American Dream

Following recent bleakish reports by several consultancies on the state of Dubai’s realty sector in 2018, it is refreshing to read that at least one, PropertyFinder, indicating that it is not all doom and gloom. Whilst conceding that 2017 prices had fallen across the board – villas by up to 9% and apartments in the low, single digit range – it foresees a turnabout ahead of Expo 2020.  There is every possibility that the sector will come off its bottom in Q1, driven by the facts, that according to Reidin, population growth is double that of new supply, oil prices are nearer to US$ 70 (and not US$ 40) and both the Dubai and global economies are to grow by up to 3.9% this year.

Tiger Group has started work on two of its Dubai projects. The UAE-based developer expects the 41-floor O2 Tower – with 600 apartments -in Jumeirah Village Circle to be completed within three years. With 85% of the Jumeirah Village Triangle Al Jawhara Tower already sold, the company expects that the 532 studios will be ready by Q2 next year.

Sales will start this Saturday for Damac’s latest luxury launch – Reva Residences – with prices from US$ 190k. Located on the south ridge of Business Bay, the development comprises 1-2 B/R apartments.

At Saturday’s launch of the first phase of its private gated island Beach Vista development, Emaar recorded sales of US$ 272 million, as all 375 residences were sold out. The units – in two towers (33 and 26 storeys) – comprise a range of 1-4 B/R units and are part of the Emaar Beachfront scheme located in the new Dubai Harbour project.

The Jumeirah Group has added a second brand (following Stay Different) to its portfolio with the launch of Zabeel House by Jumeirah. Five management agreements – including properties in the UAE, Saudi and UK – have already been signed, with the newcomer offering “brilliant basics and unexpected extras set in an upscale, casual environment”.

The latest STR report indicates regional declines in the Middle East’s hospitality sector, with occupancy down by 1.1% to 65% and RevPAR (revenue per available room) 4.5% lower.

Dragged down by the increased supply of inventory, Dubai hotels registered falls in November room rates by 1.4% to US$ 286 and RevPAR (revenue per available room) by 2.8% to US$ 252. The EY report indicated that November is normally a prime month for the sector with the weather improving and mega events such as Dubai Airshow and Motor Show.

Dubai itself continues to expand ahead of Expo 2020, with its hotel room portfolio expected to grow by a massive 32.4% to 108.6k over the next two years, following a 5.2% hike in 2017. Since much of the increased room supply is in the midscale sector, rather than at the high-end, this could have a negative impact on both occupancy levels (if demand is lower than the increased supply) and revenue indicators, with more rooms at lower prices. The good news is that cheaper hotels will attract more visitors – the bad news is that average spend per visitor may suffer.

Dubai Industrial Park is set to see US$ 37 million being used on infrastructure development and road expansion. This spend will boost the park’s ability to cope with an ever increasing number of companies becoming involved with the emirate’s growth in the industrial sector, which is a key part of the 2016 Dubai Industrial Strategy. In 2016, the sector grew by 3.4% and accounted for 9.5% of Dubai’s GDP;  with manufacturing surging 31.2%, equating to US$ 9.7 billion, and industrial exports 8.6% higher at US$ 39.0 billion, it will play a significant role, as the largest contributor to GDP after oil and gas, in Dubai’s future.

Following its latest debt restructuring programme and new credit facilities, Drake & Scull International (DSI) is to build a new camp to house 5k workers; this will cater for the Dubai-based company’s labour force increasing by 41.7% to 17k.

DP World has signed an agreement with the National Investment and Infrastructure Fund to invest up to US$ 3 billion in India’s transportation sector, with an emphasis not only on seaports but also economic zones, terminals, transportation and logistics.

Expo officials have confirmed that the collapse of Carillion would have no impact on the event, as ongoing work on the three themed districts   is already underway by Al Futtaim Carillion. At the same time, it was also announced that another UK company, Laing O’Rourke, had won two construction contracts, valued at US$ 183 million. They were for the construction of Expo’s ‘Hammerhead’ access road and the Leadership and Media pavilions.

The Federal Tax Authority has announced that over 260k companies have now registered for VAT following its 01 January implementation. It is mandatory for any company with an annual turnover of over US$ 100k to register.

Adnoc Distribution is to open three service stations in Dubai, for the first time, as it expands its operations away from Abu Dhabi (where it has 360 outlets). The fuel and retail arm of Abu Dhabi National Oil Company listed on the Abu Dhabi Securities Exchange last month, with a share price of US$ 0.68.

At a cost of US$ 18 million, the RTA has added a further 32 km of cycle track covering Mushrif, Mirdif and Al Khawaneej areas. This brings the total to about 250 km of cycle paths available in Dubai. The government hopes to double this to over 500 km by 2021, as part of its strategy to encourage people to practice sports exercises and cycling.

It is reported that Dubai’s Al Shafar General Contracting is still keen on an IPO but it will happen later – rather than earlier – because of current market conditions. After a slow two years, there is a feeling that the sector may be on the upturn, as witnessed by the recent local IPOs of Emaar Development and Adnoc Distribution, as well as several investment trusts in Saudi Arabia. It is estimated that money raised from regional IPOs in 2017 – US$ 3.2 billion – was more than four times greater than in the previous year.

SHUAA Capital, already an 8% shareholder, has offered to buy a major stake in Kuwait’s Amwal International Investment which has a capital base of US$ 60 million.

The country’s largest sharia-compliant bank, Dubai Islamic, is to issue a US$ 750 million sukuk a week after announcing a 26% hike in Q4 profits to US$ 1.23 billion. As part of a US$ 5 billion financing programme, the bank, with an ‘A’ rating from Fitch, issued a US$ 1 billion Islamic bond last February.

Dubai Investments finalised the US$ 136 million purchase of Union Properties’ 50% share in Emicool to take over the entire company. Under the company’s Memorandum of Association, the remaining partner had priority to buy any shares offered for sale. The money raised will be used by the developer to expand its operations and projects.

Having recently extended its capital to US$ 272 million, Gulf Navigation is to refinance both its “Gulf Mishref” and “Gulf Mirdif” petrochemical carriers, as demand for its shipping services increases.

The DFM opened on Sunday (21 January), at 3531 and shed 62 points to close 1.8% lower at 3469 by Thursday, 25 January. Emaar Properties was down US$ 0.13 at US$ 1.87 (having gone ex div on Monday), with Arabtec flat at US$ 0.72.  Volumes were lower at 247 million shares traded on Thursday, valued at US$ 89 million (compared to 331 million shares worth US$ 153 million the previous Thursday – 18 January).

By Thursday, Brent Crude traded US$ 0.91 (1.3%) higher at US$ 70.42, with gold heading the same direction – up US$ 36 (2.7%) to US$ 1,363 by 25 January 2018.

Despite making a US$ 1 billion provision for tax payments (following President Trump’s recent overhaul), Halliburton posted a profit of US$ 0.53 a share and recorded an 18.4% Q4 growth in revenue to US$ 5.9 billion on the back of the recent surge in shale production. Figures were particularly strong in its backyard, with US revenue 88.9% higher at US$ 3.4 billion. Shares in the oilfield services provider were up 6% on the day.

The UK’s Competition and Markets Authority has rejected Fox’s proposed takeover of Sky, on the grounds of being against the public interest, as it would give the Murdoch family too much control over UK’s news providers. However, the CMA ruled that it would not be against the public interest on the grounds of broadcasting standards. Fox currently owns a 39% stake in Fox and, with Disney awaiting approval from US regulators to acquire much of the Fox empire, it may all conclude with Disney taking over Sky.

With Ikea being reportedly investigated by EU tax officials for unfair tax advantages by the Netherlands government, its CEO, Jesper Brodin, has indicated that the flat pack furniture retailer pays its fair share of global tax – in the region of 25%. Whether the Swedish company, with a Dutch head office in Delft, has operated within EU rules remains to be seen.

Qualcomm Inc has been fined US$ 1.2 billion by the EU for paying Apple “billions of dollars” not to buy chips from competitors. The initial agreement was signed in 2011 and subsequently renewed in 2013. To add to its woes, the world’s largest chipmaker is fighting a US$105 billion hostile takeover bid by rival Broadcom Ltd and continues with several court cases against Apple over patent licensing.

General Electric Co had a woeful Q4 posting a 5.1% decline in revenue at US$ 31.4 billion and, more worryingly, a US$ 10.1 billion loss (compared to a US$ 3.5 billion profit) on the back of a US$ 11 billion charge for insurance losses (US$ 6.2 billion) and taxes.

Kimberly-Clark is set to close ten manufacturing plants, with a loss of up to 5k jobs, with Q4 sales only nudging up 1%, as keen competition from rivals and store brands increases. The company has also not been helped by falling birth rates in key markets such as South Korea and the US which has made inroads in sales of nappies and other baby-related staples. The Kleenex-maker hopes to cut costs by US$ 2 billion over the next four years, 25% of which would be saved by streamlining its supply chain.

The 155-year old Bacardi, which also owns major spirits brands such as Grey Goose vodka, Dewar’s whisky and Bombay Sapphire, is set to acquire tequila maker Patron for a reported US$ 5.1 billion, to add to existing Cazadores and Corzo tequila labels. The world’s biggest privately-owned spirits firm, and the second largest by value, Bacardi is trying to boost its segment share in the “high quality, cocktail combinations and sophisticated sipping products” sector.

After last week’s US$ 16 billion order by Emirates, which effectively saved the A-380 from demise, Airbus is looking for a smaller order from BA to further boost its order book. The airline, which is the leading operator of Boeing’s 747, already has 12 of the superjumbos in service. It had also been studying second-hand 380s, used by the likes of Singapore and Malaysian, but sees the refurbishment option as not being cost effective.

HSBC has agreed to settle US$ 101 million in penalties with US authorities, following the Justice Department investigating the manipulation of currency rates. As part of the deal, the bank has promised to help with the criminal case against former traders. It also entered into a deferred-prosecution agreement – just a month after it was released from a similar order for helping Mexican drug cartels launder money and breaching international sanctions by doing business with Iran. (In 2015, five international financial institutions were each fined between US$ 200 million and US$ 925 million for similar offences).

On the back of troubles at rival Monarch (closed down), Air Berlin and Alitalia (both in administration) and Ryanair (pilot rostering difficulties), Europe’s second largest budget operator, EasyJet posted a 14.4% hike in Q4 revenue to US$ 1.6 billion; passenger numbers were 8.1% higher, at 18.8 million, than in the same period of 2016. Following the announcement, its share value jumped 5.1%.

The UK car sector received another jolt following Vauxhall recently slashing some 650 jobs at its Ellesmere Port plant. This week, Jaguar Land Rover announced that it would be trimming production of some of its Range Rover brand – and this comes after a record global sales year in 2017. However – along with the perennial Brexit factor – the car maker cites a 2% fall in production and a 5.7% decline in UK new car sales as drivers behind the decision.

In December, the UK’s budget deficit declined, as public sector net borrowing fell 3.9%, year on year, to US$ 3.5 billion, mainly because of a US$ 1.7 billion credit payment from, of all sources, the EU; this was the lowest December net borrowing since the turn of the century. For the nine months to December, the PSNB has fallen 11.7% to US$ 69.5 billion and for the tax year ending 31 March the Office for Budget Responsibility forecasts that this December figure will be roughly the same. The UK’s public sector net debt is currently at US$ 2,445 billion, equating to 85.4% of GDP.

It seems that the UK economy is not in such a bad state as some commentators have led us to believe and this change in attitude may account for sterling topping the US$ 1.42 level on Tuesday – a welcome improvement from when it reached its lowest level in thirty years – at 1.20 – after the June 2016 Brexit vote. With inflation levels beginning to come off their recent 3.1% highs, sterling heading north (with imports heading the other way) and some positive economic indicators maybe the country’s prospects are becoming brighter, with “business returning to normal”.

Not surprisingly, the Bank of Japan has decided to make no immediate change to its monetary stimulus package which stands at an annual amount of US$ 730 billion. This will result in the Bank of Japan purchasing government bonds so that the yield remains at zero level; current account interest rates will stay at minus 0.1%. The world’s third largest economy is expected to see growth levels continue to head north, with inflation nudging higher towards the 2.0% mark.

China reported that Q4 figures indicated that the economy had continued at a steady growth pace, climbing 6.8%, year on year. Last week, the authorities reported an annual jump to 6.9% (up on 2016’s 6.7%) with three other indicators posting gains – annual industrial production 6.6% (2016 – 6.0%), retail sales 10.2% and fixed asset investment at 7.2%.

With its public debts equating to 180% of its GDP, Greece’s economy is still in dire straits. The two protagonists still have opposing views – the IMF supports major debt relief, saying that the debt burden is “unsustainable”, whilst Germany and other EU creditors maintain enough is enough (having already lowered interest rates and extended repayment periods) and that the Hellenic country should pay up all its outstanding liabilities. Some agreement between the two parties is necessary and the IMF has intimated that it will only join in the current (and third) bailout of US$ 8.3 billion if a further “haircut” takes place.

After safely navigating the three day closure of government services, Donal Trump has approved high duty on imports of solar panels (30% over four years) and large residential washing machines (50% over three years). This follows reports that the domestic industry was being unfairly targeted by heavily subsidised Chinese imports.

Once again the President has got his own way as Jerome Powell is confirmed to take over the reins of the Federal Reserve from Janet Yellen.  The former investment banker was Donald Trump’s choice and comes as a signal that he will continue with slow and deliberate rate increases and could well oversee more bank deregulation. Tomorrow he will address some of his biggest critics at the annual elite Davos forum.

As seems to be the norm, the IMF has yet again revised its global estimate just three months after their last forecast. It now sees global growth this year and 2019 to come in at 3.9%, following on last year’s 3.7%. The main factors behind this upward revision are the recent US tax policy changes (including tax cuts) and a faster than expected recovery in Europe and Asia. The growth is broad-based with a majority of global economies recording year on year expansions. Despite its bullish outlook, there is a warning about the equity asset bubble, potential problems for the UK economy (and Brexit again) and the rise of protectionism because of the America First policy – Donald Trump’s American Dream!

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