Won’t Get Fooled Again!                                                                                17 October 2019

Still heading south, albeit at a markedly slower rate, there are indicators that a recovery in the realty sector could soon take traction. Dubai Land Department has reported that YTD, property transactions are 12% higher than in 2018. This week, property website Bayut reiterated that the current environment presents good conditions for all stakeholders – buyers, investors and renters.

Although most locations have seen twelve-month price declines in the region of 6%, lower falls have been reported in Dubai Sports City and Dubai Silicon Oasis. The DLD estimates that last year first-time buyers equated to 66% of total investors. In Q3, villa sales saw a 6.6% decline in average price per sq ft to US$ 600, whilst the decline was higher for apartment sales, with prices 8.1% down at US$ 357.

The latest updates from Luxhabitat show that the most expensive YTD property sale in Dubai was for a villa, at US$ 25 million, located at MBR City, an area that is still under development and away from the usual expensive hot spots. The other three that make up the four most expensive purchases in Dubai this year are US$ 20 million for a penthouse on The Palm, US$ 17 million for a villa in Sector V, Emirates Hills, and the same amount for an apartment in Il Primo, Downtown.

Hilton Worldwide has announced the launch of Hampton by Hilton Dubai Al Barsha, its second such entry in the emirate. The agreement, between the hospitality management company and Abdullah Al Neyadi, will result in an increase in the number of affordable hotel offerings in the mid-range sector, by a further 153 rooms.

There is no doubt that gold and jewellery play an important role in the UAE economy, with precious metals and diamond trading generating 20% of the country’s total non-oil exports. In H1, total trade was 3.0% higher at US$ 49.0 billion, with the global value of trade at over US$ 350 billion. This week, the federal cabinet has approved several policies which will benefit and consolidate the country’s gold and jewellery sector. One of the main aims is to strengthen the country’s global standing by enabling the tracking of gold with international standards being introduced to enhance transparency. Such a step will lead to a positive boost for the local industry and consolidate a currently fragmented sector with the introduction of a federal trading platform that will also be responsible for the supply of gold and marketing the UAE on the worldwide stage.

It just has to be Dubai when Italian designer Antonio Vietri unveiled his latest offering as part of MIDE (Made in Italy, Designed in Emirates) Fashion Week. His latest design, The Moon Star shoes, has been priced at US$ 20 million.

DEWA has decided to select an as yet unnamed contractor to build a 900-megawatt solar power plant in Dubai. The record low bid, at US$ 0.017 cents per kilowatt-hour for the photovoltaic plant, needs further extensive study before further details are released. The plant is phase 5 of the Mohammed bin Rashid Al Maktoum Solar Park project which will generate 5 gigawatts of installed capacity by 2030. The latest bid “represents the lowest price worldwide,” and shows a marked reduction from the US$ 0.073 lowest offer for phase 4 in 2017, submitted by ACWA Power International and Shanghai Electric Group Co.

This week, DEWA also awarded a US$ 267 million contract to Ghantoot Transport & General Contracting and Ghantoot Gulf Contracting to construct their new HQ, Al Shera’a (Arabic for ‘sail’) in Jadaf. Encompassing two million sq ft, the twenty-floor building, (including a basement and four floors for parking, whilst housing 5k), will be the tallest, largest, and smartest government zero energy building in the world.

On the occasion of an official visit by Vladimir Putin, the UAE and Russia signed an agreement to boost air traffic to different cities, within the two countries; further discussions will be held in St Petersburg early next year. This move will undoubtedly expand tourism and trade links for the benefit of both countries. Currently, Russia has moved two places higher to sixth as a source market of inbound tourism for Dubai, with a 28.0% hike in tourist numbers to 678k last year. Other deals, worth more than US$ 1.3 billion, notably in the energy, advanced technology and health sectors, were made.

Among those signed by the Russian president was one with the Investment Corporation of Dubai to “explore mutually beneficial investment opportunities”, with its sovereign fund, the Russia Direct Investment Fund; it will focus on potential investment opportunities in both countries. One other major deal was ADNOC’s sale of a 5% share in the Ghasha concession to Russia’s Lukoil.

Dubai Airport Free Zone Authority posted a 7.9% hike in its H1 total value of foreign trade to US$ 21.0 billion, driven by an 11.0% hike in reexports to US$ 12.2 billion, which equates to 21.0% of Dubai’s total reexports. DAFZA also accounted for 12.0% of the emirate’s foreign trade and saw its trade surplus surge 35% to nearly US$ 3.0 billion. Trade wise, its three biggest countries – India, Switzerland and China – accounted for 50.1% of the total – with figures of US$ 3.8 billion, US$ 3.4 billion and US$ 3.3 billion respectively. So far this year, the likes of Airbus, Michelin and TNA have opened up regional headquarters.

Following the recent collapse of Thomas Cook, it is reported that Dnata has been exposed to its impact which is still being assessed. It is expected that the exposure involves “not a small amount” and will be accounted for in the Emirates Group’s airport services unit’s H1 results. The fallen tour operator, and the world’s largest travel company, was a major customer for its services such as ground-handling and catering.

A new budget airline has been announced with a JV between Etihad Aviation Group and Air Arabia forming Air Arabia Abu Dhabi. This will benefit both airlines, with improved networking opportunities and a wider range of aircraft being made available. The new carrier will operate out of Abu Dhabi International Airport and have board members from both companies who will be responsible for the new airline’s independent strategy and business mandate. Whether this results in more routes (demand) coming online for all the UAE carriers to service – or the opposite (an increased supply chasing similar demand) – remains to be seen. 

Deyaar Development posted a nine month increase in revenue – by 3.6% to US$ 132 million – with profit reported at US$ 14 million. This year, the developer opened the Millennium Atria Business Bay and Millennium Al Barsha which will deliver on-going revenue streams, as well as completing its Afnan District project in Midtown; the second of six residential districts, Dania comprising 579 apartments, should be finished by year-end.

Emirates NBD is to have a 35.4% discounted rights share offering to raise funds of US$ 1.76 billion for overseas expansion and to boost its capital structure. 758.8 million shares will be offered at US$ 2.32 (compared to its US$ 3.58 market value at 16 October). Only last month, Dubai’s biggest bank raised the cap on foreign ownership holding in its shares to 20% from 5%, with expectations that this may double to 40% in the near future.

Dubai Islamic Bank beat market estimates by posting a 1.0% in Q3 profit to US$ 341 million, as income jumped 10.5% to US$ 891 million. The country’s largest Sharia-compliant lender did see impairment charges climb 86.4% to US$ 90 million. Over the first nine months of the year, the bank reported a 20.0% growth in total income to US$ 2.8 billion, whilst profit came in 8.0% to the good at US$ 1.1 billion. The bank is focusing on future double-digit growth which will be boosted by its acquiring fellow Islamic lender Noor Bank, thus creating a Shariah lender, with US$ 75.0 billion in assets.

The DFM has introduced much needed reform for loss-making firms trading on the bourse. The rules dictate that companies posting losses in excess of 50% of their capital base need to explain the reasons for their losses and forward a detailed timetable with a plan to affect a turnaround. Those entities reporting losses of 20% or more of their capital will in future be closely monitored and will be classified and colour-coded, (yellow compared to the red for companies beyond the 50% threshold), on the DFM’s website so investors are aware of their situation.

The bourse opened on Sunday 13 October and, having gained 49 points (1.8%) the previous week, lost 30 points (1.1%) to 2780 by 17 October 2019. Emaar Properties, having nudged US$ 0.01 higher the previous week, shed US$ 0.03 to close at US$ 1.21, whilst Arabtec regained all and a lot more of the US$.0.03 lost the previous week, jumping US$ 0.10 to US$ 0.53. Thursday 17 October saw similar trading of 180 million shares, worth US$ 69 million, (compared to 175 million shares, at a value of US$ 43 million on 10 October).

By Thursday, 17 October, Brent, having gained US$ 1.23 (2.1%) the previous week, kept in positive territory, up US$ 0.81 (1.4%) to US$ 59.91. Gold, having shed US$ 14 (0.9%) the previous fortnight, was US$ 3 (0.2%) lower, closing on Thursday 17 October at US$ 1,498. 

Following a report indicating that crude inventories rose by 10.5 million barrels last week, oil fell, as the market entered an inequilibrium hiatus, with supply growing whilst demand ebbs. With the global economies slowing – and increased new supplies from the US, Brazil and the North Sea – the short-term outlook is dim, unless there is an early end to the global trade/tariff war.

Last year, Softbank raised US$ 21 billion by selling some of its shares in the market – it was estimated bankers and advisers picked up US$ 535 million in fees. Next month, Saudi Aramco is to dip its toes in the water and offer about US$ 40 billion in an IPO; the oil giant is set to pay between US$ 350 million-US$ 450 million to a group of more than 20 banks, working on its initial public offering, with JPMorgan Chase & Co and Morgan Stanley expected to be the main beneficiaries.

One of the recipients of this year’s Nobel prize for Economics, Esther Duflo, becomes not only the second woman to receive the US$ 1 million award since its 1969 inception, but, at 46, also the youngest. She shares the prize along with her husband (and her PhD supervisor), Abhijit Banerjee, and Michael Kremer. Their research, focused on poor communities in India and Africa, indicated which investments were worthwhile and also what had the biggest impact on the lives of the poorest people. In real terms it had a positive impact on the ability to fight global poverty in practice with one of their studies showing whether medicine and healthcare should be charged for and, if so, at what price.

Hunter Biden has decided to resign from the board of BHR (Shanghai) Equity Investment Fund, following fierce criticism of his role by President Trump. The 49-year old son of former US vice-president Joe Biden has denied any wrongdoing in either China or the Ukraine as a result of his connection with the Chinese Equity Investment Fund and confirmed that he did not profit from his connection.

Lina Di Falco, 54, lost her case against Emirates after claiming that the airline did not provide her with enough water on her 2015 twelve-hour flight – and she now faces potential costs running into hundreds of thousands of dollars. She had claimed that the denial of adequate water caused her to faint and fall on her flight from Melbourne and that the resultant injury led to constant pain, two months off work and the failure of her marriage.

A worrying statistic for most Australians is that the country has the world’s second largest household debt, (just behind Switzerland), equal to about 120% of the country’s GDP. In other words, household debt is 20% more than what the country produces every year. In the past twenty eight years – around the time of the country’s last recession – the debt has almost trebled and housing debt has more than doubled in real terms since the turn of the century; then, the average mortgage debt stood at US$ 109k, compared to the current level of US$ 239k.

There was good news and bad news for the Australian employment sector, with the unemployment level dipping marginally in September to 5.2%, helped by the creation of 26.2k full-time jobs and the participation rate nudging lower to 66.1%; the underemployment rate dropped to 8.3%. However, most observers expect the situation to deteriorate early next year, with the rate moving inexorably north toward the 5.5% level and moving in the opposite direction to the RBA’s 4.5% target. The next meeting of the Reserve Bank on 05 November will produce no fireworks, with expectations of a further rate cut dampened by the news.

As China’s manufacturing sector slows down, declining at its fastest rate in over three years to an annualised 1.2%, it seems inevitable that the government will introduce further stimulus packages to boost local demand. It comes at the same time that consumer prices jumped at their fastest pace in almost six years, driven, by of all things, a marked increase in pork prices brought about by the country’s hog herds being hit by African swine fever. There is every chance that China’s GDP could fall below 6.0% in Q3, as both imports and exports are being hit by the bilateral dispute with the US. Expect cuts in interest rates and increased government spending, among other stimulus measures, to be implemented shortly to help boost the slowing economy.

Following “a very, very good negotiation with China,” an optimistic Donald Trump has agreed to directly meet with Vice Premier Liu He at the White House on Friday. Earlier, the US government blacklisted 28 Chinese entities, allegedly “implicated” in human rights abuses, and also imposed additional visa restrictions for several Chinese government officials. Of that number, all but eight, (that included some of China’s leaders in artificial intelligence), were government security bureaus. This follows reports of more than a million Uighurs, and other mostly Muslim minorities, being detained in detention camps in Xinjiang province.

Not famed for their forecasting skills, the IMF have made their fifth revision, with a 3.0% 2019 global growth now expected in what is described as a “synchronised slowdown” – and the slowest growth rate in the eleven years since the GFC. The main driver appears to be a slowdown in emerging market economies, brought about by trade tariffs, increased protectionism and slowing manufacturing, along with uncertainty relating to trade and geopolitics. It is expected that there will be a minor recovery next year to 3.4% – but don’t hold your breath!

Without monetary stimulus by many central banks, the growth would have been more dire at 2.5%. More worrying, the world body estimates that 2020 growth will fall a further 0.8% if scheduled October and December tariffs are imposed. The two superpowers will see reduced growth with levels of 2.4% (for the US) and 6.1% for China. However, in a US election year, expect the incumbent president to pull out a few rabbits from the hat.

So much for the scaremongers – UK 2019 growth is expected to weaken from 1.4% to 1.2%, year on year, the same level as the EU which is expected to have the same growth level but down from its 2018 growth figure of 1.9%.

The economies of the Middle East and Central Asia will grow 0.9 per cent this year, rising to 2.9 per cent in 2020 – well down on previous estimates of 1.8% and 3.3% – and driven by the impact of US sanctions on Iran’s economy; Iran is set to contract by a massive 9.5%, compared to 4.8% last year, with inflation moving higher to 36%. Based on average oil prices of US$ 61.78 this year and $57.94 next, Saudi Arabia’s economy will trickle to a miserly 0.2% in 2019. Meanwhile, Australia – in its 29th consecutive year of economic growth – has seen its forecast cut from 2.1% to 1.7% but is still to have the fastest growth of any G7 economy, except that of the US.

There was a surprise to see a September 0.3% decline in US retail sales, as consumer confidence wanes which will probably result in a third straight Federal Reserve interest-rate cut; this follows a revised 0.6% increase posted in August. Following the news, prices on ten-year Treasuries rose and US stocks fell. The hope is that a truce in the Sino-US trade war, and no further tariff increases, would be the optimum output which would have a positive impact on US economic data and consumer confidence. There is a feeling that there has been a loss of economic momentum ahead of the 2020 re-election year.

However, there were signs of a manufacturing recovery following the battering it received earlier in the year with Donald Trump’s trade shenanigans. In Q3, US manufacturing rose 1.1%, driven by computers/electronics, autos and appliances; this was still 1.0% lower over the past twelve months. The month-long GM strike, involving 50k, has not helped figures but fortunately there are signs that a deal on the horizon could see an end to the work stoppage in the coming days.

Yet again, the many doomsayers have got it wrong when it comes to sterling, as the currency headed to its highest rate in three months on Monday to US$ 1.2682 (as well as jumping 1.7% higher to Euro 1.1489). The hike came about because of renewed hopes of a last-minute Brexit deal, initiated by a UK/Irish prime ministerial meeting, concluding that there was “a pathway to a possible deal”, and even the EU Brexit negotiator Michel Barnier speaking of a constructive” meeting with UK Brexit secretary, Stephen Barclay.

On Thursday, the pound reached its highest level – at US$ 1.29 – on news that Boris Johnson had secured a Brexit agreement with the EU Mandarins. There is no doubt that a majority of the UK population (and the financial markets) is sick and tired of Brexit and just want a quick resolution – parliament may think otherwise when they vote on Saturday. It is anybody’s guess whether we Won’t Get Fooled Again!