Singin In The Rain

singin-in-the-rainAlthough the week started with a sandstorm and ended with a rainstorm, the big news was the massive US$ 99 billion new plane orders made by Emirates at the start of the Dubai Air Show with US$ 76 billion being spent on 150 new Boeing 777-Xs. A further US$ 23 billion went on an order for 50 Airbus 380s, and along with  the 51 previously ordered and the 39 already in service bring its investment in the super jumbo to US$ 45 billion. Budget carrier, flydubai surprised the market by a larger than expected order of 100 Boeing 737 MAXs and 11 next generation 737-800s, valued at US$11.4 billion at current prices.

Next door neighbours, Etihad announced a US$ 25.2 billion Boeing order for 82 wide body aircraft including 777-Xs and 787s whilst  Qatar Airways waded in with a US$ 19 billion, 50-plane order. By Tuesday, the order book from this air show topped US$200 billion – a record.

Increasing prices and higher rents continue to dominate the real estate sector. According to a recent local report, the average price of a Dubai villa (US$1.39 million) is US$ 0.500 million higher than its Abu Dhabi equivalent. Although property surveys seem to have different findings, they all agree that the local housing boom continues unabated. The latest such report, from Cluttons, indicates a 23% Q2 property price rise has been followed by an 8% jump in Q3; over the past twelve months, values have risen an impressive 53%!

A relatively new entrant into the housing market is National Properties – a subsidiary of National Bonds Corporation – with the launch of 69 upmarket ‘Al Andalus’ units located in The Villa. The Andalusia Collection will be 5-6 bedroom villas, with built-up areas of between 7k – 8k sq ft – built on large block sizes.

Even before this week’s rains, Nakheel’s Al Furjan project, currently with 800 villas occupied, had been troubled by flooding. Despite these problems, the developer had sold a further 400 plots in September and, this week, another 500 blocks for US$ 215 million.

With a September 2015 US$ 5.5 billion loan repayment due, Istithmar, a division of Dubai World, has numerous options to consider from its investment portfolio. If it needed to sell, to raise funds, there is the Atlantis hotel on Palm Jumeirah, with the company having bought out its JV partner’s share earlier in the year.

This week saw the first of two openings for the Hilton Worldwide luxury brand as the Conrad Dubai opened its doors, to be followed next month by the Waldorf Astoria Palm Jumeirah. With the strength of the local hospitality sector, the company may be considering further properties in the near future.

GEMS Education’s foray into the sukuk market raised US$ 200 million – a third less than was initially targeted when the non-call hybrid sukuk was first launched. Because the company was unrated and issuing a subordinated bond, the Dubai-based educator had to pay a premium, with the deal probably priced nearer 12%, than the 8% first estimated. (Only last month, Majid Al Futtaim issued a similar perpetual non-call five note at par, for US$ 500 million, at a 7.5% yield). Dubai Investments are looking at a US$ 300 million Islamic bond issue by the end of the year – this has been delayed from earlier in the year because of the rising interest rates.

Mainly because of the booming economy and subsequent increase in its population, it comes as no surprise to read statistics from Dubai Customs indicating high growth in the emirate’s fruit and vegetable trade that jumped 18.5% in H1 to US$ 1.74 billion. Of this total, imports accounted for US$ 1.25 billion – a rise of 17.9% – and exports and reexports rose by 20.0% to US$ 490 million.

A subsidiary of Drake & Scull, Passavant-Roediger GmbH, is part of a three-company consortium that  has won a US$ 148 million contract to construct phase 2 of the Gabal Al Asfar wastewater treatment plant  in Egypt.

With the much awaited Expo 2020 announcement due out next Wednesday, HH Sheikh Ahmed bin Saeed Al Maktoum has indicated that the government would invest in excess of US$ 8 billion, if their bid was successful. Although there is conjecture about the economic impact hosting the exposition would bring to Dubai, the cost of infrastructure would be in the region of 9% of GDP – offset by economic growth which could be the equivalent of 2% by 2020, with smaller contributions in the years leading up to the big day. Dubai could also see nearly 300k new jobs created mainly in the construction and hospitality sectors, with visitor numbers in excess of 22 million. (Even without Expo 2020, consulting firm, EC Harris estimate that the value of major construction projects being handed over in 2016 may top US$ 40 billion).

Since the GCC produces more than 20% of the world’s plastic, and the UAE is one of the world’s largest producers of polypropylene, it makes sense for the DGCX  to start trading in plastics futures as from February 2014; this initiative sees the first ever plastics contract in the MENA region.

The Dubai Financial Market General Index returned to the black this week closing 2.3% higher, or 66 points,  at 2891 on its Sunday opening of 2825 points. Although it is 1.06% down on the month, the YTD gain of 86.38% makes it one of the best performing global bourses.

For example, the Dow Jones hit 16000 for the first time ever whilst the S&P 500 did likewise at 1800 points. Meanwhile the FTSE All World Equity Index reached a 6-year high as the Nikkei in Japan, having risen 7.7% the previous week, was testing 6-month highs.  The current bull run is largely attributable to the Fed’s easy money policy which has kept interest rates artificially low and enticed many investors into equity markets. There is now inevitability that the Fed will shortly start easing back on its QE program of pumping US$ 85 billion every month into bond purchases which in turn will see a realignment of the global equity markets – southwards.

A bad week for JP Morgan Chase with confirmation that the bank was hit with a US$ 13 billion fine by the US regulators for their investment role with risky mortgages between 2005 – 2008. It has not been a good H2 for the financial institution as July started with a US$ 0.4 billion penalty for manipulation of the Californian energy market, followed in September by two fines of US$ 0.47 billion and US$ 0.92 billion for erroneous billing to its credit card customers and its now infamous ‘London Whale’ debacle respectively, topped off last month by  US$ 4.5 billion for manipulating mortgage bonds to pension funds. How are they still in business?

There is no doubt that economic growth is slowing down in most Asian countries. Thailand, for example, recorded a reduced growth of 2.7% in Q3 – the third straight quarter of economic slowdown. It is expected that the country’s annual growth for the year may reach 3.0% – a lot lower than the August forecast of 4.3% and 54% down on the 2012 figure of 6.5%. One positive factor is the 26.1% annual expansion in the tourist sector which will be hoping that the kingdom can escape serious civil unrest in the coming months.

France is quickly becoming the sick man of Europe and the state of its economy is causing more concern to some than that of say Spain and Italy. The latest Flash Composite Output Index, at 48.5, is down from 50.5 last month – any figure below 50 equates to contraction. It is still in contravention of EU deficit rules and its public debt – at 53% of GDP – is one of the worst in the eurozone.

As Dubai gears up for Wednesday’s Expo 2020 announcement, and if the the correct and logical choice is made, the party starts and we will all be Singin In The Rain!

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