Only Time Will Tell!                                                                       18 June 2020

Nakheel has posted villa sales, totalling US$ 63 million, over the past three months, as demand jumps with consumers beginning to adapt to the ‘new normal’; of that total, US$ 40 million (70 villas) were in Nad Al Sheba and a further US$ 40 million (20 units) in Al Furjan. The developer confirmed that 70% of Nad Al Sheba villas, and 95% of the 400 plus villas in Al Furjan, have now been taken.

It is reported that the government will allow select categories of locals and. expats to travel to certain overseas destinations as from Tuesday. Travellers will have to adhere to regulations laid down by the Ministry of Foreign Affairs and International Cooperation, the Federal Authority for Identity and Citizenship, and the National Emergency Crisis and Disaster Management Authority.

To the surprise of many, there will be four new schools opening in Dubai for the next academic year, hopefully starting in September. Dubai’s Knowledge and Human Development Authority said that there are currently 209 private schools, with about 300k students, of which thirty have been added in the last three years. The four new schools, that will add a further 4.1k capacity, will be located in Abu Hail, Dubai Silicon Oasis, Jebel Ali and Al Rashidiya, offering a choice of UK, US and Indian curricula. Last year there was a 2.1% growth in enrolments.

This week, the Dubai Diamond Exchange (DDE) opened for business, in line with the easing of restrictions across the emirate. Latest figures indicate that, in May, diamond prices nudged 0.6% higher. Diamonds play an important role in the emirate’s traded commodities which contributed US$ 100 billion to the Dubai economy, a 9.0% increase on the year.

Over the first five months of the year – and despite the impact of Covid-19 – Dubai Economy posted a 68% jump in renewed licences to 64.6k; of that total, 44.1k were auto renewed. This has come a long way from the days when a renewal took four visits and seven steps which can now be done by one call to 6969. This is an example of the ambition of the Dubai government to become smarter and to go 100% paper free by the end of the next year.

HH Sheikh Mohammed bin Rashid Al Maktoum chaired a cabinet meeting on Sunday which approved a scheme to offer bonuses to staff working in vital sectors for their dedication during the crisis. To qualify, staff must have worked at least for two months under the emergency conditions. The Dubai ruler added that “it is our duty to appreciate everyone who contributed and participated in bearing the burdens with us during the crisis… And we say to everyone, the UAE is always the best,” At the same meeting, it was agreed to set up a national platform for processing digital payments, Al Etihad, with the aim of providing services in a “safe, fast, and secure manner”.

The inflow of foreign direct investment into the country jumped by over 34% to US$ 14 billion last year, driven by major US investments in Abu Dhabi’s energy sector. According to a UNCTAD (UN Conference on Trade and Development) report, the UAE accounted for 50% of total regional investment whilst it surpassed Turkey to become the largest ME recipient of foreign investment. Meanwhile, FDI outflow was 5.5% higher at US$ 16 billion.

At a recent meeting, the Board of the Central Bank of the UAE reviewed the utilisation of the Targeted Economic Support Scheme and noted that to date, 16 June, seventeen of the twenty-six banks had utilised TESS and had drawn down their 100% facility; 140k of eligible customers have already benefited from the TESS liquidity facility. 88% of the US$ 14 billion liquidity facility has already been utilised by the banks.

Although still tracking in negative territory, May’s IHS Markit Dubai PMI increased 4.3 to 46 but was still below the 50.0 threshold that differentiates growth from contraction. Dubai’s economy is still reeling from the pandemic that has led to weak consumer demand, further cuts in the job market, softer falls in new business, subdued consumer confidence and a slow market response. Bullish Dubai is positive that it will come out of the crisis with its economic guns blazing, the only question is when, not if.

The IMD’s World Competitiveness Yearbook has placed the UAE as the ninth most competitive country in the world, ahead of the likes of the US, UK and Germany; Singapore topped the rankings, followed by Denmark, Switzerland and Netherlands. The Swiss business school classifies countries based on economic performance, government efficiency, business efficiency and infrastructure, using twenty other sub factors and 338 competitive indicators. The country was placed fourth globally for economic performance and was the best in the world in 23 indicators, including an absence of stifling bureaucracy, better immigration laws, low central government foreign debt and the number of women in parliament.

According to Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the Islamic Economy contributed US$ 11.4 billion, (9.9%) to Dubai’s GDP in 2018 – a 2.2% year on year increase. Dubai’s Crown Prince added that the emirate is well placed to lead the sector’s contribution to revitalise the regional and international economy in the post-Covid-19 phase. Of that total, F&B, the financial sector, hospitality and manufacturing contributed 43%, 26%, 17% and 14% respectively. S&P Global Ratings forecasts that the US$ 2.4 trillion global Islamic finance industry will grow at a reduced pace, with sukuk volumes shrinking, as the global economy slows down caused by Covid-19.

Dubai-based Careem has rolled out its new Super App across thirteen markets quicker than expected because of the impact of Covid-19. The app, backed by a US$ 50 million investment, combines all the ride-hailing company’s services, including deliveries and payments, and is aimed at boosting its profit margins. The Uber subsidiary will bring enhanced efficiency to the operation that will result in improved economies of scale. During the pandemic, its core ride-hailing business tanked 90% and its delivery business by 60% – and a speedy recovery to pre-Covid 19 levels is remote.

According to the Liquidators, it is alleged that the founder of disgraced Abraaj Group, Arif Naqvi, currently under house arrest in London, may have stolen US$ 385 million from his company – somewhat more than the US$ 250 million first estimated earlier by US prosecutors.  Evidently, Naqvi was reportedly involved in more than 3.7k transactions to cover up his criminal methods as he moved the “illegal” funds to his personal accounts. At that time, the company was managing more than forty private equity funds, with over US$ 14 billion in assets. The firm has already been fined US$ 315 million for deceiving investors and misappropriating their funds. 

Another executive, Egyptian Mustafa Abdel-Wadood, who used to work with the Egyptian arm of EFG Hermes was arrested last year in New York, as he was on a trip to the US with his wife and son. The executive, who is under house arrest, had four bail guarantors, including Naguib Sawiris, a former chief executive of Orascom Telecom and the Sawiris family owned Orascom conglomerate. Abdel-Wadood joined Abraaj Group from Egyptian investment banks EFG‐Hermes, where he was chief executive for the UAE, and prior to that, head of investment banking; earlier, he had spent eight years at the Orascom Group and was also a founding board member of Orascom Telecom. He will be sentenced in September. This has all the makings for a future Netflix documentary.

The bourse opened on Sunday 14 June and, 144 points (7.5%) higher the previous three weeks traded up 39 points (1.9%), to close on 2,078 by 18 June. Emaar Properties, up US$ 0.13 the previous four weeks, was US$ 0.04 lower atUS$ 0.74, whilst Arabtec, down US$ 0.01 the previous week, was US$ 0.01 higher at US$ 0.17. Thursday 18 June saw the market trading at 211 million shares, worth US$ 81 million, (compared to 310 million shares, at a value of US$ 84 million, on 11 June).

By Thursday, 18 June, Brent, down US$ 2.15 (5.4%) the previous week, closed US$ 3.82 (10.0%) higher at US$ 41.85. Gold, having gained US$ 18 (1.0%), the previous week, nudged US$ 2 higher to close on Thursday 18 June, at US$ 1,735.

The impact that Covid-19 has had on the oil sector can be seen from comparing the yearly demand falls in Q1 and Q2 of 6.4 million bpd and 17.3 million bpd respectively. For the whole of 2020, OPEC has forecast an annual fall of 9.1 million bpd, (comprising 5.2 million bpd in the OECD countries and the balance from the rest of the world), to 90.1 million. To maintain some sort of viable equilibrium, OPEC+ recently agreed to extend production cuts of 9.7 million bpd, until the end of next month and to keep a handle on production in a tapered manner until April 2022. The UAE is on side with these current production cuts and is on record that it targets a five million bpd capacity by 2030 – in April, it reached 4.2 million bpd, whilst current figures are just shy of 2.5 million bpd.

With global governments seemingly hell bent to speed up plans to slash carbon emissions, BP has cut its price forecast by 30%, forecasting Brent crude to be around the US$ 55 mark for the next thirty years. A week after cutting 10k of its workforce, BP has indicated that it will reduce its value of its assets by between US$ 13 billion and US$ 17.5 billion, as it will have to become a “leaner, faster-moving and lower cost organisation”. At the peak of the pandemic, Brent was trading at less than US$ 20 – 67% lower than its January average prices. There is no doubt that Covid-19 has ushered in a new reality and a different mindset to how we deal with climate change and a consequent lesser reliance on fossil fuels. It seems that in this sector, BP is leading the way and time will tell if their approach, to a harsh new reality for big oil, is right and whether other conglomerates will follow.

Jaguar Land Rover is expected to lose 1.1k jobs, as India’s Tata Motors Ltd raised its cost-cutting target by US$ 1.2 billion to US$ 6.0 billion, over the next nine months, in an attempt to survive the damage caused by the coronavirus outbreak; the luxury carmaker has already achieved 70% of this ambitious target. The twin aims for JLT is to conserve cash and prioritise capex, even though it has cut this year’s budget to US$ 3.0 billion. JLR posted a US$ 600 million loss, attributable to a US$ 960 million hit because of Covid-19. Meanwhile, parent company, Tata Motors reported a 27.7% quarterly fall in revenue to US$ 8.2 billion and a loss of US$ 1.2 billion.

The UK’s biggest builders’ merchant, Travis Perkins, with 165 branches, has announced plans to shed 2.5k, (9%) of its workforce, as it forecast that the UK recession will continue well into next year. The group, which also includes Wickes, Toolstation and Tile Giant, reported that May sales volumes were 40% lower, year on year, but have been recovering in June, as branches started to reopen.

Wirecard, a German blue-chip Dax 30 company, and valued at US$ 30 billion, has seen its share value tank by 60%. This came about after the auditors EY refused to sign off the accounts, citing it was unable to confirm some of the company’s bank balance of US$ 1.9 billion – or 25% of its total balance sheet. The company said there were “indications that spurious balance confirmations had been provided” by a trustee “in order to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts”.

Despite its share price hitting a record high last week, all is not well with Jeff Bezos’ tech conglomerate in Europe, with the EU seriously considering charging Amazon for anti-competitive behaviour. It could get in real trouble – and in line for potentially huge penalties that could be as high as US$ 18 billion – because it has got so big that it is now in a position to run an online store and also to sell its own products on the same platform. Because Amazon has access to sensitive data – such as prices and volumes – of its rivals, it is thought that it could have an unfair advantage on the market as it will always be ahead of its competitors; it will also have the chance to promote its own products at the expense of third parties. Other countries will inevitably follow the EU’s lead and it is already reported that US authorities are not only looking into the tech giant’s practices relating to third-party sellers but also the alleged anti-competition of big tech firms, like Facebook and Google.

Another tech giant in the news was Apple, claiming that its App Store ecosystem had US$ 519 billion of trade in 2019, 85% of which the company did not take a commission; this figure excludes sales generated by the Android and Windows versions of the same products. Of that total, physical goods and offline services accounted for US$ 413 billion, whilst digital goods and services accounted for US$ 61 billion. It is alleged that Apple, with a market cap of US$ 1.5 trillion, has a bigger margin, estimated at 30%, than any other company from the mobile phone market and there are calls that it should lower the fees it currently charges. The US House Judiciary Committee is concerned about increasing examples of anti-trust behaviour and could be planning to call the likes of Apple, Google, Amazon and Facebook to disclose internal documents about their digital markets We will then see if they are too big to fall.

Apple’s troubles were not confined to one side of the Atlantic as it is facing two EC probes – that other services cannot use the iPhone’s tap-and-go facility and the second being restrictions on third party developers utilising iPad and iPhones. Executive Vice President, Margrethe Vestager, is handling the cases and she is reportedly worried about the increasing power of big tech platforms. This follows the 2016 case, when the EC fined Apple US$ 14.4 billion for lowering its effective corporate tax from 1.0% to 0.005% and ordered the US behemoth to pay the money back to the Irish government; the appeal against the verdict is still ongoing.

Some European countries are upset with the tech giants, including Amazon, Apple, Facebook and Google, and their shenanigans to reduce their tax bills in an immoral and unethical – but usually perfectly legal – fashion. Finance ministers from France, Italy, Spain and UK have been in discussions with the US and others on an equitable way online sale should be taxed. The UK Chancellor, in a letter with others, has indicated that the coronavirus crisis has made tech firms “more powerful and more profitable” and that the tech giants need “to pay their fair share of tax”. However, the US Trade Representative Robert Lighthizer has accused other nations of ganging up to “screw America”.

Over the past four months of the year, it is reported that Blackrock, which manages some US$ 6.5 trillion in assets, has deployed capital of almost US$ 18 billion in Europe, of which about 50% headed for the UK. The capital was split between roughly 4:1 between credit and equity, as 50% of the funds resulted from companies raising money after the impact of Covid-19. The US asset manager bought 3.4 million shares in cinema owner Everyman Media, and now is its second biggest investor, and 21 million shares in SSP Group, bringing its stake to 12.65%. Because of the current situation, desperate companies were in the market and utilised the bigger investors to raise funding quicker than the normal time period of several months.

The World Travel and Tourism Council estimates that more than 197 million jobs could be lost within the travel and tourism sector if Covid-19 movement restrictions continue, wiping US$ 5.5 trillion off global GDPs. Only two months ago, the same body put that figure at almost half – 100.8 million.  It also estimated that both international and domestic tourism would decline by 73% and 64% respectively. However, if curbs were lifted sooner, 99.3 million jobs within the industry could be saved, with the hit on global GDP reduced to US$ 2.6 trillion. Last year, this sector, that contributed 10.3% of global GDP, generated 25% of all new jobs and supported one in ten jobs.

Notwithstanding New Zealand, Qantas has cancelled all international flights until late October, as the Morrison government indicated that Australian borders will remain closed, for general travel, for the rest of the year. Both Qantas and its subsidiary, Jetstar, are ramping their domestic flights, with passenger numbers doubling over the past week to 64k. The nation’s tourism minister, Simon Birmingham, has also encouraged Australians to take their holidays within the country this year and admitted that “in terms of open tourist-related travel in or out of Australia, that remains quite some distance off”. Australian carriers will continue to make losses for the rest of the year and be part of a global industry that could post losses of more than US$ 84 billion.

The Australian Bureau of Statistics confirmed that the country’s May unemployment rate rose from April’s 6.4% to 7.1%, estimating a further 228k jobs were lost last month; the figures indicate that since March, 835k have lost jobs. However, there are some positive indicators – such as job ads and payrolls – that point to the fact that job losses may have already bottomed out. The number would have been worse were if not for the fact that there was a surprise 0.7% fall, to 62.9%, of people looking for work – the lowest level since in January 2001. In two months, the total of people in work had dropped 3.8% to 58.7% and the underutilisation rate – covering the unemployed and underemployed – hit a record 20.2%; the ABS estimates that around 20% (2.3 million) of the working population have been impacted by either job loss, or had less hours than usual for economic reasons, over the previous two months.

There are reports that the RBA, fearing a sharp fall in housing prices, was considering a housing market halt, (similar to stock market trading during emergencies), so as to avoid perceptions of a coronavirus-inspired housing market crash. Minutes of the board’s 05 May  meeting, released publicly, noted “demand for both new and established housing had fallen” and declining incomes, confidence and population growth “were expected to affect demand for new housing for an extended period”. However, whilst internal correspondence highlighted the deteriorating situation in construction, falling incomes/confidence and that house prices could sink by up to 15%, the RBA painted a more positive picture. It is thought that the central bank’s reports on the deteriorating situation in construction had affected the announcement date of the Government’s HomeBuilder program, offering recent grants on new housing, which was announced on 03 June. CBA, the country’s largest lender, holding the highest number of mortgages of all lenders, warned house prices could fall 32% in a “prolonged downturn,” under a “worst-case” scenario. It is estimated that one in fourteen mortgages are currently “paused” by the major banks, equating to 429k mortgages, valued at US$ 105 billion.

To add to their troubles, it has been reported that the country is being targeted by an ongoing sophisticated state-based cyber hacking exercise. According to Prime Minister Scott Morrison, the hacking was widespread, covering “all levels of government”, as well as essential service providers and businesses, and that the frequency of attacks had been increasing in recent times. He was almost certain that this is being carried out by a state “because of the scale and nature of the targeting and the trade craft used”. That being the case, the likely contenders are China (who have been at loggerheads with the Australian government over many issues), Iran, North Korea and Russia.

The IMF has confirmed what many already knew – that there is a “striking divergence” between financial markets and the real economy. One just has to look at the global bourses which are still going gangbusters and compare that to the doom and gloom surrounding global economies, reeling from the impact of Covid-19. The world body is concerned that if there is a second wave of the pandemic and economies worsen, there is every chance of greater volatility and sharper corrections. As an example, although the Fed is predicting a 6.5% decline in GDP this year, the S&P 500 has climbed 37% to recoup most of its losses since the start of the crisis. Despite the injection of at least US$ 10 trillion by central banks and governments, from all around the world, the IMF reckon that at least 170 countries (90% of total nations) will be worse off economically by year end.

Following big falls on the global markets last Thursday, because of rising cases of Covid-19 and a bleak view on the US economy, Friday 11 June saw a mini bounce back with shares ending higher, driven by a University of Michigan report of a bigger than expected jump in consumer confidence. All three US bourses posted 1% plus hikes, with the FTSE 100, the Cac and Dax all trading higher – by 1.74%, 2.0% and 1.25% respectively.

Although there has been a marked bounce back in US retail shopping in May – 17.7% higher month on month – it is still 6.0% lower on the year, with some sectors such as clothing, retail and bars declining even further; online sales were 30.0% higher. The good news may be a harbinger of things to come and point to the fact that the recovery in the world’s leading economy may come quicker than many have predicted – and just in time to push Donald Trump over the line for another four years, come November. With the US unemployment rate surprisingly down to 13.3% in May – and the economy adding 2.5 million jobs – it seems that the predicted 40% economic contraction will actually come in at a much lower rate. However, the Federal Reserve Chairman, Jerome Powell, did warn that “significant uncertainty remains about the timing and strength of the recovery” and that a “significant number” of the more than 20 million people who have lost jobs in recent months are unlikely to return to work any time soon. For the 13^th straight week, US unemployment figures have topped more than one million, with 1.5 million Americans filing for unemployment last week, higher than expected; these claims remain more than double the 38-year old record. Today’s Labor Department’s report showed that nearly 20% – more than 29 million – were collecting jobless benefits as at 30 May.

Official data points to more than 600k UK workers losing their jobs in the three months to 31 May, whilst there are 2.8 million people claiming work-related benefits., jumping 23% in May. This is really bad news but unfortunately, it is inevitable that worse is to come, more so in October when the wage support schemes are pulled. Not surprisingly, there was a massive fall in job vacancies between March and May – which declined by 476k to 365k – whilst the number of hours worked sank by a record 94.2 million to 959.9 million hours.

As evidence grows that the Covid-19 hit on the economy may be less severe than first thought, the Bank of England has decided to pump a further US$ 125 million into the economy; this brings the bank’s quantitative easing programme to US$ 900 billion. That is a lot of money to lift the country’s economy out of probably its worst ever recession. This comes days after its governor Andrew Bailey confirmed that the BoE was ready to take all the required action to get the economy back on track after it was announced that the UK economy had contracted by 20.4% in April. Even though the outlook is still uncertain, there are still positive indicators, such as a pick-up in housing activity and a recovery in consumer spending. Earlier estimates suggested a massive 25% contraction in Q2 but now that looks it will come in at a much lower figure. However, the jobs market will take a lot longer with the prospect of higher and more persistent unemployment a reality and will take a long time to recover. Nobody really knows how long the recovery will take – Only Time Will Tell!