Lose Your Money

This week, HH Sheikh Mohammed bin Rashid Al Maktoum opened Area 2071, located at Emirates Towers, an interactive platform that will “act as an umbrella” to bring together SMEs, entrepreneurs, start-ups and government programmes. At the launch, the Dubai Ruler said that “Area 2071 reflects the UAE’s ambition to be a key player in building the future. It is an open laboratory to learn, develop ideas and experiences, and design the future, as well drafting a better future for humanity.”

The latest Core Savills report shows that Dubai rents and sale prices continue to soften and that it is more evident in central areas such as Downtown and the Marina, with falls of 7.0%. Declines in rentals have been more noticeable in The Meadows and The Springs, down 5% and 9%, with current rents up to 20% lower than in 2015. It expects that 21.5k units will be delivered this year and that the impact of new stock is affecting secondary sales prices, as there are more recent builds in less “preferred” locations, at lower (and more attractive) rates.

According to the Dubai Chamber of Commerce and Industry’s CEO, Hamad Buamin, the emirate will allow 100% foreign ownership of “strategically important” retail brands – as is apparently already the case with Apple and Tesla. Only last year, the Ministry of Economy indicated that a new law exempting foreign firms from the 51% local ownership rule would be in place in 2018.

Emaar has launched its new Downtown property, Grande residential tower located at Opera District. The 78-storey building will comprise 1-4 B/R units and will have views of Burj Khalifa and The Dubai Fountain.

This week, Nakheel has called for tenders for piling and enabling works on PALM 360 which, at 260 mt, will be the tallest building on the man-made island. The twin tower project – housing the 125-key Raffles The Palm and 331-units Raffles Residences PALM360 – will have the world’s largest sky pool connecting the buildings.

Azizi has appointed Evershine Contracting in a US$ 152 million agreement to build half of phase 4 of Azizi Riviera, located in Meydan One. The contract, encompassing ten of the 69 mid-rise buildings for the whole 16k-unit project, will start in Q3.

So as to further ease the burden of doing business for organisers of exhibitions and conferences, the UAE Cabinet has agreed to a VAT refund for entities involved in the sector. It is hoped that the decision will give a boost to an industry that contributed US$ 651 million to the national economy last year and is expected to more than double in value by 2020.

To further boost Chinese tourist numbers, Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism) has signed an agreement with Fliggy, one of China’s major online travel platforms and part of the Alibaba Group.

According to a How Global is the Business of Retail? Report, Dubai, having introduced 59 new retail brands to the emirate last year, has overtaken London as the world’s leading retail destination; 69% of global retailers now have a presence here. The report also indicated that Dubai’s existing retail inventory could grow by 50% (equivalent to 1.5 million sq ft) by the end of 2020.

The impasse between the Gulf airlines and the three major US carriers seems to have been broken as the UAE has agreed to increase financial transparency and to issue annual public financial reports under internationally recognised accounting standards. The UAE has also pledged that it will not add any further fifth freedom flights (that start in in the home country and touch down in a different nation before continuing on to the US). Three years ago, the US triumvirate – American Airlines Group, Delta Air Lines and United Continental – claimed that Gulf airlines were receiving government subsidies, giving them an unfair advantage. Having stopped flying into Dubai in 2016, Delta Air Lines will soon reopen the route, with its CEO, Ed Bastian saying “we’re going to have the opportunity to once again go back into parts of the world that we’ve been run out of”.

Emirates has agreed to renew its Formula 1 sponsorship deal until 2022.

State-controlled Dubai Aerospace Enterprise could be considering orders totaling some US$ 40 billion to acquire 400 single-aisle aircraft including A320s and 737 Maxs. DAE already has a fleet worth US$ 14 billion and last year raised US$ 2.3 billion in senior bonds to acquire Ireland’s Awas.

According to the IMF, the UAE is to return to a fiscal surplus of 0.5% of GDP this year (and 1.0% in 2019) on the back of higher energy prices; this is a major improvement from its previous forecast of a 2.2% deficit but the organisation is often seen not to be the world’s best prognosticator. It has also projected this year’s economic growth at 2.0% and 3.6% in 2019, with non-oil growth set at 3.0% and 4.0% and oil growth of 0% and 3.0% respectively. However, there are potential risks to consider – geopolitical tensions, rising interest rates and a currently weak property sector. Inflation is forecast to be at 3.5% this year, falling to 2.5% in 2019.

In 2017, JAFZA confirmed its position as the region’s top trade and logistics hub, with a traded volume of 29.4 million metric tonnes, valued at US$ 83.1 billion; this figure equates to 23% of the total Dubai trade value and 77.0% of all the emirate’s free zones. Volume wise, it is at its highest since 2013 and accounts for 32% of all Dubai’s trade and 97% of all the free zones. Its five main trading partners are China, Saudi Arabia, US, Vietnam and India.

Chinese interests make up almost 25% of total assets booked in the Dubai International Financial Centre; this figure of US$ 33.4 billion is set to grow, as last year a 30.5% jump of US$ 7.8 billion was recorded. China’s four leading banks – Bank of China, Agricultural Bank of China, ICBC and China Construction Bank Corporation – have made the DIFC their regional bases.

Celebrating its first birthday, the country’s first lifestyle digital bank, Liv has reported that it is attracting over 10k new customers (of which five in six are millennials) every month. The Emirates NBD offshoot is regarded as the fastest growing bank in the UAE.

In a bid to alleviate any possible liquidity issue, Abraaj Group is reportedly considering the partial sale of its fund-management unit (a majority stake to Colony NorthStar) and its 66.7% shareholding in Pakistani utility, K-Electric possibly to Shanghai Electric Power Co, worth US$ 1.8 billion. The Dubai-based firm, which is trying to convince stakeholders that it had not misused clients’ funds, has already introduced new internal controls, changed senior management and reduced payroll numbers by 15%.

Dubai-listed Gulf Navigation recorded a 5.0% Q1 profit growth to US$ 3 million, as revenue surged 28.2% to US$ 10 million. During the same time period, operating expenses were 39.6% higher at US$ 7 million.

Emirates Investment Bank saw its Q1 net profit decline 9.5% to US$ 4 million, as its operating income fell 12.5% to nearly US$ 5 million. However, EIB’s managed assets were 2.7% higher at US$ 2.9 billion.

Following a US$ 228 million loss a year earlier, Drake & Scull managed to post a US$ 2 million profit in Q1, although revenue fell 12.9% to US$ 189 million. In Q1, the company secured orders worth US$ 83 million in its home market and has a current project backlog amounting to US$ 1.5 billion.

Damac Properties posted disappointing Q1 results, with profit falling 45.0% to US$ 132 million, as cost of sales headed the other way – up 27.5% to US$ 308 million on revenue of US$ 515 million.  Even so early in the year, it is unlikely that the developer will reach its annual sales target of US$ 1.9 billion and could also see a fall in annual profit which last year touched US$ 752 million, which itself was 25% lower than the 2016 return.

Amanat Holdings posted a 10.7% increase in Q1 profits to US$ 4 million, fuelled by a 12.0% hike in total income to US$ 8 million. During the quarter, the health-care and education-based company acquired a 35% stake in Abu Dhabi University Holding Company for US$ 87 million. The company, whose portfolio is almost evenly spread between education and medical assets – and between locations (UAE and Saudi Arabia), – is planning to spread its geographical footprint to other countries in the region.

The DFM opened on Sunday (13 May), at 2882, and finally stopped its recent downward spiral, gaining 31 points (1.1%), to close at 2913 by Thursday, 17 May. Emaar Properties reversed just a little of its 28.1% YTD diminution in share value, jumping US$ 0.04 to US$ 1.40, whilst Arabtec gained US$ 0.06 to close on US$ 0.53. Volumes on the first day of Ramadan were predictably low, trading 115 million shares on Thursday, valued at US$ 55 million, (compared to 244 million shares worth US$ 102 million the previous Thursday – 10 May).

By Thursday, Brent Crude, having risen 5.2% the previous week, moved a further 2.4% higher to close on US$ 79.30, with gold going in the opposite direction, US$ 33 (2.5%) lower at US$ 1,289 by 17 May 2018. With oil inventories in the OECD industrialised countries falling to nine million barrels above the five-year average (compared to 340 million barrels at the beginning of the 2017), it seems that the oil glut of the past two years – allied with low prices – is all but over.

Xerox will not now be bought by Japan’s Fujifilm in what would have been a US$ 6.1 billion deal. Instead it has reached a deal with activist investors, Carl Icahn and Darwin Deason, already 15% shareholders of the US printer and photocopier maker, who have claimed that the sale price was undervalued. It is thought the company is still up for sale but the price would have to be somewhat higher.

TPG, the US owners of Poundworld has apparently instructed Deloittes to find a buyer for its UK operations. Two weeks ago, the discount chain was planning to close 100 of its 355 shops, that employ 5.7k, but any rescue plan (a Company Voluntary Arrangement) has now been ditched. The American owner had already pumped in US$ 28 million in an attempt to keep the operations afloat. Its recent annual accounts showed a US$ 23 million pre-tax loss, as impairment provisions rose. This is the latest UK chain to hit the ropes following Carpetright, New Look and Toys R Us UK.

The UK’s House of Fraser posted a US$ 60 million loss (compared to a US$ 2 million profit in 2016), as revenue fell 6.3% to US$ 1.1 billion. The usual suspect – Brexit – was given as one of the contributors to the disappointing results, along with the growth in e-commerce and terror attacks. China’s C.Banner has agreed to take over 51% of the retailer which has 59 outlets in the UK.

Another iconic brand that is struggling is Mothercare, which is set to close 49 (35.8%) of its UK stores over the next two years, as part of its strategy to keep the baby care retailer in business. This is part of the conditions of its company voluntary arrangement – a plan that needs to be ratified by creditors over the next 21 days. Just a decade ago, the chain had over 400 shops in operation.

The Financial Conduct Authority in the UK has come down strongly on Barclays boss Jes Staley after his befuddled attempt to unmask a whistleblower (a shareholder) who had been critical of a new employee, whose appointment was instigated by the Chief Executive. In a historic verdict, the FCA fined him US$ 880k (and the bank cut US$ 685k from his 2016 bonus) – small change when his 2016 and 2017 remunerations came in at US$ 5.7 million and US$ 5.3 million. No wonder, some people outside the Establishment think that Mr Staley has got off fairly lightly!

In a deal that would value the Saudi Arabia’s Alawwal Bank at US$ 5 billion, HSBC has offered a 29% premium to acquire RBS’s local venture stake. If the deal goes through it would result in the new entity, with the international bank having a 40% stake, becoming the Kingdom’s third largest bank with assets of US$ 73 billion.

There is a slight chance that the days of the “Big Four” could be over as MPs on both the Business and Work and Pensions select committees report on the Carillion collapse. They have recommended that the ”audit market” be referred to the Competition and Markets Authority to look at breaking up the quadropoly into more audit firms and detaching audit from other services these firms provide. It seems incongruous that they carry out all audits for 97% of the UK’s top 350 companies and that there could be grounds for potential conflicts of interest when 80% of their total revenue comes from non-audit sources. With the close relationship between governments, big business and the major audit firms, change will inevitably be slow and put on the back burner.

This week, the 274-year-old Sotheby’s posted its highest ever auction price – at US$ 157 million – for a work by Modigliani, Nu couche (sur le cote gauche). The previous owner, John Magnier, returned a tidy profit, after buying the work of art for only US$ 27 million in 2003. Many had expected a sale in excess of US$ 200 million but at its sales price, it was the fourth highest price for a work of art ever sold but still some way off the US$ 450 million paid by Abu Dhabi’s Department of Culture and Tourism for Da Vinci’s Salvator Mundi.

Japan’s economy continues its rocky road – after eight straight quarterly expansions – with Q1 GDP figures 0.2% lower, quarter on quarter, and on a seasonally adjusted annualised basis, 0.6% shy. The figures were not helped by business spending at 0.1% lower and flat private consumption.

In a bid to sweeten relations with China following months of difficulty, Australia’s Trade Minister, Steven Ciobo, arrives in Shanghai today. Having signed a free trade pact in 2016, troubles started with Australia banning foreign political donations which resulted in a formal protest and Australian government ministers having Chinese visas withheld. Australian industries have a lot to lose if conditions deteriorate further, considering that China imported US$ 69.5 billion of goods and services last year and is an important customer for mining giants, Rio Tinto and BHP Billiton.
Another factor is that the “lucky country” has to balance its links (especially security) with the US so as not to upset either of the superpowers.

There was positive news on the Chinese economy in April, with credible annual increases of 7.0%, 7.0% and 9.4% in industrial output, fixed asset investment and retail sales. At the same time, fiscal revenues were 11.0% month on month higher at US$ 292 billion and 12.9% up year on year, whilst government spending grew 10.3% YTD and 8.2% annually to US$ 232 billion.

In a surprise move, President Trump has indicated that he is keen to assist ZTE Corp to “back into business” and is working with Chinese President Xi to save many jobs in that country that are at risk. Only last month, the company, which relies on US parts for 30% of its production, was blocked by the Commerce Department from importing US components for its products for seven years; five years ago it was found to be illegally shipping hardware and software from the US to Iran and North Korea.

Following the Trump administration’s withdrawal from the 2015 Iranian nuclear accord and the reimposition of sanctions, Total becomes the latest European company to signal that it might quit the multi-billion-dollar South Pars gas project and exit Iran. European leaders are meeting in Sofia to try and keep the deal alive (which would almost be impossible without US involvement) as well as protect trade links. Large conglomerates, including Allianz and Maersk, have already started winding down operations in the country. It has also given EC supremo Jean-Claude Juncker something else to do apart from his Brexit dealings.

US retail sales in April were 0.3% month on month higher at US$ 497.6 billion, equating to a credible 4.7% annual hike. Meanwhile, April’s new residential construction was 1.3% down on the month but 7.7% higher on the year with a seasonally adjusted annual rate of approximately 1.3 million units. Over the past twelve months, there were double digit increases for both privately-owned housing starts (10.5%) and privately-owned housing completions (14.8%). Industrial production was 0.7% higher in April driven by output increases of 1.9%, 1.1% and 0.5% in utilities, mining and manufacturing respectively. However, the fact that manufacturing output is still 5% lower than it was in pre-GCC 2007 indicates that the US President will still use unfair foreign competition as a cause for his policies.

Latest data emanating from the eurozone points to Q1 GDP growth of 0.4%, following 0.7% the previous quarter with the larger EU bloc (E28) recording figures of 0.4% and 0.6%. Annual growth was 2.5% and 2.4% (E28) whilst the biggest growth levels were found in Poland (4.9%), Hungary (4.7%) and Czech Republic (4.5%).

Posting its fastest rate of growth in three years, UK wages expanded 2.9% in March – 0.1% higher than a month earlier. At that level it is now higher than the 2.5% inflation rate. Last year, wage growth only crept 0.4% higher and amazingly, real wages are US$ 32 less than pre GFC and not expected to return to its 2008 level for another seven years.

The Bank of England has indicated that its 2.0% inflation target should be reached within two years. Blaming among other factors the bad weather conditions, the Bank of England estimates that Q1 growth will only be 0.1% (compared to its February 0.4% forecast). Its annual 2018 forecast has been reined in from 1.8% to 1.4%, with the next two years being 1.7% and 1.8%. The slowdown in growth would point to interest rate hikes being put on hold for the foreseeable future – many will still continue to Lose Your Money.

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