Do You Want To Know A Secret? 12 November 2020
Since pandemic-related restriction movements were eased in August, Dubai’s residential property market has reported an increase in transactions, but prices have continued to fall, as a result of weaker macroeconomic conditions and supply concerns. According to consultancy JLL, average sale prices were 9.0% lower in Q3 than in the corresponding period last year. Their Q3 Real Estate Market Overview, noting that investor sentiment globally remained subdued, forecast that “the local residential market is expected to remain under pressure in the short term in light of various macro uncertainties.” However, it does expect potential buyers to be able to take advantage of “a range of incentives (fee waivers, discounts, rent-to-own), as well as partner with banks in offering reasonable home finance options to attract new investors and end-users looking to take advantage of the lower prices.”. Whilst agreeing in principle to their findings, this blog sees a movement north for some villa locations and that they could see a double-digit growth over the six months to March 2021.
The latest residential story concerns the unveiling of the Sea Palace Floating Resort project, a luxury floating resort that is part-yacht, part-hotel, surrounded by six floating and moving houses. Located close to Dubai Marina, the US$ 165 million Seagate Shipyard project uses a glass boat, powered by shaft motors and equipped with a hydraulic system that resists wave movements. The project is reportedly 65% completed, with one of the houses already finished and sold for almost US$ 6 million; it spans two floors and has four en-suite bedrooms, with a glass floor and outdoor swimming pool; it is powered by solar energy and features a self-sterilising air filtration system and a garbage recycling system.
It seems that Azizi is to invest US$ 27 million into the landscaping and further enhancements of Riviera’s phases 1 and 2, to develop lifestyle-enhancing communal spaces; this will include features such as swimming pools, yoga studios and shaded playgrounds. This investment will be at the developer’s expense to add to the “the aesthetics of the community.” The project, encompassing 16k residences in 71 mid-rise buildings, will overlook an extensive retail boulevard, a canal walk, with artisan eateries and boutiques, and Les Jardins — a lush-green social space. The whole project is strategically located adjacent to the Meydan One Mall and the Meydan Racecourse.
There are reports that Morpho Hotels and Resorts will create 1k new jobs, as it enters the UAE market next year and opening five properties. This may be an opportune time as the latest Colliers International’s Mena hotel forecast sees an industry recovery starting in Q4 and continuing into the new year, with occupancy recovering to around 62%. The Indian hospitality firm is looking at acquiring properties for all of its three brands – Morpho, Crystal by Morpho and Vivid by Morpho.
In what can be seen as a bold and innovative move, that will attract more expatriates and foreign investment, the federal government has introduced comprehensive reforms that will have a marked influence on the expatriate social fabric. The wide-ranging – and to some surprising – package covers a myriad of issues, many of which are bringing the country’s legal system on par with key global hubs. Amendments to inheritance laws now indicate that assets would no longer be automatically divided under Islamic law. In future, it will assure people that whatever they own will be transferred according to their will or as per the law of their country of origin; it will also lead to more certainty as the older generation will no longer have to worry. However, it appears that any property owned in the UAE will come under Sharia law. Such a move will obviously encourage retirees to live here without any fears of the process of dividing their estate according to Sharia and or the UAE laws.
Apart from these substantive changes to inheritance, old legislation will be overhauled and new laws will see radical changes in divorce and alcohol issues. One important amendment sees the laws of a person’s country of origin being used for divorces and inheritance. Under the new laws, a couple married in their home country, but getting a divorce in the UAE, will be able to settled by the laws of the country where the marriage took place; joint assets and joint accounts will see assets split in future local divorce cases.
What some may consider more radical, changes can be seen when it comes to suicide/ attempted suicide and “Good Samaritans”. The former will be decriminalised; in the past, someone who tried to take their life but those who survived could have been prosecuted and anyone found assisting an individual, with an attempted suicide, would face an unspecified jail sentence. Another new law sees “any person who’s committing an act out of good intention, that may end up hurting that person, will not be punished”. In future, there will no longer be a distinction of crimes known as “honour crimes”, where a male relative can get a lighter sentence for assaulting a female relative under the guise of “protecting honour”; now such incidents will be treated as crimes, similar to any other assault. There will be tougher punishments for men who subject women to harassment of any kind, which is thought to cover street harassment or stalking. In future, the punishment for the rape of a minor or someone with limited mental capacity will be execution.
Alcohol consumption is no longer a criminal offence; previously, such prosecutions would be rare but an individual could be charged for consuming alcohol without a licence if they were arrested for another offence. A person still must be at least 21 years old to drink legally in the country. For the first time, the law will allow for the legal cohabitation of unmarried couples, overruling the old law that made this an illegal activity. Furthermore, the new law mandates that translators are provided for defendants and witnesses in court, if they do not speak Arabic.
In a week of major judicial changes, the federal Cabinet approved amendments to the ‘Law on Evidence in Civil and Commercial Transactions,’ in line with Dubai’s ongoing smart digital transformation strategy. Among the reforms are the adoption of digital signatures and documents, with e-signatures being approved and treated as official documents mentioned in the evidence law. Other major changes see the use of e-transactions in notary public procedures. Documents must be created and saved electronically, and will be kept confidential and may not be circulated, copied or deleted from the electronic system without official permission.
Another week and another deal for DP World – this time a global partnership with Germany’s Hypermotion that will drive innovation and the use of digital technology in logistics and mobility. The Dubai-based leading global provider of smart logistics solutions sees this venture as another step for it to use the platform to pursue strategies for strengthening its image, particularly with regard to the logistics string. The Dubai company will support Hypermotion in the form of an exclusive headline sponsorship in events that will bring together innovators, providers and users who set new standards for tomorrow’s logistics and mobility. DP World has grown from a local port operator to a global trade enabler, employing 53k in a global network of 128 business units in sixty countries across six continents.
Just as the world is appearing to enter the second phase of the coronavirus, Dubai’s IHS Markit Purchasing Managers’ Index fell into negative territory by 1.6 to 49.9, following three months of expansion. Dubai’s non-oil economy had slowly moved higher, as the initial Covid phase eased and restrictions were lifted in Q3. Job numbers fell in October, as firms continued to cut costs and revenue streams dried up. Growth in the wholesale and retail sector was the softest since April, whilst output levels in construction, (due to lack of new business), and tourism, (with negligible inward numbers), headed south. Rather surprisingly, the survey found that “firms still expect a rise in activity in the coming 12 months”. Since the start of the pandemic, the emirate has launched various economic stimulus packages, totalling almost US$ 1.9 billion.
Speeded up by the advent of Covid-19, e-commerce transactions will account for 28.2% of total card payments in the UAE this year, higher than the initial 2020 forecast of 21.9%. With an average spend of over US$ 1.6k, the UAE has become the ME’s region biggest annual spend per online shopper and even compared to the US, UK, Australia, Singapore, Brazil, South Africa and Malaysia maintained a healthy average transaction size in online spending. The average 2019/20 transaction value in the UAE was US$ 122 compared to US$ 76 in mature markets and US$ 22 in emerging markets. Studies show that 61% are now using cards to transact online, as nearly 35% of all transactions were made using credit cards. A further survey expects that UAE’s Q4 online retail sales will top US$ 1.5 billion, with the main driver being grocery sales, expected to grow by more than 260% to US$ 300 million.
There are reports that Alvarez & Marsal, NMC Health’s administrators, “have initiated the legal process of making a claim against the company’s auditor, Ernst & Young LLP, by issuing a preliminary notice of potential claim”, which may well be in excess of US$ 1.3 billion. The administrators are in business to assess what legal action can be taken against individuals or third parties to recover some of the money that went missing from the company, founded by the disgraced BR Shetty. This top four global audit firm is also being investigated in the UK by the Financial Reporting Council. The country’s largest private healthcare provider was placed into administration in the UK after investigators highlighted “suspected fraudulent behaviour”, uncovering debts of more than US$ 6.6 billion.
Whilst allowing some of the UAE operations of the company to continue, as normal, the administrators have placed its main UAE business, NMC Healthcare, and thirty-five other local entities, into administration through the Abu Dhabi Global Markets Courts. It is difficult to forecast a recovery figure and a time frame when the process will be completed; however, next month they expect to issue a report outlining “details of the fraud that took place” and identifying “the perpetrators and any colluding parties”. To date, administration costs have reportedly topped US$ 28 million, including US$ 16 million costs for 23k hours worked (which would equate to almost US$ 700 per hour if these figures are correct) and the balance on expenses including legal fees and liability insurance. There appears to be a two-option exit choice – sale of the business (which still employs about 15k staff in the UAE and about 1.8k doctors) or a lender-led restructuring.
US-based Ripple, a digital payment company that uses blockchain to speed up payments, is to open a MENA regional head office at the DIFC. This is an exciting time for the local tech industry, as Ripple will advance the use of blockchain in Dubai and accelerate the Emirates Blockchain Strategy 2021. The company created the world’s third-most actively traded cryptocurrency, which has now been rebranded as XRP. Late last week, the FinTech’s currency was worth US$ 0.26412, having climbed 38% in value so far in 2020; it has a market cap of over US$ 12 billion. A lot of its recent work has involved governments, banks and similar entities trying to replace the older more traditional systems that exist between networks of correspondent banks for cross-border payments, with a simpler system based on blockchain. It has already signed deals with RAKBank and the UAE Exchange. Last week, the UAE Central Bank initiated new regulations with the aim of boosting the country’s digital payment services and help making market access to FinTech companies more manageable and easier, while ensuring that customers’ funds are safe.
With Sheikh Ahmed bin Saeed in attendance, another global company has set up regional headquarters in Dubai, with the Air France KLM Group formally inaugurating its new office at Dubai Airport Freezone. Its entire workforce will operate from the airport location and will be joined by Air France Industries’ management team relocating from the former offices at the Al Shoala Complex in Deira.
Good news for both UK sunseekers and the Dubai economy, as the UK government has agreed to open up the air corridor that will allow Brits to enjoy some winter sun, while also allowing UAE residents with UK links the chance to visit family and friends for Christmas or enjoy a shopping spree in the country. This will be welcome news for the hotel and retail sectors that have always relied so much on inbound travel, as well as Emirates Airline who will be able to increase their flight schedules and better utilise their fleet. In 2019, 1.5 million Britons visited the UAE and although this number will take time to recover any increase is most welcome.
It is estimated that in the first eight months of this year, revenue earned from the UAE’s VAT and excise tax came in at US$ 3.2 billion and US$ 518 million respectively; revenues have been used in the continued implementation of development projects, with 30% allocated to the federal government and 70% to local governments. The split of excise tax revenue is the same for revenue derived from the tax on energy drinks and other sugary drinks but 45:55 when it comes to tobacco products. In 2019, tax revenue collected in the country rose 7.0% to over US$ 8.4 billion. Saeed Rashid Al Yateem, assistant undersecretary of the ministry’s resource and budget sector, confirmed there were no plans to raise the current VAT rate of 5%, unlike Saudi Arabia which tripled the tax to 15% in July.
Emirates Group announced its H1 results pointing to a 74.3% slump in revenue to US$ 3.7 billion, attributable to the pandemic that saw scheduled passenger flights suspended for eight weeks, during April and May, and global air passenger travel brought to a halt, with countries closing their borders and imposing travel restrictions. As a result, its first ever half yearly loss came in at US$ 3.8 billion, whilst its period-end cash position declined 19.1% to US$ 5.6 billion; its only shareholder injected US$ 2 billion to help with funding requirements. With passenger revenue completely dried up, the airline did see an uptick in air cargo. It is no surprise to see the Group’s payroll decline by 24% to 81.3k over the six months but more of a surprise to see only three aircraft retired. From an almost zero base, the airline restarted scheduled passenger operations on 21 May, and by 30 September was operating passenger and cargo services to 104 cities. Over the six months, it did manage to carry 1.5 million passengers, with Available Seat Kilometres, sinking by 91%, passenger traffic carried measured in Revenue Passenger Kilometres, down by 96%, and average Passenger Seat Factor falling to 38.6% (from 81.1% pre-pandemic).
dnata’s revenue, including other operating income, was 67.6% lower at US$ 644 million, whilst its overall loss position, including impairment charges, (mainly relating to goodwill), of US$ 188 million, was at US$ 396 million, compared to a profit of US$ 85 million over the same period in 2019. Its three main divisions took major financial revenue hits. Its airport operations saw a 54% decline to US$ 454 million, as the number of aircraft handled by dnata dipped sharply by 71% to 102.9k, with cargo 12% lower at 1.3 million tonnes. The travel division fared worse with a 95% slump in revenue to just US$ 26 million, compared to US$ 488 million last year. Following a positive contribution of US$ 1.6 billion last year, the division reported a negative underlying total transactional value sales of US$ 67 million for the first time. Its flight catering operation contributed US$ 116 million down 76%. The number of meals uplifted declined by 84%to 8.3 million meals for the first half of the financial year after last year’s 51.9 million record performance.
SHUAA Capital delivered its financial results, indicating a Q3 net profit of US$ 16 million accounting for 91% of the YTD nine-month profit. The Group also saw continued strong EBITDA generation with Q3 EBITDA standing at US$ 31 million, driven by positive mark-to-market effects on its investment portfolio. By the end of September, its assets under management increased 4.6% to US$ 13.6 billion.
Another bad set of results from Amlak Finance sees revenue at just US$ 68 million (albeit a 31.6% increase on the year) resulting in a US$ 86 million loss – compared to a US$ 11 million deficit in 2019. Impairment charges for the period more than doubled to US$ 43 million, as operating costs declined 14.8% to US$ 20 million. The Islamic real estate financier posted total assets and total liabilities of nearly US$ 1.4 billion and US$ 1.1 billion respectively. It sold 30% of its stake in an associate in Saudi Arabia through a US$ 116 million IPO which subsequently garnered US$ 2 million for the business.
Emaar Properties posted a 26.0% decline in revenue to US$ 3.6 billion, resulting in a 48.0% slump in net profit to US$ 654 million, attributable to the negative impact of Covid-19; property sales were at US$ 2.1 billion, of which US$ 1.2 billion came from domestic sales and the balance from international transactions. For the nine-month period to September, Emaar recorded a revenue of US$ 4.8 billion and net profit of US$ 1.2 billion. There is some cautious optimism that recent initiatives, including five-year retiree visas, are expected to have a positive effect on the emirate’s property market in the long term; it has been noted that there has been “a marginal increase in property prices for specific unit types in select new developments”.
Emaar Malls, majority owned by its parent Emaar Properties, posted nine-month revenue of US$ 679 million with a profit figure of US$ 160 million. The developer of premium shopping malls and retail assets, including The Dubai Mall, also noted that Namshi, its fully owned regional e-commerce fashion and lifestyle platform, posted nine-month revenue of US$ 254 million, increasing 35%, year-on-year. The business owns The Dubai Mall, Dubai Marina Mall, Gold & Diamond Park, Souk Al Bahar and the Community Retail Centres with these assets posting an impressive 91% occupancy.
Meanwhile, Emaar Development came in with a 34% decline in YTD profit to US$ 371 million on reported revenue of over US$ 1.9 billion. As of September 2020, Emaar’s delivery track record includes more than 45k residential units in Dubai and 23.5k in other international markets. Of the 41k residences currently being developed, 28k are in the UAE.
Although the country’s third biggest developer posted a 43% upturn in nine-month revenue to 30 September, of US$ 349 million, Damac Properties, reported a US$ 148 million loss, on the back of a US$ 14 million profit last year. YTD, the company paid down US$ 126 million worth of debt and has a cash balance of US$ 341 million. It also declared US$ 158 million of write-downs – US$ 144 million against the value of development properties and the balance for bad debts. To date, the developer has built 30.9k homes, with a further 34k in the pipeline on a land bank of 45 million sq ft.
Mashreq Bank posted a Q3 loss of US$ 50 million, down from a US$ 146 million profit in the same period in 2019, driven by impairment allowances almost trebling to US$ 181 million and interest from Islamic financing dipping 38% to US$ 153 million. Over the first nine months of the year, the Dubai lender controlled by the Al Ghurair family, reported an 80% slump in net profit to US$ 96 million, as impairment provisions doubled to US$ 447 million.
The bourse opened on Sunday 08 November and, 78 points (3.4%) lower the previous four weeks, had a great week following the US presidential elections rising 103 points (4.8%) to close on 2,263 by Thursday 12 November. Emaar Properties, US$ 0.02 higher on the previous week, traded up US$ 0.05 at US$ 0.78, whilst Arabtec is now in the throes of liquidation, with its last trading, late in September, at US$ 0.14. Thursday 12 November saw the market trading at 391 million shares, worth US$ 73 million, (compared to 181 million shares, at a value of US$ 43 million, on 05 November).
By Thursday, 12 November, Brent, US$ 7.28 lower the previous four weeks, regained US$ 2.64 (6.5%) in this week’s trading to close on US$ 42.95. Gold, US$ 68 (3.6%) higher the previous week, had its biggest slide in three months losing most of that gain and shedding US$ 64 (3.3%) to close on US$ 1,879, by Thursday 12 November.
In a major blow to a claimant group of 200k Brazilians, a UK court has rejected a US$ 6.6 billion claim against Australia’s BHP, and local partner Vale, seeking damages after the devastating 2015 Fundao dam collapse which left nineteen dead. In what is Brazil’s worst ever environmental disaster, the verdict was claimed to be “fundamentally flawed”, by PGMBM, on behalf of the claimants, and an appeal is all but certain. The case is the latest battle to establish whether multinationals can be held liable for the conduct of subsidiaries abroad and comes eighteen months after the UK Supreme Court ruled that nearly 2k Zambian villagers could sue miner Vedanta in England for alleged pollution in Africa because substantial justice was not obtainable in Zambia. Since the disaster both Vale and BHP have given a total of US$ 3.4 billion to the Renova Foundation, to manage forty-two reparation projects, including providing financial aid to indigenous families, rebuilding villages and establishing new water supply systems.
Second quarter profit, to 30 September, for SoftBank Group’s Vision Fund unit posted a record US$ 7.6 billion, enhanced by a recovery in some start-up valuations and a mega IPO by a Chinese real estate start-up; over the same period last year, the investment business posted a US$ 5.8 billion deficit. However, Masayoshi Son has had to curtail plans for a mega Vision Fund 2, which is being financed entirely by SoftBank, as the sector is still recovering from the record loss in 2019. The major success for the second fund’s portfolio to date has been KE Holdings, a Chinese online property platform that went public in August, and which has seen the fund’s stake almost quintuple to US$ 6.4 billion.
One of the world’s largest airlines is in a battle for survival as its national government has confirmed that it will not receive any further handouts from the state as the government consider extra loan guarantees to be too “risky” and “not defensible”. Struggling Norwegian Air has indicated that it will run out of funds in Q1 2021 and that the airline, which has grounded most of its fleet, faces a “very uncertain future” with “ventilator support” needed to survive the winter. The airline has expressed its disappointment at the lack of public assistance, noting that many of its international competitors were receiving billions in funding from their respective governments.
With its fleet grounded, Singapore Airlines is cutting about 20% of its workforce, having raised US$ 8.2 billion in funds through a rights offering and loans. Having posted a US$ 70 million profit in the same quarter in 2019, it reported Q3 losses of US$ 1.7 billion – its biggest ever quarterly deficit, driven by the impact of Covid-19 which has ravaged travel demand and lifted fleet impairment charges, which came in at US$ 960 million, as the carrier ditched twenty-six older aircraft. As its fuel hedging policy contributed US$ 417 million to its loss, revenue tanked 81% to US$ 581 million. Singapore Airlines suffers more than most international carriers because it has no domestic market to rely on, but all airlines will be impacted on the international state, if IATA’s forecast holds true – passenger demand may not return to pre-Covid levels before 2024. Meanwhile, the carrier expects to be at 16% capacity by the end of January, with flights to New York (direct), Brunei, Kathmandu and Male, and plans for a travel bubble with Hong Kong.
For the first time in its 49-year old history, Southwest Airlines has issued forty-two involuntary furloughs from a 322-employee work group, saying a union declined to discuss concessions aimed at cutting payroll costs. The airline was hoping that the unions would agree to a one-year, 10% reduction in labour expenses, as the airline is looking at ways to save more than half a billion dollars. To date, 17k employees have left Southwest temporarily or permanently through voluntary programmes.
WH Smith has reported a massive 83% slump in annual revenue for the year ending 31 August, resulting in a pre-tax loss of over US$ 300 million, compared to a US$ 180 profit a year earlier. The hefty loss came after the pandemic outbreak and lockdown measures forced the closure of hundreds of its shops and the fact that its travel outlets – railway stations and airports – saw traffic trickle to almost zero. The good news is that sales have now recovered to 59% of its pre-Covid level. The market was suitably impressed, with the retailer’s share value jumping 41.9% to US$ 19.45, but still well down on its 01 January opening price of US$ 34.50.
Just as the US presidential election race comes to its inevitable end, the EU announces that it is going ahead with its US$ 4 billion tariff plan on US goods in retaliation to US subsidies for Boeing. The taxes, already authorised and cleared by the World Trade Organisation, will affect items such as tractors, ketchup and orange juice but the EU is still keen to settle the dispute, basically between Boeing and Airbus, which saw the US impose tariffs on European products – including certain whiskeys, wines and cheese – last year. The dispute was ongoing even before Donald Trump’s entry to the White House four years ago but since he took over office, bilateral relations have become more strained. As it stands, US aircraft imported to Europe will face 15% tariffs, with the EU also applying 25% border taxes to a list of other items.
The UK administrators of payday lender Sunny have written to at least half a million borrowers that have been mis-sold loans, noting that they are likely to receive no more than 1% of their compensation entitlement but they should submit a claim. However, all will automatically have negative entries on their credit records cleared by the end of the month, with any notes of defaults on their first five Sunny loans cleared. Sunny is the latest high profile pay day company, following the biggest Wonga as well as WageDay Advance and QuickQuid. The common thread seems to be that all had a huge amount of complaints over the mis-selling of short-term, high-cost loans, when many of them should never have been granted in the first place and were usually unaffordable to repay.
The Japanese game-maker of major franchises such as Resident Evil, Street Fighter, and Mega Man has confirmed that it has become the latest games industry victim of a cyber-attack. Capscom reported that its internal networks had been suspended “due to unauthorised access”, but to date there was no sign that client information had been accessed. Other ‘causalities’ include Ubisoft’s game about hacking, Watch Dogs: Legion, may have been hacked, with its source code stolen and reportedly leaked online, as well as Crytek. There is every chance that the recent hacking campaign may well be a precursor of something much bigger to coincide with the upcoming launches of next-generation consoles.
A recent study by thinkmoney has concluded that the combined terms and conditions of thirteen top apps, including TikTok, WhatsApp and Zoom, comprise a total of 128.4k words and would take 17 hours and five minutes to read. Microsoft led the field, with a total of 18.3k words, followed by Candy Crush (14.2k words), Twitter (11.0k) and Facebook (8.6k). There is no doubt that the conclusion of a 2018 BBC study, that several website policies required university education levels of reading ability, still holds true. Despite this, all users have to agree to the terms before using their services, despite the fact that most will not have understood all the T&Cs. It is also reported that Microsoft Teams does include a sentence in its terms asking children not to create an account if they do not understand the service agreement – but it is more than 1.5k words into the document. Often “I Agree’ at the end of a contract may not mean “I Agree” to the user, as they have either not read the contract or, if they have, not understood some of its content.
In Australia, the consumer advocacy group Choice has held its annual Shonky awards which are given to companies using questionable credit practices, unclear pricing and deceptive sales tactics among other factors. Harvey Norman and InvoCare funerals are the big brands to feature in this year’s awards. Harvey Norman’s partnership with Latitude Finance came under the spotlight and has been named and shamed for targeting vulnerable people with low financial literacy to sign up to credit cards in store in Alice Springs; the cards were charging 22.74% interest rates. Meanwhile Invocare – the company behind forty brands including White Lady Funerals and Simplicity Funerals – “has done everything it can to avoid being upfront with grieving families about cost.” It appears that in some states, the businesses would not provide an itemised list of expenses and they gave wide-ranging quotes for the same services. Bed supplier Revitalife received an award for allegedly breaching Australian consumer law by engaging in misleading and deceptive conduct. Investigations noted that salespeople visited elderly people in their homes and pressured them to buy expensive beds, some worth up to US$ 5k; evidently, “this company promises to help customers with their health needs but then sells them expensive beds with dubious health claims.” Greentech Air Purifiers and floor cleaners from Coles and Bunnings have also been given Shonky awards for allegedly not performing as advertised.
The New Zealand All Blacks rugby team has lost 47% of its US$ 58 million cash reserves since the onset of Covid-19 and because of the lack action on the rugby field – and loss of revenue from various sources, including TV, advertising and attendance – it is now looking at alternative sources of funding, such as private equity. There is even the slight chance of it being sold to the highest bidder. Before the pandemic, the brand, the most valuable in the rugby world at US$ 278 million, was looking at a US$ 68 million annual revenue stream. Even prior to the onset of Covid-19, rugby was facing financial problems and private equity firm, CVC Capital Partners, was involved in purchasing parts of the English Premiership and Europe’s Pro14 and is in discussions with the Six Nations tournament for further funding. Investment in rugby is dwarfed by that of football where it is estimated that the European football market alone was worth around US$ 33.0 billion last year. Maybe a piece of the All Blacks could prove to be a good investment, as to an outsider, it does look undervalued with great growth potential.
Already struggling with a US$ 12 billion external debt, Zambia is on the brink of defaulting on its foreign debt, after it missed a payment of more than US$ 40 million last month and if it does not pay tomorrow 13 November, it will become the first African country to default on sovereign debt since the coronavirus pandemic. Although it is obvious that Covid-19 has not helped by depressing economic activities and pushing its health services to the limits, there is evidence that concerns about corruption, along with President Edgar Lungu’s poor economic management, maybe the real reasons behind the country’s financial problems. The external debt includes amounts of US$ 3 billion each from European bonds and China and Chinese institutions. The other side of the coin sees the argument that Zambia was lent money at high interest rates, knowing that repayment would be unlikely. It will be interesting to see the outcome as there will be many other countries, not only in Africa, in the same boat.
As its currency continues its downward spiral, sinking to a record low of 8.5793 to the US$, Turkey’s President Recep Tayyip Erdogan has removed central bank Governor Murat Uysal, replacing him with former Finance Minister Naci Agbal. YTD, it has fallen 30%, becoming the worst-performing emerging market currency tracked by Bloomberg. The former governor, who was only appointed in July 2019, had been raising borrowing costs through a combination of rate increases and back-door measures since August. This approach patently failed, as the currency continued heading south and inflation remained in double digits, compared to the target level of 5%.
It is reported that Australian goods including rock lobster, wine, timber and coal would be blocked at Chinese Customs. Two Australian grain exporters were recently suspended from trading barley to China, and five Australian abattoirs have had exports blocked by China due to quarantine and labelling issues. There is no doubt that bilateral political tensions are a major cause of these recent “problems” and the Chinese are retaliating with increasing trade pressure. Meanwhile, Australia’s winemakers are becoming increasingly worried about losing access to their most valuable overseas market, with reports that imports are struggling to get cleared at Chinese ports. Over the year, the Morrison government has been a vocal critic of some of China’s policies including their stances on Hong Kong and the Uighurs.
With positive signs, China’s economy is moving forwards, with October exports 11.4% higher and imports up 4.7%. If the figures are to be believed, the world’s second-largest economy continued to recover well from the pandemic, leading to a US$ 58.4 billion trade surplus by the end of the month – well above the forecast US$ 46 billion and well up on the previous month’s US$ 37 billion. Its trade surplus with the US widened to US$ 31.4 billion – US$ 0.6 billion on the month. It waits to see whether exports will be impacted by the recent re-introduction of restrictions by trading partners such as Germany, UK and France, as the second wave hits. Another indicator, factory activity, grew at its fastest pace in over a decade. Although the economy is expected to grow at its weakest in over thirty years, at just 2%, it still will be streets ahead of any of the OECD economies all of which will end 2020 in negative territory.
The US economy added 638k jobs in October – its slowest growth in five months, whilst pulling the unemployment rate lower to 6.9% (from 7.9%), helped by the fact that jobs were added in leisure and hospitality, as US lockdown measures were eased; there are still 11.1 million Americans out of work. Over the period, the unemployment rate fell quite sharply, and the labour force participation rate nudged higher. Latest data points to the fact the US economy grew 7.4% in Q3, but that output remained 2.9% lower, compared with the same period in 2019. There are some who consider that the latest rebound may have already run out of steam.
On Monday, at least the global markets appreciated the latest news that Joe Biden was claiming victory in the presidential race, with shares on Japan’s Nikkei 225, up 2.5% and hitting a near thirty-year high. Australian shares have risen to their highest level since the start of the COVID-19 pandemic, buoyed by pharmaceutical company Pfizer announcing early success in a vaccine trial. (This may be considere4d more than a coincidence that the announcement was made at the end of the presidential count and not before). There were healthy gains across the board on Monday; in China, as a Biden win was seen as a positive for trade (with the possibility of another Sino-US trade spat unlikely) and technology policy’ as the thought of another tech war dissipates.
In the wake of the election, last week, the global stockpile of negative-yielding debt moved higher to its record level of US$ 17.05 trillion, with investors now eying a focus returning to monetary support rather than a fiscal splurge, According to the Bloomberg Barclays Global Negative Yielding Debt Index, 26% of the world’s investment grade debt is now sub-zero but this is still 30% lower than the same time last year because of the glut of global issuance since the onset of Covid-19. Traditionally, a Democratic US government is less likely to participate in a massive fiscal spending package, so consequently, treasuries and other high-rated bonds have been on the rise.
September was the fifth straight month of rises in UK home sales, with a total of 98.1k residential transactions, with mortgage approvals also nudging higher at 91.5k – its highest level in thirteen years. Interestingly, since March, apartment prices are up just 2%, compared to the 6% for the typical detached property. With both consumer spending and confidence spiralling downwards, it is almost certain that house prices may have reached their peak for the foreseeable future. October saw the average UK house price reach almost US$ 330k (equating to GBP 250k for the first time ever), driven by three main factors – pent up demand, desire for accommodation with more space (as working from home becomes more of a viable option) and the stamp duty “holiday”. Year on year, October prices were 7.5% higher but only 0.3% on the month – an indicator that the market may be slowing, having gained 4.3% over the previous four months.
UK Chancellor Rishi Sunak said it was going to be “a difficult winter,” but was confident that that England would be able to exit its second lockdown as planned on 02 December. He confirmed that his main aim is to protect as many jobs as possible, with the reintroduction of the furlough scheme, for another five months, and the creation of the Kickstart job scheme for young people helping. It still seems that there will be a marginal 0.5% GDP contraction in Q4, with mixed signals for the start of the new year when you add into the mix possible trade Brexit-related disruptions and whether the pandemic impact reduces. It must be remembered that the UK economy is still over 8% down on its pre-Covid level and that what is currently happening is actually a catch-up rather than a recovery. There is hope that vaccines may become available sooner rather than later and if that were the case, it would provide a much needed to boost to the economy. However, there is one thing that global markets abhor – and that is uncertainty and there is still plenty of that all around the world.
It seems that there has been a leak, now being investigated by both the BoE and the Treasury, concerning the size of the recent QE stimulus package. Evidently, The Sun newspaper had inside knowledge that the programme’s size would be more than economists had estimated, with the paper’s scoop being published hours before the public announcement on Thursday. In what was supposedly a closely guarded secret, the nine-man Monetary Policy Committee decided on the increase on Wednesday, but because of The Sun report, sterling briefly fell 0.4% on Thursday morning, after it was released, because the QE package at US$ 200 million was higher than the US$ 130 million expected. The report is the latest example of potential leaks of sensitive information in the UK, with the government also investigating a recent divulgence of plans to put England in another lockdown, forcing it to bring forward the official announcement before the start of restrictions last Thursday. This led to unnecessary panic-buying in shops and a surge of people visiting restaurants and pubs before they closed for a month. The paper also had ‘secret’ details of policy announcements to be made by the Chancellor later in the day. Check with the Treasury if You Want To Know A Secret!