Down To Earth

Down To Earth                                                            30 May 2019.   

Jumeirah Golf Estates announced that its Alandalus towers A and B have been completed and that Tower C will be handed over in Q4 2019, with the remaining four towers (D – G) ready within twelve months. The whole project encompasses 715 1-4 B/R apartments and 95 townhouses, along with a mosque, hotel, and a community retail centre.

Arabtec’s subsidiary, Target Engineering, has been awarded a 24-month US$ 52 million contract from Ellington Properties for their 12-storey residential twin towers Wilton Park Residence project. Work will include construction, MEP, landscaping and irrigation works.

It has to be Dubai when a developer comes up with such an innovative marketing ploy to sell residential property. UAE developer Kleindienst Group’s Heart of Europe has offered buyers, who spend more than US$ 1.4 million on property in their development, automatic qualification for Moldovan citizenship. It is expected that handover of phase 1 will take place by the end of the year.

UAE-based Azizi Developments has announced plans to incentivise its contractors, with a bonus of up to US$ 2.7 million, to encourage the timely completion of its Dubai projects; this year alone, it hopes to complete nine projects. The company reckons that on-time delivery will cut costs, involved in snagging and hiring new contractors, if a project is delayed, as well as other expenses.

Knight Frank estimated that office rents have fallen 4.3% over the past twelve months – on the back of weakened demand and increased supply – and 2.1% over Q1. However, the falls in the prime sector, at 3.6%, and Grade A rents (at 3.3%), where average rents are at AED240 sq ft per year, seem to indicate that some firms are not willing to relocate to secondary locations in order to reduce costs. However, an increasing number of landlords have introduced rent free incentives and other favourable terms to attract and retain existing tenants.

Himalaya Drug Company is planning to increase its Dubai workforce by 100, as it expands its global research centre in Dubai Science Park. The Indian company produces high quality cosmetics, nutritional supplements, herbal medicines and pharmaceutical-grade Ayurvedic products and sees the expansion as a way to expand in the region.

Emirates National Oil Company is to spend upwards of US$ 600 million on expanding its retail portfolio in the UAE and Saudi Arabia. Enoc see its home base as a profitable market, particularly so because of the removal of government subsidies in 2015 and the fact that local fuel consumption is comparatively high; it estimates that each of its gas stations pumps 60k litres of fuel per day, compared to a daily average of 35k litres per station in other countries. The company, owned by the Dubai government, will grow the number of outlets in the UAE by 11.6% to 144 by the end of the year, with a further 47 stations to be added in 2020.

Arif Naqvi, former Abraaj Group founder, has finally been released from Wandsworth prison in London to effectively go into house arrest, after posting a UK record US$ 19.0 million bail. Part of his bail conditions include surrendering his travel documents, staying in his London home and wearing an electronic tag. He is currently fighting extradition attempts to the US where he is facing a New York trial in connection with inflating the value of Abraaj’s holdings and stealing hundreds of millions of dollars.

US-based Urban Outfitters, with over 240 global stores, is to set up shop in The Dubai Mall – its first foray in the GCC. It appears that the fashion chain will form a partnership with local retail giant Azadea Group which already has rights for many fast fashion brands such as Bershka, Mango, Misguided and Zara.

Dubai-based Careem, recently taken over by Uber, has acquired Cyacle, an Abu Dhabi bike rental services, for an undisclosed amount. The 24-hour a day app operation in the capital has docked bicycles for consumers to use by inputting a ride code to release the bicycles from the docking system.

As part of a joint venture agreement with Hassana Investment Company, Gems Education has acquired Ma’arif Education Group, Saudi Arabia’s largest private school operator, for an undisclosed sum that could be as high as US$ 600 million. The deal involves fourteen schools and will see the Dubai-based education provider’s portfolio rise significantly from its current level of a reported fifty schools in the Mena region, with 124k students.

For the fourth consecutive month, UAE fuel prices are set to increase in June. Special 95 will go up by 3.4% to US$ 0.659, whilst diesel moves 1.2% higher to US$ 0.698. This follows price hikes of 11%, 10% and 4% over the previous three months.

One thing certain is that the IMF is constantly – and usually – downgrading former forecasts and this is still the case that it now expects the UAE economic “growth could exceed” 2% this year after indicating only last month it would be 2.8%. The Central Bank is more bearish, downgrading its 3.4% March forecast to a current 2.0% expectation. It envisages that the non-oil economy will grow by 1.7%, with the oil economy 2.7% lower, from the initial 3.7% forecast, because of a deceleration in oil production from 3.3 million bpd to 3.1 million bpd.

In a bid to cut business costs and increase competitiveness, the federal government has agreed to waive or amend fees of over 1.5k government services in the UAE; there will be reduced consumer costs for services provided by numerous government agencies including the Ministry of Interior, Ministry of Economy and the Ministry of Human Resources and Emiratisation. Not only will it help companies to be more competitive with reduced costs, it will also balance the revenue system of the government, in parallel with the tax system.

From being ranked 15th in 2016, the UAE has climbed to first in the IMD World Competitiveness Rankings for business efficiency and fifth overall, with Singapore heading the table of 63 listed economies; the UAE rates highly and continues to climb the table, when it comes to productivity, digital transformation and entrepreneurship.

The Federal Customs Authority announced that last year, the country’s non-oil trade topped US$ 436.9 billion with direct trade and free zone activity accounting for US$ 272.5 billion and US$ 161.4 billion respectively, customs warehouses making up the total at US$ 3.0 billion. Imports for the year fell 4.2% to US$ 255.6 billion, whilst both exports and reexports headed in the other direction – both 1.8% higher. The value of the two leading export items were raw and half-finished gold at US$ 14.6 billion and raw aluminium reaching US$ 5.1 billion.

The Central Bank reported that the country’s banks’ personal loan book fell 1.2% (quarter on quarter) and an annual 0.9% to US$ 90.9 billion; this reflects soft consumer demand and lower confidence sentiment, because of continuing uncertainties over the labour market. Gross credit climbed 4.2% to US$ 456.4 billion, whilst bank deposits rose 5.3% to US$ 476.3 billion.

The total value of sukuks on Nasdaq Dubai increased by US$ 2 billion this week, as the Indonesian government issued two Shariah-compliant sustainable development bonds – one for US$ 750 million and the other at US$ 1.25 billion. This brings the total of bonds issued by Indonesia to 11, valued at US$ 15 billion. The Dubai bourse has sukuks worth US$ 61.5 billion, making it the largest such exchange in the world.

Dubai-listed Amanat Holdings still has US$ 136 million cash in its kitty to spend on a range of existing investments or on further acquisitions. The company, with a paid-up capital of US$ 680 million, has already spent 80% of that on healthcare and education related investments, with US$ 327 million spent on four additional assets in 2018. It is reportedly looking at Egypt to be its first expansion outside the Gulf region.

Much can be said of figures indicating that banks listed on the Dubai Financial Market accounted for 57% of the total market’s Q1 profits of US$ 2.6 billion (Q1 2018 – US$ 2.6 billion). Compared to Q1 in 2018, this quarter saw these banks’ profits climb 17.5% to US$ 1.5 billion. When the Dubai and Abu Dhabi bourses’ returns are combined, banks account for 57.2% of the total quarterly US$ 5.5 billion profit figure. These figures do not include Bank of Sharjah and Invest Bank who have yet to disclose their financial statements. Over the same period, realty and construction sectors posted total profits of US$ 861 million.

With the local real estate market still in the doldrums, there is little surprise that ENBD Reit saw its net asset value decline 10% to US$ 270 million for the year ending March 2019; however, revenue was US$ 5 million to the good over the twelve months. The Sharia-compliant real estate investment trust saw its total property portfolio value decline by only 2.8%, with average occupancy at a credible 86%.

The bourse opened for trading on Sunday 26 May at 2590 and, having closed 15 points higher a week earlier, closed 30 points (1.1%) to the good on Thursday 30 May at 2620. Emaar Properties, having gained US$ 0.04 the previous week, closed on US$ 1.22, with Arabtec, nudging US$ 0.01 higher to US$ 0.42. Thursday 30 May saw wafer thin trading again (typical of the Ramadan period) of 159 million shares, at a value of US$ 56 million – compared to 122 million shares trading at US$ 48 million the previous week.

Thursday was also the last day of trading in the month of Ramadan and the last day of the month, with the bourse closed all next week to celebrate Eid. Over the month of May, the bourse was 147 points (5.3%) lower at 2620, with both Emaar and Arabtec down US$ 0.14 at US$ 1.22 and by US$ 0.14 to US$ 0.42 respectively. However, YTD the bourse is trading 90 points (3.5%) higher at 2620, with Emaar up US$ 0.10 but Arabtec US$ 0.10 lower.

By Thursday, Brent, having traded down US$ 5.34 (7.4%) the previous week was US$ 0.41 (0.6%) lower at US$ 66.87. Gold headed in the other direction this week, gaining US$ 7 (0.5%) to US$ 1,292.

Following a 3.0% decline the previous month, IATA reported that ME passenger demand bounced back in April – up 2.9%, compared to the same month in 2018. That was the only good news, as most other indicators headed south, including load factor 3.5% lower at 80.5% and available seat kilometre off 1.6%.  ME airlines’ share of the global market at 9.2% is some way off those of Asia Pacific (34.4%) and Europe (26.7%). The ME fared badly when compared to global trends which saw revenue passenger kilometres (RPKs) rise by 4.3%, load factor 0.6% higher at 82.8% and capacity up 3.6%.

Regulators have still to set the date for the return to the skies of the 737 MAX, after global civil aviation regulators failed to decide on whether the plane was fit to return to service. Boeing has held off submitting a proposed software fix for review after the FAA raised additional questions; earlier, it had indicated that the anti-stall Manoeuvring Characteristics Augmentation System update was ready for certification but now, hopes of an early return to operations have been dampened and could be August before the Max flies again. The FAA’s reputation has taken a beating since the March crash, facing accusations of an overly cosy relationship with the aviation giant. Other aviation authorities now appear less likely to follow the US agency. Meanwhile, the US Securities and Exchange Commission has begun investigations whether the plane maker properly disclosed issues tied to the grounded 737 Max jetliner.

Former Jet Airways chairman, Naresh Goyal, was stopped by immigration authorities from leaving Mumbai airport on an Emirates flight bound for London. The 69-year old, who was in charge when the debt-ridden airline grounded its fleet, was not arrested and allowed to leave the airport – but not the country. All of its operations were halted last month when it failed to find a buyer for a 75% stake in what was once the country’s leading operator, along with a consortium of lenders refusing to pay emergency cash. Etihad still have a 24% stake in the airline. Employees have not been paid since January and 20k face a worrying future.

A bad start to the week for President Emanuel Macron who, on Sunday, saw his party beaten by Marie Le Pen in Sunday European elections and the following day learnt that GE was cutting over 1k jobs in the country, even though the French government had requested it not to do so. The move was driven by a fall in demand for gas which saw GE’s energy division’s profit slump 22% last year. When in 2015, the US giant acquired French energy firm Alstom, it promised it would create 1k new jobs. By February 2019, only 25 jobs had been found, at which time GE promised to pay the government US$ 57k for each job it had failed to provide in a US$ 57 million settlement.

Fiat Chrysler has invited Renault to form a 50/50 merger that would create the third biggest carmaker in the world with sales in excess of 8.7 million, still some way off the 10 million+ cars produced by both VW and Toyota. As part of the deal, Fiat will pay a special dividend of US$ 2.9 billion and sell its Comau robotics business. If the deal goes ahead, it will be an accountant’s nightmare as both the French government and Nissan have 15% shares in Renault, whilst Renault has a 43.4% stake in Nissan, as well as having an alliance with the Japanese company, in which research costs and parts are shared.

On top of that, Italy may want to try and match the French government in owning part of the new company. Sector consolidation seems inevitable as individual car makers need to share funds and expertise with the industry moving inextricably to electric models and new technology for autonomous vehicles, as well as having to deal with stricter emissions standards. It is estimated this merger would save US$ 5.6 billion by sharing development costs. Based on 2018 results, combined revenue and net profit comes to US$ 190.5 billion and US$ 9.0 billion.

Arla Foods has acquired Mondelez International’s Kraft cheese business for an undisclosed amount. The Danish company now has full ownership of the Mondelez cheese production site in Bahrain, which produces a range of Kraft products, as well as all Kraft-branded cheese products in the Middle East and Africa markets; it does not include the cream cheese brand Philadelphia and Jocca cottage cheese. It appears to be a win/win situation for both companies – Arla will strengthen its regional market presence and access new products, whilst Mondelez can focus more on faster growing snacks categories, including chocolate, biscuits and powdered beverages such as Tang.

A global mega drug manufacturer has gone on trial in Oklahoma in a multi-billion-dollar lawsuit, accused of deceptively marketing painkillers and downplaying addiction risks, fuelling a so-called “opioid epidemic”. This is the first of an expected 2k cases being brought against US drug companies. Johnson & Johnson are accused of “the worst man-made public health crisis in [the] state’s history,” and had persuaded doctors to prescribe more opioids in the 1990s by using misleading marketing. The state government has accused the company of creating a public nuisance which will cost between US$12.7 billion and US$ 17.5 billion to remedy over the next two decades.

In a bid to cut costs, Walgreens Boots Alliance is considering the future of 200 of its UK outlets, as it reviews “underperforming stores and opportunities for consolidation.” Boots currently has a 56k payroll who operate in nearly 2.5k shops across the UK. The iconic brand has been caught in the middle of a perfect storm, losing customers, who have decided to trade down with discounters (including Aldi, Lidl and Savers), and others trading up to higher end retailers for more expensive items. If the company fails to act and invest more, then it can only be a matter of time that it goes the way of many other famous UK brands. Management only have to look at the likes of Carpetright, Homebase, Mothercare and New Look that have witnessed the closure of hundreds of stores, as well as Maplin, Poundworld and ToysRUs who have disappeared from the UK retail landscape for good.

UK retail sales slowed last month in April and remained flat month on month; the results could have been worse, but the warm weather boosted sales of clothing; quarterly sales were 1.8% higher, with record online sales, up 9.4%, at the highest quarterly growth since records began. There were 0.5% and 2.9% falls for department store sales and household goods stores respectively.

With four English teams in the two major European finals this week, it is little wonder that the EPL is the richest football league in Europe, generating a record US$ 7.5 billion in revenue, as the clubs’ wages-to-revenue ratio rose to 59%.  The European football market is now worth over US$ 32 billion, according to Deloittes latest report, with the leading five leagues accounting for some US$ 18 billion of the total – 6.0% higher than last year.

Facebook has launched its new digital currency, “GlobalCoin”, due to start operation early next year, when it will set up a digital payments system, as a testing exercise, in about a dozen countries. The cryptocurrency could be used by Facebook’s two billion users to transfer money and make purchases through blockchain technology. Some weeks ago, it was reported that talks were being held to seek US$ 1 billion in funding from payment technology companies such as Visa and MasterCard, as well as financial institutions such as First Data Corporation.

So much for the talk about the demise of crypto currencies, as Bitcoin posted a 10% jump in prices on Monday to trade at US$ 8,847 – its highest level in a year that has also doubled since March and up 80% in May. Other similar increases saw prices on the up for other such currencies, including Litecoin and Ether, rising 9% and 6% on the day. Now with more companies introducing their own digital currencies (such as Facebook) and mainstream firms (including Fidelity Investments and AT&T) becoming involved, the future looks rosy for cryptocurrencies.

Another sign that the German economy is in slowdown was the fact that its May unemployment figures moved upwards to 5.0%, for the first time since November 2013 when it reached 6.9%; the figure was 0.1% higher than recorded in the two previous months, with a current 2.24 million unemployed. It comes at a time when its 2019 economic growth forecast has been halved to just 0.5%. It seems inevitable that the worse is yet to come and perhaps German Chancellor Merkel is getting out just at the right time.

In Australia, lawyers are taking a class action against wealth management firm AMP, claiming that 2.5 million of its superannuation accounts have been charged too much in administration fees, and costs could go into hundreds of millions of dollars. The scandal-riddled entity is also facing a shareholder class action, as well as ASIC (Australian Securities and Investments Commission) seeking penalties. This comes after the recent royal commission that claimed AMP routinely charged more in administration fees than they should have, including, for example, applying fees of 1.5%  – at triple the proper rate.

Australian bourses are thanking the “ScoMo surge” for major gains, following the surprise victory of the incumbent Coalition Party, led by Scott Morrison. Since the results were announced, shares have gained over US$ 23 billion, soaring to 12-year highs. The benchmark S&P/ASX 200 index was up 97points, or 1.52 %, on Friday to 6462 points, as the broader All Ordinaries climbed 93 points, (1.44 per cent), to 6553. The market had dropped before the election, with traders factoring in all the bad news that a Labour victory would have brought. The Big 4 banks – ANZ, CBA, NBA and Westpac – were over 9% higher and accounted for 80% of the total market gains. However, the poor performing Aussie dollar is causing concern, languishing around the US$ 0.69 level, which could result in an early rate cut by the RBA.

It has been a tough five months for the incoming far-right Brazilian Jair Bolsonaro, as he grapples with major economic problems. He openly admitted that he knew nothing about economics and appointed a businessman president, Paulo Guedes, as an economic “super-minister”. What has happened since he took office on 01 January is that the economy is still at the same level it was back in 2014 and there is no recovery in sight. After two years of recession (2015-2016), when the country contracted by almost 7%, the next two years have seen annual growth of 1.1% and even though there were expectations that 2019 growth would almost double, it is highly likely that it will just top 1.0%. Matters are not helped that the number of unemployed Brazilians has almost doubled to over 13 million since 2012, although official unemployment survey shows that over 28.3 million are “under-utilised”.

Even more worrying is the mushrooming fiscal debt which has jumped from 51.0% in the boom years to its current level of 77.1%, with fears of it reaching parity within four years if no action is taken. Furthermore, its currency continues to head south (trading at 0.25 real to US$ 1), the stock market, having reached an all-time high in March, has returned most of its gains following disappointing corporate results and since the beginning of Brazil’s recession four years ago, prices have gone up by 25%.

March data sees Japan’s economy slowing, with its leading indicator, measuring future economic activity, down month on month by 1.2 to 95.9 – its lowest reading in three years. The index measuring current conditions also fell – by 1.1 to 99.4, its lowest since September 2015. Meanwhile, April producer prices were 0.9% higher on the year but dipped 0.2% from March’s reading when it advanced 0.7.

Japan has also hosted US president Donald Trump this week where again he broached the trade inequality between the two countries in apparently cordial discussions with Shinzo Abe. At a press conference with the Japanese leader, he again berated China saying “I think they probably wish they made the deal that they had on the table before they tried to renegotiate it. They would like to make a deal. We’re not ready to make a deal.” He also warned that tariffs on Chinese goods “could go up very, very substantially, very easily”. Now the rhetoric has been ratcheted up again since the talks faltered and Trump blacklisted Huawei Technologies Co. and scores of its affiliates earlier this month in a bid to stymie its access to the US market.

In the ongoing trade war between the world’s two superpowers, there is an increasing likelihood that China may restrict the export of rare earth minerals to the United States. Rare earths are a group of seventeen elements used in production in a huge number of sectors, including renewable energy technology, oil refinery and electronics, with China accounting for about 70% of global output and that 80% of US imports emanate from China. Since 2014, there has been a doubling of China’s exports of rare earth oxides. Any retaliatory action cold spell major problems for US industries worth trillions of dollars that rely on rare earth minerals. Could the Chinese be trying to bring the US President Down To Earth?

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