Fool On The Hill

donald-trumpThe total realty transactions of 60.6k, as reported by the Dubai Land Department, topped US$ 70. 6 billion last year – slightly down compared to 2015’s 63.7k valued at US$ 72.7 billion. The government agency expects further sustainable growth this year, as 134 new projects, totalling US$ 27.2 billion, have already been launched. UAE nationals, with 7k citizens spending US$ 6.0 billion, were the top investors, followed by Indians (6.2k investing US$ 3.3 billion), Pakistanis and Britons. The five top sales locations were Business Bay (3.5k investments totalling US$ 1.7 billion), Dubai Marina, Jebel Ali 1, Burj Khalifa and Warsan 1. (The DLD has reported an encouraging start to the year withproperty deals in the first 15 days totalling US$ 3.3 billion).

Cavendish Maxwell indicate that 16.4k new homes were handed over in 2016 and that a massive 61k, including 13k carried over from last year, are scheduled for completion over the next 12 months. The consultancy estimated that average apartment and villa rents fell, year on year, by 3.4% and 3.6% respectively, but the rate of decline flattened in Q4. CBRE put the annual rent increases at 4.6% and 6.5% respectively. The consultancy sees a more stable sales environment this year, as investor confidence improves.

In contrast, Al Masah Capital anticipates that over the next two years, 57k residential units will be handed over, 30k of which will take place this year. Both studies seem to indicate that there is some sort of equilibrium between supply and demand occurring, as the workforce expands ahead of 2020. CBRE expects that 70k units could be delivered over the next three years.

Following last year’s success of “Amaranta”, Dubai Properties has launched “La Quinta” at its Dubailand’s Villanova community. The development will cater for larger families, with unit sizes ranging from 2.2k sq ft to 3.9k sq ft.

Nakheel has released tender papers for its US$ 1.36 billion Deira Islands Boulevard project of sixteen 21-storey residential towers. Each tower will house 670 apartments, 65 townhouses and retail/recreational facilities. Located around the 6.5 million sq ft Deira Mall, the community will be home to 10k residents.

As the move to introduce more budget hotels gathers pace, AccorHotels is considering two new brands for the Dubai market, in addition to its existing Ibis and Mercure names; Mama Shelter and Jo&Joe are both scheduled to be rolled out in France next year. The latter is in competition with Airbnb, mixing the best of private-rental, hostel and hotel formats.

Despite a lackluster 2016 for the retail sector, it seems to be full steam ahead for new projects this year with a huge US$ 4 billion investment expected, compared to US$ 502 million and US$ 812 million in the previous two years. According to a recent MEED study, major developments will include Phase 1 of the World Mall (US$ 1.0 billion), Dubai Creek Harbour retail district (US$1.0 billion), Deira Island Mall (US$ 900 million) and Dubai Hills Mall (US$ 763 million). There is no doubt that the retail sector expects a major turnaround in business as Expo 2020 approaches.

The RTA and DP World have signed two transport agreements. The first relates to taxi services to and from the Hamdan bin Mohammed Cruise Terminal, whilst the other will see further cooperation to streamline road transport operations in and around Jebel Ali Port. The local cruise sector is booming, with an expected 30% hike in numbers to 650k (and a 16% rise in cruise ships to 134).

Phase 3 of the 800 MW MBR Solar Park will start by the end of the month, with the engineering, procurement and construction contract being awarded to an international consortium led by GranSolar of Spain. The first (200 MW) of three stages of this 16 sq km phase will be completed within 18 months, with the next two (600 MW) finalised by 2020.

DP World has signed yet another agreement in Kazakhstan – this time to develop an economic zone in Aktau on the Caspian Sea. It is hoped that shipping capacity can be expanded and a logistics area developed.

In a bid to generate extra revenue, Emirates will allow its Skywards Blue members to pay to use its premium lounges in Dubai. The fee for a maximum 4-hour stay will be US$ 200 in the first class lounge and US$ 100 in business class.

As part of its long term strategy, Expo 2020 Dubai has initiated a further phase of a US$ 100 million “Expo Live” programme to assist, finance, accelerate and promote creative projects from individuals, SMEs and other entities. The low-key introduction of this pillar is the first of four half yearly cycles to find suitable projects and it is hoped that it will be a catalyst for future innovation. An earlier program drew 575 applicants from 71 countries, with 29.2% of those projects now undergoing technical reviews.

Compareit4me.com estimate that UAE credit card applications jumped by 55% last year. Over 50% of cards were provided by American Express (22.5%), Citibank (15.0%) and ADCB (13.3%). Despite tough economic conditions, Visa has seen a 10% year-on-year regional growth in 2016 card transactions in the region. Quite often, credit cards prove more profitable to banking institutions, rather than their customers who often get caught up in a debt trap.

Having grown 2.7% last year, the Dubai economy is expected to improve to 3.1%, according to HH Sheikh Ahmed bin Saeed Al Maktoum. This is slightly less than the 3.3% expounded by the IMF. Late last year, the government announced its annual budget of US$ 12.9 billion (3% higher than in 2016) which included a 27% hike in infrastructure spending ahead of Expo 2020 – this and the uptick in the oil price will encourage further investment that makes the growth forecast achievable. The emirate expects a US$ 681 million deficit this year, equating to 0.6% of its GDP.

Meanwhile, the Minister of Economy, HE Sultan Al Mansoori, has reiterated that he expects UAE growth to remain steady at 3.0%, with non-oil contributions to GDP up 0.2% to 3.8%.

Still the region’s most attractive destination for foreign direct investments, the UAE saw US$ 10.0 billion flowing inro the country last year with an accumulated year end balance of US$ 119 billion. Outflows – at US$ 9.3 billion were 3.3% higher than in 2015.

Majid Al Futtaim was in the news this week on two fronts. The holding company, with a BBB Fitch and S&P rating, is reportedly in bank discussions for a US$ 1.5 billion revolving credit facility to be used for refinancing existing debt. Following reports that Amazon.com and India’s Flipkart Online Services are no longer interested in acquiring Dubai-based Souq.com, it seems that MAF is in negotiations to buy the site. The 12-year old e-commerce business could be worth in excess of US$ 1 billion.

Abraaj Group is planning to divest its 50% stake in The Entertainer which it acquired almost five years ago. The private equity firm expects that the local hailing app, Careem, will go public to raise the finance required to grow in regional markets. Currently the company has 4  million registered users and a fleet of 90k drivers.

It seems that some banks may be unhappy at the proposed pricing for the US$ 1.2 billion financing package for the Metro extension – the balance, US$ 1.6 billion, will be picked up by export credit agencies. Last year, the government set out its parameters for the loan that included a rate of no more than 200 basis points over Libor, with miscellaneous fees capped at 115 bps. For 10-year loan tenor, some banks consider a 250bps margin more appropriate. The government could be in the market for at least US$ 42 billion when projects like DWC (US$ 35 billion) and Expo 2020 (US$ 7 billion) are brought into the equation.

Despite a 3.0% fall in total income to US$ 4.0 billion, the first of the season’s earnings reports saw Emirates NBD posting a 2.0% rise in 2016 profit to US$ 1.97 billion: an improvement in impaired loans helped the cause and offset the 1.0% fall in non-interest income. Three major indicators headed north – total assets by 10% to US$ 12.2 billion, deposits (8% to US$ 8.5 billion) and loans by 7% to US$ 7.9 billion. During the year, the bank raised US$ 5.5 billion of term debt at competitive pricing. However, Q4 profit fell by 13.1% to US$ 504 million, compared to the same period in 2015.

Its sister bank, the Shariah-compliant Emirates Islamic, did not fare as well. Even with gross income remaining stable, profits sank by 76% to US$ 29 million on the back of a significant downturn in impairment provisions which jumped 66% to US$ 354 million.

Having gained over 5.0% (190 points) in the first two weeks of 2017 trading, the DFM opened Sunday at 3721 but lost some impetus losing 31 points (0.8%) to close Thursday (19 January 2017) on 3690. Volumes were lower, closing the last day of the week, at 903 million shares, valued at US$ 330 million, (cf 1.48 billion shares for US$ 414 million, the previous Thursday). Emaar Properties and Arabtec were both lower – by US$ 0.03, to US$ 2.06 and US$ 0.01 to US$ 0.40 respectively.

This week saw Brent Crude continue the previous week’s downward trend, trading US$ 1.85 lower at US$ 54.16. Having moved US$ 69 higher over the previous three weeks, gold nudged US$ 2 higher, closing at US$ 1,202 by Thursday (19 January 2017).

Hyundai / Kia expect to increase its US investment by 50% to US$ 3.1 billion over the next five year period including a new factory. Only three months ago the South Korean conglomerate opened a US$ 3 billion facility in Mexico that has an annual capacity of 300k vehicles.

The world’s largest eyewear manufacturer, Essilor International SA is set to acquire the leading global retailer, Luxottica Group SpA, in a US$ 24 billion deal which will see investors getting US$ 0.493 for each of the French lensmaker’s shares. News of the merger saw Essilor shares jumping 15% to US$ 125 whilst Luxottica rose 11% to US$ 60.

As expected, British American Tobacco has taken over Reynolds in a US$ 49.4 billion deal that has created the world’s largest listed tobacco firm. The company had already owned a 57.8% stake but had seen a US$ 47 billion offer rejected in November. The US company was the country’s second largest tobacco company, behind Altria, and last year had taken over Lorillard for US$ 25 billion.

US regulators have claimed that Qualcomm forced Apple to use its chips in return for lower fees as it studies whether the world’s biggest maker of mobile phone chips has abused its dominant marketing position. The Federal Trade Commission is looking at the process the San Diego firm collects royalties on its chip technology. This is not the first time that the company has faced antitrust rulings and investigations including having to pay a 2015 US$ 975 million penalty in China for similar charges.

It has taken almost 8 years for Moody’s to be fined US$ 864 million for their dubious role into credit ratings on sub-prime mortgage securities; it is estimated that the ratings agency earned US$ 2.5 billion in the four years prior to the GFC. This comes a year after S&P’s US$ 1.5 billion settlement with the US courts for similar offences. The agencies (and many “guilty” individuals) seem to have got off fairly lightly, considering that banks have already paid out US$ 162 billion in fines and penalties. Moody’s and S&P were apparently issuing top grade ratings to junk stock just so they could win business from the banks preparing the securities. At the time of the crisis, these two agencies, along with Fitch, had 96% of the market share.

Takata Corp is another entity to face the wrath of US courts. The company has settled for a US$ 1 billion fine for a fatal defect in its vehicle air bag inflators which has seen 11 killed in the US and 180 injured. The problem was so big that it involved the recall of 42 million vehicles and 69 million inflators in the country. (A day after this announcement, Toyota recalled a further 543k vehicles in the US).

To settle bribery and corruption cases, Rolls Royce, engine manufacturer, has agreed to pay US$ 817 million plus costs to the UK’s Serious Fraud Office and a further US$ 170 million to the Department of Justice in the US. Most of the offences involved “intermediaries” in China, Indonesia and other markets. A further US$ 26 million is expected to be paid to Brazilian regulators. It does seem odd that the SFO may be going after RR executives involved in the scandal when so many bankers seemed to have been let off the hook by the concerned authorities.

Unconfirmed reports indicate that Toshiba could be in a worse state than first thought. Its shares dived 25% on Thursday on fears that the blow-out from its US nuclear power business may see write-offs a lot higher than the US$ 6.1 billion first indicated.

The acting head of Samsung Electronics, Jay Y Lee has been indicted on bribery charges in a corruption scandal that threatens to embroil many of South Korea’s leading institutions. However, on Thursday, a judge ruled there was no reason, as yet, to detain the 48-year-old Samsung heir. This comes a month after the impeachment of President Geun-hye brought down by a cash-for-influence probe.

There were two major plane deals this week. Boeing has won a possible US$ 22 billion order with SpiceJet; this involves 205 Max 737s aircraft – a firm order for 100, a right to buy an additional 50 in the future and 55 jets from a previous order. India’s domestic air passengers surged by 21% last year and the country is expected to be the 3rd biggest global aviation market within five years.

Saudi Arabia’s Flynas has reached a US$ 8.6 billion deal with Airbus for an unknown number of planes. Kingdom Holding Company owns 34% of the Riyadh-based budget carrier.

Privately owned conglomerate Kuang-Chi has acquired a substantial minority shareholding in Gilo Industries Group, a UK manufacturer of rotary engines for unmanned aeronautical vehicles. It seems that this deal is a forerunner of more to come as Chinese and other international companies target pioneering UK tech companies – a welcome sign that there is economic life after Brexit.

Morgan Stanley must be thanking Donald Trump after posting an 83.9% hike in Q4 profits to US$ 1.67 billion thanks to a boost in financial trading following the November presidential election. Over the past twelve months, the bank’s shares have climbed 68.2%, closing on Thursday at US$ 42.45.

For reported fees in excess of US$ 100k, David Cameron and George Osborne will give speeches in Davos for PwC and HSBC respectively. Both have been earning their bread around the world passing on their wisdom and experience, mainly to finance-related entities. Another politician on the gravy train is former Conservative leader and Foreign Secretary, William Hague. It is reported that the now Lord Hague has become a senior advisor to Citi, having already delivered nine speeches to the investment bank over the past year; he joins the former BoE Governor, Melvyn (now Lord) King who joined the bank in 2016.

Controversial Philippine President Rodrigo Duterte has had a successful overseas trip raising US$ 33 billion in foreign investment, including US$ 15 million overseas development assistance from China and Japan, along with a further US$ 18 billion from private companies. Most of the money will be spent on much needed infrastructure projects.

As it continues to support the floundering yuan, China saw its November balance of US government bonds and other paper fall again – this time by US$ 66.4 billion to US$ 1.05 trillion.

The 19-country eurozone produced positive economic news towards the end of 2016 with December industrial production rising 1.5% month on month, compared to forecast expansion of 0.5%; the main drivers were a 2.9% rise in the production of non-durable consumer goods and a 1.6% increase in intermediate goods. Meanwhile the EU28 saw industrial output jump 3.1% in November.

Meanwhile, the ECB has maintained its base interest rate at zero and its monthly US$ 85 billion bond buying exercise. However its head, Mario Draghi, admitted that the economy was still fragile with the 19-country bloc facing continuing sluggish growth amid worries of a buckling Italian banking system.

A lot can happen in three months! Not renowned for their forecasting abilities, the IMF has slashed Saudi Arabia’s 2017 growth forecast from its October 2016 figure of 2.0% to 0.4%. On a global scale, the organisation has maintained their outlook of 3.4% and 3.6% over the next two years.

Both the UK and US economies have been upgraded – the former by 0.4% to 1.5% and the latter by 0.1% to 2.3%: this despite the doom and gloom dire warnings of many, who should know better, following Brexit and the Trump electoral victory. China’s growth is now changed to 6.5% (from 6.2%) whilst India’s forecast has been downgraded 0.4% to 6.8%, following PM Modi’s December demonetisation drive. For what it is worth, the IMF considers that the Russian and Brazilian declines have flattened out with minor growth forecast in 2017. No doubt their next deliberations due in April will be changed again!

Prime Minister May confirmed that the UK would be going for a “hard Brexit” and anything like partial memebrship was not an option. Her government would aim for a “bold and ambitious” free trade agreement with the EU. There were the expected dire warnings from the IMF but these have to be taken with a pinch of salt; this was the body that forecast before the referendum that an exit would have consequences from “quite bad to very, very bad” – since then the opposite happened and the world body has had to admit that it had been too pessimistic.

Unsurprisingly, banks have jumped on the bandwagon – with the likes of HSBC, JP Morgan and UBS threatening to shift jobs out of London.

December’s UK CPI surged 25%, month on month, to 1.6% – its highest level in over 30 months – largely because of the falling pound that has seen producer prices head north as costs for imported materials and fuels spiral. The month’s RPI, which measures consumer inflation, rose to 2.5%, as factory prices for raw materials and energy increased by 15.8% over the year.  The CPI is still below the government’s 2% target but if the recent trend continues then expect the BoE may press the button for a rate hike.

Good news for the incoming Trump administration that Amazon expects to grow its US workforce by 55% (100k) over the next 18 months. The jobs – mainly in software development and warehouse logistics – will help the world’s largest on-line retailer to fulfil orders quicker and cheaper in the future. Disappointing December US retail sales posted a 0.6% rise, slightly lower than market expectations, with the standout performer being the rebound in auto sales at 2.4% (after a 0.2% dip the previous month).

It is about time that doubters got used to the new order – both Brexit and Trump are here to stay. Undoubtedly, the global economy will benefit from a more modern and equitable way to address its problems that has seen only eight people share the same amount of wealth as 50% of the global population. Despite biased and often unsubstantiated reports to the contrary, these economic Luddites should finally understand that the 45th President of the USA is no Fool On The Hill!

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