Hungry Eyes!

Uncle-SamS&P is yet another company with a dire forecast that Dubai property prices will fall by up to 20%, from last year’s highs. The rating agency points to the fact that so many new units will come on line in H2 but any downturn will be softened because the economy is in a better position than it was six years ago, when prices fell by over 50%.

It does appear that many contracts are going the way of the Chinese. This week, the China State Construction Engineering Corporation Middle East won a US$ 67 million RTA tender to build access roads for the upcoming US$ 2.7 billion Dubai Parks and Resorts project.

The impact that the MICE (meetings, incentives, conferences and exhibitions) sector has on the hospitality sector cannot be underestimated. Last year, the Dubai World Trade Centre Authority recorded a 10.0% annual visitor growth to 2.45 million; based on the 93 exhibitions held, that would indicate over 26.3k visitors per exhibition, many of whom would be staying in hotels and eating out.

A recent study estimates that there will be a 56.2% rise in the number of hotel rooms to 101k over the next five years. Currently, there are 96 new hospitality projects in the pipeline – a third of which are due to open in 2017.

Meanwhile TripAdvisor ranks Dubai as one of the 10 most expensive cities in the world. Eight other cities were listed above Dubai, with the top four being Cancun, Zurich, New York and London. The study indicated that a typical 3-day Dubai stay for two costs US$ 1,524 – with dinner at US$167 being rated the most expensive on the planet. What could be a worry is that “local” rival, Sharm El Sheikh, at US$ 820, came in as the third cheapest destination.

With the holiday season ready to start in earnest, Dubai is expecting to cement its position as the world’s busiest international airport. (However, when domestic passengers are included in the total, the likes of Atlanta – 96 million, Beijing – 86 million and Heathrow – 73 million are still more than Dubai). 2015 Traffic for the first four months – 26.1 million passengers – is 6.5% higher than the same period last year; however, cargo has fallen 4.7% to 799k tonnes as much of the operations is being shifted to the new DWC.

It seems that a possible equity partnership agreement between Emirates and South African Airways has hit minor problems. The deal that would have netted the African carrier US$ 164 million, and access to EK’s global network, was not signed at the recent Paris Air Show, as was expected.

The country’s CPI (Consumer Price Index) recorded a 0.27% May monthly increase, and a 4.32% hike over the past twelve months as it reached the 123.27 level (with 2007 as the base 100). With a May monthly hike of 0.7%, Dubai’s annual inflation rate rose to 4.7% – its highest level in six years. The main driver was housing and utility costs up by 7.8% which account for 44% of the total “basket” used for calculation purposes.

At the beginning of the week, HH Sheikh Mohammad Bin Rashid Al Maktoum wrote about the economy. In the bullish review, he highlighted the country’s economic achievements whilst looking forward to a prosperous future. Interestingly, he indicated that one of his aims is to make the country less dependent on oil – currently, the non-oil sector contributes 68.6% of the constant price GDP with an 80.0% target by 2021. This has been aided by both public and private investment, of some US$ 96.2 billion last year, with more of the same expected this year. There will be even more money poured into the ‘3Ts’ – trade, tourism and transport – with increased emphasis on the knowledge economy.

Unilever announced that it had started construction of a US$ 272 million plant in Dubai Industrial City, due to be completed by Q3 2016. The factory, expected to generate 400 new jobs, will be mainly producing personal-care products.

Nestlé is another multinational investing in Dubai – this time a US$ 120 million factory in DWC. The facility, making coffee and culinary products, will open within six months and will eventually generate 400 new employment positions.

Dubai Investments announced that it has acquired a further 59.66% shareholding (in addition to its existing 1.20%) in Al Mal Capital for an undisclosed fee. The acquisition will see DI obtain an opening in the financial services sector, including risk management.

The Argentine restaurant chain, Gaucho is to combine with Add-Mind to add the Indie brand to the ever-growing Dubai lounge scene. The new outlet, in DIFC, will open in Q3.

The Pure Gold Group expects to double its number of outlets to 250 over the next five years. The Dubai-based retailer, with operations in twelve countries, will invest US$ 136 million and is also considering a move into the hospitality sector.

The Al Masah Capital acquisition of Al Faris Restaurant became the third local food-related take-over in the past month; the other two involved Marka’s purchase of Reem Al Bawadi and Audacia’s 30% stake in Al Safadi Restaurants. Al Faris owns the Oman and UAE franchise rights for the Californian-based Johnny Rockets, which has 14 UAE operations, including eight in Dubai., established in 2005, has reportedly received funding from the US-based Tiger Global Management as it tries to raise a total of US$ 300 million to take advantage of current economic conditions. Dubai’s largest e-commerce company deals with some 400k products and has over 275 million annual website visitors.

Despite the fall in oil prices, the HSBC’s Purchasing Managers’ Index still heads northwards with a May reading up an impressive 0.8 to 62.8 points.

DP World listed a US$ 500 million conventional bond on Nasdaq Dubai, bringing the total of such paper on that bourse to US$ 11.8 billion. This was the third time that the port operator has utilised the bourse following two 2007 listings – a US$ 1.5 billion sukuk and a US$ 1.75 billion conventional bond.

Etisalat, 60% owned by Emirates Investment Authority, has announced that foreign ownership of its shares, to a maximum of 20%, will now be allowed.

Since recommencing trading on the local bourse, six years after its delisting, Amlak has had a tumultuous first 18 days of trading. Since 02 June, its shares have gone up and down on an almost daily basis with nine days of double-digit increases and four days of almost 10% decreases, along with two days of “normal” trading. On Monday, when the Islamic mortgage lender notified the bourse that it was in partnership discussions with Emaar Properties, which already has a 45% shareholding in the company, its shares hit a new peak of US$ 0.70; by Thursday the shares had jumped even to US$ 0.85.

The DFMI rose 2.0%, starting on Sunday at 4064, to close on Thursday (25 June) at 4147. Bellwether stocks had mixed results with Emaar (down US$ 0.01 to US$ 2.18) whilst Arabtec closed US$ 0.03 higher at US$ 0.74. Thursday saw increased activity with 745 million shares, valued at US$ 1.0 billion, traded – compared to the 245 million, worth US$ 488 million, the previous week.

Both gold and oil continued their recent downward trend with the yellow metal down US$ 25 to US$ 1,174 and Brent crude off US$ 1.17 to US$ 63.56 at Thursday’s close.

China’s June HSBC/Markit flash manufacturing purchasing managers’ index continued in negative territory with a reading of 49.6. (Any reading below 50 denotes contraction, above that expansion). This is yet another economic indicator that signifies the need for the authorities in the world’s second largest economy to introduce more stimulus measures to boost growth: Q1 data shows that it had dipped to 7.0% – a six-year low. Other worrying signs are a fall in exports as well a marked increase in lay-offs. Even though rates have been cut three times since December, it seems inevitable that a fourth reduction is on the cards.

In the light of the need for stimulus in a slowing economy, there is no doubt that this could be a tipping point for the Chinese equity market. As liquidity dries up, and with an official crackdown on illegal margin trading, the share bubble, that has seen the Shanghai Composite Index surge 122% over the past year, is set to burst. On Thursday, it closed on 4528, compared to 2016 points 12 months ago.

May saw UK government borrowing down 18.0% to US$ 16.0 billion – its lowest level in over eight years. Total public spending for the year to 31 March was down 9.6% at US$ 140.0 billion, equivalent to 4.9% of the UK’s GDP. This is expected to improve even further with the Chancellor, George Osborne, planning cuts of US$ 47.1 billion in departmental spending and US$ 18.8 billion in welfare payments.

The likes of Amazon make a mockery of countries’ tax regimes. In the UK, the company employs 7.7k, has sales of US$ 8.3 billion (up 14% in a year), makes a profit of US$ 54.1 million and pays tax of US$ 18.7 million – equivalent to 0.2% of revenue! Not too many companies can work on a O.65% net margin. Such entities are not breaking the law as they are allowed to move profits to other countries with more favourable tax rates.

Greece is also doing its best to make a mockery of the EU. The country needs to pay US$ 1.8 billion to the IMF by next Tuesday, as well as requiring over US$ 6 billion for domestic requirements. A return to the drachma would normally be inevitable but the bureaucrats have a way of fudging their way out of an impasse and politics may get the better of economics and common sense.

Some US expats are in for a nasty surprise! Following an agreement signed by the UAE Ministry of Finance, it seems that all US citizens residing in the UAE will have their bank and finance details made available to US authorities. This is in line with the 2010 Foreign Account Tax Compliance Act, targeting US citizens not adhering to US law by hiding funds in overseas accounts. It now requires banks and other institutions to provide account information when so directed by the US Treasury Department’s Hungry Eyes.

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