Should I Stay or Should I Go?

dubai-dynamic-towerAccording to UK press reports,the 80-floor Dubai Dynamic Tower, designed by Florentine architect David Fisher, is estimated to cost US$ 545 million and could be ready within two years. Its unique selling point is that each individual floor will rotate independently and turn a full 360 degrees around a central column.

Since Abu Dhabi’s Aabar Investments bought into Dubai’s largest contractor, Arabtec has gone from strength to strength posting a Q2 profit of US$ 25.2 million (compared to a 2012 loss of US$ 3.2 million) and amassing an order book of US$ 6.65 billion. Although officially denied, the company is reportedly in merger discussions with Saudi Oger and Kuwait’s Combined Group Contracting. This comes only months after a JV arrangement with Samsung Engineering.

Orion Holdings finalised the sale of 100 one-bedroom apartments in Silicon Oasis from Gulf General Investment Company for a reported US$ 15.7 million. Orion plan to offer the units on a 35% down payment, with the balance to be paid over three years.

As the hospitality sector‘s boom period continues unabated, reports indicate that, in the MENA region, there are of the 813 hotels (with 134k rooms) being built or in the planning stage, Of that sum, 114 hotels (representing 14% of the total inventory) will be located in the UAE with an estimated 32k rooms or 23.9% of the planned total. Dubai is expecting its annual room portfolio to rise by 7% over the coming years.

Every cloud has a silver lining – with all the regional strife, an increasing number of Saudis are visiting Dubai. In H1, the Dubai Tourism and Marketing Department estimate that there has been a 31.6% surge in numbers to 710k, which boosted the local economy by US$ 4.6 billion. (The Kingdom pumped 9.8 million barrels a day in 2012, at an average price of US$ 106.1, which equates to oil revenue of US$ 380 billion).

As indicated previously, budget carrier, flydubai, is to offer a business class service on many of its routes as from October. Their first flight will be to Kiev, when twelve premium seats will be on offer, with other destinations, including Istanbul, Male and Bucharest, to follow.

In a move to diversify, DEWA is looking at building a new clean coal power facility. When completed, the Hassyan plant will have a 1,200 MW capacity, producing 12% of Dubai’s power requirements – with the balance from natural gas (71%), nuclear energy (12%) and solar power (5%).

June 2013 figures from the Central Bank indicate a 1% monthly fall in money supply aggregate M0 (currency) to US$ 16.2 billion. However M1 (M0 + banks’ current and call accounts) showed a 1.6% rise to US$ 94.5 billion. Money supply aggregate M2 (M1 plus quasi-monetary deposits) also showed an increase of 1.3% to US$ 253.4 billion. When government bank deposits are added to M2, money supply aggregate M3 comes in 0.6% higher at US$ 322.2 billion. A further sign that the economy is still on traction is that net bank loans jumped 1.4% to US$ 312.6 billion (and an impressive 4.4% in H1).

The Dubai bourse recovered this week closing 2.6% up at 2700 – 68 points higher than its Sunday opening of 2632 points. Some expect the market to lose steam in the coming month but it is currently up 73.45% this year and 78.56% higher than it was this time in 2012. Bellwether stocks, Emaar Properties and Arabtec Holdings ended on US$0.72 and US$ 1.70 respectively.

Internationally, embattled US bank, JP Morgan continues to hog the headlines – for all the wrong reasons. Following its London Whale trades debacle – which resulted in a loss of US$ 6.2 billion – and its US$ 410 million civil settlement over its manipulation of Californian energy markets, it is now being further investigated by US prosecutors. In addition, the SEC is looking at their hiring of children of  high–ranking Chinese officials.

Thirteen financial institutions – including the likes of Barclays, RBS, Morgan Stanley and HSBC – have been forced by UK regulators to set up a US$ 2 billion compensation fund to pay out a staggering 7 million customers for yet another insurance mis-selling scandal. Some estimate that the series of mis-selling cases may cost banks over US$ 31 billion. Unfortunately, the perpetrators will invariably get off scot-free!

One of the biggest fraud cases is on-going in India where this week, Anil Ambani, head of Reliance ADA Group, was a reluctant witness in the infamous 2008 “2G Scam” court case. Two other companies  – Swan and Unitech Wireless – are also involved along with the then Telecom Minister, A Raja. It is claimed that the government could have lost  US$ 27 billion as licences were sold at giveaway prices to favoured companies in return for massive kickbacks.

Swiss mining conglomerate Glencore Xstrata has just come in with an H1 loss of US$ 8.9 billion, which included a US$ 7.6 billion goodwill write-down. These were the first results since their earlier merger which on a comparative basis saw sales 4% up to US$ 112 billion whilst comparative profit at US$ 2.04 billion was 39.3% down on 2012’s return of US$ 3.36 billion.

A welcome change with some good news from the eurozone – latest figures show the 17-member bloc reporting a US$ 23.0 billion trade surplus in June – compared to US$ 17.0 billion a year earlier. However, the EU (comprising the eurozone plus ten other countries) trade surplus came in lower at US$ 13.1 billion which, in turn, was a major improvement on June 2012’s deficit of US$ 1.3 billion. Inflation rates were almost identical – with the eurozone at 1.6% and the EU at 1.7% – and well within the European Central Bank’s target of 2.0%. Netherlands had the highest rate at 3.1% whilst Greece was at the other end of the scale with a negative 0.5%.

However for some Asian countries, the outlook is not so bright. For example, in Indonesia there is a widening current account deficit (up 69.0% to US$ 9.8 billion, quarter on quarter), a currency that has fallen 11% this year, inflation rising to 8.6% and its main bourse falling 21% in the past four months. Consequently, the country is in the throes of a marked slowdown in economic growth – now below 6% for the first time in three years.

Even worse is Thailand which worryingly fell into a recession, as its economy contracted 0.3% in Q2 – this is a far cry from the staggering 18.9% Q4 2012 GDP expansion. The baht is at its lowest level since 2009.

Over the past year, Japan has seen its trade deficit almost double to US$ 10.5 billion, mainly because of a 19.6% jump in imports and the yen falling 25% in the past nine months. The world’s third largest economy saw a Q2 decrease in growth from 4.1% to 2.6% but the policy of a low yen may yet stimulate exports and eventually assist in reducing the deficit. Abenomics may still be the country’s  saviour!

With a noticeable improvement in the US economy, it is now likely that the Federal Reserve will taper their monthly US$ 85 billion quantitative easing programme later this year before ending it some time in 2014. Although there has been no official announcement, the markets have taken this as read and emerging markets have suffered. Interestingly, the BRICs, (Brazil, Russia, India and China), have witnessed an outflow of at least 30% of their bond funds. Their respective stock markets have fallen between 12% and 20% this year. These four countries have had their day in the sun and could be heading for a severe correction as  investors’ money heads back to safer shores.

The Indian rupee goes from bad to worse plunging to new depths despite the government injection of US$ 1.25 billion into the banking system. The markets were not impressed by the latest move to improve liquidity and reduce bond yields so it was no surprise to see the rupee drop to historic lows of 64.6 to the US$ and the Bombay bourse spiral downwards, shedding over 7% this week alone – equivalent to over US$ 125 billion in value. There is no doubt that the new governor of the RBI, Raghuram Rajan, has problems to overcome. But the main protagonist is the octogenarian prime minister, Manomohan Singh, whose economic management has seen the country’s growth at its lowest in a decade, its currency the worst performing in Asia and both its fiscal and current account deficits ballooning out of control. With constant ill-thought out policy changes, and as the country heads into not only a deepening  financial crisis, but also a crisis of confidence, maybe it is time for the PM to ponder the question – Should I Stay or Should I Go?

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