Bridge Over Troubled Water

samsung-galaxy-note7With developers keeping a firm grip on the supply of residential units (this year only 35% of expected new property will be released into the market), it is surprising to read many property-related reports full of doom and gloom. Core Savills is one of the few property consultancies to report that prices are heading north and, after seven consecutive quarters of falls, they moved higher by 1%, with transactions up 5%. The biggest Q2 rises were in the Meadows and Springs – up 3% (but 7% down on the 12 months); JV villa prices were also 7% lower on the year but 5% down year on year. Rents were largely flat although there were losses of between 2% – 4% in Al Barari, DSC, Dubailand, Emirates Hills and Palm Jumeirah.

The world’s biggest shopping centre, The Mall of The World, is still a going concern but will be moved from Al Sufouh to a different location on Sheikh Mohammad bin Zayed Road. The original US$ 22 billion concept called for 745k sq mt of retail space, connected to a theme park and 100 hotels/serviced apartments, with 20k rooms. Whether there will be changes remains to be seen but it is expected that phase 1, encompassing 25% of the plan, will be ready prior to Expo 2020.

Following its launch earlier in the year, the Vincitore Palacio US$ 37 million project is reportedly 90% sold out. The developer’s first foray in the local market is located in the Arjan district and comprises 175 apartments and is slated for completion by Q2 2017.

Nakheel has announced that its proposed US$ 1.1 billion Deira Islands mega mall will cover 600k sq mt, larger in size than Dubai Mall. The developer has already started infrastructure work, which will add a further 40km to the emirate’s coastline, along with a US$ 245 million resort and water park.

The developer also announced the opening of its new 210 mt link between the Metro and Ibn Battuta Mall which will see 90 new dining and retail outlets opening in Q4, along with a 372-key Premier Inn. This follows the May opening of the 300k sq ft phase 1 extension, with 60 outlets. It also plans a1.2 million sq ft mall in Nad Al Sheba, where it is currently building 1.5k villas.

According to Deyaar Development, work has already started on its Al Barsha project – a 299-key hotel along with 109 serviced apartments. The building, covering 70.8k sq ft, is slated for completion by the end of next year and is in addition to similar developments – The Atria in Business Bay and Mont Rose Dubai Science Park.

A new hotel brand is set to enter the Dubai market. Tin Hotels, a JV between Singapore’s General Hotel Management and investment company Van de Bunt Partners, is set to open its first 3-star hotel here in 2019. GHM already operates luxury Chedi brands in Muscat, Indonesia, Switzerland and Vietnam and has projects in Sharjah.

Murray & Roberts, one of the first international construction companies to arrive in Dubai in the 1990s, has decided to leave the building sector and focus in future on three key areas – energy, mining and water. It is expected that any outstanding work in the country will be completed by next year.

With a 5.4% increase in H1 revenue to US$ 627 million (and passenger traffic up 16.5% to 4.9 million), flydubai managed to post a 39% reduction in losses to US$ 24 million. The main drag factor was down to the “uncertain international economic situation”, not helped by the strong greenback vis-à-vis other currencies.

Special 95 petrol prices will increase by 1.2% to US$ 0.447 this month but the price is still some 4% down on the same period last year, when deregulation was introduced.

In a recent Visa report, the company estimated that 40% of all GCC e-commerce transactions originated in the UAE, with Saudi Arabia accounting for 35%. The country’s 28% annual growth was aided by the large percentage of millenials shopping on line – UAE (75%) and Saudi Arabia (58%). A further study – by AT Kearney – estimates the GCC e-commerce market will expand, over the next four years, to US$ 20.0 billion, from its current level of US$ 5.3 billion.

It is reported that Emaar Properties may be in the market for a sukuk sale in the region of US$ 500 million. The last time the company was involved in a similar deal was when Emaar Malls Group LLC raised US$ 750 million in June 2014. It is estimated that GCC bond and sukuk sales have more than doubled YTD to US$ 38 billion.

Following its May US$ 750 million 5-year sukuk issue, Emirates Islamic has priced a further US$ 250 million tap on the existing Islamic bond, priced at 170 bp over midswaps. (A tap transaction is simply a continuation of the original sukuk, adjusted to reflect existing market conditions – the May issue was at 220 bp over midswaps).

As part of the government’s smart government initiative, 16 of the country’s major banks have signed a MoU to own and operate a mobile wallet platform. The mWallet can be considered a cashless wallet that will encourage the cashless society with all transactions via smartphones.

The DGCX has initiated a new vehicle for local investors, with the introduction of stock futures on five US companies (Apple, Facebook, Google, JP Morgan and Microsoft), as well as ten Indian entities. Over the next 12 months, a further 100 companies will be added to the listing. Nasdaq will start similar operations in September.

The DFM opened on Sunday at 3472 and rose 1.0% to close the week on 3512 by Thursday (01 September 2016). Volumes, on the last day of trading were at 421 million shares, valued at US$ 147 million, (cf 122 million shares for US$ 53 million, the previous Thursday). Bellwether stock, Emaar Properties, was up US$ 0.01 to US$ 1.93, whilst Arabtec also nudged US$ 0.01 higher to US$ 0.40. YTD, the bourse is 11.22% higher, with Emaar performing well, showing a 24.78% rise from its year’s opening of US$ 1.55 with Arabtec coming in16.80% higher after its 01 January balance of US$ 0.34.

Brent crude fell back with a vengeance this week, US$ 5.44 lower at US$ 45.45; gold was also down – US$ 40 – to US$ 1,317 at Thursday’s (01 September 2016) close. For the first eight months of the year, the yellow metal had rallied by 20.4% (from US$ 1,089 to US$ 1,311) but lost US$ 46 in August from its start of the month price of US$ 1,357. Brent was fairly flat from its opening year price of US$ 44.30 to close on 31 August at US$ 46.89 but gained ground in the month – up 7.3% from its month’s opening of US$ 43.70.

The ACCC, Australia’s consumer watchdog, is seeking a public declaration of misconduct, financial penalties and corrective advertising from VW in the wake of its emission scandal. Covering 55k vehicles and ten models, the German carmaker will also face several private class action lawsuits.

It is reported that Mondelez International, which owns Cadbury chocolate, is not to proceed with a US$ 23 billion cash and stock bid to take over US confectioner Hershey. Previous takeover bids have failed because of concerns from its major stakeholder, the charity, Hershey Trust.

Global legal firm, Slater & Gordon, is facing problems following a US$ 1.3 billion loss, caused mainly by Brexit and the proposed UK changes to accident compensation laws. To date, 14% of UK staff has been retrenched, and four offices closed, as the firm’s debt level rose 11.1% to US$ 0.9 billion.

Caesars Entertainment Corp is facing lawsuits from several bondholders for alleged reneging on guarantees of bonds, totalling US$ 11.4 billion, by its subsidiary Caesars Entertainment Operating Co Inc, which filed for bankruptcy in January 2015, with debts of US$ 18 billion. Caesars has been accused by one of the parties of asset stripping prior to the bankruptcy filing.

Valeant Pharmaceuticals International Inc has been accused of racketeering by forcing buyers to pay exorbitant prices for its drugs between January 2013 and October 2015. In a class-action complaint filed in New York, the Canadian company’s ties with the defunct speciality pharmacy Philidor RX Services LLC resulted in excessive costs for some drugs.

Samsung Electronics saw an estimated US$ 7 billion wiped off its market value on Thursday, as it released news that it would be delaying shipments of its Galaxy Note 7 smartphone for quality control testing, amid reports of exploding batteries. This could not have come at a worse time, as competitor Apple is expected to unveil their new iPhones next week.

In a key decision, the EC found that Apple’s deal with Ireland has violated the bloc’s state-aid rules and involved illegal assistance, via a highly favourable tax arrangement. The penalty of US$ 14.5 billion surprised some analysts but will serve as a warning to hundreds of other entities, with similar arrangements in countries such as Ireland, Belgium and Luxembourg. Both the Irish government and Apple will appeal the decision but there is no doubt that the country benefitted through the creation of new jobs (5.5k) and the company by a financial boost and a probable unfair advantage over competitors; it is estimated that Ireland is home to 700 US companies employing 140k. The US Treasury continues to watch proceedings with interest, worried that the US taxpayers will lose out and has already stated that the commission had overextended its legal authority and unfairly targeted US entities.

The English Premier League posted a record transfer window spending in August of over US$ 1.5 billion, compared to just over US$ 1.2 billion last year. The last day, 31 August, saw deals totalling US$ 203 million. The biggest signing, at US$ 117 million (the most valuable in transfer history), was that of Juventus star, Paul Pogba, by Manchester United’s new manager, Jose Mourinho; ironically, the French international left the same club in July 2012 after refusing to sign a new contract, much to the displeasure of the then Reds manager, Sir Alexander Chapman Ferguson.

With oil sales accounting for 70% of government income, it is no surprise to see Nigeria slip into recession after two quarters of negative growth, following Q2’s contraction of 2.1%. The country’s economic problems have been exacerbated by an 11-year high inflation rate of 17.1% and a failure to prop up the naira, by delaying its devaluation, with a disastrous consequence for its forex reserves.

Although still the world’s fastest growing major economy, expanding at an impressive 7.1%, India’s latest growth figure was down from 7.9% the previous quarter and also lower than analysts’ expectations. Despite the relatively disappointing return, an early interest rate cut is still on the cards. If the Modi government could get a handle on corruption, bureaucracy and lack of transparency, prevalent at government level, growth figures would almost certainly attain double digit levels – but ‘if’ is a big word!

In her recent keynote address at Jackson Hole, Janet Yellen conceded that with the job market improving, along with economic growth, even though disappointing, the prospect of a rate hike is a step nearer. She also remarked that the Fed is closer to its dual targets of employment maximisation and stability of prices. Following her unusually upbeat address to central bankers, a rate hike is inevitable this year and may come in September (but more likely later); any interest rise will only be the second in a decade and would follow the other hike last December.

Recent economic data confirms that the US economy is edging higher. July home sales witnessed their fastest rate increase in more than nine years whilst unemployment benefit claims dipped; in Q2, consumer spending was up by 4.4% and GDP growth was at 1.1%.

Although Q2 saw a 0.2% growth, the Greek economy is set for a further year of contraction and a mild recession. Weak consumer spending, continuing high unemployment levels (at over 24%, the highest in the EU), tight liquidity, disappointing export numbers and low investment indicate that the country is going nowhere fast. Last year’s US$ 95 billion bailout package seems to have been only a stop-gap measure, with little to show the Greek population for their pain of pension cuts and tax increases. Their enforced target of reaching a budget surplus of 3.5% of economic output seems to be only a pipedream – as does the EU’s estimate of 2.7% Greek growth next year.

Despite protestations to the contrary, it seems that the Remain camp painted a much bleaker picture of what would happen if Brexit occurred. The latest data bears this out with the UK manufacturing PMI climbing 5 points in August to 53.3 from 48.3 a month earlier following the referendum. Furthermore, August employment was up for the first time this year. It seems that the economy will not spiral into recession, as previously expounded by the Whitehall mandarins, and is likely to travel in the other direction.

Even more QE may be on the cards as eurozone inflation rate remained flat at 0.2% – some way off the ECB’s 2.0% target. With unemployment unmoved at 10.1%, it seems that more stimulus measures, in addition to those already in situ – the US$ 89 billion monthly bond purchases, interest rates at 0% and bank deposit rates of minus 0.4% – will have to be introduced.

A major blow to the bloc is the reported bid by France to call for a halt in the massive Transatlantic Trade and Investment Partnership talks between the US and the EU, with President François Hollande stating there would be no agreement until at least 2017. Even the German Economy Minister, Sigmar Gabriel, indicated that negotiations were effectively doomed. Not surprisingly, EU trade commissioner Cecilia Malmstroem disagreed that negotiations had failed. It will be interesting to see whether a single country – the UK – can come up with a US trade agreement quicker than a single bloc with 28 countries! Undoubtedly, no love is lost between the EU and US trade negotiators and the chances of any worthwhile deal being made are remote – the link between the two parties is no more than a Bridge Over Troubled Water.

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