Take It Or Leave It                                                                                                                                        12 December 2019

An eleven-year monthly high saw November property sales deals reach over 5k – 5.8% up on September and 4.7% higher than in October. According to Property Finder, much of the recent improvement in transactions stems from the recent formation of the emirate’s Higher Real Estate Planning Committee, with 13.8k property transactions taking place since kts formation on 02 September. A further indicator was the US$ 31 million sale for Burma Islands on Nakheel’s The World Islands, developed before the 2008 GFC. The main aim of the new committee is to achieve a better balance between supply and demand in thesector; this intervention is much needed in a market where it is estimated that 33k units are scheduled for completion in Q4, followed by a further 65k due for delivery in 2020. That would indicate that in the fifteen months to December 2020, the number of residential units in Dubai would jump 18.1% to 640k.

Following a positive response to phase 1 of its Dubai Production City Midtown master development, Deyaar will launch a US$ 218 million extension next month; January will also see the handover of the first of thirteen buildings. The developer has already sold 1.2k apartments in zones two and three and is now opening zones four and five, comprising eleven buildings and 750 apartments. The total development, costing US$ 708 million and catering to the affordable housing segment, consists of 25 buildings offering studio, 1 and 2 B/R apartments, featuring a 1km running track, tennis courts, a basketball court, swimming pool and children’s play areas. The developer has also expanded its hospitality sector, with three hotels – Millennium Atria Business Bay (including serviced apartments), Millennium Al Barsha hotel and Mont Rose, a three-tower complex at Dubai Science Park, offering a mix of residential and serviced apartments. It expects that the 952 keys, in its current hospitality portfolio, will each generate an average US$ 272k (Dhs 1 million) over the next twelve months.

To entice foreigners to buy into the local real estate sector, Azizi Developments has introduced a lucrative, customised five-star package to showcase its property portfolio (as well as Dubai landmarks). It seems that all a prospective international buyer needs to do is to advise the developer of a suitable time, and Azizi will do the rest. It is pleasing to see a company spending its own money to showcase the emirate (as well as trying to sell its wares). The developer has fifty-four on-going projects that will be delivered over the next four years.

In a tough realty environment – and a lack of market liquidity – ENBD Reit has decided to delist from the Nasdaq Dubai and restructure its fund. These trading conditions saw its share price regularly trading below the value of its net assets, so, as to maximise long-term value for shareholders, it has been decided “to proceed with a formal restructuring of the REIT, transitioning to a privately held investment vehicle”. Its portfolio has only Dubai-based assets, with its eleven main ones being a mix of commercial and residential units including The Edge in Dubai Media City, Binghatti Terraces apartment complex at Dubai Silicon Oasis and South View School in Dubailand. In late November, the REIT’s share value hovered around US$ 0.14 whilst its net asset value was more than double its share value at US$ 0.28.

According to its CEO, Jose Silva, Dubai’s Burj al Arab is “as profitable as any grand luxury hotel in the world, if not to say more profitable.” Dubbed the world’s first seven-star hotel on its opening twenty years ago this month, the iconic 321 mt high property has 201 suites, ranging in size from 170 square metres to 780 sq mt; it is run by the Jumeirah Group which is part of the government-owned Dubai Holding Commercial Operations Group. The CEO also commented that it has received “a number of requests” to build replicas of its iconic Dubai hotel and that “it will be done” as the company is in “ongoing discussions” with investors about potential projects; China looks a possibility to be the first to build.

With the official opening of its new Dubai World Central facility, DHL is set to invest over US$ 5 million over the next five years to support the rapid growth of e-commerce in the UAE and the region. The new 4.9k sq mt centre, capable of handling 58k shipments a day, will give the logistics giant improved commercial import and export capability at Al Maktoum International Airport, considered by some to be the emirate’s new strategic hub.

Dubai’s number one business centre, the Capital Club, is going through a rough passage and is looking for an additional US$ 8 million finance package, as part of plans that include bringing in a new management team, restructuring debt and refurbishing. Just like most business entities, the strategy seems to be to “increase revenue and reduce costs.” With annual membership fees of US$ 5.5k, it has seen numbers decline 33% to 1k, driven by some major financial institutions cutting their staff numbers in Dubai. It seems that Signature Clubs International Ltd has handed over management to a new board of directors, chaired by Hussain Sultan Al Junaidy, who has committed 20% of the new capital required.

The total number of international tourists arriving to Dubai and Abu Dhabi rose 4.1% to 15.88 million in the first nine months of the year, up from 15.26 million during the same period in 2018. Of that total, it is estimated that 6.8 million – 56.3% of total Dubai visitors – stayed in hotels, an 8.7% hike in numbers, year on year. Visitor numbers from the Philippines, Oman and China showed marked increases – up by 28.5%, 28.4% and 13.7% respectively.

A long-term agreement with DP World gives Swiss cruise line MSC Cruises preferential berthing rights at the emirate’s Mina Rashid Port. The 317 mt MSC Bellissima, with room for up to 5.6k people, is scheduled to make seventeen calls and spend 35 days in Dubai during the winter season, ending in March. It will bring 180k cruise passengers to Dubai, whilst operating a range of seven-night itineraries in the Gulf over this period. Another ship, the MSC Lirica will also be deployed in the Gulf for eleven-night and fourteen-night cruises.

A Dubai government report has projected growth in the emirate’s economy will reach 2.1% this year followed by 3.2% and 3.0% over the next two years; the main drivers include Expo 2020, government initiatives, as well as continuing economic diversification and sustainable growth. Dubai’s Crown Prince, Sheikh Hamdan Bin Mohammad bin Rashid, commented that the emirate is an “attractive environment for investment and enabled the city to make major economic and developmental strides.”

Another Dubai Economy report indicates the importance of SMEs to the emirate’s economy, contributing almost 50% of the local GDP and 52% of the work force, along with being responsible for 99.2% of the total number of establishments, at 152k. A further breakdown of SMEs has micro firms accounting for 62% of the total business entities, followed by small and medium firms’ 36%. Segment-wise, the breakdown is threefold – services, trading and manufacturing accounting for 48%, 47% and 5% respectively.

Last year, the then recently introduced VAT Tax revenue, at US$ 6.8 billion, accounted for 5.5% of the UAE’s total 2018 public revenue of US$ 124.3 billion; bigger contributors were oil revenue (36.1%) and joint stock companies (32.9%). Following three years of deficits, 2018 witnessed a budget surplus of 2.2% because  a 13.3% growth in general revenue was greater than the 4.2% hike in public spending.

With increased speculation that the Qatar crisis is close to an early settlement, the UAE Minister of State for Foreign Affairs Anwar Gargash has said that it still “continues” but that ”every crisis has an end, and sincere and sustainable solutions are in the interest of the region.” He also commented that the absence of Sheikh Tamim bin Hamad from the Riyadh summit was “due to poor judgment”, with Qatar’s prime minister attending in his place. However, an early settlement would be highly beneficial for all regional stakeholders.

The bourse opened on Sunday 08 December and, having regained 16 points the previous week, was 27 points (1.0%) higher at 2722 by 12 December 2019. Emaar Properties, having shed US$ 0.01 the previous week lost US$ 0.03 to close on US$ 1.09, whilst Arabtec, up US$ 0.03, the previous week, gained a further US$ 0.02 to close at US$ 0.36. Thursday 05 December saw continuing dismal trading of 105 million shares, worth US$ 44 million, (compared to 147 million shares, at a value of US$ 59 million, on 05 December).

By Thursday, 05 December, Brent closed US$ 0.69 (1.1%) higher at US$ 64.66. Gold, having declined US$ 12 (0.9%) the previous fortnight, shed US$ 11 (0.7%), closing on Thursday 12 December on US$ 1,472.

On the first day of its IPO, Saudi Aramco traded 10% limit higher at US$ 9.39 which valued the energy titan at over US$ 1.88 trillion – and at the same time making the Saudi Tadawul stock exchange the ninth largest in the world in value, which previously traded stock with a total value of US$ 500 billion. The company is by far the most valuable listed global company, well ahead of Microsoft Corp. and Apple Inc, both of which have been worth US$ 1.00 trillion; Thursday saw shares 8% up, pushing its market value above US$ 2.0 trillion. Saudi officials, for various reasons, are keen to push the stock higher after many international investors boycotted the IPO on grounds such as its initial perceived high valuation and concerns including governance issues and possible security threats; furthermore, the company has promised an annual dividend of no less than US$ 75 billion a year until 2024.

The London court case, which started in March, between Hewlett Packard and Autonomy founder Mike Lynch, is coming to final arguments, with a verdict expected early next year. The US tech company accuses the defendant of orchestrating a massive US$ 5 billion fraud at the British software firm ahead of its US$ 11 billion Autonomy acquisition. Mr Lynch takes the opposite view, saying that the whole claim is manufactured to explain away HP’s disastrous management of its acquisition. Judge Robert Hildyard has to decide whether Autonomy bent the rules to beat stock market expectations or whether HP sufficiently scrutinised Autonomy’s books before the deal, in a period when the computing giant sought to transform itself into a software-focused company only to change course months later. Mr Lynch is also fighting a US extradition battle, where he faces criminal charges of wire and securities fraud.

Being unable to sell assets fast enough to meet investors’ demands for money, UK’s M&G froze withdrawals from its property portfolio – as a result, the biggest day of outflows, of US$ 185 million, from other UK property funds of the year followed. The asset manager, with investments in ninety-one commercial properties in the UK, put the blame on “Brexit-related political uncertainty” and difficulties among retailers, for this temporary liquidity crisis. However, it is not the only company with such problems as so far this year that, with the exception of May, there have been net monthly cash outflows in the sector.

The proposed US$ 11 billion takeover by Asahi for Carlton & United Breweries may still go flat if the regulators consider it may dry up competition and raise prices; the deal would see the Japanese brewer offer the giant Anheuser-Busch InBev for all CUB’s brands. If the deal is successful it would see the combination of the two largest suppliers of cider in a highly concentrated market, with brands including Somersby, Strongbow, Mercury and Bulmers. Asahi has a relatively small share of the beer sales – with only a 3.5% market share. However, it has become the country’s second largest supplier of premium international beers and carries brands such as Asahi Super Dry, Peroni, Mountain Goat and Cricketers Arms. This acquisition of CUB would expand Asahi’s drinks portfolio, with the addition of Victoria Bitter, Carlton Draught and Foster’s at the mass end of the market, as well as one-time craft beers like Matilda Bay, Fat Yak and Four Pines, along with international brands such as Corona, Stella Artois and Beck’s.

Fifty years after taking on car giant Chevrolet for its Corvair’s dangerous suspension design, Ralph Nader has found another cause to take on a mega US company. This time, the consumer advocate is taking on Boeing and calling for the aircraft to be permanently grounded, following two fatal crashes earlier in the year. The 85-year old reckons that it is not the software responsible for the plane maker’s problems but is more of a structural design defect involving the engines being too much for the traditional fuselage, that has been in existence since the 1960s. He argues that the new larger engines, mounted higher on the wings than previously, have altered how the plane flies in certain circumstances and that Boeing should have started a new design from scratch. Nader does have an axe to grind, with his grandniece being one of the victims, but many would have to agree about the culpability of Boeing and that heads should roll at the top level of Boeing, a company that may be considered too big to fail. The frightening thing is that after the first crash, US safety regulators did predict a high chance of future accidents if the company did not make changes. It took the Ethiopian aircraft to fall out the African skies, five months later, before the Max was grounded by the US Federal Aviation Administration.

IATA expects worse 2019 results for its ME member airlines, driven by slowing economies and trade tensions. On a global scale, airline profits have been slashed by 7.5% to U$ 25.9 billion and are 5.1% lower, year on year. The weaker-than-expected global economic growth of 2.5% has resulted in softer passenger and cargo demand. However, there is better news on the horizon in 2020, with profits rising to US$ 29.3 billion on the back of an upturn in global trade to 3.3% and economic growth 2.7% to the good; these figures depend on a “truce” in the US/Sino trade war. It is expected that ME carriers will continue in their loss-making mode with a US$ 1.4 billion deficit this  year, improving to a US$ 1.0 billion loss in 2020.

Following a 1.8% September hike in ME airline traffic, there was a sharp and welcome 3.9% increase in October, with both capacity 0.3% higher and load factor up 3.9% to 73.5%. Globally, demand improved 3.4% – a modest slowdown on the previous month’s 3.9% driven by softer traffic performance in domestic markets. Capacity increased by 2.2% as load factor nudged 0.9% to 82%.

Held responsible for some of the recent Californian wildfires, Pacific Gas and Electric has agreed a US$ 13.5 billion settlement with victims. Its equipment has been linked with the state’s deadliest-ever fire – the 2018 Camp Fire which killed 85 people – and the 2017 North California wildfires, held responsible for 30 lives. The utility giant filed for bankruptcy earlier in the year and is now expected to emerge from it following this latest agreement, having already settled with insurers and local authorities.

There are reports that Tesco is considering a sale of its operations in Thailand and Malaysia, with over 2k stores operating under the Tesco Lotus brand, employing some 60k. With a combined revenue of US$ 5.5 billion, some analysts value this popular “trophy asset” at over US$ 9.2 billion. It does seem strange that UK’s biggest retailer was looking at further Thai expansion, with a further 750 stores planned to open. It has already withdrawn from the US, Japan and Turkey (as well as South Korea in 2015 for US$ 6.1 billion, and Turkey a year later), and any exit would leave its only overseas stores in Eire and central Europe, including Poland and Hungary.

This week, the US-Mexico-Canada Agreement (USMCA) was signed, replacing the twenty five-year-old North American Free Trade Agreement; it still needs approval by legislatures in the three countries. Not surprisingly, Donald Trump, who had promised in his 2016 presidential campaign that he would change NAFTA, is claiming his fair share of credit saying that it would be “the best and most important trade deal ever made by the USA. Good for everybody – Farmers, Manufacturers, Energy, Unions – tremendous support.”

The “on-off” trade war continues, with the latest being President Trump’s latest tweet that “we are getting VERY close to a BIG DEAL’ They want it and so do we!” This comes after the US offered to slash US$ 375 billion worth of Chinese goods by as much as 50% but more importantly to suspend new tariffs, scheduled for Sunday, on US$ 160 billion worth of Chinese imports. It is a welcome fillip for the president, who is under political pressure, with his ongoing impeachment debate in the US Congress. Australia, along with the rest of the world, will benefit from an improving global economic outlook. On the news from Washington, the Australian dollar jumped above the US$ 0.69 level, for the first time in months, but with the local economy under the cosh, the dollar will continue to struggle in the near future and is overvalued.

China’s export sector continues to head south, with November returns 1.1% lower, year on year, and a massive 23% slump in trade with the US, driven by the ongoing tariff war – the twelfth month in a row. With a further round of tariffs, of some US$ 156 billion, due to come online next Sunday, the news is not going to get any better. Even if some peace came to the “war”, Chinese trade may not pick up straightaway, as some suppliers may have already been sourced from other countries. The seventeen-month long trade war has certainly had a negative impact on China’s economy, as indicated by latest growth figures of around 6% being the lowest in over thirty years. To add salt to their wounds, imports moved in the other direction – to 0.3%, year on year – as the country’s trade surplus with the rest of the world fell.

Eighteen months after the event, the UK Office for National Statistics advised that debts, including credit card debt and personal loans, rose 11% to US$ 153 billion in the two years to March 2018; student loans (totalling US$ 41.6 billion) and hire purchase debt were the main drivers behind the increase. The average household debt came in 9% higher to nearly US$ 13k.

The latest quarter to October saw the UK economy report its worst three months since 2009, as output failed to grow once again in October, as well as flatlining, following two months of declines. Although there was a 0.2% uptick in the service sector, there were 0.7% and 2.3% falls in manufacturing and construction, with “a notable drop in housebuilding and infrastructure in October”.  Although unemployment dropped again, by 23k to 1.31 million, wage growth slowed on the month by 0.2% to 3.6%, year on year. There is no doubt that the economy has lost momentum ahead of today’s general election but a positive result in the polls could see a welcome end to all the current political and economic uncertainties mainly as a result of Brexit; whatever happens, a further rate cut is on the horizon.

It seems that the UK electorate has finally put the Brexit debate to bed, (along with the Remainers), as the incumbent prime minister wins the biggest Conservative majority in over thirty years. As expected, sterling received a boost, surging against the greenback, now that uncertainty around leaving Europe has been finally removed. Whether he can keep to his promise of leaving before 31 January 2020 remains to be seen. In a resounding message to the Remain camp, who will probably continue to question what democracy actually means, the UK has finally decided on whether to Take It Or Leave It.