Harder, Better, Faster

In line with recent similar industry reports, JLL has also concluded that the Dubai property downturn has probably bottomed out and, that after a subdued Q2 (with little change in rentals and sales prices), positivity could return in H2. The first five months saw an addition of 5.4k residential units to Dubai’s property portfolio, 20% more than the 4.5k in 2016. Although there is a further 25k scheduled for delivery in 2017, it is expected that the actual number handed over will be shy of 13k.

JLL expect that a total of 78k units could be delivered over the next three years or 26k a year. Over the past three years, delivery totals have been in the region of 45k; so going forward, the figure does look on the high side. The Dubai Population Clock shows a 9.14% annual population increase to 2.805 million as at 07 July. If Dubai has a current portfolio of say 500k, a 3.5% increase in supply would see 554k units by July 2020. It would seem logical that, even excluding foreign buyers, domestic demand would indicate a shortfall in supply and an upward movement in sales prices.

The big news of the week was the launch by HH Sheikh Mohammed bin Rashid Al Maktoum of the US$ 1.4 billion Emirates Towers Business Park, to be developed by Dubai Holding in conjunction with DIFC. The development will include three hotels, several grade A office buildings, retail / recreational space and an arena. The four-year development will also have a three-level basement parking and be connected by pedestrian bridges with the DIFC.

Atlantis The Palm is spending US$ 100 million over the next three years to refurbish its 1.5k rooms and suites, so as to be completed in time for Expo 2020. UAE-based WA International was awarded the interior design contract. So far this year, the property has seen occupancy rates at 93% – 11% higher than this time last year.

Dubai Investments announced that it would start work on its US$ 272 million, 70-storey residential tower on SZR by the end of the year. Construction tenders will soon be released for the site adjacent to Al Habtoor City, with all government approvals in place, including the requisite 20% RERA project value deposit.  The company expects to raise US$ 110 million financing per local banks.

Sobha is set to launch its Hartland Estates Forest Villas, located near to the Dubai Water Canal and surrounded by 2.4 million sq ft of greenery. The project is part of the massive US$ 4 billion, 8 million sq ft, Sobha Hartland development in Mohammed bin Rashid Al Maktoum City.

Cityland has managed to raise 44% (US$ 143 million) 7-year bank finance for the development of Cityland Mall on SZR. The developer, already involved in projects such as Dubai Miracle Garden and Dubai Butterfly Garden, is considering building an adjacent hotel. Construction of the 1.8 million sq ft, single storey circular building has already started and should be completed towards the end of next year.

Al Naboodah Co LLC has awarded a US$ 31 million MEP contract to an Arabtec subsidiary, Emirates Falcon Electromechanical Co for work on part of the Dubai Creek Harbour Development, this being a JV between Emaar Properties and Dubai Holding. Work on the two 37-storey residential towers is slated to be finished by Q1 2019. The company has also won a US$ 96 million contract from Abu Dhabi National Media Council to build the UAE Pavilion at Expo 2020. The troubled developer’s successful week was capped off by one of its offshoots, Target Engineering Construction Company, being awarded four projects amounting to US$ 79 million.

Dubai-based Premier Composite Technologies was responsible for manufacturing the world’s ‘largest freestanding carbon-fibre roof’. This was installed on Apple’s new Californian HQ and is a striking focal point of the US$ 5 billion structure.

Tesla will open its Dubai showroom next Wednesday (12 July). Potential customers will be able to order their Models S and X, already in the country, with starting prices at US$ 75k and US$ 94k respectively. The RTA has already an order for 200 vehicles, with Tesla due to invest US$ millions in the UAE’s electric car infrastructure.

Dubai Health Authority expects a 46% increase in the number of hospitals to 38 over the next three years, adding a further 750 beds. The emirate has over 3k private medical health facilities and boasts over 36k licensed physicians.

A recent HSBC report has placed the country the second most expensive global location (after Hong Kong) when it comes to education. It estimates the total cost from primary to the end of secondary schooling is US$ 99k. (That seems very low when some schools are charging in excess of US$ 27k a year, just for tuition and not including any add-ons).

DP World is considering resumption of major developments on its US$ 1.6 billion Jebel Ali fourth terminal, which had been put on hold last year because of a softening container shipping market. The port’s capacity by year-end will have reached 19.3 million TEUs (twenty-foot equivalent units), as T3 is completed. It is expected that phase 1 of T4 would result in capacity being boosted by a further 3.1 million TEUs.

There was good news for Emirates (along with Etihad and Qatar) as the US laptop ban was lifted. The Dubai carrier had introduced more rigorous security measures to meet the requirements of the US Department of Homeland Security.

May witnessed a 1.9%, year on year, increase in passenger numbers at Dubai International to 6.9 million, bringing the 5-month YTD total to 37.0 million – up 6.7% on 2016 returns. Freight volumes continued upwards by 2.6% to 233k tonnes and YTD by 3.0% to 1.1 million tonnes.

ME air cargo volumes have shown a 3.0% monthly increase and a 10.2% jump over the past year (as capacity rose by only 1.7%). The main driver behind these impressive returns was a 19.0% hike in European traffic – slightly offset by a 1.0% decline in Asian volumes. On a global scale, air freight demand was 12.7% higher than in May 2016 and was more than three times higher than the five-year 3.8% average.

The Central Bank announced a 19.6% jump in forex reserves to US$ 86.3 billion over the first five months of the year, with May posting a 3.1% hike. Total assets grew 4.8% to US$ 104.1 billion over the same period.

June’s Emirates NBD PMI rose 1.5, month on month, to 55.8 – an indicator that the country’s non-oil private sector continues its upward momentum. The main drivers, jumps in both new orders and output, saw companies’ inventory levels rise as input prices rebounded; however, fierce local competition resulted in a fall in selling prices, adding pressure to margins. Both export orders and job creation fell for the first time since late 2016.

Both Jumeirah and Emirates NBD lost key personnel this week. The hotel company announced that its Group CEO, Stefan Leser, had left for “personal reasons”, after only 15 months in the position, and that current COO Marc Dardenne would be acting in the position until a replacement was found. Meanwhile the bank has accepted the resignation of its Chief Investment Officer, Gary Dugan, who took over the position some 18 months ago.

Following their March agreement, Amazon has finally completed the acquisition of local on-line retailer, Souq.com; this will allow users to log on to the Dubai site, using their Amazon details.

Already a major player in the African market, having deployed over US$ 3.2 billion, Abraaj Group has reported that it is to acquire the coffee and casual dining chain, Java House Group, for an undisclosed fee. The East African-based company has three main brands – Java House, Planet Yogurt and 360 Degrees Artisan Pizza – along with commercial coffee roasteries. In the past five years, since the private equity firm, Emerging Capital Partners, took a majority stake in the company, it has expanded from 13 Nairobi shops to 60 stores in Kenya, Rwanda and Uganda.

The DFM opened Sunday at 3392 and nudged 9 points higher at 3401 by the end of the week. Volumes were wafer thin, closing on Thursday at just 88 million shares, valued at US$ 33 million, (cf 116 million shares for US$ 50 million, the previous Thursday). Emaar Properties was flat at US$ 2.12, with Arabtec recovering  US$ 0.10 up to US$ 0.88.

By Thursday, Brent Crude was US$ 0.69 higher at US$ 48.11, with gold falling US$ 23 to US$ 1,223 by 06 July 2017. Oil prices had plummeted almost 4% on Wednesday on the back of reports that OPEC’s exports had risen and this, after prices had risen over 10% in the previous eight sessions, from a ten-month closing low.

The EC has given the green light for the PSA Group to take over the Opel and Vauxhall brands and, at the same time, has given Peugeot, which has not made a profit since 1999, unconditional approval to purchase GM’s European division; the French carmaker, which employs 33.5k, has made sixteen years of consecutive losses, racking up a total US$ 15 billion deficit.

Samsung has announced a massive US$ 18 billion, 4-year investment plan, as it aims to expand its two local memory chip plants in Pyeongtaek and Hwaseong, with a third in Xian, China; the move could create 440k new jobs in South Korea. The company has had its fair share of recent problems, including last year’s mass recall of its Galaxy Note 7 smartphones and increased competition from Apple and several Chinese rivals.

Two UK tech companies had different market fortunes this week. Shares in Worldpay, a global leader in on-line and contactless payments, skyrocketed 28% on news that both JP Morgan and Vantiv could be interested in some form of acquisition. By Wednesday, the UK’s biggest payments processor had agreed a deal with Vantiv that valued Worldpay at US$ 10 billion.

Having been hit earlier in the year by “challenging conditions in the UK retail sector”, this week saw Game Digital’s shares plunge 36%, following supply issues affecting Nintendo consoles which are impacting on sales, despite strong demand; in other areas, such as its core Xbox and PlayStation markets, the retailer reported a “continued softness”. In H1, the company posted falls of 18% in sales and profits dropping 27% to US$ 21 million – H2 is expected to see even worse returns, as UK inflation rises and wage growth remains flat.

The May government has suffered another blow with news that the much vaunted Hinkley Point C nuclear power plant is already facing a 15-month delay and an 8.3% (US$ 1.9 billion) cost over-run to US$ 23.2 billion. The project, two thirds owned by the French group, EDF, with the balance by China’s General Nuclear Power Group, has indicated the possibility of a further US$ 1 billion cost blow-out. The National Audit Office has also warned that payments set to be added to consumer bills have quintupled to US$ 38.7 billion.

Coal has come to the rescue of the Australian economy in May as exports were 62% higher than in April – this resulted in the country’s trade surplus jumping from US$ 68 million to US$ 1.88 billion, more than double market expectations. May exports increased by 9.0%, or US$ 2.0 billion, as imports only rose by 1.0% to US$ 166 million.

Latest figures from Australia indicate that the property bubble there continues to be pumped up, except in Perth where prices have fallen 1.8% over the past twelve months. Meanwhile Sydney and Melbourne steam ahead with double-digit growth of 12.6% and 14.1%, with Adelaide and Brisbane recording more modest gains of 2.5% and 3.4%.

On Wednesday, the Pakistani rupee fell 3.1% to 108.1 to the US$ – its lowest level in over three years and its biggest fall in nine years. It seems that the move may have been perpetrated by the government – and if so the devaluation is a means to alleviate pressure on the ailing economy, ahead of elections in 2018. Only last year, the IMF estimated that the rupee was 20% overvalued, with a detrimental effect on the country’s exports; over the past twelve months, its trade gap had jumped nearly 60% to US$ 3.5 billion, with its current account gap almost trebling from US$ 3.2 billion to US$ 8.9 billion.

Japan is still trying to get to grips with the double whammy of years of deflation and slow growth. May saw the fifth straight month of inflation nudging higher but this is still some way off the central bank’s 2% target. However, an unexpected increase in the jobless rate (now at 3.1%) and a fall in industrial production are indicators that the Abe government may well have to reduce its 2017 growth forecast. Wages and inflation will only head north if and when the economy picks up and the labour market tightens.

There is no doubt that on-going political impasse has begun to affect Qatar’s economy as Moody’s downgrades its outlook from stable to negative. Prior to the onset of the current dispute, the nation had already been impacted by the low energy prices; now that diplomatic and economic ties have been severed, there is bound to be mounting pressure on its finances. The local bourse has been spooked and has lost 10% in value.

In June, China’s service sector PMI fell 1.2 to 51.6 from a month earlier, with the Caixin composite output index falling four notches to 51.1. This weakness in services activity ensured that expansion was at its slowest pace in a year and reflects a worrying downward trend in economic activity. A slight improvement in manufacturing activity did little to raise hopes of a quick turnaround in fortunes.

Although China has the third largest global bond market, trading at US$ 9 trillion, only 2% of that total is foreign owned. Now the government is making a concerted effort to rectify this by introducing The Bond Connect programme which will allow bonds to be bought by banks, insurers and fund managers via Hong Kong. HSBC, with a US$ 300 million bond purchase, was the first foreign entity to use the new programme.

Whilst the Chinese President Xi Jinping was in Germany, he signed a US$ 23 billion order for 140 Airbus aircraft – 100 A320s and 40 A350s. The planes – 50% of which will be assembled in China – will initially be bought by the state-owned China Aviation Supplies Holding Company, prior to allocation to various local airlines.

June Eurozone factory output grew at its fastest rate in six years, with the manufacturing Purchasing Managers’ Index rising to 57.4. This equates to an annual growth of some 5.0% which bodes well for upcoming Q2 GDP growth figures. Unsurprisingly, Germany fared well with its headline IHS Markit/BME PMI reading of 59.6 and even France came in at 54.8. Other indicators point to the bloc’s economy gaining momentum. With the HIS Markit PMI returning a June reading of 56.3 and the Q2 average of 56.6 was the best quarterly result in over six years. Such figures indicate a Q2 growth figure of 0.7%, with healthy figures from across the board from most member states.

With a Q1 0.5% fall, The Office for National Statistics reported that UK productivity had declined to its lowest level since 2007. The figures reiterate the point that the country’s productivity is abysmal and is well below the likes of France, Germany and the USA. Although the country’s economy has grown in the intervening period since the GFC, this has been brought about by the actual number of employees rising and that number working longer hours. Interestingly, the report indicates that the output in the capital’s financial industry is seven times higher than in the lowest productivity regional industries. The question is what would happen to the UK’s economy if its total labour force worked Harder, Better, Faster?

Advertisements
This entry was posted in Finance and tagged , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s