The project will also comprise signature hotels, a private beach club, a community park, splash park and a community podium, with a gym and kids’ play area. Interestingly, it will be located in a free zone area that will also include 430 wet berths that can accommodate larger yachts.

Union Properties is to spend US$ 7 million to expand Dubai Autodrome Business Park project in Dubai MotorCity, by building a purpose-built facility for racing teams and other motorsport-related businesses. Spanning 33.9k sq mt, phase 2 will be completed by February 2020 and has already sold out. MotorCity encompasses six projects, each with its distinct environment, including Avenue District, Dubai Autodrome, OIA Residence, Uptown MotorCity, Green Community MotorCity, and Business Park MotorCity.

In December, Al Futtaim will open the country’s biggest Ikea store (covering 30k sq mt), in its new Festival Plaza. Located in Jebel Ali, the new facility will also host ACE, M&S and Lulu Hypermarket, along with a further 120 stores within the 64.8k sq mt retail precinct. It will also have over forty food outlets, as well as parking for 2.3k vehicles.

Dubai will get another tourist attraction, with Nakheel’s announcement that it will add a 240 mt high public observation deck. The View at The Palm will be on the top level (52nd) of The Palm Tower which will have a St Regis hotel and luxury residences; it will be accessible from Nakheel Mall which will house an interactive museum and gallery dedicated to the creation of Palm Jumeirah. The three-minute elevator ride the top of The Palm Tower will be a floor-to-ceiling digital sea, sand and sky experience. Hand-over is expected by Q2 2023.

Dubai Business Events has already secured 118 events for the emirate to take place over the coming years. It is estimated that the mix of conferences and meetings will attract over 75k delegates from around the world and provide a welcome boost for the local economy – especially in the hospitality and retail sectors. This number represents a17% increase on the number of those attending events hosted in Dubai in H1 2018. Majpor events include the Amway China Leadership Seminar 2020, World Hospital Congress, Geospatial Week and the AIPPI World Intellectual Property Congress, among others.

It has been several years since we last heard of a company planning to float an iceberg from Antarctica to these shores. Now, 40-year old Emirati, Abdulla Alshehi, is to spend up to US$ 80 million on a test to float a smaller iceberg  to either Perth or Cape Town on a trial run before deciding the feasibility of moving a larger one to Fujairah; this project would have an estimated cost in the region of US$ 150 million. It is thought that the cost of harvesting fresh water this way would be a lot cheaper than utilising desalination.

It is reported that Barclays may be ditching 20% of its Dubai workforce in its 100-man wealth management business, with potentially more redundancies in the future; some have been offered jobs in other locations such as Geneva or London. The bank did confirm “that it had completed a review of its operational model in the UAE to ensure a sustainable and efficient business platform.” Three years ago, it was reported that Barclays had cut some 150 corporate and investment banking jobs in the emirate. It currently employs about 200 staff in DIFC.

The Federal Tax Authority will launch electronic tracking on the sale of shisha tobacco and e-cigarettes from November. Digital tax stamps will be introduced in a bid to crack down on the sale of contraband products and tax fraud. From March next year, if imported designated excise goods do not bear these stamps, they will not be allowed into the country and by June 2020, it will be illegal to supply, transfer, store, or possess unmarked designated excise goods. Legislation is already in place,covering the sale of all types of imported and locally produced and distributed cigarettes which should have the Digital Tax Stamps.

The country’s May inflation rate has declined to 1.09% over the past twelve months with a CPI reading of 109.87. The main drivers for the fall were price declines in both housing/utilities (5.48%) and ready-made clothing/footwear (3.39%). Prices in telecommunication, transport, and education all nudged higher by 0.62%, 0.85%, and 1.23%, respectively.

The Central Bank is confident that the country’s banking system has sufficient capitalisation and liquidity reserves to meet current requirements. The country’s economic outlook has improved because of various factors including higher energy prices, recently introduced structural reform and an increasingly proactive fiscal strategy. The country’s banks’ performance in Q1, with higher 15% profits, reflected higher operating efficiency in the sector. Although bank lending growth pricked up last year, driven by corporate sector lending, retail sector lending remained in the doldrums.

According to June’s Emirates NBD’s monthly economy tracker, Dubai’s non-oil private sector grew in all sectors, with the stand-out performer being travel and tourism. There was a marked increase in new business activity with a rise in business expectations for the next year. The figures indicate that growth this year will be stronger than it has been over the previous two years. The two canaries in the coal mine are again continued price discount and employment levels in the non-oil economy remaining unchanged not only over the month but for some time now; staffing levels in both tourism/recreation and construction fell.

Efforts to take over Newcastle FC continue with prospective Dubai-based owner, Sheikh Khaled Bin Zayed Al Nahyan, still “working diligently” on a deal with current owner, Mike Ashley. There were reports in May that his Bin Zayed Group had agreed terms in the region of US$ 440 million; it had been bought by Ashley in 2007 for US$ 169 million. However, the club has been on the market on three separate occasions, with each one failing. This latest bid is definitely work in progress.

Depa has been awarded a US$ 27 million fit-out contract for the new headquarters of an unnamed airline in Dubai.

Damac has joined with the Oman Tourism Development Company to develop Port Sultan Qaboos and transform the Mina Sultan Qaboos Waterfront area into a global tourism destination. The development will have two main zones – the tourist port regeneration areas and other sites such as Shotayfi Village and Hay Al Mina. Phase 1, covering 150k sq mt, will comprise 430, residential units, retail space and a 4-star hotel. EFG Hermes painted a worrying future for the Dubai-based developer cutting the target price for its shares to US$ 25.89 from its previous US$ 43.60 guidance and this despite the investment bank’s forecast that Dubai’s property sector will remain stable this year helped by governments initiatives in the pipeline.

After recently acquiring Topaz Energy & Marine, from Oman’s Renaissance Services and Standard Chartered’s private equity unit, it is reported that DP World is to raise US$ 1 billion in an Islamic-bond issue to finance the deal. Over the past eighteen months, the world’s largest port operator has been rapidly expanding its portfolio, acquiring P&O Ferries and P&O Ferrymasters in Europe, Puertos y Logistica in Chile, along with an additional stake in DP World Australia and new JVs in Canada and India.

A CVC Capital Partners’ consortium is set to acquire about 30% of Dubai-based GEMS Education from existing shareholders – no financial information was readily available. It seems that Khazanah Nasional Berhad, a sovereign wealth fund of Malaysia, will retain its 3% stake, whilst a consortium led by Fair Capital Limited including Tactical Opportunities funds managed by Blackstone and Bahrain’s SWF, Mumtalakat Holding Company, will exit. The Varkey Family will remain with the largest shareholding. At the same time, the world’s largest education provider of private K-12 education by revenue is in the midst of a major refinancing programme.

Dubai-listed healthcare and education investment company, Amanat Holdings, has a 13.2% stake in International Medical Centre which has agreed to buy three Jeddah medical facilities for an undisclosed amount; IMC already operates a 300-bed hospital in the city.

The bourse opened on Sunday 07 July at 2661 and gained 25 points (0.9%) to 2686 by 11 July 2019. Emaar Properties closed US$ 0.07 higher at US$ 1.29, with Arabtec up US$ 0.02 to US$ 0.45. Thursday 11 July again witnessed very low trading conditions again of only 88 million shares worth US$ 61 million, (compared to 124 million shares, at a value of US$ 41 million on 11 July).

By Thursday, 11 July, Brent was trading US$ 3.22 (5.1%) higher at US$ 66.52. Gold closed US$ 14 (1.0%) lower at US$ 1,407, still driven by continuing tensions in the Gulf and trade worries prior to this Friday’s G20 meeting in Osaka.

Brazilian mining giant Vale has been ordered to pay US$ 2.9 billion in compensation for all damages caused by the January Brumadinho dam collapse which killed at least 270 people; monies initially will go to affected families and businesses. The judge, Elton Pupo Nogueira, has been unable to put a specific number to the amount Vale will have to pay, indicating that technical and scientific criteria were not enough to quantify the effects of the collapse. However, he did warn that “the value [of the compensation] is not limited to the deaths resulting from the event, it also affects the environment on a local and regional level as well as the economic activity in the affected region.” In other words, Vale will face a huge bill for damages and compensation and could face possible liquidation.

Flyadeal became the first airline to actually cancel an order with Boeing for their troubled 737 Max jets. The Saudi budget carrier has decided to scrap its order for fifty planes and to buy the same number of A320s from Airbus and thus maintaining an entirely Airbus SE fleet. Other airlines have already amended orders in the wake of the global 737 Max grounding in March; they include Garuda, VietJet and Virgin Australia. European regulators have now indicated a previously unknown problem about the jet’s autopilot function which will further slow the return of the 737 to global skies. Interestingly, the European plane maker reported that H1 deliveries were 28% higher (389 planes) than the same period last year, whilst Boeing posted a 37% slump.

Deutsche Bank has launched a US$ 8.4 billion “reinvention” plan, under the auspices of its chief executive Christian Sewing, which is targeting an 8% return on tangible equity (RoTE) by 2022. The markets were none too happy as reflected in a 10% tumble in its share value over just two days, after hitting a record low last month. Among the changes are a slashing of 18k jobs, scrapping the bank’s global equities division and creating a “bad bank” to house billions of euros of costly trading positions and relieve pressure on Deutsche Bank’s stretched balance sheet. Whether these sweeping changes will have a positive impact remains to be seen particularly because of intense competition in the sector and low interest rates.  The bank has not seen revenue streams expand recently and previous attempts to overhaul its sprawling business have ended badly.

Despite the fracas surrounding the current trade dispute with the US, China is confident that its 2019 growth will be between 6.0% – 6.5%. Finance Minister Liu Kun has indicated that although protectionism is having a negative impact on the global economy, China would continue to promote the roles of multilateral organizations such of the WTO, G20 and other multilateral organisations. Meanwhile the country’s inflation level of 2.7% is at a 15-month high because of higher food prices (up 8.3%), caused by bad weather – with fruit prices soaring 42.7% – and African swine fever causing pork prices to jump 21.1%.

A July Sentix report echoed what many already knew – that euro area investor confidence continues to head south – weakening to its lowest level since November 2014, with a reading of -5.8 (compared to -3.3 a month earlier). Furthermore, investor confidence in Germany sank to a 10-year low, a sure sign that recession will shortly hit the biggest euro area economy, with ramifications felt all over Europe.

Following a 0.4% decline the previous month, UK’s May’s GDP was 0.3% higher driven by 1.4% growth in both industrial production and manufacturing; however, the three-month rolling trendslowed to 0.3% in May. Construction as 0.6% higher after posting declines of 0.5% and 1.5% the previous two months. During the month, the total trade deficit declined 37.5% to US$ 2.9 billion, as the UK visible trade deficit narrowed 9.7% to US$ 14.5 billion, month on month. However, there is no doubt that the economy is stalling, and that consumers and businesses await any sort of closure over Brexit; until then sterling will continue its downward trend (having lost 5% in recent weeks) and the economy will continue to nudge higher at a much-reduced rate.

This week, Fed chair, Jerome Powell, gave a downbeat outlook for the US economy which saw the greenback lower but the US markets higher with the S&P briefly hitting a record high of 3,000 points whilst the Dow Jones index lifted to 26,820 and the Nasdaq rose 0.75%. The US central bank chief noted that disappointing data continued to show a “broad” global slowdown, and said that “manufacturing, trade and investment are weak all around the world”; all of this will impact on the US economy, despite strong June jobs growth. The local economy is not being helped by “muted” inflation and only modest wage growth and that “we don’t have any evidence for calling this a hot labour market.”

Another matter worrying President Trump is the fact that France is planning to introduce a digital services tax which he considers is aimed at penalising US tech giants such as Facebook and Google. It is estimated that the tax – a 3% levy on revenue made by any digital company with revenue of more than US$ 840 million of which at least US$ 28 million is generated in France – will raise US$ 450 million and involve some thirty international companies. Retaliatory measures are almost inevitable if US authorities find that the tax is clearly protectionist and unfairly targets American companies in a way that will cost US jobs and harm American workers. It seems that Macron may have wrongly thought he could take the US for a ride but now it seems the tax will be Lost in France.

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