You Ain’t Seen Nothing Yet                     25 July 2019

Having sold out phase 1 of its Seven City JLT project, Seven Tides has announced that 652 apartments have already been bought, with a value of US$ 82 million. The development will be home to 2.7k studio and 1-3 B/R apartments, with prices starting at US$ 113k, US$ 197k, US$ 272k and US$ 400k respectively. The Dubai developer, whose CEO is Abdulla Bin Sulayem, has advised that the completion of the US$ 272 million project, encompassing 3.5 million sq ft, will be at the end of 2021.

In Q2, the only significant addition to Dubai’s commercial sector was the expansion of Dragon Mall that brought the emirate’s portfolio to 3.8 million sq mt. According to JLL’s latest report, rents are 14% lower in primary malls and 24% down in secondary malls, over the past twelve months; during the same period, market rise vacancies have risen 4% to 18%. Naturally, the two worries facing the sector are an obvious over-supply issue and the growing prominence of e-commerce which will badly impact on future footfall for existing malls. New malls on the horizon include Meydan Mall, Dubai Hills Estate Mall and Nakheel Mall on Palm Jumeirah.

This week saw the launch of Dubai’s first official sales and rental price index with the DLD signing an MoU with Property Finder. The index, to be known as Mo’asher, will provide Dubai consumers with more transparency in their realty dealings and better insights to help them, when taking property-buying and renting decisions.

June’s Property Monitor’s Dubai House Price Index estimates that over the past two months, the average Dubai house has lost US$ 10k, now standing at US$ 670k; year on year, prices are 15.3% lower and 1.6%, month on month, with average house and apartment prices  now at US$ 1.19 million and US$ 455k respectively. Since starting the index in September 2015, it has seen falls of 22.4% and 21.4%. Losses were higher in locations such as Arabian Ranches, Discovery Gardens, Dubai Silicon Oasis, Emirates Living and IMPZ, with prices sinking by more than 16%.

In a strategic partnership between public and private sectors, Dubai Land Department has launched the Manzili initiative. It involves a calculator that displays all properties that match a customer’s financial capabilities and also taking in preferential options. These include the customer’s current financial situation, and their preferred options, including location, space and monthly savings capacity among other considerations. The Manzili team will also hold awareness workshops on financial management and real estate investment.

Emaar is moving into the sphere of advanced construction technologies, with news that the developer is to 3D print a model home in Arabian Ranches, using a yet unknown local contractor. With this advancement, Emaar will be able to reduce waste of construction materials and noise pollution, as well as to decrease costs and speed up construction delivery times.

As mentioned in a recent blog, Emaar Properties has now signed a preliminary agreement that will see it develop 10% of Beijing’s new Daxing International Airport, comprising a business and tourism complex. The entire project, that will cost US$ 11.0 billion, will integrate retail, entertainment, office, hotel, convention and leisure space. The airport itself could become the busiest in the world, as it will be able to handle up to 120 million passengers.

An MoU has been signed between Noon.com and China’s Neolix that will see autonomous delivery technology soon come to the streets of Dubai. The Beijing-based tech company, with over a decade in smart technology, will build the driverless vehicles. It is estimated that their introduction will see up to a 90% reduction in costs associated with the last mile of delivery. Its founder, and chairman of Emaar Properties, Mohamed Alabbar, did not divulge further details.

A UK private equity firm has reportedly assumed the management rights of two funds of Abraaj, with sizes of more than US$1 billion. Actis, which already manages more than US$ 12 billion of assets, acquired Abraaj Private Equity Fund IV and Abraaj Africa Fund III for an undisclosed fee. Liquidators of the embattled Dubai firm have been trying to offload the entity’s assets and this deal has been their first success. The Dubai Financial Services Authority confirmed it is investigating the collapsed Group and will be focusing on the buyout firm’s senior management and people who failed to report irregularities.  

The saga about the Sheikh and Newcastle FC continues, with the latest development being that Fortress Investment Group, an American hedge fund, is in talks with Sheikh Khaled bin Zayed Al Nahyan’s Dubai-based Bin Zayed Group. This is in relation to a potential US$ 350 million takeover of the EPL club, currently owned by Mike Ashley.  Whether the deal is kicked over the line before the start of the EPL season next month remains to be seen.

DP World recorded a 0.5% H1 rise in both gross container volumes, on a reported basis, and on a like-for-like basis at 35.8 million twenty-foot equivalent units. Although Asia Pacific, the Indian subcontinent and Africa performed well during the period, both UAE and Australia returned disappointing results because of a loss of lower-margin cargo and challenging market conditions. At a consolidated level, DP World’s terminals handled 19.5 million TEUs in H1, as Q2 consolidated volumes grew by 10.6% on a reported basis, but down 0.6% on a like-for-like basis.

Two agreements signed in Indonesia this week by HH Sheikh Mohammed bin Zayed Al Nahyan, and Joko Widodo, President of Indonesia, see DP World and Indonesian conglomerate Maspion Group aiming to create a US$ 1.2 billion container port and industrial logistics park in East Java. The Maspion International Container Port in Gresik, with a 3 million TEU capacity, and using electric power, will start commercial operations in H1 2022.

Emirates Islamic is the first bank to join the US$ 27 million Credit Guarantee Scheme, initiated by the Emirates Development Bank, that supports the goals of the National Agenda under UAE Vision 2021. The scheme will focus on SMEs, by offering new start-ups US$ 545k, through partner banks, with the EDB guaranteeing up to 85% of the amount. Existing SMEs can apply for up to US$ 1.4 million, with a 70% bank guarantee. SMEs form an integral part of the country’s economy, accounting for 94% of the total number of companies in the country and employing 86% of its private workforce. The aim of this new initiative is to drive the contribution made by SMEs to 70% of GDP by 2021.

Both major telecoms posted June results this week. Etisalat posted a 3.1% H1 profit rise to US$ 1.2 billion, as consolidated revenue reached US$ 7.1 billion, with EBITDA coming in 2.0% higher at US$ 3.5 billion. Globally, Etisalat now has 143 million subscribers, as its UAE base stands at 12.4 million.

Meanwhile, du posted a 2.5% increase in Q2 net profit, after royalty to US$ 126 million on the back of a 4.8% fall in revenue to US$ 869 million; H1 revenue and profit reached US$ 1.7 billion and US$ 249 million. Although fixed revenue climbed 5.8% to US$ 168 million, mobile revenue dipped 6.8% to US$ 460 million. A US$ 160 million interim dividend was announced, equating to US$ 0.035 per share. Capex investment was 93% higher in Q2 at US$ 78 million and US$ 127 for the six months to 30 June.

Noor Bank posted a 29% hike in H1 income to US$ 112 million, as revenue grew by 7.0%, on the back of income from net financing and investments, as well as non-funded income. The bank, which is in the process of a merger with Dubai Islamic, posted increases in total assets, customer financing and customer deposits of 4%, 5% and 11%.

Because impairment charges more than tripled to climb to US$ 37 million, Emirates Islamic posted a 5.3 % decline to US$ 71 million in Q2 net income. The Sharia-compliant subsidiary of Dubai’s biggest lender Emirates NBD did post a H1 profit of US$ 183 million, driven by a strong balance sheet and tighter cost control. Its total assets balance came in 5% higher at US$ 16.6 billion.

Mashreq posted a 5.2% hike in H1 profit to US$ 327 million, as total operating income dipped 1.3% to US$ 837 million. The Q2 return saw a 5.4% rise in profit to US$ 162 million, although the bank’s operating profit came in 3.4% lower at US$ 229 million. As at 30 June 2019, total provisions for loans and advances neared US$ 1.1 billion, equating to 128% coverage for non-performing loans, whilst Its non-performing-loans-to-gross-loans ratio declined slightly to 3.5%. Over the next five years, the Al Ghurair-controlled bank plans to invest US$ 136 million on digital transformation.

The DFM announced a 21.4% fall in H1 profit to US$ 18 million, with revenue of US$ 45 million. Trading revenue tumbled 31.5% to US$ 6.8 billion in line with 74% of global bourses which also saw half-yearly falls. However, the DFM General Index did advance 5% over the first six months of 2019, as its investor base climbed to 844k. Although owning just 17.5% in value, foreign investors have an active presence in 50% of trading.

The bourse opened on Sunday 21 July at 2763 and having gained 102 points (3.8%) over the past fortnight added a further 88 points (3.2%) to 2851 by 25 July 2019.  Emaar Properties closed US$ 0.10 higher at US$ 1.42, with Arabtec flat at US$ 0.48. Thursday 25 July again witnessed low trading conditions of 199 million shares worth US$ 58 million, (compared to 167 million shares, at a value of US$ 92 million on 18 July).

By Thursday, 25 July, Brent, having shed US$ 4.59 (6.9%) the previous week, gained US$ 1.15 (1.9%) to US$ 61.93. Gold lost some of the US$ 33 (2.3%) gained the previous week, closing US$ 26 (1.8%) lower at US$ 1,414, as it slid on Thursday by the most in a year after Trump and Xi’s trade truce renews investors’ confidence.

This week ,the International Energy Agency downgraded its oil growth forecast to 1.1 million bpd, attributable to the weakening global economy and declining Chinese demand. Last year, the IEA had 2019 forecast growth at 1.5 million bpd and earlier this year to 1.3 million bpd. Because of the changing circumstances, it is unlikely to see Brent climb much above US$ 70 unless a major incident happens – currently there is enough stock available, with any slack being taken up by rising US supply.

As prices of some items have risen at a quicker rate than the 2.0% UK inflation level, it is reported that Tesco has increased the price of more than 1k products over the past fortnight; shop prices for the likes of milk powder, potatoes and pork are all up by 11%. The main driver behind these increases is the recent fall in sterling making imports dearer. Tesco is confident that “for the majority of products that have increased in price over the last three weeks, we still beat or match the cheapest of the big 4”. However, it will still face tough competition from both Aldi and Lidl and has still some way to reach their own internal target of hitting profit margins of 3.5%- 4% by 2020.

As the Japanese car-maker posts a horrific 94.5% slump in Q2 profits to US$ 59 million, with revenue declining by 12.7% to US$ 15.9 billion, Nissan announced that it plans to cut 10.0% (12.5k) of its workforce. The embattled firm, which has seen poor sales returns in Europe and US, has not been helped by the scandal of financial misconduct charges against former boss Carlos Ghosn and rising costs, including exchange fluctuations. The car-maker has also been having problems with its 43% partner, Renault.

Since its October 2018 listing, Aston Martin has lost 45% in its share value, including 20% since it announced that it was cutting its 2019 sales forecast by around 10% to between 6.3k – 6.5k. H1 sales to Europe and MENA  have fallen by 19% and the UK 17%, with the luxury carmaker indicating  a “challenging external environment” had worsened, as had “macro-economic uncertainties”.

Boeing is expecting a Q2 loss as a result of a one-off US$ 4.9 billion charge, driven mainly by costs of compensating airlines for disruptions and plane delivery delays due to the March MAX grounding, and a further US$ 1.7 billion in costs due to the 737 MAX’s lower production rate. The US manufacturer is confident that the plane will return to the skies in early Q4, but some experts think it could be next year.

In Australia, a leading financial planner, who hosted his own TV show and wrote for top newspapers, has been banned for three years by regulator ASIC on providing financial services in the country. It was found that Sam Henderson “failed to act in the best interests of clients” or to “provide appropriate advice”. One of his clients would have been US$ 350k worse off if she had taken his advice.  He had also “recommended the use of in-house Henderson Maxwell products without providing product comparisons or justifying why the in-house products were better than his clients’ existing products”.

The Financial Planning Association were reluctant to act on the complaint so much so that after a year, it still had not been finalised. In trying to look after its prize member, the FPA not only went against the recommendation of its own investigation, it also wrote to the royal commission asking it to keep the matter under wraps. The association listed reasons for the need to keep the matter confidential, including that publication of Mr Henderson’s name would “cause significant damage to the reputation of Mr Henderson”!

Another Australian in the news is Mark Horton, who finished second in the 400m freestyle at the World Aquatic Championship. He refused to shake hands with the winner, China’s Sun Yang, who had previously refused to take a urine sample and then smashed vials of his own blood, when visited by dope-testers. The world governing body, FINA went soft on the suspect swimmer, so it was left to Horton to show his displeasure and for that he was accused of “unacceptable” behaviour. There are similarities between this and Australia’s FPA and there is something wrong when clean athletes are disciplined whilst little is done about cheats. Unfortunately, the sporting, political and financial world is full of such examples of corrupt practices.

Worried about certain online platforms being engaged in unfairly restricting competition, the US Justice Department is opening an investigation following “widespread concerns” about “search, social media, and some retail services online.” Although no names were mentioned, there is no doubt that tech giants such as Amazon, Apple, Facebook and Google will come under close scrutiny.

This week also saw Alphabet and Amazon release impressive Q2 figures, both with near 20%+ hikes in revenue – to US$ 38.9 billion and US$ 63.4 billion respectively. However, Amazon’s profit of US$ 2.6 billion disappointed the market as it focused on investing more to cut delivery times. On the flip side, Alphabet, profit tripled to US$ 9.9 billion with increased returns from both its traditional and new tech services such as AI.

Despite the Brexit hullabaloo, June UK retail sales recovered, up 1.0% on the previous month, attributable to the growth in average wages boosting household spending. Non-food sales were up 1.7%, compared to the lesser growth of 0.2% for food items. On an annualised basis, growth was at 3.6% in June (2.2% a month earlier). These figures may have helped the economy from slipping into contraction in Q2 and more of the same will help the country deal with all the problems expected pre the 31 October Brexit deadline.

A major indicator that all is not well with the world’s economy is that global manufacturing has almost hit contraction levels as it reached a three-year low. Germany is probably the main reason why European output has already moved into reverse gear. The latest JP Morgan global PMI is hovering around the 50 level – the demarcation point between expansion and contraction – and is almost guaranteed to drop within the next two months; already, the forward-looking “new orders” PMI has dropped under 50 – the first time this has happened since 2012. Consequently, many of the international central banks are considering rate cuts over the next three months, with South Korea, Indonesia and South Africa already on the bandwagon. The outlook is that business confidence is sliding and business investment is likely to stay weak for the foreseeable future.

Indeed, the ECB has warned it could cut interest rates to tackle a slowdown in the eurozone economy, attributable to a sluggish manufacturing sector, uncertainty about Brexit and global trade tariffs threatening to derail growth in the bloc. It may even be considering the reintroduction of QE that will see the central bank pumping money into the economy via the purchase of bonds and other assets. Its boss, the soon to be departed Mario Draghi, has indicated that “the outlook is getting worse and worse”.

Turkey announced that it had slashed its interest rate by an almost unprecedented 4.25% to 19.75%, only three weeks after the new central banker, Murat Uysal, took over the reins. The reasons behind the move, not surprisingly, were “weaker global economic activity and heightened downside risks to inflation.”

Following Jerome Powell’s recent warning that “uncertainties about the outlook have increased”, it is likely the US will soon see a rate cut. The US economy, per se, is in good health but it is being affected by weakness in other major economies and trade war worries.

The IMF has cut its 2019 and 2020 growth forecasts, both by 0.1%, for the global economy – to 3.2% and 3.5% – as growth “remains subdued” and there is an urgent need to reduce trade and technology tensions. Interestingly, it raised the UK growth estimates by the same amounts to 1.3% and 1.4%, based on the premise of a smooth Brexit but also highlighted a no-deal Brexit as one of the key risks to global economic growth, along with further US-China tariffs and US auto tariffs. US recent growth is expected to slow to 1.9%, as the boost, brought about by the tax cuts introduced by President Trump early in his tenure, loses its momentum.

The Brussels old boys club, led by EU’s chief Brexit negotiator, Michel Barnier, and Commission President Jean-Claude Juncker, have rebuffed the Brexit policy of new UK prime minister, Boris Johnson. In reiterating the EU’s position that the already-negotiated withdrawal agreement was the best one possible and that removing the backstop guarantee was unacceptable, the EU once again demonstrated their intransigence. They have indicated that the PM’s move to “getting rid” of the backstop was “of course unacceptable”, and labelling Mr Johnson’s speech “rather combative”. The next three months will be interesting and the message to the EU is You Ain’t Seen Nothing Yet!