Cruel Summer

A week after winning a Damac US$ 140 million contract to build tower 3 in its Aykon City development, China State Construction Engineering Corporation has snared another bigger deal, totalling US$ 351 million, awarded by Emaar. The project is to build the Downtown Views II towers – three high-rise residential buildings, with 1.5k serviced apartment units.

According to Dubai Land Department, 47 new real estate projects, encompassing 14k properties, of which 71.4% were apartments, were completed during the first eight months of the year. It is estimated that 1k properties, valued at US$ 3.3 billion, were handed over to investors.

The latest Knight Frank Wealth Report indicates that Dubai luxury property prices dipped 0.8% in H1, with other locations recording bigger declines – Vancouver, Istanbul and London by 6.2%, 2.4% and 1.8%. On the flip-side, both Singapore (11.5%) and Tokyo (9.4%) returned impressive growth.

Having well and truly cemented its position in both the malls and hospitality sectors, Majid Al Futtaim has plans to expand its real estate division, along similar lines in terms of revenue. The Dubai-based company has four major projects under way, the largest of which is the US$ 3.8 billion Tilal Al Ghaf mixed-use development in Dubai; the others are located in Beirut, Muscat and Sharjah. In its latest H1 accounts, the Group posted revenues of US$ 4.0 billion (up 15.0%) and US$ 627 million (1.0% higher) in its retail and hospitality sectors.

There were reports that Emaar was offering buyers in six of its recent launches – including those in Dubai Creek Harbour and Downtown Dubai – ten-year investor visas, for both buyer and immediate family. On Tuesday, these reports were refuted by Dubai’s leading developer. To boost sales, the developer is to offer a three-year payment plan, after hand-over, and to pay half of the 4% DLD registration fee.

Arabtec has been awarded a US$ 71 million Dubai Properties’ contract  for MEP (mechanical, electrical, and plumbing) on its Amaranta and La Quinta projects in the Villanova master development; this entails 1.4k villas, townhouses, and cluster houses.

Union Co-op has signed a US$ 26 million, 30-year investment contract with Dubai Silicon Oasis Authority to establish a commercial centre. The centre, covering 142k sq ft, will have a 61k sq ft Union Co-op hypermarket on the first floor and will include basement parking for 250 vehicles.

Having recorded 289 million passenger kilometres in 2017, Emirates is officially the fourth biggest airline in the world. Not surprisingly, the top three were all US-based – AA (324 million), Delta (316 million) and United (311 million). Emirates did better with cargo, at 12.7 billion freight tonne kilometres, as global second behind Federal Express.

Sunday saw the ninth anniversary of Dubai Metro and, at the same time, a report by the UK’s Henley Business School estimated that in its first seven years of operation to 2016, the project accumulated economic benefits, totalling US$ 18.0 billion, against costs of US$ 11.2 billion. By 2020 and 2030, the forecast accumulated benefits will top US$ 31.3 billion and US$ 63.8 billion, against total costs of US$ 12.3 billion and US$ 14.7 billion respectively. Apart from the obvious direct factors, the study took into account the impact of the likes of reducing mobility/ vehicle operation costs, curtailing the number of traffic accidents, curbing carbon emissions and cutting road maintenance costs.

DP World is to meet arranging banks to discuss a ten-year benchmark dollar sukuk offering. The Dubai logistics group, and the world’s fourth biggest port operator, is also considering issuing 30-year Regulation S/144A bonds, if market conditions so dictate.

Shuaa Capital is planning to buy a further 70.9% stake in Kuwait’s Amwal International Investment Company, which will bring its total shareholding to 87.2%. Prior to the GFC, the Dubai firm was one of the region’s top investment banks and, since returning to profitability last year, is now on the road for further expansion. Recent attempts to buy into Kuwaiti bank Global Investment House and Bahrain’s GFH did not materialise but this bid seems to be more positive and will be subject to regulatory approval.

The Securities and Commodities Authority is to recognise and regulate ICOs (initial coin offerings) as securities. Following a review of best international practices, the SCA will introduce a set of mechanisms as part of an integrated project to ensure that regulation for such a highly speculative and volatile commodity is closely monitored.

Much-troubled Drake & Scull is to hold a Special General Assembly Meeting, on 27 September, to decide whether the company should continue or be dissolved. With the accumulated losses exceeding 50% of its issued share capital, Article 302 of the 2015 UAE Companies Law No. (2) requires the company to call this meeting. By Wednesday, 12 September, its YTD share value had plummeted 81.9% from its 01 January opening of US$ 0.616 to US$ 0.112.

The DFM opened Sunday, 09 September, on 2827, and shed 0.6% to close the shortened week on Wednesday at 2810. Emaar Properties was down US$ 0.01 to US$ 1.35, with Arabtec up US$ 0.04 to US$ 0.56. Wednesday 12 September saw falling volumes, ahead of the Islamic New Year, with trades of 217 million shares, valued at US$ 56 million, higher than a week earlier (348 million shares at US$ 100 million).

By Thursday, 13 September, Brent traded US$ 1.59 (1.0%) higher at down US$ 78.09; gold was US$ 4 up at US$ 1,208. The main reasons behind the recent hike in prices, which are at their highest this year, are the concerns about Iranian supplies (with sanctions beginning to take effect) and a marked fall in US stockpiles.

VW Investors are in court claiming US$ 11 billion damages  over the car-maker’s fraudulent role in the diesel scandal. The case, initially involving 1.7k claimants, is suing for damage suffered by the investors, when the shares fell by over 40% and that VW should have admitted as early as June 2008 that its diesel vehicles emitted illegal levels of pollution – and not waited to September 2015 to disclose the problem and cause its shares to fall. The company has already paid out US$ 31.7 billion in penalties and fines and could be in line to pay out a lot more, especially if this test case is successful.

Tesla shares continue to fall not helped by the antics of its controversial chief executive Elon Musk, the latest of which was smoking marijuana live on the web during a podcast interview. This incident, along with the unexpected resignations of two senior executives, sent the shares spiralling 10% lower, to recover ending the day 6% down. Since his June announcement that he was planning to delist the company, which he later recanted, the share value has fallen over 20%.

James Dyson, the great British innovator, is to join the big boys in the electric car market, with plans to invest US$ 2.6 billion to build a “radically different” product than rival models. His vehicles will utilise solid-state batteries (being smaller and more efficient), whereas most of the competition will rely on lithium-ion battery technology. Even with Elon Musk’s Tesla losing some momentum, the major traditional car-makers – such as Aston Martin, BMW, Renault-Nissan and VW – will be expanding and investing great sums of money into the growing electric car market. It will be interesting to see whether the 71-year old Dyson can beat them at their own game.

Faced with increasing competition and regulatory scrutiny, Didi Chuxing posted a US$ 585 million H1 loss; since its inception six years ago, and still the world’s second most valuable start-up, the Chinese ride-hailing giant is facing so much competition, from the likes of Meituan Dianping, that it spent US$ 1.7 billion in subsidies and discounts to passengers and drivers. Because it returns most of its generated revenue via subsidies to riders and drivers, Didi has been working on wafer-thin 1.6% gross margins.

As expected, on Wednesday, Apple launched three new iPhone X handset models – XS Max, XS and XR – along with a new smartwatch with an added fall-detection function. The iPhone XS Max, with a bigger 16.5cm screen, will retail from a relatively high US$ 1.4k to US$ 1.9k, depending on its amount of storage. The XS will keep the same-sized screen as before – and will retail at between US$ 1.3k to US$ 1.8k -whilst the lower quality XR will sell for up to US$ 1.2k.

This week, Jack Ma, co-founder and chairman of Alibaba, announced that he will step down from both positions next September; he will be replaced by the current CEO, Daniel Zhang. The 54 year old ex-teacher will then focus on philanthropy and education.

Not many retailers can boast a 1.6% growth in H1 sales to almost US$ 7.2 billion and then see its net profit slump 99% to under just US$ 2 million. But the John Lewis Partnership, which also owns Waitrose, has done it as the department store chain has had to resort to  matching rivals’ discounting “extravaganza days”. The retailer, which employs 85.5k staff, also warned that full-year profits would be “substantially lower”.

After calling in advisers this week – and the possibility of a company voluntary agreement in the offing – Debenhams saw its share value plunge 17%. The troubled retailer has several other options available, apart from the CVA route which normally results in closure of stores; these include renegotiating leases, giving up space in some of its larger outlets and the possible divestment of its Danish Magasin du Nord. Whichever way one looks at this retailer, it is in trouble, having already this year, lost nearly 70% of its market cap, issued three profit warnings and laid off 320 store management staff in February. Debenhams’ shares took another beating today declining 7% in early trading on the back of Sports Direct issuing a statement to the market saying it had no intention of making an offer; Mike Ashley’s retail empire owns almost a 30% stake.

Yet another high street retailer has hit the buffers – this time Evans Cycles, with over sixty stores, is in talks with its lenders about an urgent capital injection following a slump in profits. Founded in 1921, and owned by private equity firm, ECI Partners, it requires over US$ 13 million in new funding to keep the wheels rolling.

In “a fight back against online and e-reading”, Waterstones has acquired Foyles for an undisclosed sum; it includes taking on six shops in London, Bristol, Birmingham and Chelmsford along with its on-line operation. It already owns Hatchards and Hodges Figgis – both booksellers more than 200 years old.

UK house prices continue their recent upward trend rising 3.7% in August, up from July’s 3.3% annual increase and recording the largest rise since last November. For the quarter ending August, prices were 1.9% higher, at an average of US$ 298k, than the previous three month period.

Surprising many of its critics, the UK economy bounced back in July, (thanks mainly to the effects of the World Cup and the tropical summer weather).  It expanded 0.3% in the month and 0.6% for the July quarter, compared to 0.4% in the June quarter. Both the services, 4.4% higher, and construction sectors – up 3.3% – moved forward, whilst industrial output contracted by 0.2% for the month and by 0.5% for the quarter.

UK workers’ pay growth in July saw its fastest pace of growth in three years, with the year on year level 3.1% higher. Annual average weekly earnings excluding bonuses came in at US$ 636. With inflation rates of 2.4%, and the higher growth in pay levels, households will have more disposable income available to spend which in turn should boost the economy. Another plus is that there are now 32.4 million employed as the number of unemployed fell to 1.36 million – its lowest level since the mid-1970s. Normally, more tax being paid will bolster the Exchequer’s

revenue stream because of the double whammy of less unemployment benefits being paid and more money available for consumer spending.

Positive economic data continues to flow out of the US. In August, the non-manufacturing index grew at a faster rate, up 0.8% to 58.5%, month on month. This is a bellwether indicator that Q3 economic growth figures will continue to be strong and resilient. All other indices headed north, including business activity (up 4.2% to 60.7%), new orders by 3.4% to 60.4% and sectorial employment at 56.7%.

Not only did the US economy add 201k new jobs in August but average hourly earnings rose 0.4% on the month and 2.9% for the year – the fastest pace in over nine years. The unemployment rate remained steady at 3.9%. Because of this unexpected boost in wages, it is becoming increasingly likely that the Fed will hike rates by 0.25% at its next meeting later in the month. The number of US job vacancies hit a new high in July, totalling 6.94 million. Job opening rates, at 4.4%, were well ahead of the quits 2.4% level. During July, the number of people hired at 5.70 million was 2.6% higher than the 5.53 million who left their employment.

Even though its annualised export growth dipped slightly in August to 9.8%, China’s trade balance with the US widened to a record US$ 31.1 billion, up US$ 3.0 billion for the month. President Trump will not be best pleased to see that, already this year, China’s trade surplus with the US has jumped by almost 15.0%; there is every chance that he will initiate even more tariffs than the US$ 200 billion already in operation. Meanwhile, Chinese US imports slowed in August to 2.7%, compared to an 11.1% growth the previous month. The US President is also, quite rightly, concerned with other problems concerning limits on US firms’ access to Chinese markets, intellectual property protection, technology transfers and investment.

The World Meteorological Organisation has indicated that there is a 70% chance of a recurrence of the El Niño weather over the next three months. The last time this happened was in 2015-2016 which resulted in changes in weather patterns that brought drought to Africa, resulting in marked declines in food production, and unseasonal floods to parts of South America. If this were to happen, the economies of many poorer countries, already facing massive problems, will have a negative impact at both regional and global levels. The week has seen the physical and economic damage caused by Typhoon Mangkhut and Hurricane Florence. For many, 2018 has already been a Cruel Summer!

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