On A Slow Boat To China

Dubai Civil Engineering broke ground this week on Schön Properties’ US$ 870 million iSuites project in Dubai Investments Park. The massive development, slated for completion by 2020, will include 2.3k hotel apartments, 125k sq ft retail space, 52 restaurants/cafes, along with a man-made lagoon covering 5 acres.

Dubai will become the eighth global location for Mama Shelter, a global set of hotels established in 2009. The 201-key hotel, with 80 residences, will be located in Business Bay and managed by Accor Hotels.

There were three property launches this week with Emaar involved in two of them – Vida Residences Dubai Mall, that comprises five towers in the heart of Dubai, and Creek Heights in Dubai Creek Harbour – with Damac introducing its latest project, Aknan Villas.

According to Core Savills, Dubai’s secondary office market is unlikely to see light until late next year as there is still a large stock of empty offices in places such as Business Bay, Barsha Heights and JLT, with occupancy levels nearing 30%. 71.3% of the total stock of 9 million sq ft is rated Grade B and C.

Ventures Onsight estimate that the UAE will account for 33.7% of new construction contracts, totalling US$ 40.5 billion; Qatar and Saudi Arabia follow well behind, with sums of US$ 16.7 billion and US$ 16.0 billion.

Careem has introduced a new service – BOX – which will see the Dubai-based ride-hailing app branching out to transporting not only people but now goods. The app will allow customers to track the whereabouts of their merchandise and will be available 12 hours a day.

The world’s third largest money transfer company, Ria Money Transfer, is set to expand its regional operations. A subsidiary of Euronet Worldwide Inc (which itself saw a 2016 20% hike in transactions to 82.3 million, valued at US$ 33 billion).

In a bid to ensure that there is more transparency – and less risk – for investors there has been a new global accounting update that will see insurers having to provide more viable assessments of their assets. This has not come  day too soon since insurance companies’ balances total more than US$ 13 trillion, equating to 12% of all assets held by listed companies. The impact on the local market will probably see reduced short-term profits in the insurance sector, as many operations and processes will have to be improved and standardised, whilst more formal valuations will have to be carried out – all at a cost.

According to a CBRE report, Dubai still holds second place as the city hosting the highest number of global brands, at 57.3%, just behind London’s 57.9%. Last year, it ranked third, behind London and Hong Kong, in attracting the highest number of new labels, with 59 new brands.

A Central Bank study has indicated a Q1 improvement in loan demand, as the economic environment continues to show signs of improvement on the back of recovering energy prices. With demand moving higher, especially in conventional loans and by large entities, there has been a tightening of conditions by banks. This is most noticeable in larger collateralization requirements and increased interest premiums on some loans.

Following the massive success of last week’s 3-day sale, details of the 20th edition of Dubai Summer Surprises have been released. The six-week sales bonanza, starting on 01 July, will see retailers offering up to 75% discount on a wide array of brands.

The ME fashion website, Namshi has sold a 51% stake to Emaar Malls for a reported US$ 151 million, with the current owners, Global Fashion Group, retaining a 49% share. The five-year old company, with a client base of 750k in the GCC, trades 50k products from 600 international and local brands. Last year, it posted a net revenue figure of US$ 151 million.

By the end of the year, consumers will have to pay a 100% excise tax on tobacco products and energy drinks, along with a 50% levy on soft drinks. The introduction of VAT is still on the cards for 01 January 2018, with businesses having an annual turnover of US$ 102k required to register, whilst those with sales of between US$ 51k and US$ 102k have the option to register.

Emaar Turkey, a subsidiary of Emaar Properties, have opened Emaar Square Mall in Istanbul.

Those doom and gloom merchants, who relate tales of a mass Dubai expat exodus, need to see latest figures from the Knowledge and Human Development Authority. Private schools in the emirate have seen an average annual 6.6% growth over the past decade and that ten new schools will open in 2017 bringing the total number to 195 and student numbers to 290k. Dubai is expected to see a further 120 new schools, before 2026, to keep up with the growing demand.

Emaar accounts for 44% of the total value of assets held by UAE companies in the real estate sector, with a 2.8% hike in Q1 to US$ 27.0 billion, compared to the same quarter in 2016. Some way behind are Emaar Malls, Damac and Arabtec with US$ 7.1 billion, US$ 7.1 billion and US$ 2.9 billion respectively.

Some investors have been left poorer but hopefully a little wiser. Those who bought contracts in Arabtec may have lost up to 33% in only a week if they had acquired shares in a rights issue at US$ 0.572 on 15 May but were left holding them on 21 May at US$ 0.163. On that day, Arabtec shares, with a par value of US$0.272, were trading at US$ 0.216.

Shares in the embattled developer received a mini boost this week with news that it had been awarded a Wasl Asset Management Group US$ 398 million contract to build the 63-storey Wasl Tower on SZR. The development will include a Mandarin Orient hotel and is due to open in late 2020. Arabtec has a current backlog totalling US$ 4.6 billion. The company has also requested that their creditors submit all details and documents of their debts in person by 20 June at the latest.

The DFM opened Sunday at 3378 and traded 1.5% lower this week – closing on Thursday (25 May – the last day before the start of the holy month of Ramadan) at 3327. Volumes were again wafer thin, closing on Thursday at 215 million shares, valued at US$ 74 million, (cf 195 million shares for US$ 64 million, the previous Thursday). Emaar Properties dropped US$ 0.06 to US$ 1.97, whilst Arabtec closed flat at US$ 0.20.

By Thursday, Brent Crude, having nearly touched US$ 55 earlier in the week, traded down US$ 1.05 (2.0%) at US$ 51.46, with gold heading the other way gaining US$ 3 to US$ 1,256 by 25 May 2017.

At Thursday’s Vienna meeting, OPEC decided to extend oil production cuts for a further nine months but the market was disappointed that no extra measures were introduced and prices initially slid 2.3% on the lack of further news. There is still too much surplus stock in the pipeline, not helped by increasing US shale production.

With a Serious Fraud Office investigation taking place and its COO, Marwan Chedid, suspended by the company, it was no surprise to see Petrofac shares plummet more than 30% this week. The allegations involve the Monaco-based oil contractor, Unaoil, and “bribery, corruption and money laundering”, in securing dozens of international contracts, mainly in Kazakhstan, between 2002 – 2009.

As part of its global restructuring strategy, GM India will no longer make vehicles for the local market and instead concentrate on using its Maharashtra plant for exports, mainly to South and Central America. This comes after its unit sales in the sub-continent were less than 1% of its total turnover. At the same time, the US auto giant will sell its South African business to Isuzu, with that company also acquiring 57.7% in its East African operations.

A dispute between Apple and Nokia, over the use of smartphone patented technology, has been settled out of court. The end result is that Apple will continue to use the technology for which the Finnish company will receive cash payments upfront, as well as stocking Nokia’s health products in its retail stores. No financial details were made available but this agreement appears to suggest that Nokia will benefit to the tune of US$ hundreds of millions every year.

Having already raised nearly US$ 80 billion from a myriad of investors, including Apple, Foxconn, Qualcomm and Saudi’s PIF, Abu Dhabi’s Mubadala has weighed in with a US$ 15 billion commitment to the Softbank Vision Fund. The huge Japanese Softbank Group investment vehicle will support leading tech companies and entrepreneurial start-ups, with a focus on technology and innovation.

Crypto currency Bitcoin continues to confound analysts reaching a peak of US$ 2,727, before retreating to US$ 2,678 by Thursday. This still represents a massive – and potentially disturbing – 200% increase already this year.

Having had to pay over US$ 520 million in one off-charges relating to pension adjustments and store closures, it was no surprise to see Marks & Spencer report a 63.0% slump in 12-month profits to US$ 230 million. Sales also fell with clothing/home ware down 3.4% (Q4 – 5.9%) and food by 0.8% (Q4 – 2.1%).

The UK’s third largest supermarket, Asda, recorded its 11th straight quarterly fall in profits, posting a Q1 2.8% slump on a like-for-like basis. Luckily its parent company, Walmart reported a 1.4% hike in its US market, as Q1 sales figures reached US$ 117.5 billion. The other three majors – Morrisons, Sainsbury’s and Tesco – are performing better but are all facing stiff competition from the Germen interlopers, Aldi and Lidl.

Despite a decreasing number of worshippers, the Church of England has announced that its 2016 investments returned an impressive US$ 300 million, equating to 17.1%, compared to 8.2% in 2015. The Church Commissioners must be receiving some form of divine intervention as its average annual return over the past 30 years has been 9.6%, beating the likes of the impressive Yale University endowment fund. Investments only account for some 15% of its total income.

After closing the year with its lowest annual borrowing, at US$ 63 billion, since the year ending 31 March 2008, the UK government got a rude awakening in April. Official figures indicate that monthly public sector net borrowing jumped 13.0% to US$ 13.4 billion – its highest level in three years; total public debt was a mouth-watering US$ 2.2 trillion, accounting for 86% of the country’s GDP. Treasury revenues were held back by falling VAT receipts – a possible sign that spending is being stymied by the recent hikes in inflation. Official Q1 growth figures point to a disappointing 0.2% as both real wages (also down 0.2%) and consumer confidence levels dipped.

With a breakdown in last minute talks, Greece failed to convince their creditors (the IMF and the EU) to release a further US$ 8.3 billion tranche of its bailout funds. The cash is needed to ensure that the country does not default on a loan repayment due next month. The main sticking point seems to hinge on differences between the IMF – who would prefer a reduction in the loan – and Germany who insist on no more haircuts. In Q1, Greece fell back into recession, as its GDP fell 0.1% after a 1.2% decline in the previous quarter.

Meanwhile, Portugal has seen its annual deficit, now at 2%, fall below the 3% threshold; this allows the country to exit the EC’s excessive debt procedures after six years of austerity since its 2011 bailout. In true EU fashion, it seems like business as usual for Spain and France despite their 4.5% and 3.4% deficits in breach of the bloc’s regulations.

A Westpac report indicates that growth in Australia will reach 3% this year but the signs for 2018 are “discouraging”. The three obvious drag factors will be a slowdown in exports, weaker wage growth and a contraction in the housing sector.

At this week’s meeting, eleven of the twelve Asia-Pacific trade ministers from Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam decided to go ahead with the Trans-Pacific Partnership (TPP). This is after  the US withdrawal from the controversial trade deal, following President Trump’s inauguration in January.

Donald Trump certainly made his presence known in Saudi Arabia as a raft of bipartisan deals was signed totalling up to US$ 200 billion. These included a US$ 110 billion defence package, Aramco signing off on US$ 50 billion of agreements with 11 companies and Saudi’s Public Investment Fund (PIF) contributing $20 billion in an infrastructure investment fund with Blackstone Group LP.

The travelling US president released his 2018 budget request that would see him try and balance the country’s budget – which currently stands at US$ 19.9 trillion, equating to 104% of GDP (compared to China (250%), UK (84%) and Dubai (42%) – over the next decade. It includes a spending cut of US$ 1.7 trillion, including US$ 272 billion in welfare programmes, whilst spending more on defence and border security by US$ 54 billion (10%) and US$ 2.6 billion respectively.

The S&P 500 index and Nasdaq hit record highs this week reaching 2415 and 6205 in late week trading. One of the main drivers came from renewed consumer confidence in the US as the retail sector posted improving results. This bullish sentiment echoed around the world with the MSCI 46-country global stock index moving to a record 464.

China could be faced with a bigger borrowing cost as Moody’s downgraded its long-term local currency and foreign currency issuer ratings by one notch to A1 from Aa3, whilst changing its outlook from stable from negative. The agency is concerned that the country’s growth is slowing and its debt continues to rise.

According to Chinese authorities their much vaunted Belt and Road initiative has already attracted deals of more than US$ 900 billion, with heady estimates of trade growing to up to US$ 8 trillion. Indeed this week, President Xi Jinping has pledged a further US$ 78 billion but whether other stakeholders have the financial appetite to help with the infrastructure, to link China with Europe via Asia, the Middle East and Africa, remains to be seen. Whatever happens, trade will be quicker than On A Slow Boat To China.

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