Long Long Winter 29 October 2020
The DLD released Q3 figures showing that despite the negative impact of the pandemic, the value of property transactions in Dubai jumped, quarter on quarter, by over 65% to over US$ 4.9 billion, as the number of deals were 55% higher at 8.7k. September was the strongest month in Q3, with 3.9k deals topping US$ 2.4 billion. In that month, off plan sales accounted for 46% of the total, with 54% for ready-built homes. For the first nine months of the year, there were 24.5k deals, valued at US$ 13.8 billion, pointing to some sort of V-shaped recovery for Dubai’s property market. It is interesting to note that although transaction numbers are heading north, apartment and villa prices have dropped by around 10% over the past twelve months. But with the supply chain beginning to slow – with fewer new developments – it is inevitable that there will be changes to the supply/demand curve. Since Covid-19, the demand for villas – compared to apartments – has risen and the supply of smaller and cheaper villas has moved higher – and will continue to do so in the future. In the coming months, and if Dubai is successful in enticing entrepreneurs and tech start-ups, the demand for housing will inevitably head north.
Latest figures from Asteco indicate that Dubai residential rents have been falling and will continue to decline in the near future – by 43% since their Q2 2014 peak and 13% over the past twelve months, with more decline expected over the next six months, as new supply hits the market. The consultancy has noted that 23.1k new villas and apartments came to the market in the first nine months of 2020 and that a further 8.4k will enter in Q4, bringing the total for the year to 31.5k. Seven locations – Dubai Sports City, Business Bay, Jumeirah Village, Downtown Dubai, Dubai Marina, Jumeirah Beach Residence, and Deira – reported falls of between 13% – 17%.
It is reported that One Za’abeel is still running on schedule and expects to see the structure finished, along with a top-up ceremony, as early as April next year. Its developer, Ithra Dubai, wholly owned by the Investment Corporation of Dubai, also announced that the final lift of the 230-metre long cantilever, called “The Link”, one hundred metres above the ground level between the structure’s twin towers, has been completed. The mixed-used project, costing over US$ 1 billion, will house offices, residential apartments, commercial units and a 497-key One & Only Resorts hotel. The project, which will be completed in stages starting in the fourth quarter of 2021, is forecast to create 3k jobs.
The latest two decrees from the federal Cabinet see the merging of the Insurance Authority with the country’s Central Bank, as well as the transfer of most of the operational and executive powers of the Securities and Commodities Authority to the two local stock exchanges; however, the market regulator will maintain regulation and oversight of local financial markets. One of the main reasons for the first change was to raise the efficiency of the insurance sector, by giving the sector more flexibility. HH Sheikh Mohammed bin Rashid Al Maktoum commented that “Our goal in all of this is to enhance the competitiveness of our national economy … our government will remain flexible, supportive and fast in making appropriate economic decisions.” Furthermore, there is no doubt that this announcement will bring local regulations and business practices in line with international guidelines and operating procedures. This can only increase consumer confidence in a sector that has had its fair share of run-ins with the general public in the past.
The Ruler’s son, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai has launched a US$ 136 million stimulus package that brings the total of finances added by the government to fight the pandemic to over US$ 1.8 billion. Two of the aims were to accelerate recovery and to establish a new phase of economic growth. The money will be spent on six-month licence extensions to nurseries, clinics and healthcare professionals, with the former also getting a 50% reduction in rents from the Knowledge Fund Establishment and also licence renewal exemptions. Meanwhile, taxi operators will also benefit from a reduction in the concession fee and all companies registered with the Dubai Municipality will get an advertising permit fee exemption for three months. It has also extended the validity of some fee exemptions announced earlier in the year and confirmed that all penalties related to government registrations continue to be waived and market fees for all sectors remain frozen.
There was no surprise to see that UAE retail fuel prices remained unchanged for the eighth straight month, with November prices mirroring those of April. Special 95 and diesel will sell at local petrol stations for US$ 0.490 and US$ 0.561 per litre respectively.
Monday saw the return of the e-scooter to Dubai, as hiring was rolled out in five locations – Downtown’s Boulevard, DIC, 2nd of December Street, Al Rigga and JLT – with dedicated lanes A one-year trial will conclude whether this form of transport is safe and whether it helps ease traffic congestion – and if it does, then the RTA will roll out e-scooters around the emirate. E-scooters will cost US$ 0.817 to unlock and US$ 0.136 for every minute thereafter. Bookings will be done online on the respective applications of the various operators including Careem, Lime and Tier, as well as start-ups such as Arnab and Skurrt. Helmets should be worn but do not come with the scooters.
This week, Dubai picked up yet another global award to put on the emirate’s mantlepiece This time, Dubai Customs won the PMO (Project Management Offices) Global Award which is awarded annually, recognising and honouring the work and efforts by organisations and individuals around the world, whilst celebrating representativeness and diversity of countries, cultures, and experiences. This is the world’s largest professional award for Project Management Offices, their organisations and leaders – and Dubai won from keen competition from three other short-listed finalists that had won their own regional finals in Africa, Americas and Europe. Dubai Customs had already won their final in the Asia-Pacific region to qualify for the grand final.
DP World posted a 1.9% increase in Q3 gross container volumes, ahead of which it hopes to result in a “relatively stable” financial performance by the end of the year; during the three months, the company handled 3.3% more twenty-foot equivalent units – 18.3 million units. During the first nine months of 2020, the port manager recorded a 2.5% decline on a reported basis and 2.0% lower on a like-for-like basis. Its flagship base, Jebal Ali saw declines on both Q3 and YTD volumes – by 4.2% at 3.4 million TEUs and 5.9% to 10.1 million units. With the almost certainty of stricter restrictions and lockdowns, the world’s largest ports and cargo terminals may have to trim its expansion plans and focus more on containing costs to protect profitability and managing growth capex to preserve cashflow to weather the inevitable economic storm.
The DFM is to introduce its first Reit offering, Al Mal Capital Reit, which is hoping to raise US$ 136 million from the IPO. The money raised will be invested in a diversified portfolio of income-generating real estate assets backed by secure long-term lease agreements. The asset management firm, a subsidiary of Dubai Investments, will open its subscription period on 08 November with a price of US$ 0.272 (AED 1). The fund is targeting a 7% annual return focusing on real estate properties in the UAE and abroad on sectors including healthcare, education and industrials. There are two other real estate investment trusts listed in Dubai – Emirates Reit and ENBD Reit – but on Nasdaq Dubai.
DFM-listed Amanat Holdings has decided to “unilaterally terminate” a sale and purchase agreement between its subsidiary AHE Alpha, SW Holding and Study World Education Holding to sell its Middlesex University Dubai campus, in order to “protect the best interest of Amanat Holding’s shareholders”. The education and healthcare investment firm, with regional interests across education, health care and property sectors, has also abandoned talks to invest in VPS Healthcare. Earlier this month, Amanat made its first foray into venture capital, investing US$ 5 million in US education technology company BEGiN during a Series C financing round. Its latest released figures saw the company move into negative territory, posting a Q2 loss of over US$ 1 million, compared to a US$ 4 million Q2 profit in 2019.
The Commercial Bank of Dubai, CBD, has issued a US$ 600 million Additional Tier 1 (AT1) perpetual non-call 6-year bond, at a coupon of 6%, as its first-ever AT1 issuance heralds the return of the bank to the capital markets after almost five years; the bonds will be listed on the Euronext Dublin and NASDAQ Dubai. Because the issue attracted a quality order book – and had interest from over one hundred investors – it allowed CBD to set the yield at 6.0%, lowest coupon from a Dubai bank issuer to date and compares favourably with recent issuances in the region. Bank of Dubai reported a 21% drop in Q3 profit to US$ 78 million, driven by rising impairment allowances, (up 31% to almost US$ 59 million), and net interest income falling. Over the first nine months of 2020, CBD, 20% owned by the Investment Corporation of Dubai, posted a 23% decline in profit to US$ 222 million, obviously not helped by impairments climbing to US$ 193 million; net interest income and Islamic financing income were 8.7% lower at US$ 373 million, with operating expenses falling 9.4% to US$ 161 million. The bank’s assets had risen 12.4% to US$ 25.3 billion since the beginning of the year.
The DFM posted a 35% Q3 profit of US$ 11 million on the back of a 15.0% hike in revenue to US$ 24 million, as expenses edged 2.1% higher to US$ 13 million. For the nine months YTD, revenue was up12.2% at US$ 74 million, with profit 25.8% higher at US$ 41 million, as expenses were up 3.3% to US$ 41 million. Over the period, the bourse’s trading value jumped 28.3% to US$ 13.9 billion. 51% of trading activity was carried out by foreign investors, equating to 18% of the market capitalisation, whilst the number of new investors increased by 3.2 k.
The bourse opened on Sunday 25 October and, 80 points (3.5%) lower the previous three weeks, was almost flat gaining just 2 points to close on 2,188 by Wednesday 28 October, a day earlier than usual because of the Prophet’s birthday. Emaar Properties, US$ 0.10 lower on the previous five weeks, traded US$ 0.02 higher at US$ 0.73, whilst Arabtec is now in the throes of liquidation, with its last trading, late last month, at US$ 0.14. Wednesday 28 October saw the market trading at 181 million shares, worth US$ 43 million, (compared to 215 million shares, at a value of US$ 50 million, on 22 October).
For the month of October and YTD, the bourse had opened on 2,273 and 2,765 and, having closed the month on 2,188, was down 85 points (3.7%) in October and well down by 577 points (20.9%) YTD. Emaar traded lower from its 01 January and 01 October starting figures of US$ 1.10 and US$ 0.78 – down by US$ 0.37 and US$ 0.01 – to close October on US$ 0.77. Even at the beginning of the year, Arabtec was struggling, trading at US$ 0.35 and by the time stumps were drawn in late September, was trading at US$ 0.14 – a major fall from grace, considering that in May 2014 one Arabtec share was worth US$ 8.03. .
By Thursday, 29 October, Brent, US$ 0.78 lower the previous fortnight had a terrible week slumping US$ 4.38 (11.3%) to US$ 42.46. Gold, US$ 6 (0.2%) lower the previous fortnight, dropped US$ 33 (1.7%) to close on US$ 1,875, by Thursday 29 October.
Following a Q2 disastrous loss of US$ 6.7 billion, BP returned to profit in Q3 – but only just – of US$ 86 million, well down on the US$ 2.2 billion surplus a year earlier. Although still battered by the economic impact of the pandemic, chief executive Bernard Looney said that despite a “challenging environment”, the firm was “performing while transforming” as well as confirming that a dividend will be paid. The energy giant wants to be “net zero” by 2050 and also to halve the amount of carbon in its products by then.
Exxon Mobil has announced a further cull in their workforce, with a 15% (14k) cut in its work force over the next two years, including 1.9k US jobs, mostly in Houston, as well as reductions in contractors and layoffs previously announced in Europe and Australia. The cuts, which will come through attrition, targeted redundancy programmes in 2021 and scaled-back hiring in some countries, are part of chief executive Darren Woods’s latest effort to curtail spending. Exxon is not the only big energy company to be cutting job numbers, with the likes of BP, Royal Dutch Shell and Chevron shedding 10K, 9k and 6k. The fact that its share value has more than halved this year points to the lack of shareholder confidence in the US company.
The four US tech giants – Amazon, Apple, Facebook and Google – all posted Q3 profit and revenue growth, with no indication of any noticeable slowdown. Amazon returned the best results, with revenue growing 37% to US$ 96.1 billion and profit almost tripling to a record US$ 6.3 billion. The only downside was a US$ 2.5 billion hit in Covid-related expenses, as its reputation suffered with global protests against the firm’s working conditions and other policies.
Meanwhile, Apple sales beat analysts’ expectations reaching US$ 64.7 billion – up slightly from a year ago – driven by a surge in sales of laptops and iPads. Two worrying factors – a 20% decline in iPhone revenue and a 30% sales slump in its Greater China region, where it typically generates about 20% of its sales – saw its share value decline. The tech conglomerate is hoping that buyers are simply holding out for its latest phone, which went on sale later than in prior years. By the end of September, Facebook, owner of Instagram and WhatsApp, boasted a staggering 2.5 billion daily users (15% higher than twelve months earlier) but warned that there was a decline in numbers in its prime market of US and Canada, with the trend to continue into Q4. However, Q3 revenue jumped 22%, with even better sales figures forecast over the near future. Amid the shutdowns earlier this year, many businesses cut advertising spending, and this had resulted in Q2 sales to slow at Alphabet, the parent company of Google and YouTube – and to its first year-on-year decline in quarterly revenue since becoming a publicly-listed company in 2004. However, Q3 saw earnings 14% higher to US$ 38.0 billion (minus traffic acquisition costs), with Cloud and YouTube both beating growth expectations by over 40% to US$ 3.4 billion and US$ 5.0 billion respectively; profits were 59% higher at a mouth-watering US$ 11.0 billion – little wonder the firm’s shares moved 6% higher in after-hours trading.
Although the Big Four’s revenue and profit figures seem to be growing inexorably, next year could see more trouble with the regulators not only in the US but also globally. Their tech dominance not only irks regulators but also competitors who have antitrust concerns and worries that they may already be too big to fail. Even Facebook expects more investigations into their workings noting “headwinds… from the evolving regulatory landscape”.
Troubled Boeing is planning a further 7k job cuts so by the end of the year, the US plane maker will see its payroll having fallen by 30k to 130k since the start of the pandemic, as its losses mount. Boeing is still reeling from the fallout from the two fatal crashed involving its 737 Max jets that have now been grounded for twenty months and has seen a subsequent slump in orders. The company posted its fourth straight quarterly loss in Q3, with a US$ 466 million deficit, whilst nine-month revenue fell by 30% to US$ 42 billion. However, it is expected that 737 deliveries will start again in Q4 but on a much-reduced scale. On a more worrying point, Boeing does not expect travel to return to pre-crisis levels until about 2023 and if that is the case, it will continue trading losses for a few more quarters to come.
It is reported that Mercedes-Benz is to raise its current 5% stake in Aston Martin Lagonda to 20%, as part of the UK carmaker’s recovery plan.Some months ago,Formula One team owner Lawrence Stroll took a majority stake in the British luxury marque which had been devastated by a disastrous 2018 stock market flotation; since then its share valued has tanked from US$ 709.62 to US$ 70.73. This so-called “strategic technology agreement” will give AM access to Mercedes’ electric car technology and will help with its strategy to increase vehicle sales by 70.6% to 10k and revenue (and profit) to US$ 3.3 billion (and US$ 650 million). On Tuesday, Aston Martin posted a US$ 30 million Q3 pre-tax loss – down from a US$ 57 million profit in the same period last year.
Samsung Electronics has reported record Q3 revenues of US$ 59.0 billion, driven by a massive 50% hike in smart phone sales, as profit came in, 49% higher, at US$ 8.3 billion. It is noted that Huawei’s problems with the Trump administration most certainly helped with the quarterly boost in sales. Huawei has been stockpiling chips ahead of possible US sanctions. The South Korean tech conglomerate Samsung also witnessed strong growth in sales of its premium TVs and appliances. The microchip industry is in the midst of major consolidations, with graphics chipmaker Nvidia recently acquiring British mobile chipmaker Arm from Softbank for US$ 40.0 billion and, this week, chipmaking giant AMD reportedly willing to pay US$ 35 billion for its rival Xilinx in a near-record deal.
Europe’s biggest bank, HSBC, posted a 35% Q3 slump in profits to US$ 3.1 billion, as revenues declined 11%, with the bank setting aside impairment provisions of between US$ 8 billion to US$ 13 billion. It has had its fair share of recent problems, including allegations that it aided and abetted fraudsters to transfer millions of dollars around the world, even after learning of the scam, as well US administration criticism from US Secretary of State Mike Pompeo for supporting China’s controversial security legislation. Well before the onset of Covid-19, HSBC was planning massive cuts of US$ 4.5 billion by 2022 and has since been further hit by continuing low interest rates and spiralling impairment losses.
If Gap decides to shift its European operations to franchise-only, there is a possibility that the US retailer could close all of its own UK stores, and, with it the loss of thousands of jobs. It has indicated that UK outlets – along with those in France, Ireland and Italy – could shut next summer, along with its UK-based European distribution centre. The firm was already struggling prior to the onset of the pandemic which has only exacerbated their financial woes which saw a quarterly loss at the end of May at US$ 980 million. Earlier in the year, it was planning to close over 225 unprofitable Gap and Banana Republic stores globally, as part of a restructuring plan which was hoped to see it being competitive with the likes of Zara, H&M and Forever 21, which had been taking business from the US retailer.
Driven by a welcome 23% hike in online sales, Next posted a 3.0% rise in Q3 full price sales and a 1.4% increase in total sales. With this improvement, the retailer has raised its annual profit forecast to US$ 485 million but noted that store sales were down by about 50%, compared to same period last year. However, the retailer has warned that a two-week lockdown in November would see a drop in full-price retail sales of nearly US$ 80 million. Like most retailers, Next is hoping for a bumper Christmas but the way in which Covid-19 is spreading, even this scenario is unlikely. It does seem that Next is better positioned than most of its competitors to weather the upcoming storm and the company will be focussing more on out-of-town retail parks continuing to perform better than its stores on High Streets and in shopping centres.
Australia’s largest non-alcoholic beverage bottler, Coca-Cola Amatil, has received a US$ 6.6 billion takeover bid from its European counterpart, Coca-Cola European Partners, offering an 18.6% premium on last Friday’s closing price, valuing each share at US$ 9.08. With the US parent company owning 30.8% of Amatil, in CCEP, which is 19.4% owned by US-based Coca Cola, wants to acquire the remaining 69.2%. With thirty-two production facilities, the Australian company, which has seen a business improvement in the September quarter in line with restrictions being lifted, along with the mini economic recovery, operates in five more nations – Fiji, Indonesia, New Zealand, PNG and Samoa.
Australian retailer, Mosaic, that owns brands such as Noni-B, Millers, Rivers and Katies is set to close another 250 stores by mid-2021 which will result in significant job losses; this is on top of the 73 stores that have already closed since August. Mosaic is laying the blame for these closures on shopping centre landlords for not giving enough rent relief, as it struggled with the pandemic and the impact on its business. In August, the owner of the Westfield shopping malls locked out hundreds of Mosaic staff from their retail stores over a bitter rent dispute. The retailer posted a US$ 120 million annual loss for the year ended 30 June 2020.
On Thursday, Seek put its shares in a trading halt “pending a further announcement”, when their share value fell 5.9%, having slumped 11.8% earlier. This came after a short seller accused the company of over-inflating (by 200%) the value of its Chinese business — in particular, the job-hunting website Zhaopin. With its last share value of US$ 15.21, the company has a market value of US$ 5.4 billion, whereas a report by Blue Orca indicates this is overvalued and the market value is more like US$ 1.8 billion; it claims that its Chinese jobs website was filled with junk or “zombie” listings.
Perth businessman Chris Marco is on trial accused of running a Ponzi scheme of “significant proportions” which left his investors US$ 1.5 billion short of what they could have earned if he had delivered on his promises. The Australian Securities and Investments Commission claims he ran an unregistered management investment scheme and also ran a financial services business without a licence from 2010, whilst alleging he used some of the money raised to buy, renovate and develop property, as well as invest in shares and buy classic cars. Although it seems that the accused claimed that the 310 investors had contributed US$ 184 million to his investment scheme and he had paid out US$ 151 million to them, this was significantly less than the US$ 1.48 billion which ASIC alleged was owed to the investors if the promised returns of their contracts were fulfilled. Some investors were told that US$ 70k (AUD 100k) was the minimum investment amount and that the money would be pooled and invested overseas with a guaranteed 7% quarterly return.
Qantas confirmed that it would be unlikely to be flying to either the US or UK until the end of 2021 and only then if a vaccine has been made available because these areas continue to have a high prevalence of the virus. Notwithstanding New Zealand, international flights elsewhere will not occur until Q3 2021 except for some very limited repatriation flights. Furthermore, with most domestic borders closed in July, the first month of its financial year – and local domestic flights severely curtailed – the company, which owns both Qantas and Jetstar, is expecting a further US$ 70 million Q1 loss, after posting a US$ 1.4 billion profit last year. The company had expected domestic flights to be at 60% capacity, but because of these restrictions, this has been halved to 30%. The airline continues to harangue state governments for keeping their borders closed for some time, despite very low levels of risk in most states.
Despite nationwide lockdowns that has had a devastating impact on its economy, the Australian wine industry has reported their most valuable yearly export trade since 2007; this came despite the two previous quarters registering declines of 4% and 7%. China continues to be its most lucrative market, and although spending more – 4.0% higher at US$ 815 million – imported a smaller volume of wine, down 12% to 123 million litres. The country exports more than 60% of its wine, equating to 770 million litres, with China its main market, followed some way behind by the US and the UK where the market was worth US$ 310 million and US$ 300 million respectively; the UK market expanded by 18% over the year. The revenue for Australian wine sold in its home country is almost US$ 2.5 billion. It is not all good news for the industry because the 2020 grape crush will be the smallest vintage in a decade because drought, bushfires and smoke taint.
According to the Reserve Bank of Australia, there is a possibility that many Australians could enter “negative equity”, if the pandemic-led recession leads to a big fall in house prices. There is every chance that banks will become more vulnerable as non-performing loans are expected to continue to rise as falling incomes make it more difficult for households to meet repayments. Another reason why residential prices could weaken is that Austria’s population growth is expected to weaken over the next twelve months. It was estimated that in June, 8% of Australian housing loans were on deferred payments – deferred until the end of this month. November will see the carnage in the sector when government income-support policies and loan repayment deferrals end.
With Alibaba Group agreeing to subscribe to more than 22% of Ant Group’s imminent IPO, buying 730 million Shanghai-listed A shares in a placement of 3.3 billion shares, with an estimated value of US$ 35 billion, this will result in the world’s largest ever launch. The financial services giant plans to issue about 1.16 billion Hong Kong-listed or H shares to Alibaba, part of a distribution of about 3.26 billion shares to existing backers. The IPO shares deal helps Alibaba prevent the dilution of its stake after Ant goes public. It is estimated that the Chinese e-commerce giant, co-founded by Jack Ma, will hold about 32% of its affiliate’s shares after the IPO. Early estimates put the value of Ant equivalent to the combined market worth of Bank of America and Goldman Sachs. In the first nine months of 2020, Ant posted a 74% leap in gross profit to US$ 10.4 billion.
Bythe end of the week,, it seemed that every man and his dog want a bite of Ant as the Chinese fintech behemoth sets off an investor frenzy. Bids for the retail portion of Ant’s concurrent listing in Shanghai and Hong Kong totalled a record US$ 2.8 trillion on Thursday, exceeding supply by more than 870 times. The record-breaking US$ 35 billion IPO represents a major vote of confidence in both the company, controlled by Jack Ma, and the Chinese government being able to raise such massive sums without any US input.
Following news that global online payment provider PayPal would allow customers to use cryptocurrencies, Bitcoin surged 8% late last week to break the US$ 13k mark for the first time since 2019. Other digital coins also moved up, including Litecoin, which rose more than 13%, and Bitcoin Cash, 9% higher. Even though PayPal has eventually bowed to the inevitability of cryptocurrency trading, it will be a long time before the likes of Bitcoin take over from fiat currencies. The payments giant will bring cryptocurrencies to its Venmo platform in H1 2021 and also plans to introduce it to certain international markets.
Up to this week, Ngozi Okonjo-Iweala looked a shoo-in to lead the World Trade Organisation but now the US has placed a spanner in the works. Nigeria’s ex-finance minister’s appointment has been thrown into doubt after the US opposed the move after a WTO nominations committee recommended the group’s 164 members appoint her to become the first woman and first African to lead the WTO. The US, for some time critical of the WTO’s handling of global trade, favours another woman South Korea’s trade minister, Yoo Myung-hee, saying she could introduce much-needed reform for the body.
By Tuesday, the Turkish lira hit a record low of 8.15 against the greenback amid investor anxiety about the Turkish economy, hit by coronavirus and friction with NATO allies, especially France and the US. The currency has lost 26% of its value so far in 2020 with the central bank reportedly pumping in US$ 134 billion to prop up the lira. Their situation has been made worse by rising inflation, climbing to 11.7% in September and the central bank’s refusal to raise its key interest rate. Earlier in the week, President Recep Tayyip Erdogan announced that Turkey had tested the controversial S-400 missile system, bought from Russia, to the chagrin of both the EU, Turkey’s largest trading partner and which had earlier in the month warned them over Turkish exploration for gas off Cyprus, and the US. These geo-political tensions were the main reason behind the latest decline in the Turkish lire and has spooked investors.
It seems that investors have finally take a dose of reality as yesterday, Wednesday saw global markets tumbling for the second day in the week. The major US indices slumped 3.4%, (the Dow –3.4%, S&P 500 – 3.5% and Nasdaq – 3.7%), whilst Germany’s Dax and the UK’s FTSE 100 slid 4.2% and 2.6% respectively, as investors sold off their shares in favour of less risky assets such as the US$. The US market has further jitters ahead of next week’s presidential election. In Thursday trading, Asian stocks also lost ground – Australia’s ASX 200 – 1.6% and the Hang Seng index – 1.2%. Not surprisingly, the shares that took the brunt of the battering were travel and energy, whilst tech stocks were also hit with the likes of Facebook, Google and Twitter all shedding more than 5% on the day. The latest falls came with news that many countries are reporting record numbers of new coronavirus cases, as both France and Germany reintroduce lockdown measures.
On Thursday, Australian shares fell sharply, after global markets tanked overnight on worries about surging COVID-19 infections worldwide and the possibility of a disputed US election result. Since the beginning of the year, the All Ords (-9.6%) and ASX 200 (-11.1%) have tumbled. By late afternoon, the former had lost 106 points – 1.6% – on the day to 6,162 points and the latter 102 points -1.7% – to 5,956 points. This week’s negativity has erased all the gains it made since early October. Markets in the Asia Pacific also felt the negativity, including New Zealand’s NZX 50 (-0.7pc), Hong Kong’s Hang Seng (-1.2pc), the Shanghai Composite (-0.2pc) and Japan’s Nikkei (-0.7pc). Markets in the Asia Pacific also fell, including New Zealand’s NZX 50 (-0.7%), Hong Kong’s Hang Seng (-1.2%), the Shanghai Composite (-0.2%) and Japan’s Nikkei (-0.7%).
In the unlikely event of a Biden victory next week, one country that will benefit from the change of the guard would be Mexico, as a new trade deal would be almost inevitable. The current Mexican President, Andres Manuel Lopez Obrador, has established an uneasy relationship with Donald Trump, as border tensions remain high, whilst the number of illegal immigrants has fallen – this being a quid pro quo for the Mexicans to keep a lid on illegals with the US going easy on tariffs in return, as well as giving them a relatively free hand to interfere with foreign businesses, especially in the energy sector. Mexico has held upbillions of dollars’ worth of energy sector projects, particularly in renewables, arguing that past governments rigged the power market to favour private companies at the public’s expense. If “Sleepy Joe” were to win, it seems likely that the US will see a lady president sooner than many had imagined.
Following on the worst fall on record in Q2, with the economy contracting at an annualised rate of 31.4%, the US economy bounced back at a record 33.1% in Q3, but the economy still hovers below pre-pandemic levels. However, hopes are that there will be positive GDP growth and job growth in Q4 but because of increasing Covid-19 cases and the fact that the House of Representatives still cannot agree on a new fiscal stimulus package. Details of the eventual package will be dependent on the result of next week’s presidential election, with probably the best result being a consolidated as against a split government.
The UK has formally signed a trade agreement with Japan – the Johnson administration’s first major post-Brexit deal – that would ensure that nearly all its exports to Japan will be tariff free, while removing British tariffs on Japanese cars by 2026; the deal is similar to that Japan has with the EU but also includes an extra chapter on digital trade. Some have described it as a “ground-breaking, British-shaped deal”, as it will boost the UK GDP by a mere 0.07% but will see trade reach over US$ 20.0 billion. Currently, Japan is the UK’s 11th biggest trading partner. Some critics point to the fact that the agreement has little to encourage FDI, bearing in mind that Japan is the world’s largest investor abroad, accounting for 14% of the global total and that the UK could have shown a strong commitment to Japanese investment by including a comprehensive investment chapter, encompassing investment protection and dispute settlement.
Late last week, UK Chancellor, Rishi Sunak, unveiled three extra financial Covid-19 related support measures for businesses, with a particular focus on supporting the country’s hospitality and leisure sectors; such businesses, located in tier-two areas, where they are open but are operationally restricted, will receive US$ 2.8k a month. He also noted that a significant fall in consumer demand is causing profound economic harm, especially in the hospitality industry; thus, he agreed that businesses will now have to pay only 5% of the cost of wages for unworked hours, compared with the earlier announced figure of 33%. The third measure was to double self-employed grants from 20% to 40%, meaning the maximum grant will go up to US$ 4.9k. Grants are available for all self-employed people (all tiers) who have stopped trading or have a significant fall in trade, with two further payments to come. Despite these government moves, increased Covid-19 cases indicate that a general UK lockdown is all but inevitable. The result is that the economy will be hit once more but this time with a more severe impact. It’s going to be a Long Long Winter.