Days Of Future Passed

dubai-fireworks-2017It is expected that KOA’s first mixed-use development will be completed by the end of 2017. The 70-apartment project, located near Mohammed bin Rashid Gardens, will also include a multi-purpose ampitheatre and a gourmet market.

With an opening slated for early 2017, Dubai Motor City’s First Avenue has signed its initial main anchor tenant – ACE Hardware. The US$ 136 million development will house 70 retail outlets, 15 eateries and a 150-key Park Inn by Radisson.

Damac Properties has introduced a Dubai Shopping Festival offer to any purchaser of its units, valued at over US$ 163k, a brand new BMW or other luxury car. No doubt that the developer, having sold a total of 16.8k units to date, will see a mini sales boom up to 28 January 2017.

As has happened over recent months, Dubai’s hotels have seen occupancy levels nudging higher, whilst other indicators head south. November is no exception with occupancy up 4.7% to 89.5%, with the average daily rate and revenue per available room down 8.6% and 3.6% to US$ 250, compared to the same month in 2015.

Meydan Group announced that it had secured Islamic financing of US$ 272 million to be used for its new projects, including its residential District One Project in MBR City.

Dubai Municipality has indicated that it will be spending up to US$ 681 million on two new commercial facilities, as well as expanding and maintaining existing markets. The Central Fruits and Vegetables Market is expected to cost US$ 272 million whilst a multi-storey cold storage for vegetables and fruits for 56 stores comes in at US$ 44 million. It is also currently constructing a US$ 26 million facility specifically for building materials in Warsan-3 and a US$ 21 million market for furniture, electrical equipment and household appliances, located in Nad Al Sheba.

DM has also signed an agreement with the Mohammed bin Rashid Space Centre (MBRSC) in connection with the design and manufacture of the region’s first environmental nanometric satellite – DM SAT1. The project emanates from the Dubai Future Accelerators program, with the advanced satellite able to collect and analyse environmental data.

DEWA announced that it had completed 53% of its US$ 400 million M-Station power plant that will generate a further 700 megawatt – 34% – to 2,760 MW to Dubai’s capacity.

The second phase of the US$ 13.6 billion, 5k MW Mohammed bin Rashid Al Maktoum solar park is set to be completed by April 2017. Then the extra 213 MW solar PV power will provide for electricity to an additional 30k homes.

As part of HH Sheikh Mohammed bin Rashid Al Maktoum’s US$ 354 million Hatta development master plan, construction work will soon start on the Hatta Gate art project. Located in the Hatta heritage area, the building will reflect the area’s topography of mountains and cliffs. The RTA is also currently building a US$ 15 million link road from the town to Dubai, via Lehbab.

Following a directive from Sheikh Hamdan Bin Mohammad Bin Rashid Al Maktoum to boost the industrial sector in line with the Dubai Industrial Strategy 2030, it is expected that Dubai’s GDP could see a US$ 45 billion surge over the next 13 years. The Crown Prince is highlighting the need for an impetus in knowledge-based jobs and wants to see 27k new specialised positions, a marked increase in R&D and related exports to jump by US$ 4.4 billion.

Airbus announced that it was postponing the delivery of 12 A-380s to Emirates due over the next two years. Last month, the airline indicated that it was having some unspecified issues with the new RR engines for the jumbo.

Dubai New Year revelers will have to dig deeper this year, as a travel study has concluded that the emirate will be the most expensive location in the world. The average cost of a “package” covering all the accoutrements – such as drink, food and entertainment – has risen 11.2% to US$ 610 compared to the likes of New York, London, Paris and Sydney where the cost comes in at US$ 510, 391, 319 and US$ 259 respectively.

Local petrol prices nudged higher again with Special 95 up US$ 0.030 to US$ 0.490 from 01 January; over the year, the price has risen 6.5%. A further hit for UAE drivers came with the news that 35% will have to pay more for vehicle insurance in 2017, as new tariffs come into force with minimum premiums of US$ 354 and US$ 545 for saloon cars and SUVs respectively.

The 5-year old Emirates Development Bank has sanctioned a US$ 409 million budget – half of which will go to housing loans for Emiratis and the balance for the for the development of SMEs to help the private sector generate more job opportunities for citizens.

With imports at US$ 161.9 billion, reexports of US$ 67.8 billion and exports totalling US$ 29.7 billion, Dubai’s non-oil foreign trade for the first nine months of the year showed an YTD decrease of 1.4% to US$ 259.4 billion; imports were 0.5% lower from the previous year’s return of US$ 162.7 billion, with reexports down 7.4% from US$ 73.3 billion and exports 8.3% lower at US$ 27.2 billion. However, there was an 11.0% surge in the volume traded to 70.8 million tonnes.

Shuaa Capital has paid US$ 25 million for a 14% stake in Bahrain’s Khaleej Commercial Bank. The Dubai-listed investment bank bought the 147.1 million shares in a special auction from Alimtiaz Investment Group.

The Investment Corporation of Dubai posted a 23.2% dip in H1 profits to US$ 2.2 billion, as revenue fell 7.9% to US$ 22.5 billion. A leading driver was the fall in oil and gas earnings (accounting for 23.5% of ICD’s portfolio) sinking 30.6% to US$ 5.3 billion, with its investments in the likes of Enoc, Ducab and Emirates Global Aluminium being badly affected by a torrid 2016 in the energy sector. ICD has stakes in many of the emirate’s iconic companies including Dubai Islamic Bank, Emirates, flydubai, Jumeirah and Nasdaq Dubai. Its total assets have increased 2.3% to US$ 200.8 billion.

The DFM opened Sunday at 3517 and after a flat week’s trading closed 14 points higher on Thursday (29 December 2016) at 3531. Volumes were on the low side at 398 million shares, valued at US$ 89 million, (cf 210 million shares for US$ 169 million, the previous Thursday). Emaar Properties and Arabtec were both down for the week by US$ 0.04, to US$ 1.94 and US$ 0.01 US$ 0.36 respectively.

This week saw Brent Crude having another good week – US$ 1.80 higher to US$ 56.85. Finally, gold reversed its recent downward trend, closing US$ 27 higher at US$ 1,158 by Thursday (29 December 2016).  Over the year, both commodities traded upwards with Brent up US$ 18.42 to close 2016 at US$ 56.82, whilst the yellow metal was US$ 92 higher at US$ 1,152.

With OPEC’s 2-year strategy of slashing prices by pumping more oil, in a bid to cut out the shale producers, showing some success, the cartel has to ensure that rising oil prices do not encourage a comeback from these alternate oil suppliers. Now as prices nudge higher to the mid-US$ 50 range, shale rigs are being brought out again – an estimated 200 since May. It is estimated by the IMF that a US$ 62 breakeven point would cover most members’ shortfalls but the higher the price the higher the number of shale producers will re-enter the market.

Further to Boeing’s announcement last week that it had secured a US$ 16.6 billion deal with Iranair for 80 aircraft, the Iranian Deputy Transport Minister, Asghar Fakhrieh-Kashan, has indicated that the value of the order was only about 50% of that total. Likewise, it seems that Airbus has been touting a figure in the region of US$ 19 billion for its recent order of 100 planes, whereas the airline’s chief executive has indicated that the value was less than US$ 10 billion.

In Australia, the largest lotteries and betting company in the world has rejected a US$ 4.8 billion takeover bid from Pacific Consortium. The board of Tatts seems to prefer the bid from Tabcorp.

Shares in troubled Toshiba Corp took a 20.4% dive in one day, as news that it may be facing billions of US$ in losses, relating to a US nuclear power acquisition. The company is just recovering from a major accounting scandal that saw the electronics conglomerate inflating profits by US$ 1.25 billion over a 7-year period as well as last year’s write down of US$ 2.3 billion for its nuclear business.

Following its dubious role in mortgage-backed securities, some may consider that Deutsche Bank has got off lightly with a US$ 7.2 billion penalty from US authorities, when the initial September fine came to US$ 14.0 billion. In a similar deal, Credit Suisse has had its fine for similar misdeeds cut to US$ 5.3 billion. Furthermore, it seems that Barclays is now on the DoJ’s radar for alleged mortgage securities fraud involving US$ 31 billion in securities. The US authorities said it would seek compensation up to the amount that investors lost or that Barclays gained.

As expected, the Gentiloni government rubber-stamped a US$ 21 billion finance package to support Italy’s troubled banking sector. The first bank in the queue for funds will be the world’s oldest, Monte dei Paschi di Sienna, which failed in its attempts to raise US$ 5.5 billion from private investors. Now it is requesting a further US$ 4 billion as the shortfall is now bigger than first thought. Under updated EU rules, any bank applying for government assistance will have to convert any junior bonds to shares – a move that may cause problems for small investors, who traditionally own such paper, if and when the financial institution hits the buffers.

It has not been a good first year for the incoming Argentine President Mauricio Macri, as he sacks his finance minister, Alfonso Prat-Gay. He was responsible for ending foreign exchange controls, resulting in the peso losing 33% of its value and inflation jumping to 40%. During the year, with 6k companies having closed and 200k becoming unemployed, Latin America’s third-largest economy is expected to contract by a further 2%.

The US economy is progressing better than expected with Q3 growth rates revised upwards from 2.9% to 3.5% – well up on the 1.4% recorded in Q2. It will be interesting to see the new Trump administration continuing this trend which will have a positive impact on the global economy.

Likewise, the UK has updated its Q3 growth, albeit on a smaller scale, from 0.5% to 0.6%. The FTSE 100 closed on Wednesday at a record high of 7,106, beating the 27April 2015 previous best, and the year on 7,148.

Despite Brexit, the UK has jumped up five places to 5th in the Forbes list of the best countries to do business. Sweden, New Zealand, Hong Kong and Ireland were in the top 4 whilst the US dropped one notch to 23rd, mainly because of increasing bureaucracy.

China expects that 2016 foreign direct investment into the country will reach US$ 113 billion, as outbound direct investment topped US$ 161 billion, having risen 55.3% in the 11 months to November, and 76.5% in the month compared to November 2015. It is expected that the country will tighten up on ODI in 2017, as the yuan continues to wobble and forex reserves dip to their lowest levels in six years. On the other hand, the country will open up on inbound investment and reduce restrictions to “increase openness to the outside world”.

As noise levels in in the China Sea begin to rise, Japan has approved the country’s largest ever defence budget at US$ 43.6 billion, whilst its coastguard budget has jumped 11.9% to US$ 1.8 billion. This comes about because of increasing tension arising from China’s and North Korea’s nuclear and missile threats. The defence budget accounts for 5.3% of Japan’s US$ 828.6 billion for the financial year starting 01 April 2017. This could be a major problem area in 2017 and a global flashpoint.

It is interesting to note that many pundits have been eating humble pie, having got forecasts horribly wrong in 2016. Many predicted oil to be trading at US$ 20 by the end of the year and that sterling would be sinking to parity with the greenback, let alone massing up on Brexit and Donald Trump. Treat any predictions with caution!

Despite the general feeling that 2016 was not the best of years, all this blog’s indicators headed north, with the exception of the AUD, GBP and euro currencies (which failed to compete with the strong US$) and the CSI300 index. The best performers were iron ore, Brent, copper and silver – up 59.57%, 56.10%, 15.89% and 15.77% respectively – but note that all are still lower than at 31 December 2013!

Our June 2017 forecast is listed below, with a local businessman (2) taking on the blog (1) with their considered expectations.

1 2                  
Forecast Forecast                
30 Jun 17 30 Jun 17     Unit %age 2016 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13
1,270 1,260 Gold   US$ oz 8.58% 1,151 1,060 1,186 1,236
81 70.5 Iron Ore   US$ lb 59.57% 75 47 73 135
66.50 50.00 Oil – Brent       56.10% 56.82 36.40 57.33 102.50
141 142 Coffee   US$ lb 7.26% 133 124 161 260
73 73 Cotton   US$ lb 7.81% 69 64 62 86
16.85 17.00 Silver   US$ oz 15.77% 16.00 13.82 15.77 20.15
2.62 2.57 Copper   US$ lb 15.89% 2.48 2.14 2.88 3.37
0.74 0.71 AUD   US$   -1.37% 0.72 0.73 0.81 0.89
1.28 1.28 GBP   US$   -16.22% 1.24 1.48 1.53 1.64
1.03 0.99 Euro   US$   -3.67% 1.05 1.09 1.21 1.38
0.015 0.019 Rouble   US$   14.29% 0.016 0.014 0.017 0.030
6,980 6,550 FTSE 100       14.42% 7,142 6,242 6,548 6,730
3,260   CS1300       -11.28% 3,310 3,731 3,532 2,291
2,175 2,040 S&P 500       9.49% 2,238 2,044 2,091 1,831
3,689   DFMI       12.06% 3,531 3,151 3,774 3,370
5,420 5,380 ASX       5.99% 5,665 5,345 5,415 5,352

2017 should be a better year than a lot of experts expect. On the local front, realty will move higher as the Expo momentum takes effect and oil prices stabilise. The emirate’s inflation rate will hover around 2.6%, direct foreign trade in H1 will top US$ 120 billion, its population will grow to 2.75 million and its economic growth will reach 3.0%. The hospitality and travel sectors will show improvement but worries remain in the retail field, particularly eateries.

On the global stage, 2017 will be a positive year. The stock markets will take a breather in H1, having hit record highs toward the end of 2016. As the US Trump led economy will defy general opinion by growing at around 3.5%, the dollar will continue to be the dominant global currency. Expect a major fall-out in the EU from Greece, Spain or even the Italian banks. India and China will lead the Asian economies, with 7% growth rates, but expect that the latter’s shadow banking sector and housing bubble to cause some concern for the Xi Jinping administration in H1.

In 2017, the economic cycle will continue to turn, with forecasts and predictions, as always, similar to looking and listening to Days of Future Passed.

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