Respect

There is very little local financial news this week because of the Eid Al Adha celebrations. Most government offices have been closed all week, as banks and the Dubai Financial Market opened only on Sunday to then shut down for the rest of the week. The private sector, as is the norm, pulled the short straw and was given three days off.

Prior to an expected US$ 545 million start-up investment in the local property market, Fidu Properties is liaising with authorities on the use of telesales to prospective customers. RERA has recently informed the real estate industry that unsolicited telemarketing calls could result in fines of up to US$ 13.6k. The Chinese company, which opened its Dubai regional office in April, aims to target investments totalling US$ 1.4 billion and to create 3k regional jobs.

It is understood that Vimana Global has recently been conducting a prototype trial in the emirate of its autonomous aerial vehicle (AAV). The US flying taxi firm is in discussions with Dubai authorities to deploy a blockchain platform prior to its 2020 launch. The company confirmed that the AAV will have a dual role – for both passenger and cargo uses.

In July, Dubai’s CPI rose to 2.2%, compared to 1.3% a month earlier, driven by a 78.5% hike in tobacco products and marked increases in transport, restaurants/hotel and entertainment/cultural by 17.0%, 11.9% and 5.9% respectively.

After making recent investments in both the UAE and Saudi Arabia, Amanat Holdings has turned their attention to Bahrain, acquiring a 69.3% stake in that country’s Royal Maternity Hospital Holding for US$ 39 million. Prior to this deal, the company had utilised 72% of its US$ 681 million capital base on six assets, three of which had occurred in 2018; the company focuses on both the healthcare and education sectors.

It was the straw that broke the camel’s back when investors in the US$ 1 billion Abraaj healthcare fund questioned its unusual dealings and mismanagement of money. Now they have appointed Alix Partners to oversee the fund’s separation from the Abraaj Group and to ensure its long-term success in delivering accessible, affordable and quality healthcare in developing countries. Despite the recent appointment of provisional liquidators over Abraaj Holdings and Abraaj Investment Management Limited, day to day operations have not been impacted.

The DFM opened Sunday, 19 August on 2803, and, because of the Eid Al Adha celebrations, was only open for one day, to reopen on 26 August. Having lost 171 points (5.7%) over the past fortnight, it gained 13 points on the day with only 91 million shares traded, to close the week on 2816. Emaar Properties was US$ 0.01 higher at US$ 1.38, with Arabtec flat at US$ 0.53.

By Thursday, 23 August, Brent was trading US$ 3.30 (4.2%) higher at US$ 74.73, with gold also on the up – by US$ 10 (3.3%) to US$ 1,194.

Notwithstanding a 61.0% hike in Q2 revenue to US$ 11.0 billion, Alibaba Group Holding posted a 41.0% decline in net income to US$ 1.2 billion, attributable to one-off costs associated with compensation for Ant Financials’ recent fundraising. The world’s biggest online retailer recorded a near doubling of its cloud computing business to US$ 637 million and a 46.4% rise in its entertainments unit to US$ 813 million. It is expected that its future profit margins will continue to be squeezed by increased off-line retail and logistics investments.

To nobody’s surprise, the Saudi Aramco 5% IPO may still go ahead but will be delayed until late next year at the earliest. What was possibly to be the world’s largest initial public offering would have added around US$ 100 billion to the coffers of the Kingdom’s Public Investment Fund. The conglomerate, which produces 12.9% of the world’s oil, appears to be in no hurry at a time when energy prices are on the up and it is mulling over investing in a major share in the region’s largest chemicals company, Sabic.

Mulberry has issued a profit warning which resulted in a 30% slump in its share value on Monday to US$ 5.20. The luxury handbag maker operates 21 House of Fraser concessions and with that group’s recent problems, including debts of US$ 629 million to its creditors, Mulberry has intimated that it is owed US$ 3 million and that “sales in House of Fraser stores have been particularly affected”. The House of Fraser has recently been taken over by Mike Ashley, in a US$ 117 million deal, who has indicated that he will not pay suppliers money owed before his takeover.

So far this year, 2018 has been an “annus horribilis” for the UK’s high street shops and Laura Ashley is no exception. It has announced a 98.4% slump in profits to just US$ 130k, amid “challenging” trading conditions and a “changing retail landscape”; it was also hit by an accounting write-off on the sale of a Singapore property. Although like for like sales dipped 0.4%, including sales of furniture falling by 4.1%, on-line sales were 4.1% higher and clothing was 9.7% to the good. The retailer has 161 shops in the UK, having closed eight last year, with five more closures scheduled for the coming year.

Prior to this week, shares in Israel-based Sodastream – a maker of machine and refillable cylinders allowing users to make their own carbonated drinks – had climbed 78% last year and 85% YTD. This week, Pepsi acquired the company for US$ 3.2 billion (at an 11% premium on last Friday’s market price), at a time when global bottled water sales have risen 6.2% annually in the five years to 2017, while carbonated soft drinks sales have been flat.

Despite pleas by Kerala’s Chief Minister, Pinarayi Vijayan, the Modi government has rejected a UAE offer of US$ 97 million saying “in line with the existing policy, the government is committed to meeting the requirements for relief and rehabilitation through domestic efforts”. In trying to prove they can handle any emergency by themselves, the federal government perhaps could watch news reports to see the catastrophe that has unfolded and be grateful for any offers of help from whatever source. Meanwhile, Emirates SkyCargo will carry 175 tonnes of relief cargo to the flood-hit state, where more than 1.3 million people are still living in temporary camps.

By last Friday, 17 August, the Tesla share value of US$ 305 reflected that it had fallen 14.0% over the week and 8.9% on the day. There is something usually afoot when any company’s share value fluctuates wildly. On 31 July, Tesla shares were at US$ 298 but by 07 August were trading 27.5% higher at US$ 380, only to fall back 19.7% by 17 August. According to some experts, 25% of the company’s shares, worth US$ 11.2 billion, are held by investors betting that its share price will fall. The main reason behind their strategy is that they do not believe that the company can deliver on its promises and that its projected revenues and production capacity do not add up. It is estimated that these short sellers raked in over US$ 1 billion betting on a fall in Tesla’s share price since 07 August, when the Tesla founder tweeted he had “secured” funding to take the troubled company private.

Wednesday saw the S&P reach its longest ever running streak that has lasted 3,453 days – almost nine and a half years – driven in its earlier years by QE measures by the US government with the Federal Reserve, spending a massive US$ 3.5 trillion in asset purchases. Logic dictates that this bull run cannot go on forever and it must now be a matter of when – and not if – the share market plunge occurs. The main problem with that argument is the current strength of the US economy and whilst it continues, there is little chance of the markets pulling back. Furthermore, a Thomson Reuters report expects S&P 500 company earnings to rise 23.3% this year and another 10.1% in 2019. However, in the medium-term, it will only take trade tensions to deteriorate or global markets to take fright because of events in Turkey, or a specific geopolitical problem flaring up or a marked downturn in China to turn things on their head.

The current bull market is commonly thought to have started on 09 March 2009, when the S&P 500 closed at 676.53 as the United States grappled with the global financial crisis. Since then, the benchmark US stock index has more than quadrupled, closing Friday at 2850.13, and becomes the third most-rewarding such run in history, after ones between 1932-1937, (following the Great Depression), and between 1990-2000. However, this past nine years has seen much volatility including sixty occasions when the market has dropped more than 1% in a day and sixteen times the fall has been above 5%. It is interesting to know that over the past 72 years, there have been 12 bear markets and the average fall in share values was 32.7%. More worryingly for investors, the last two – the dot.com bubble and the GFC – witnessed slumps of 49.1% and 56.8%. Jump while you can!

The new Malaysian Mahathir Mohammad government has advised Chinese authorities that his debt-laden country has canned three China-backed projects, totalling US$ 22.0 billion, because they cannot afford to pay for them; the projects were two separate gas pipelines and a US$ 20 billion East Coast Rail Link to be built by China’s largest engineering firm, China Communications Construction Company, with much of the finance via the Export-Import Bank of China. The country is beset with a huge national debt of US$ 250 billion. Economic history is full of examples of major powers, including China, Russia and US, flaunting their financial largesse to poorer nations and then holding them to “ransom” when massive loans cannot be repaid. Recent examples include Sri Lanka and Djibouti.

If President Nicolas Maduro thinks he has fixed Venezuela’s economic problems, he is sadly mistake. By deleting five zeroes off the strong bolivar, and creating a new sovereign bolivar, the ex-bus driver has only increased economic instability; at least, he did better than the former leader, Hugo Chavez, who a decade ago, knocked  three zeroes off the currency note, to try to halt hyperinflation and failed miserably. He also announced other measures to tackle widespread poverty, including, for the fifth time this year, a rise in the minimum wage – a 3,670% hike – and also an increase in sales tax. For a country that has 20% of the world’s proven oil reserves, at almost 300 billion barrels, it will never recover so long as rampant corruption and tyranny continue unabated – and the crippling US sanctions do not help either! Yet again , the likes of the UN and other global bodies appear to stand by while the country becomes a basket case.

After eight years, and assisted by a US$ 348 billion rescue package, Greece has officially exited its final bailout programme. However, although it will now be free to borrow money on global financial markets, the Hellenic country will have to follow an austerity regime that will mean meeting unrealistic primary surpluses, adding to its tax receipts and putting up with lower pensions. Greece still faces many challenges especially with major reforms required in many areas including the public sector, the judiciary and the general business environment. Unemployment levels are still unacceptably high – at 19.5% and 39.7% for those under 25. The economy is 25% smaller than eight years ago and it will take decades to pay off its debt, equivalent to 180% of GDP.

It appears that the Eurozone trade balance fell 12.5% over the past twelve months to US$ 25.6 billion, whilst the EU28 (all 28 members of the EU) headed the other way – up 4.5% to US$ 7.9 billion. Eurozone imports and exports to the rest of the world both climbed over the year by 5.7% to US$ 226.0 billion and 8.6% to US$ 200.4 billion respectively; for the bigger bloc, the figures were higher by 8.2% to US$ 195.1 billion and 8.4% to US$ 187.3 billion.

There was good news for the embattled UK government this week, as public finances posted their biggest July surplus (US$ 2.6 billion), since the start of the century, driven by increases in tax receipts. The end result was that the public sector net debt of US$ 2.31 trillion is equivalent to 84.3% of GDP, compared to 86.0% last year. This improvement will give the Chancellor some leeway in his November budget  to allocate extra funds to the NHS and other public services.

Chancellor Philip Hammond has yet again shown his true colours, as he warns that a no-deal Brexit could result in the UK’s economy witnessing a 7.7% hit to GDP over the next fifteen years, as well as the estimated borrowing being US$ 105 billion a year higher. He indicated that certain sectors – including cars, chemical, clothing, food/drinks and retail – would be worst hit and that the North East and Northern Ireland would bear the brunt of the impact. The man, who was a staunch Remain supporter prior the 2016 referendum, now appears to be the leading figure in a dodgy project fear campaign.

Even when he was campaigning to be President, Donald Trump accused China of manipulating the yuan and now he continues his assault not only on the second most powerful economy but has also brought the EU into the equation. China’s currency has dipped by almost 10% since April when the trade dispute started to make an impact; this would have made their imports from 10% cheaper which would have also lessened the effect of any additional tariffs. China has also been involved in selling its own currency, which drives its value down and makes exports cheaper.

It seems likely that Australia will soon have its sixth Prime Minister in little over a decade as the current incumbent, Malcolm Turnbull, just survived a leadership spill on Thursday, 26 August, by 48-35 against Home Affairs Minister, Peter Dutton. The fact that the government is riddled by disunity and that the country has seen four leaders – Julia Gillard, Kevin Rudd, Tony Abbott and Malcolm Turnbull – in the past five years, is bound to have a negative impact on the economy. There is the danger that if the government becomes more concerned with its survival, rather than the country’s economy. Paul Keating’s 1986 comment may become reality – “we will end up a third rate country.   .   . a banana republic”. There is no doubt that Australian politicians are quickly losing the electorate’s Respect!

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