The First of May

The First of May 25 April 2019

HH Sheikh Mohammed bin Rashid Al Maktoum was in Beijing this week attending the Belt and Road project at which China’s President Xi Jinping tried to ease concerns, promising to ensure transparency and the “fiscal sustainability” of all projects. Some critics are concerned that China is trying to exert its geopolitical influence which has already seen some countries becoming indebted to the world’s second largest economy. The initiative is expected to have a final investment of over US$ 1 trillion and has already chalked up some mega infrastructure work in several countries. Sri Lanka has already had to hand over control of one of its ports to pay China back some of its foreign loans.

The Dubai Ruler also unveiled a federal Ministry of Possibilities, a new branch of government, with the “unconventional” ministry functioning “without a minister” but with input from the whole cabinet. He stated that “the virtual ministry, administered by the cabinet, will address pressing national portfolios and build future government systems.” In its first phase, it will oversee the Department of Behavioural Rewards to develop an approach for incentivising positive behaviour through a point-based “rewards” system.

A Damac official indicated that the Dubai property market “will balance out” before the end of next year, as the sector is already experiencing the bottom of the cycle. This year, the developer expects to deliver 8k units – the most in the company’s history and double the amount handed over in 2018. Last year’s profit was its lowest since going public in 2013 and is one of the reasons why the company’s share value has plummeted 56% over the past twelve months.

According to Cavendish Maxwell, Dubai house prices have fallen 12% over the past twelve months, with bigger declines seen in locations such as Arabian Ranches, Dubai Sports City, Dubai Silicon Oasis and Jumeirah Islands. In March, month on month prices dropped 1.7% and 5.1% over Q1, as average house prices fell to US$ 708k. Q1 saw a marked decline in apartment transfers (14% lower on the year), as March average prices stood at US$ 490k.

Khoory Hotels is to open two sharia-compliant hotels in Al Qouz – as it taps into an ever expanding hotel sector. The 3-star 92-key Urban By Al Khoory and the 4-star 158-key Al Khoory Courtyard will open before year end. A third property, the 258-key Al Khoory Sky Garden, located near Dubai International Airport, will start operations mid-2020 and bring the company’s portfolio to seven Dubai hotels and 1.2k rooms.

An agreement between Meraas and Singapore-based Chinese company Samanea Group will see yet another mall opening in the emirate in 2021. Costing US$ 272 million, the 570k sq ft outlet, located near Dubai International City, will focus on home appliances and furniture from small, medium and big Chinese companies. This will further enhance bilateral relations and boost China’s number one position as Dubai’s largest trading partner; annual trade currently stands at US$ 37.9 billion.

There was a marginal 90k improvement (1.3% to 3.14 million) in the number of international guests visiting Dubai during first two months of the year. The emirate’s three main markets continue to be Western Europe, GCC and SE Asia, contributing 57% of the total at 22%, 18% and 17% respectively. Country-wise, India is still top of the table, although numbers have dropped 9% to 386k, whilst visitor numbers from the UK, Germany and the US all headed north by 4%, 11% and 4%. However, most hotel indicators came in lower, with Occupancy falling 3% to 84%, Revenue per Available Room 13.8% to US$ 118 and Average Daily Room Rate 10.6% to US$ 140.

Dnata has opened its first of five new US operations for 2019 – a 4.7k sq mt catering facility at Houston’s George Bush Intercontinental Airport; it will have a capacity of 10k meals a day and employ up to 150. The ground handling division of Emirates Airline is expecting to open similar facilities at Boston, Los Angeles, Newark and San Francisco by year-end. Having acquired 121 Inflight Catering last year, it already has three operations in New York’s JFK, Nashville and Orlando airports.

It was a sluggish Q1 for DP World with gross container volumes falling 0.6% year-on-year in handling 17.5 million TEU (twenty-foot equivalent units). Gross-like-for-like volumes declined 0.1% due to higher year-on-year comparables and softer volumes in the UAE and Australia. Due to the loss of low-margin throughout, the UAE posted an 8.8% decline when handling 3.5 million TEUs which was offset by marked growth in Peru’s Callao, the Egyptian port of Sokhna and Mumbai.

Last year, Dubai became home to 2k HNWIs, (high net worth individuals – each with at least $1 million worth of net assets) – 2% up on the previous year. This could prove a welcome boost for the local economy.

A good week for Union Co-op as well as for its customers. The chain posted a 26.3% hike in profits to US$ 38 million and then announced that it had set aside US$ 30 million towards price reduction of more than 25k basic food, non-food, and consumer goods during the holy month of Ramadan, starting within a fortnight.

This week saw the 192nd country to announce their participation in Expo 2020 Dubai, with all indicators pointing to “a truly international event and platform for all of humanity”. It is expected that numbers attending the six-month extravaganza will top 25 million – less than the 73 million at Shanghai in 2010 but more than the 21 million at Expo 2015 in Milan. It is expected that the emirate’s GDP 2020 growth will jump to 3.8% and that foreign investments will be up to 20% higher at US$ 13.6 billion because of the Expo impact.

Having put its proposed Six Flags Dubai project on hold, DXB Entertainment has decided to use some of the funds raised in a 2106 rights issue to expand the offers at its existing Bollywood Parks and Motiongate.

Having divested itself of five of its flagship hotel assets to state-backed Abu Dhabi National Hotels (ADNH), Emaar Hospitality will continue to expand its hotel management portfolio while remaining asset-light. Over the next year, it will add a further five properties and 1.7k rooms to Dubai’s total portfolio. They will include two under its premium Address Hotels + Resorts collection, both in Downtown, and two under its upscale Vida Hotels and Resorts brand in the new Creek Harbour scheme. A fifth, a JV with Meraas, the Rove At The Park hotel, will be located at Dubai’s theme park destination Dubai Parks and Resorts, and feature 579 rooms.

Arabtec is planning to take advantage of “growing market opportunities” in the UAE, Saudi Arabia, Egypt, Bahrain and Kuwait, as it expands its footprint regionally. The Dubai-based contracting giant will also continue to diversify its backlog into infrastructure and industrial sectors, which accounts for 50% of current projects. It announced a US$ 0.014 2018 dividend, having seen its annual profit more than double to US$ 71 million.

Dubai Islamic Bank posted a 12.0% increase in Q1 profit to US$ 249 million, beating market expectations. The country’s biggest Shariah-compliant lender is currently considering the acquisition of Noor Bank and expects to submit a report to the local bourse by the end of the month. Its biggest shareholder is the Investment Corporation of Dubai, with a 28.37% stake, who also has a 22.85% share in Noor Bank – and if the deal were to go through, it would result in a lender with US$ 75 billion in assets.

Embattled Drake and Scull International posted further dismal results as 2018 losses more than tripled from US$ 381 million to US$ 1.4 billion, as revenue fell 69.3% to US$ 217 million. Consequently, its total asset base sank 72.5% to US$ 518 million over the year. The company’s shares have been suspended on the Dubai Financial Market since November 2018 as it continues with its restructuring efforts. The fall-out sees the departures of three of its executives – its chief executive officer, (who only started in January 2019), chief financial officer and chief legal officer.

Etisalat’s Q1 profit rose 5.0% to US$ 599 million on the back of consolidated revenue topping US$ 3.5 billion, driven by a 2.0% expansion in its subscriber base to 12.6 million, as its aggregate subscriber base reached 143 million. Its EBITDA (earnings before interest, tax, depreciation and amortisation) figure came in at US$ 1.8 billion.

Mashreq posted a 5.0% improvement in Q1 profits to US$ 171 million as there were increases in both total assets (up 1.2% to US$ 38.6 billion) and loans/advances 0.8% higher at US$ 19.0 billion; however. customer deposits dropped 3.1% to US$ 22.0 billion. Overall loan impairment allowance fell 13.6% to US$ 71 million, with the non-performing loans to gross loans ratio at 3.6%, as total provisions for loans/advances reached US$ 1.0 billion, equating to a 123.3% coverage for non-performing loans.

Following an eighteen-month drought, it is reported that three companies are preparing IPOs on the DFM; no names have been made available, but the companies are involved in the industry, oil and gas services and health care sectors. The last IPO was the US$ 1.3 billion issue by Emaar Development back in late 2017.The bourse has had a relatively good start this year jumping over 11%, following a dismal 2018 when the market sank 25%.

The bourse opened for trading on Sunday 21 April, at 2814, and having gained 240 points (9.3%) the previous month, shed 27points (1.0%) to close by Thursday, 04 April, on 2787. Emaar Properties, having lost US$ 0.05 the previous fortnight, was down a further US$ 0.06 to close at US$ 1.29.  Arabtec, having gained US$ 0.04 last week, surrendered most of that by falling to US$ 0.59. Thursday 25 April saw reduced trades of 233 million shares, valued at US$ 56 million, compared to a week earlier of 233 million shares at US$ 60 million.

By Thursday, 25 April, Brent, having traded US$ 3.80 (5.6%) higher the previous three weeks, continued its upward trend to close US$ 2.73 (3.8%) higher at US$ 74.35; after a recent downward trend, gold moved US$ 4 higher to US$ 1,280.

Amazon posted impressive Q1 results with a record profit of US$ 3.6 billion (almost double that of one year previously), on the back of a 17.0% jump in revenue to US$ 59.7 billion; this was driven by 40% gains in cloud computing, other revenue including online advertising 34% higher and a 10% hike in revenue from online sales. The market was not too impressed, dipping 0.6% on the news.

Microsoft’s book value briefly topped the US$ 1 trillion level when it announced a Q1 14.0% increase in revenue to US$ 30.6 billion, largely attributable to its cloud computing business. Facebook went even better with a 26.0% increase in its quarterly revenue to US$ 15.1 billion.

Generally, US companies posted better than expected Q1 results, 3M was a notable exception. Having cut its full-year outlook and noting that it will reduce its payroll by 2k, the industrial manufacturer saw its share value plummet 13% – its steepest drop since Black Monday in October 1987. The company is famous for ‘Post-it’ notes, along with a wide range of adhesive products.

Tesla again disappointed the market as it announced a US$ 702 million Q1 loss on the back of a 31% slump in revenue. However, CEO Elon Musk is as optimistic as ever forecasting future growth in both demand and profit margins as the company rolls out updated products and pricing for its three models and sells more battery storage units. Tesla has to start moving more of its three models – S, X and 3 – as it only delivered 63k in total over the quarter, only half the number ordered. After a US$ 920 million bond repayment, its cash reserves fell 31.8% to US$ 1.5 billion by the end of March. Whether the company can produce its expected 400k vehicles this year remains to be seen – and if not its retained losses of over US$ 6.0 billion since its 2004 inception will only get worse.

Having posted a further bail of US$ 4.5 million, the 64-year old Carlos Ghosn, has been released from a Tokyo jail. The former Nissan chairman was first incarcerated last November, charged with under-reporting his post-retirement compensation and breach of trust in allegedly diverting Nissan money for his personal investment losses. Prosecutors were reluctant to see his release, fearing he could tamper with evidence or influence witnesses.

As widely expected, the Sainsbury’s US$ 9.4 billion purchase of Walmart’s Asda has been rejected by UK regulators citing concerns the deal would have increased prices and reduced the quality and range of products available.

Having put its airline up for sale in February, Thomas Cook has received interest for both other parts of the business, as well as the Group in its entirety. To cut costs, it is planning to close 21 UK outlets (but will still have 566 operating stores), with the loss of 300 staff. An early entrant for the company’s tour operating business is Chinese investment firm Fosun International which already runs a JV with Thomas Cook in China. Since September, it has issued two profit warnings – the first indicating that profits would be hit after the summer heatwave, with many deciding to take holidays at home rather than overseas, and the second profit warning in November, stating winter bookings were also down.

Australian banks seem to be able to have their cake and eat it, even after the industry was savaged by a royal commission for its unethical and fraudulent behaviour over a long period of time. For the past decade, even though the bank rate has declined, credit card rates have remained static. Currently, the average Australian will pay a rate of 19.77% on credit cards, even though the official cash rate is only 1.5% – the gap of 18.27% is at its highest ever level. In 1995, when the cash rate was 7.5%, credit card interest stood at under 17% (a 9.5% gap). In those days both interest rates (cash and credit card) rose and fell in tandem but that practice has fallen away for the benefit of greedy bank coffers.

By Wednesday, the Australian dollar dipped below the US$ 0.70 mark for the first time since the 3 January ‘flash crash’ – and before that was in early 2016. The main reason for the slide was the release of the weakest core inflation figures on record. This will probably see the Reserve Bank cutting interest rates within the next two months, with another reduction later in the year.

The eurozone economy continues to cause concern, as the latest Composite Purchasing Managers’ Index declined 0.3 to 51.3, with April manufacturing contracting and the service sector growth slowing. Although still in negative territory, the manufacturing PMI rose 0.3, month on month, to 47.8, with the services PMI 0.8 lower at 52.5. Furthermore, new export orders fell yet again whilst new order growth remained stagnant, as employment growth remained at its lowest since 2016.

The euro area government debt to GDP declined 2.0% last year to 85.1%, with the lowest ratio recorded in Estonia, at 8.4%, and Luxembourg with 21.4%. The bloc’s government deficit halved to 0.5% on the back of increasing revenue, up 0.2% to 46.3% of GDP, and expenditure declining 0.2% to 46.3%. Luxembourg posted the highest budget surplus at 2.4% of GDP followed by Bulgaria and Malta, both at 2.0%, with Germany slightly behind at 1.7%.

The US Commerce Department recorded a 4.5% March annualised increase in new home sales at 692k, following a 5.9% increase the previous month – its highest level since the 712k figure of November 2017. Median sales prices – at US$ 303k – were off 4.0% on the month and 9.7% lower than in March 2018. The number of new houses for sale slowed to 344k, equating to a six-month supply at the current sales rate. After jumping to a revised rate of 5.48 million in February, existing home sales plunged by 4.9% to an annual rate of 5.21 million in March.

The Trump administration has decided not to renew waivers that let eight countries – China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey – buy Iranian oil without facing U.S. sanctions. This decision will upset many but should boost oil prices in the short-term at least, with other suppliers, including the UAE, offsetting the loss of Iranian crude on the market.

Emmerson Mnangagwa has fared little better than his predecessor, Robert Mugabe, in controlling Zimbabwe’s inflation crisis. After 37 years of economic mismanagement, it was hoped that the incoming president would revive the country’s economy but after the introduction of a new currency in February, prices of goods and services have skyrocketed at rates unseen in a decade – and topping 300% in some areas. However, it is still some way off the 500 billion % rate seen in the Mugabe days

Mouvement des gilets jaunes, which only started in November last year, is increasing its power base and worrying the Macron government. Driven by surging fuel prices, increased cost of living and their call for the reintroduction of a solidarity tax on wealth, they donned the yellow high visibility vests; this is in response to French law requiring all drivers to have them in their vehicles and to wear during emergencies and is seen to be “a unifying thread and call to arms”. Their protests over the past six months have involved demonstrations, blocking roads and fuel depots, that appear to have become more violent. Wednesday will see May Day and it is hoped that their protests – and the police reaction – do not get out of hand on The First of May.

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