Won’t Get Fooled Again

burj-fogHH Sheikh Mohammed bin Rashid Al Maktoum has approved Dubai government’s 2015 budget that plans for 2,530 new jobs for Emiratis. With a forecast US$ 981 million surplus, this will be the first deficit free one since the GFC. The US$ 11.2 billion budget is 9.0% higher than last year. The revenue stream is 11% up, with the main contributing factors being government services charges (74% – 22% higher than last year), tax revenues (21%) and oil (4%).

This week saw Nakheel leasing commercial space in its Palm Jumeirah’s Golden Mile, which it took over last November. Over 70 outlets – including shops, restaurants and offices – will be made available by the developer, with the first batch opening in April.

According to reports – but not to Arabtec – the construction company is considering buying into certain businesses to widen its current portfolio; this includes 98% of Target Engineering Construction Co and almost 25% of Depa, the Dubai interior fitting contractor. The major shareholder in the company is Abu Dhabi’s Aabar Investments with 34.9% equity.

2014 proved to be another record year for Dubai Duty Free, with reported revenue of US$ 1.90 billion – up 7.4% on the previous year – and logging 27 million sales transactions. The three main contributing products were perfume (16.4%), liquor and gold as 88% of sales originated in Departures and the balance from Arrivals. 

The Dubai-listed utility company Tabreed has taken a 7-year US$ 708 million loan of which 61.5% (US$ 436 million) is a term loan and the balance will be amortised over the period. The facility will have two rates – 1.9% margin on the fixed term and 1.4% on the balance.

DEWA is planning to build a US$ 27 million green vehicle workshop in Al Ruwayyah, as a replacement for its old Ras Al Khor facility.

According to the Director General of Buildings  at Dubai Municipality, Khalid Mohammed Al Mulla, there are more than 14k buildings currently under construction in the emirate. These range from villas plus schools, hospitals and tower blocks.

It is reported that Etisalat has invested over US$ 5.2 billion over the past five years on its 4G and fibre optic networks. Last year, the telecom operator increased its number of mobile stations, for 3G and 4G, by over 15% to 19k, with a similar number planned for 2015.

Rather surprisingly, the December HSBC Purchasing Managers’ Index showed a marginal increase to an impressive 58.4, despite the low oil price and the bloodbath on the local stock market.

With many international banks apparently cutting back their local operations, it comes as no surprise to see that FGB has replaced HSBC as the leading UAE bank for syndicated loans. The local lender extended US$ 2.65 billion in credit as four other Emirati banks – Emirates NBD, NBAD, DIB and ADCB – filled the top five places – the last time this happened was in 2002.

Dubai Police are actively considering the introduction of legislation to allow employees to be an hour late, without penalty, when there is heavy morning fog. This sensible move would do a great deal to reduce accidents and stress levels in the emirate.

The Federal Customs Authority reported a 7.4% increase in H1 free zone trade to US$ 73.5 billion as the government takes active steps to enhance the profile of JAFZA, as the leading regional trade hub. Mobile phone imports accounted for 21.0% – US$ 8.5 billion – of imports whilst cigarettes, at US$ 600 million, accounted for 19% of all exports.

In a move to cut costs and restructure the company, Yahoo has almost halved its Dubai staff base to around fifty. The internet company closed its Cairo and Jordan offices last year but there are no indications that Dubai will suffer the same fate.

It appears the current volatility in the local markets has led several UAE companies to hold back on IPOs in 2015. This makes sense when one considers that the last four companies to go down that track are below their opening trades. Amanat (US$ 0.27), Dubai Parks & Resorts (US$ 0.27), Emirates Malls Group (US$ 0.79) and Marka (US$ 0.38) had Thursday closing share values of US$ 0.22, 0.19, 0.75 and 0.36 – down 20.0%, 29.0%, 4.8% and 5.1% respectively. It is not good news that the bourse in five days of trading was the worst performing global market for two different days and the best performing on one day.

The DFMI started its first week of 2015 trading on Sunday at 3774 and continued its downward trend to a Thursday close of 3674 – 2.6% down on the week. Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 1.89 and US$ 0.79 – 4.5% and 1.2% down, in turn, on the week.

Commodity prices continue to trend south with Brent crude (US$51.29), gold (US$ 1,212) and silver (US$ 16.35) all down at the close of Thursday (08 January) trading. Some contrarians may consider this a buying option as the last time oil fell more than 50%, shares in oil-related companies jumped more than that amount within the ensuing six months.

South Korea’s Samsung Electronics expects a 37.4% reduction in Q4 profits to US$ 4.74 billion; the forecast annual profit, at US$ 22.8 billion, will be its weakest return for the past three years. The company has failed to keep up with competition, especially cheaper Chinese electronic models, with its Galaxy losing some of its earlier gloss. In comparison, Samsung’s major rival, Xiaomi, announced a doubling of its 2014 revenue.

Three of UK’s largest retail companies are experiencing troubled times. Tesco – with 3.3k shops – has announced plans to close 43 unprofitable outlets and shelve proposals to open 49 large stores. Still reeling from last year’s accounting scandal, the supermarket is also planning to close its staff pension scheme, reduce overheads by 30% and save US$ 380 million. Meanwhile Sainsbury’s reported a 1.7% fall in annual like for like sales, as its share value has sank 36%

over the past year. M&S had even worse news as it recorded its 14th consecutive quarterly drop – 5.8% – in clothing sales, whilst its online sales dipped by 5.9%.

German inflation in December fell to its lowest level in over five years to 0.2% and the eurozone officially entered deflation, with a minus 0.2% mark – both indicators of the urgent need for the ECB to start purchasing government debt and finally to introduce a quantitive easing program. Whether the procrastinating ECB president Draghi waits until the end of the month to take any remedial action remains to be seen. Low inflation or deflation is often a recipe for a fall in economic activity, bigger dole queues and a reduction in consumer and capital spending.

Little wonder the euro sank to its lowest level in nine years and many countries’ bond yields hit record lows. Greece’s 10-year bond yields rose above the 10% mark as the country awaits for the outcome of its 25 January general elections. With the Syriza party, who have promised to reverse the EU austerity measures, currently heading the polls, there are questions whether any ECB bond buying programme will include Greek bonds.

Just as the eurozone goes into recession and global growth slows, it seems that the UK economy is also waning. According to December’s Markit/CIPS UK Services Purchasing Managers’ Index (PMI), the country’s service sector recorded its weakest growth level in 19 months whilst GDP is forecast to be up by only 0.5% in Q4.

Fresh from his election victory, Prime Minister, Shinzo Abe, is hoping to kick-start the Japanese economy.  Abenomics has thee three arrows in its armoury – government spending, easing of monetary policy and long-needed structural reforms, including the deregulation of the energy and agricultural sectors and overhauling the bureaucratic labour market. To date, not many of his arrows have hit the target as the world’s third largest economy is once again in recession.

November saw the US trade deficit narrow to US$ 39 billion as imports dropped to US$ 235.4 billion and exports to US$ 196.4 billion. Significantly, exports to the China, EU and Japan fell by 3.9%, 7.7% and 9.7% – a sign that the reduced demand for US goods was beginning to see the impact of a global slowdown. US trade with China tumbled 8.0% to US$ 29.9 billion.

Following the latest Federal Reserve meeting, it is unlikely that short term funds will see an increase in its benchmark rate, at 0% for the past six years, until at least Q2. Although bullish at a micro level, the central bank still has reservations on the global outlook which could have a contagion on the domestic economy. Many analysts see these low rates as a major boost for the world’s biggest economy.

The Bank of England has just released previously unseen minutes of meetings held just before the start of the financial crisis in 2007 – and they do not fill anyone with much confidence in their ability to act to save the economic world.

It seems that the members (known as the Court) did realise that liquidity was a major problem but were oblivious to the impending crisis.  When BNP Paribas announced its massive exposure to sub-prime mortgages in August 2007 – and warning bells should have been ringing – the Court did nothing. Even at a 12 September meeting – a day before the banking crisis hit home and there was a run on Northern Rock – the members still believed that the triple oversight of the BoE, Treasury and FCA was more than enough to maintain financial stability. Here’s hoping that this time around, the old suits Won’t Get Fooled Again!

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