Thank You Very Much!                                                                     09 October 2020

A report by Springfield Real Estate on the Dubai residential market is fairly bullish – not unexpected because that is their job to push the business higher. It expects a strong supply chain next year but in 2022, it sees handovers slowing, as there will be very limited new project launches coming on stream. It is expected that only 40k units will be handed over this year (and the same number next) – a far cry from the figures of up to 80k expounded by some experts earlier in the year. As supply tapers, then is the time that prices will start rising and the demand/supply cycle will move into a new equilibrium and then the cycle will start all over again so as we will see prices moving higher which in turn will see more development and then there will be another oversupply and prices tanking – this will not happen again for at least another six years.

For the week ending 01 October, the value of 1.7k real estate and properties transactions in Dubai was near to US$ 1.1 billion. Of the total, 182 plots were sold for US$ 330 million and 1.14k apartments/villas accounted for US$ 425 million. The most expensive land and building transactions were for a plot in Marsa Dubai sold for US$ 68 million and a Burj Khalifa apartment going for US$ 60 million.  Two other apartments went for a fair whack – in Al Merkadh for US$ 54 million and Al Khairan at US$ 50 million.

Last weekend, HH Sheikh Mohammed bin Rashid Al Maktoum participated in a ceremony to mark the start of the final phase of construction of the US$ 136 million Museum of the Future, located on the SZR-side of Emirates Towers. The Dubai Ruler witnessed the installation of the final piece of the structure’s façade, which is covered by 1k Arabic Calligraphy panels manufactured by robots; the 77 mt high, and seven-storey column-less structure, encompasses an area of 30k sq mt. The museum will house a research centre, with labs and classrooms, as well as being open for museumgoers to experience new technologies. As usual, Sheikh Mohammed added pearls of wisdom including “Our goal is not to merely build engineering icons. Rather, it is to inspire mankind to build a better future,” “Dubai continues to build and the UAE continues on its path of achievements”, and “Progress favours those who know what they want”.

In a bid to ease hassles for both incoming and outgoing passengers, whilst maintaining appropriate safety protocols, the Ruler of Dubai, HH Sheikh Mohammed bin Rashid Al Maktoum, has directed changes to be made. Among them, Emiratis returning to Dubai from overseas are not required to do a PCR test prior to departure, regardless of the country they are coming from and the time spent there but will only need to conduct a PCR test on arrival in Dubai. All residents and inbound tourists will need to take a PCR test prior to departure for Dubai, as will transit passengers from some countries. The pre-travel test is also mandatory for transit passengers if their destination country requires them to do so. Another change sees no need for a PCR test prior to departure for Emiratis, residents and tourists if their destination country does not require a pre-travel negative test certificate.

By the reckoning of some analysts, many jobs have been lost and whilst UAE salaries may have fallen by at least 30% since the onset of Covid-19, it seems that hiring is picking up, as economic activity begins to gain traction in the country. The sectors that are garnering added attention are procurement, sales, e-commerce, legal service, life sciences, healthcare and education, whilst industries such as banking are shipping staff, as the digital age makes its impact. Some companies are also redeploying staff in other internal positions, whilst others appear to be replacing senior level staff with mid-level executives in order to trim costs further. Another cost saving strategy seems to be local – rather than overseas – recruitment in another bid to save money. It does also appear that there is an increasing number of non-working residents – such as housewives, mothers, and other family-dependent members – also looking for work to supplement the breadwinner’s income that may have been reduced (or lost) because of the pandemic. There are others, especially in the hardest-hit sectors such as aviation and hospitality, looking for a career-change as they have been made redundant and their outlook is gloomy However, the hiring rate is still some 20% lower than pre-Covid levels.

It will not be the first time – or the last – that credit agencies get their forecast horribly wrong, but it seems that S&P may have erred again with their 2020 forecast for Dubai. It announced that “S&P Global Ratings expects Dubai’s economy will contract sharply by around 11% in 2020, owing in part to its concentration in travel and tourism, two of the industries most affected by COVID-19.” It also points to the emirate’s already high debt load which will inevitably expand as it supports those sectors that are struggling to rebound from the impact of the coronavirus pandemic. It expects the emirate’s economy to return to its 2019 levels only by 2023.  The agency estimates that Dubai’s gross general government debt stands at US$ 80 billion, or 77% of GDP, rising to 148% when GREs (government-related entities) are added. If the picture, painted by the agency, is to be believed then it is hard to reconcile that to the fact that when Dubai returned to public debt markets last month, for the first time in six years, its US$ 2 billion debt issuance was five times oversubscribed. It has to be remembered that, following the GFC, the US Congress concluded that the “failures” of the Big Three rating agencies, (S&P, Moody’s and Fitch), were “essential cogs in the wheel of financial destruction” and “key enablers of the financial meltdown”. Time will tell!

Driven by the double whammy of the coronavirus pandemic and record low oil prices, the IMF has commented that the current economic crisis will be worse for the ME than that of the 2008 GFC. It also notes that some GCC nations have used the ‘pandemic period’ to reset their economic models. For example, the likes of Saudi Arabia, Oman and Kuwait have markedly reduced their dependence on foreign workers, with more nationals taking on those roles, whereas the UAE heads in the other direction – keeping and attracting expatriates and tourists to resurrect local economic growth. The UAE has also introduced a five-year “retiree visa programme” for high-net- foreigners over the age of 55.

Dubai-based equity firm Al Masah Capital, founded in 2010, has finally hit the wall and has been placed into voluntary liquidation in the Cayman Islands. This comes months after the company and several of its employees were fined by the Dubai Financial Services Authority for misleading investors about fees charged. Al Masah Capital and Al Masah Capital Management were fined US$ 3.0 million and US$ 1.5 million, as were three of its employees – chief executive Shailesh Dash (US$ 225k), CFO Nrupaditya Singhdeo (US$ 150k)  and executive director Dom Lim Jung Chiat (US$ 10k) – and banned them from “performing any function in connection with provision of financial services in or from the DIFC”. It is reported that the two companies had raised US$ 1 billion from investors. The DFSA took the action against both companies a year ago after claiming it had not informed investors of a placement fee equating to 10%of all funds raised from investors.

The Central Bank’s latest report indicates that, in September, residents’ bank deposits at US$ 98.4 billion were some 8.0% higher than their loan balances, with non-resident deposits declining 1.3% to US$ 6.8 billion. Although down by 2.3%, residents’ retail loans, at US$ 90.7 billion, accounted for about 20% of the total banking lending, equating to some 30% of the country’s non-oil GDP. Over the year, property financing came in 2.9% higher, with auto loans heading the other way, declining by 7.6%.

This week, it was noted that the Arab World’s three biggest economies – Egypt, Saudi Arabia and the UAE – had bounced back to life last month, as movement restrictions eased and businesses continued to recover. The UAE headline PMI rise of 1.6 to 51, month on month, in September, indicated an improvement in business conditions, as the country’s non-oil private sector ended Q3 on a high. For the second time since January, export sales moved higher, with rising activity levels being supported by a robust upturn in new business, driven by a further rebound in consumer demand, assisted by continuing discounting which has been a feature now for too many months. Companies have to be careful not to get involved in a race to the bottom to hang on to business at any cost. Export sales were higher for only the second time in eight months, whilst the inflow of new orders slowed. There was also another monthly fall in private sector employment, with work force numbers still heading south, as most companies move heaven and earth to maintain cash flow and slice costs to the bone.

The bourse opened on Sunday 04 October and, 14 points (0.7%) higher the previous week, lost 52 points (1.9%) to close on 2,214 by 08 October. Emaar Properties, US$ 0.04 lower on the previous fortnight, lost US$ 0.05 to close at US$ 0.72, whilst Arabtec is now in the throes of liquidation, with its last trading at US$ 0.14. Thursday 08 October saw the market trading at a low of 135 million shares, worth US$ 31 million, (compared to 212 million shares, at a value of US$ 41 million, on 01 October).

By Thursday, 08 October, Brent, US$ 3.03 (7.0%) lower the previous fortnight regained some of that deficit, gaining US$ 2.86 (7.1%) to US$ 43.22. Gold, US$ 26 (3.4%) higher the previous week, nudged up US$ 12 (0.6%) to close on US$ 1,915, by Thursday 08 October.

Tesla stunned the market by delivering a global record number of cars worldwide in Q3, whilst consolidating its dominance in electric-vehicle sales. During the quarter, it delivered 139.3k vehicles, surpassing its previous record high of 112k cars posted in Q4 2019. The news pushed its share value higher on the day and by last Friday its YTD share value had skyrocketed 435%. In 2019, the company, founded by Elon Musk, had 16% of the global market, a figure that made it the industry leader and figures like these indicate that this will be the same by 31 December. Most of Q3 production was their mass market Model 3 but it also saw the introduction of  its Model Y crossover; all Tesla’s four models – S, X, Y and 3 – are made at its Californian factory with another one in Shanghai also turning out its Model 3; the company is also building plants in Berlin and Austin, Texas.

September was an abysmal month for the UK car trade, with registrations of 328k new vehicles – the worst September this century in what is normally the industry’s second most important month after March (the end of the UK tax year); year on year, this figure was 4.4% lower. Even before the onset of the pandemic, the industry was suffering from declining numbers but Covid-19, which saw factories and showrooms closed, has landed a major economic blow. Any hope of business improvement, because of pent up demand, has not materialised, as it appears that the current climate of uncertainty, exacerbated by Covid-19 and indecisive Brexit discussions, is making the public at large wary of buying big ticket items such as cars.  However, as the market for diesel vehicles is imploding, sales of electric cars are on the increase, despite them being on the expensive side both to build and for potential customers. As a matter of interest, the four best selling cars in the UK last month were Vauxhall Corsa, Ford Fiesta, Mercedes Benz A-Class and VW Polo – with unit sales totalling 10.5k, 9.5k, 8.1k and 7.4k respectively. The industry holds out little hope that it can recover the 615k registrations lost so far this year and is now forecasting a 30.6% sales slump by the end of the year.

The pandemic has resulted in Boeing cutting its forecast, to 2029, for commercial jet deliveries to 18.4k – 11% lower than its 2019 projection; this total has a list price of US$ 2.9 trillion. Over the following decade, this will increase by a further 24.7k jets (valued at US$ 3.9 trillion) to a twenty-year delivery total of 43.1k planes, valued at US$ 6.8 trillion. As international air travel declines, because of lockdown restrictions, the main casualty is the wide-bodied plane used on long haul routes, with the US plane maker seeing narrow-body aircraft leading the way to recovery, as domestic and short-haul routes rebound faster than long-haul travel. In future, because passengers will prefer point-to-point travel, as opposed to routing through hubs, Boeing has upped its twenty-year forecast for twin-engine planes – such as the Boeing 787 Dreamliner and Airbus A350 – by 10.3% to 7.5k deliveries.

In line with all other major airlines, EasyJet is struggling and has announced it could face its first-ever loss – of over US$ 1.0 billion this year – and more worryingly, that it expects to fly at just 25% of normal capacity into next year. It has also warned the government, that has already provided a US$ 785 million loan facility, that it may need more financial support. To help with liquidity, the airline has sold planes for US$ 810 million, raised a further US$ 540 million from the shareholders and cut 4.5k jobs.  Any notion of a post-pandemic recovery was brought to a sudden halt when the government introduced quarantine restrictions on arrivals from abroad. It had started summer operating at 38% capacity with hopes of upping that figure, going into Q3, but government action dashed those hopes.

One company that did well out of the pandemic was Tesco which posted a 28.7% hike in half yearly profits to 28 August of US$ US$ 740 million, with food sales 9.2% higher and online sales more than doubling to 1.5 million slots a week. One sector that did not fare well was clothing, with sales declining 17.2%.  The retailer is divesting itself of its businesses in Thailand, Malaysia and Poland but this is not expected to result in any retrenchments. Tesco Bank still presents problems, posting a half yearly loss of US$ 210 million. It will be a tough quarter for Tesco (and its rivals), as job losses mount and consumer spend will inevitable fall when the furlough scheme ends at the end of the month; on top of that, there will be further problems associated with a no-deal Brexit, the Ocado tie-up with M&S, the late arrival of Amazon into the competitive mix and Aldi’s new click-and-collect service.

The four major supermarkets accounted for 66.3% of the UK market share – Tesco, Sainsbury’s, Asda, Morrisons with shares of 26.8%, 14.9%, 14.5% and 10.1% respectively. The next four, with a combined 26.6% share, were Aldi (8.0%), Lidl (6.9%), Co-op (6.8%) and Waitrose (4.9%).

Despite the pandemic and the increasing trend of online shopping, Ikea (and its franchisees) are feeling confident enough to be opening a record fifty stores this year bringing its worldwide total to almost five hundred. It seems that the lockdown has encouraged many people to improve their homes. Even though YTD revenue to August fell 4.0% to US$ 48.0 billion, it is better than what had been predicted in April. The Swedish company has agreed to pay back government money received from state wage support schemes around the world, including in the US and Ireland, but not the UK as it did not claim any compensation, although 10k of its workers were furloughed.

The anti-virus software entrepreneur, John McAfee, is facing thirty years in prison for tax evasion after being arrested in Spain and now facing extradition to the US. Evidently, he had not filed tax returns for four years, (2014-2018), despite earning a shed load of money for selling the rights to his interesting life story, consulting and dealing in cryptocurrencies. He is alleged to have paid the proceeds from these ventures into bank accounts and cryptocurrency exchange accounts in the names of nominees, as well as hiding assets in the names of others. It is alleged that he made over US$ 23 million by “leveraging his fame” and recommending seven cryptocurrency offerings between 2017 and 2018, which allegedly turned out to be “essentially worthless”, without disclosing that he was paid to do so.

According to the latest WTO reports, global trade is bouncing back, but a complete recovery will take longer than initially forecast because of recent worldwide upticks in infection rates and further restrictions. There has also been an improvement from April’s 12.9% forecast decline in the 2020 volume of world merchandise which now stands at 9.2% – positivity returns next year with an estimated growth figure of 7.2%, but well down on the April prediction of 21.3%. In June, the IMF projected a 4.9% 2020 contraction and this week its managing director, Kristalina Georgieva, said “the picture today is less dire.”

One way or the other, the pandemic has taken its toll – governments and central banks have injected more than twelve trillion dollars  to stimulate their Covid-19 battered economies, (to stabilise financial markets and protect jobs), 36.2 million (0.00046%) of the 7.8 billion population infected, 27.1 million have recovered and 1.06 million have died The UAE has had 103k  cases and 438 deaths to date. With global rate increases mounting by the day, there seems some sort of inevitability that many countries will soon be hit by a second wave, the economic damage of which will be frightening and perhaps worse than the first.

For many years, credit card rates in Australia were among the highest in the world, as that sector was often very reluctant to pass on any rate cuts to their long-suffering customers. Now it seems that they have finally cooked the golden goose, as latest RBA figures show that Australians have eliminated US$ 4.5  billion worth of debt from their credit cards since the pandemic began; August figures indicated that consumers owed US$ 19.0 billion to card providers, 23.5% lower than the figure five months earlier in March., with actual credit card numbers diminishing by 4.3% (584k) over that period and 1.4 million down on August 2019 – the lowest number of accounts since April 2008. Having rested on their laurels – and easily gotten gains – for so many years, the credit card providers are now fighting an uphill battle with the buy now, pay later industry.

This week, the Australian budget’s main aims seemed to be to introduce measures to encourage businesses to hire more employees, (by offering investment tax breaks, wage subsidies and loss carry back tax provisions), and tax cuts for the vast majority of workers. In probably the most stimulatory budget in modern times, the Treasurer handed out tax cuts of around US$ 12.5 billion and US$ 18.8 billion full instant asset write-off for firms with turnovers of less than US$ 3.5 billion. However, there was no movement for bringing forward the next round of personal income tax cuts for high income earners and no mention of a permanent increase in the JobSeeker unemployment benefits. The Treasury’s latest forecast sees a rather optimistic 1.5% decline in GDP and next year by 4.7%. These will mean nothing if there is an increase in the infection rate that in turn would lead to more severe restriction measures. All three of the major credit ratings agencies – Fitch, Moody’s and S&P – reaffirmed Australia’s AAA credit rating., with the latter warning the risk of a downgrade remains and more so if borrowing costs rise sooner than expected.

With a further 661k jobs added in September, the US economy has managed to recover over half of the 22 million jobs lost at the onset of Covid-19; the figure was the smallest increase in jobs since employment started picking up again in May. However, last month’s figures were lower than the 800k expected by the market – maybe a portent that the recovery may not be as quick and robust as first thought. The jobless rate dipped for the fifth straight month, posting a rate of 7.9%, compared to the February figure of 3.5%, but there was little monthly change for the minority workers hit hardest by the pandemic, as the rate remained higher for African American and Hispanic workers than that of white workers. One statistic for the Trump administration to worry about is that 36% of unemployed are now classed as permanent job losers, up from 14% in May.

Earlier in the week, Federal Reserve chairman Jerome Powell warned of “recessionary dynamics” for the North American economy if Congress failed to pass the additional spending, and that the US economy could slip into a downward spiral if the coronavirus is not contained. He emphasised the urgent need for more economic stimulus amid the fallout from Covid-19. Meanwhile President Trump was hospitalised for three days and when he returned to the White House, he announced he was halting talks on coronavirus relief legislation until after the November 3 presidential election, whilst accusing House of Representatives Speaker, Nancy Pelosi, of not negotiating in good faith on new stimulus measures by calling for US$ 2.4 trillion in economic relief.

At last, there is somebody that seems to have time for sterling, with Goldman Sachs advising clients to buy the currency as the bank thinks a Brexit agreement is on the cards in the coming weeks. With the bank anticipating a relatively ‘thin’ trade deal, it is urging  clients to “go long” on sterling versus the euro, despite the fact that many consider there is still a great deal of uncertainty for any “decent” agreement. Earlier in the week, the pound was trading at US$ 1.28, having fallen to its lowest level at US$ 1.15 in thirty-five years last March. There is also every chance that the pound will also benefit from a weaker greenback. However, to the  ever-doubting Thomas, there is a chance of a no deal and, in the unlikely event this were to happen, and add in the Covid-19 impact, this could result in the UK economy contracting by US$ 173 billion,  of which a no deal could cost US$ 108 billion.

With UK employers planning an additional 58k redundancies in August, (150% higher on the same month last year), the number of employees, that are potentially losing their jobs over the first five months of the Covid crisis, stands at 498k. In the three months to August, monthly cuts of 150k, 150k and 58k, were the combined totals from 966 separate employers advising the government of plans to cut twenty or more jobs; this information is an employer requisite to complete an HR1 Advance Notice of Redundancy form. The hardest hit sectors were retail and restaurants.

The economic bounceback noted in August, as lockdown restrictions were eased and schemes like the Eat Out To Help Out restaurant vouchers, has petered out somewhat in September so much so that the chances a quick recovery are now off the table. This month sees the ending of the government’s furlough scheme to be replaced by subsidising the pay of employees who are working fewer than their usual hours due to reduced demand. Other measures to bolster the sagging employment market include a US$ 1.3k retention bonus, to help employees get back to work, with the so-called Kickstart scheme, costing US$ 2.6 billion, and doubling the number of frontline work coaches. Because the government is moving most of the employment payment back to the employer – with a lot less coming out of the Exchequer’s coffers – there is every chance that this increased cost will be too much to bear for many companies. The conclusion is that during the winter months, unemployment levels may scale new heights, as the level of redundancies starts to climb.

According to Boris Johnson, the chances of a deal are “very good” if everyone “exercises some common sense”, following the latest Brexit negotiations breaking down yet again. The main sticking points still appear to concern fishing and government subsidies. The Prime Minister is still confident about a Canada-style relationship and had a Saturday video call with EUC, President Ursula von der Leyen; she had been calling on both sides to “intensify” efforts with time running out, after six months of trade talks, for both parties to meet the October deadline to settle any differences. In January, the UK formally left the EU and had a one-year transition period for both sides to negotiate a trade deal; the EU had stipulated that a deal had to be agreed before the end of October to allow it to be signed off by the member states before the end of the year. Boris Johnson’s riposte has been that both sides should “move on” if agreement was not reached by the middle of the month. If there is no deal, the UK will go on to trade with the bloc on WTO rules.

In the UK, there are estimates that up to 60% of emergency pandemic loans, made under the Bounce Back scheme, may never be repaid and there could be a loss to the taxpayer of as much as US$ 35 billion from fraud, organised crime or default. According to latest official figures, there have been 1.55 million applications for the loans, with 1.26 million approvals. Because of the initial rush to make funds quickly available, checks were not as robust as they should have been so that fraudsters seem to have had a field day. The scheme provided firms with bank loans of up to US$ 67k, 100% backed by the government and did not have to be paid off for ten years. Demand was almost twice as much than initially estimated at up to US$ 64 billion and early signs indicated that fraud risk was heightened because of the speed with which the scheme was rolled out. The government’s largest ever and most risky business support scheme saw banks get 100k applications on first day. Fraudsters soon got in on the act stealing people’s personal data, then setting up fake accounts, to claim the government handout, with many victims not knowing what had happened until repayment letters began arriving in early summer. There is no surprise that banks got in on the act, with reports that the five major ones will pick up US$ 1.3 billion in interest payments from the scheme. But the big winners have been the criminals who may well have helped themselves to billions and have to say to the UK taxpayer – Thank You Very Much!