Found Shelter From The Storm                                                       10 December 2020

Because of an oversupply in the Dubai market, Emaar Properties announced the halting of all new projects. For the past six years, the sector has laboured through a construction boom, that has led to an oversupply, and just when it appeared that the bottom had been reached, along came Covid-19. Its chairman, Mohamed Alabbar, speaking at a UAE-Israel conference in Dubai confirmed that “we as a group have stopped supply,” although noting that demand was improving, and that Dubai property was reasonably priced. Undoubtedly, any moratorium on construction will help stabilise the real estate sector, and it is highly likely that other developers will follow the lead of Mohammed Alabbar (Emaar) and Hussein Sajwani (Damac) and abandon future projects until a supply/demand equilibrium is reached in the sector.  It is estimated by Cavendish Maxwell that 220.2k units have been handed over since 2008, of which 140k have been delivered since 2014 – equating to under 24k a year, a lot lower than some figures that have been bandied around over the past few years.

Having broken ground in 2019, phase 1 of Dubai Holding’s flagship 54-building residential development, Madinat Jumeirah Living, is on course for delivery within six months. The initial phase of the exclusive 3.85 million sq ft project, comprising two residential buildings, includes a range of 1-4 B/R apartments, with prices starting at US$ 460k; this is already 99% sold out. Construction of phase 2, comprising three buildings, is well under way, being 42% complete and slated for a Q3 2021 handover. Madinat Jumeirah Living is the first freehold residential development in Umm Suqeim and is handily located opposite the Burj Al Arab.

Acknowledging that Israel is a “very well-established market” with traders, Sultan bin Sulayen Group Chairman of DP World, has “estimated at least US$ 5 billion trade in the beginning between the UAE and Israel” which will increase further in time. He further commented “there are plenty of opportunities”, especially in technology, logistics and other industries. In addition, it is expected that at least 10k Israelis will visit the country this month. There were many Israeli technology companies taking part at the Gitex Technology Week and who see Dubai as a hub to cater to the wider Gulf, Africa and Asia regions. There are strong growth prospects for established Israeli companies, as well as a number of start-ups attending Gitex, to establish a presence in the region, with Dubai an obvious hub.

A May 2020 survey carried out by cybersecurity company Proofpoint indicated that 80% of respondents in the UAE claimed that they had been subject to at least one cyber-attack the previous year. The most common forms of attack were phishing and credential theft and it is estimated that attacks have become more prevalent since the onset of Covid-19, with Iran being the common source for many. The UAE’s cyber security chief, Mohamed Al Kuwaiti, also reckoned that the country had become more of a target for cyber-attacks after establishing formal ties with Israel No other details were made available but he did confirm that Israel has the “best talent in the field” and that the two countries will work together to combat future threats.

Despite the aviation sector facing the brunt of the pandemic, with flight schedules being decimated, and only now marginally improving, Emirates has taken delivery of three new Airbus 380s to be used when their new premium economy class takes to the skies. The first of the three, the airline’s 116^th jumbo, arrived this week with the other two set to join the fleet by the end of the year.

Typical of its cavalier approach to marketing, Emirates is to run a multi-million-dollar global campaign to promote Destination Dubai. The multi-channel advertising campaign, which will initially launch in the UK and key European markets on television, online and social media channels, will send the message that Dubai is open for business and tourism; its target is to show the emirate’s diverse attractions to those seeking a winter getaway. The airline will also partner with Dubai’s Department of Tourism and Commerce Marketing to offer complimentary stays at the JW Marriott Marquis to all Emirates customers visiting Dubai from now until 21 February 2021. Emirates, which has reinstated passenger flights to more than one hundred destinations, is the first and only airline to offer all its customers multi-risk travel insurance and COVID-19 medical cover, free of cost, as well as offering visas on arrival for citizens of over fifty countries.

As per a new law introduced by HH Sheikh Mohammed, Dubai is establishing a framework for regulating procurement at all the emirate’s government entities. The Law on Contracts and Warehouse Management, to be introduced on 01 January 2021, will ensure unified processes to obtain the “highest level of financial efficiency” and to “foster integrity, transparency and equal opportunities among suppliers”.

Moody’s has confirmed that it considers the UAE has the best sovereign rating in the region, assigning a credit rating of AA2, with a stable outlook. HH Sheikh Mohammed bin Rashid Al Maktoum notes that this is thanks to “interior stability, wise financial policies, strong international relations and well-established economic diversification”. The international rating agency indicated that the UAE’s credit strength was supported by the country’s financial strength and a high per capita GDP, along with its internal stability and strong and broad international relations. It also added that the country had demonstrated strong institutional effectiveness by spearheading reforms and diversifying its revenue base.

At a virtual UAE-UK ministerial briefing this week, Abdulla Bin Touq Al Marri, UAE Minister of Economy, confirmed that the UAE was looking forward to a Free Trade Agreement between the UK and the GCC. He noted that “the UK is the UAE’s third leading partner in non-oil commodities trade today. The UAE was UK’s top Arab trade partner in 2019, accounting for 32% of the UK’s foreign trade with other countries.” In the meeting with UK Minister for Investment, Lord Grimstone, they also discussed the importance of strong bilateral trade and investment ties in promoting a sustainable economic rebound and deepening links post-Brexit. The UK ambassador also said the UAE will have a greater role in a free-trade framework between the UK and the GCC, when the FTA is materialised. In the first eight months of 2020, non-oil foreign trade between both countries was valued at approximately US$ 5.5 billion, whilst the UAE’s non-oil export to UK accounted for nearly US$ 500 million.

As part of its global expansion plans, California’s Diamond Foundry, has opened its office in Dubai Multi Commodities Centre. The company, which specialises in laboratory-grown diamonds, noted that the free zone was “the logical choice” for its international office, given its expertise in diamonds and the ease of its set-up process. Another plus point for the emirate was that “Dubai is a strategically important location for us, providing us direct access to some of the world’s most important diamond markets such as India, Israel and Europe.” Dubai has become a major trading centre for precious stones, with US$ 23.0 billion of rough and polished diamonds being traded last year. The eight-year old company is one of a number of makers of lab-grown diamonds to set up in the DMCC, which last year held the first laboratory-grown diamonds tender, offering more than 50k carats worth of stones.

The local bourses had a field day at the Sunday start of trading, following the five-day National Day holidays, adding US$ 4.4 billion to the market cap – an indicator that the UAE economy is displaying positive signs of recovery. The DFM rose 2.37% on the day, on the back of 627 million shares, valued at US$ 275 million, closing at a several-month high 2,481 points. There is renewed investor confidence following recent changes to company/bankruptcy laws and what could be seen as an easing of certain regulations in laws affecting expats, including wills and inheritance.There is no doubt that investor confidence has moved higher and this, in turn, has had a positive impact on the DFM. As this could be seen as the beginning of a post-Covid recovery, the local capital markets will witness even greater growth when the economy returns to some form of normalcy; the local economy will also benefit when oil prices head north again and when the global economy returns to pre-pandemic levels.

The bourse opened on Sunday 06 December and, 260 points (12.0%) to the good the previous four weeks, climbed a further 127points (5.2%) to close on 2,547 by Thursday 10 December. Emaar Properties, US$ 0.02 lower the previous week, traded US$ 0.11 higher at US$ 0.98, whilst Arabtec is now in the throes of liquidation, with its last trading, late in September, at US$ 0.14. Thursday 10 December saw the market trading at 456 million shares, worth US$ 80 million, (compared to 307 million shares, at a value of US$ 162 million, on 03 December).

By Thursday, 10 December, Brent, US$ 7.55 (18.4%) higher the previous three weeks, gained a further US$ 1.75 (3.6%) in this week’s trading to close on US$ 50.38. Gold, US$ 33 (1.8%) higher the previous week, shed US$ 2 (0.1%) to close on US$ 1,837, by Thursday 10 December. Because of encouraging news on the Covid vaccine front, gold lost a little of its lustre this week but still has much to offer the savvy investor.

It seems that the US$ 86 billion global toy market is set for a major shake-up, as Miniso Group, the newly New York-listed Chinese budget retailer, is poised to make its first foray on the global stage. The group, better known for low-cost items, ranging from household goods to electronic gadgets, will open the first store of its new chain Toptoy in Guangzhou. The group, which has benefitted as the pandemic has led to a boom for discount retailers, now hopes that its low prices and popularity can give it a foothold in China’s US$ 12 billion toy market, which its founder Ye Guofu reckons is split between “old-fashioned”, higher-end retailers like Toys ‘R’ Us, and cheap, low-quality goods, peddled at small stores and supermarkets. Toptoy will differentiate itself from its competitors by focusing on specific products, popular among children and young adults in China, and introduce ”a good home-grown toy brand to serve children”. Miniso, which has 25.2k stores in China and 16.8k in eighty other countries, hopes to cash in on the expanding global market, with its domestic market said to become the biggest in the world by 2022, surpassing the US$ 25 billion US industry, according to Bloomberg Intelligence.

Google’s US$ 2.1 billion bid for health tracker Fitbit is set to be approved by the EU more than a year after it announced plans to purchase the smartwatch maker to improve its lagging hardware business. It appears that the US tech giant has had to agree to certain concessions, which have not been made public, to allay EU anti-trust concerns about its move into wearable fitness devices. Long gone have the days of very loose regulation, when it came to antitrust issues, but that is rapidly changing, and it is becoming more difficult to blind side regulators and for them to expand into new industries. Meanwhile, Australia’s Competition and Consumer Commission published an offer from Google, that could be similar to the European commitments. It pledged that it would maintain health and fitness apps’ access to Google and Fitbit data and ensure Android phones could keep working with other wearable devices until 2030.

To nobody’s surprise, Uber has abandoned efforts to join the self-driving sector themselves and has decided that its cash would be better spent by acquiring a 26% stake in Aurora, a self-driving start-up already interesting both Amazon and Sequoia. The deal sees the company transferring its 1.2k payroll to Aurora, as well as investing US$ 400 million. With Uber’s investment, the US$ 2.5 billion company will quadruple to a US$ 10.0 billion valuation. Further investor interest by current Uber stakeholders will see Uber and its partners holding 40% of Aurora, a company that has worked in the past with big petrol car makers, such as VW, Hyundai and Fiat Chrysler; none of these dealings have progressed any further. Aurora will also benefit from the new arrangement not only because Uber runs the world’s largest ride-hailing fleet, it also has a close relationship with Toyota, a potential partner in the future.

What a debut for DoorDash on its first day of trading on the New York Stock Exchange where it traded 86% higher on Monday which valued the company at a mouth-watering US$ 60 billion. The US’s largest food delivery service proved a lifeline for SoftBank following a muted Uber IPO and September’s WeWork debacle when its value fell by almost 75% to around US$ 10 billion. SoftBank has a torrid time but has benefited to the tune of US$ 11.2 billion for an initial US$ 680 million investment; that will go a long way to soften the blow of a US$ 12.7 billion loss last financial year. However, better times lay ahead for the Japanese conglomerate, which has cash reserves of US$ 80 billion, as it has stakes in seven companies that are expected to go public by the end of 2021.

Shares of JD Health, the online pharmaceutical and healthcare spinoff of China’s second-biggest online retailer JD.com, traded 34% over its IPO price of US$ 9.11, valuing the company at US$ 29.0 billion. The holding company is China’s second-biggest online retailer and JD.com will still retain a majority stake in JD Health, which, in turn, will remain a subsidiary of the e-commerce giant. It is estimated that China is the world’s second-largest market for health care, nearing US$ 1.0 trillion last year. As one of China’s biggest pharmaceutical retailers, it has seen active annual users jump by 35.5% to 72.5 million. It is highly likely that the parent company may hive off two more subsidiaries, JD Digits, (a consumer credit and supply chain financing company), in which it has a 37% stake and its logistics arm. The group’s Q3 revenues were US$ 25.7 billion – 29.2% higher year on year, an increase of 29.2% over the same quarter in 2019.

Following late November’s announcement that Arcadia was going into administration, it now appears that Mike Ashley’s Frasers Group is considering buying some of its brands, including Topshop, Burton and Dorothy Perkins, as well as being in discussions about acquiring Debenhams. Frasers Group posted a 17.8% jump in H1 profits to 25 October of US$ 141 million, partly due to business rates relief, despite a 7.0% decline in revenue because of temporary store closures during the coronavirus lockdown; other drivers for the increased profit were its growing online business and the opening of new Flannels stores. Frasers Group owns 491 Sports Direct stores and 46 Flannels outlets across the UK.

November saw global food prices at their highest level in six years, driven by adverse weather conditions, with the Food and Agriculture Organisation noting that prices were up across the board that, in turn, put extra pressure on the forty-five countries that rely on outside aid to feed their populations; their food index was 3.9% higher on the month to 105 points – and 6.55% higher compared to twelve months earlier. Rises were seen in vegetable oil (up 14.5% because of low palm oil stocks), sugar – 3.3% higher because of “growing expectations of a global production shortfall” – and cereal prices (2.5% higher but up nearly 20% over the past twelve months because of reduced harvest prospects in Argentina).

By the end of last week, Indian shares had risen to a record high, led by finance stocks and market heavyweight Reliance Industries. The boost was also driven by news that the UK became the first Western country to approve a Covid-19 vaccine. Further positive economic data also helped the markets, with news that India’s trade deficit in November narrowed 21.9%, year on year, as imports fell sharply compared to the drop in exports.

The November Caixin/Markit Services PMI posted growth in China’s services sector, with new business rising at the fastest pace in over a decade – an indicator of a further recovery in consumer demand post Covid-19. The PMI rose 1.0 to 57.8, the second highest reading since April 2010, driven by new export business expanding for the first time in five months. Furthermore, business confidence improved to its highest since 2010, whilst services firms hired more workers for the fourth straight month and at a much faster pace. Both the manufacturing and service sectors recovered at a faster pace, as overseas demand kept expanding and employment saw substantial improvement. Caixin’s composite manufacturing and services PMI also rose 1.8 to 57.5, signalling the steepest increase in total Chinese output since March 2010. Analysts expect China’s economy to grow about 2% in 2020, the weakest since 1976, but still far stronger than any other major economy.

China is definitely cutting back on its overseas lending programme, as seen by the fact that its two largest policy banks, China Development Bank and Export-Import Bank of China loaned US$ 75 billion to overseas countries in 2016 which has slumped to just US$ 4.0 billion last year.   The two banks’ lending prowess can be seen by the fact that between 2008-2019, they lent US$ 462 billion, just US$ 5 billion short of the US$ 467 billion from the World Bank coffers. Over that period, ten recipient countries received 60% of Chinese funds, with Venezuela the leading recipient with 12.5% of the total, followed by Pakistan, Russia and Angola. The Chinese approach to lending in the past has received string criticism for lending to low-income countries with shaky finances and little hope of repaying all the loan, as well as lack of transparency with its feasibility studies. Another driver behind the funds drying up was the ongoing trade war with the US, which may have convinced Beijing to keep dollars in home vaults.               

Last week, the number of US unemployment benefits rose for first time in three months by 137k to 853k, on the back of new shutdowns, as Covid cases do not show any sign of reducing. Continuing claims rose 230k to 5.76 million – the first weekly increase seen since August. Numbers were on the high side of analysts’ forecasts and indicate that fresh job losses are occurring, as more businesses are forced to close due to new lockdown regulations in some states.

Having hit a 20 March low of US$ 0.574, the Australian dollar is now flyng high at over US$ 0.750, now that both confidence and conditions are above average, and stronger than pre-pandemic levels. However, the country is still not out of the woods and it will take some time for the economy to return to normal, with unemployment remaining at high levels, wages stagnating and the government inevitably having to cut back on subsidies. If the dollar continues to rise, it will act as a major barrier to any quick fix recovery. There are several factors for the dollar’s increase, the main one being the rising prices of commodities, particularly iron ore, which is at an eight-year high US$ 142 per tonne, and the fact that China cannot get enough of the commodity; it is estimated that the cost to the Australian producer is as low as US$ 15. Since China needs AUD to purchase Australian products, demand for the currency increases, pushing its value higher. Even at historic lows, Australian rates are relatively higher than comparable global rates – especially in the United States. Money normally goes to what will give the highest return and its move to the AUD adds further pressure on the currency to move north. However, there will be a time when the authorities will have to dampen the demand for the currency as a high currency makes imports cheaper, it has the opposite effect on exports, and this will have a negative impact on Australian trade. That being the case, it is only a matter of time that the Australian dollar will return to what could be considered an appropriate rate.

It has to Australia when the tax authority there confirms that hundreds of companies have reduced their tax bills to zero but that the proportion of entities with nil tax payable has decreased over the past three years, by 2% to 32% in 2016–17. However, the ATO confirmed that it had, for the first time, invoked the Diverted Profits Tax law to fight multinational tax avoidance. Of the 2.3k entities in scope for the 2018-2019 transparency report, 741 did not pay any tax. Of the balance, the 1.6k entities did pay tax totalling US$ 42.0 billion – US$ 2.8 billion higher, year on year, driven by mining companies with increases in commodity prices. However, the tax authority has finally utilised powers in relation to Diverted Profits Tax and has already taxed one major company, with several others in their radar. Also known as the “Google tax”, it allows the ATO to tax companies, it deems to be engaging in “contrived arrangements”, with a 40% tax on all profits. However, a plan to tax digital giants has been delayed due to the pandemic, with Google Australia still counting lucrative advertising revenue offshore.

Australia was quick to recover from its first recession since 1991, with Q3 growth at 3.3% but with Treasurer Josh Frydenberg noting that the country still had a lot of ground to make up from the Covid-19 economic downturn; he added that “Australia’s recession may be over, but Australia’s economic recovery is not”. With the economy recording contractions of 0.3% and 7.0% in the first two quarters of 2020, this still shows that the economy has contracted 3.8% annually. What may eventually prove to be a bigger curse on the Australian economy, than the pandemic, is its relationship with China, which worsens week on week. Australia cannot continue to take the high ground on all global issues and should be clever enough to pick its battles and should be more wary of continual criticism of its biggest trading partner.

Late last month, China landed a knock-out punch on the Australian wine trade by imposing anti-dumping tariffs of over 200% – this week, it added salt to the wounds by applying a further 6.3% tariff, due to claims that Australian winemakers have been subsidised and are dumping their product on the Chinese market. It is estimated that the US$ 850 million trade has already ground to a halt and the new tariff will have no further impact.

The Australian government will have to learn when to choose its battles and is now facing the consequences of taking on China on a number of important international issues such as backing a global inquiry into the origins of the coronavirus, apparent support of Hong Kong democracy and the Uighur Muslims. It seems that bilateral relations are at their worst in over fifty years. To date, Beijing has targeted Australian imports, starting in May with barley being hit with an 80% tariff, followed by cotton, timber, coal, sugar and rock lobster. Some abattoirs were hit and, in September wheat exporters were suspended from trading. This week, the import of more Australian beef was suspended. One sector that will not face any problems would be commodities.

Last month saw UK new car registrations slump by 27.4%, year-on-year, with the country spending most of November in a partial national lockdown that closed showrooms. With monthly sales of 113.8k vehicles, the car market “lost” sales of 42.8k vehicles, valued at over US$ 1.7 billion. In October, UK car manufacturing was 18.2% lower (24.5k vehicles), year on year. The Society of Motor Manufacturers and Traders is hoping that business will pick up in December, now a vaccine has been approved which in turn will see business and consumer confidence improving. YTD, the car market has contracted 30.7%, equivalent to 663.8k units. Overall, private demand has slumped by 32.2% and registrations by large fleets saw a 22.1% decline. The top selling vehicle for the YTD has been the Ford Fiesta (45.8k units) and for November, Vauxhall Corsa (3.7k units), VW Golf (3.6k) and Mercedes Benz A Class (3.2k).

Driven by a surge in house prices, (rising 6.5% in November, year on year), the UK’s construction industry grew faster than expected in November, with the IHS Markit/CIPS construction Purchasing Managers’ Index (PMI) rising 1.6 to 54.7, month on month. There are signs that the main growth driver is moving from catch up work to new projects. Although house building remained the sector’s mainstay, commercial construction continued to lag behind, as the Covid-19 pandemic still holds back any real progress for office space, retail developments and other corporate projects.

In contrast the EU PMI figures paint a duller picture, with a November PMI reading of 45.6, as French building firms recorded the most marked contraction, along with a disappointing contraction in Germany. The bloc also reported a quicker fall in new orders, as businesses continued to lower staffing numbers for the ninth straight month. IHS Markit noted that construction businesses in the bloc are pessimistic for 2021, due to the second wave of Covid-19 and the lack of projects coming to tender over the coming months.

In another bid to shore up the battered eurozone economy, the ECB injected a further US$ 605 billion stimulus package, bringing its total, since the onset of the pandemic, to US$ 2.3 trillion. The bank indicated that this latest measure would contribute to preserving favourable financing conditions during the pandemic by “supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability”. This comes after the bloc’s economy in Q3 rose at its fastest ever pace of 12.5% but this will not be repeated, as lockdowns measures have been reintroduced in most of the twenty-seven countries – and the lack of progress in Brexit talks will have a further negative impact on any progress.  Negotiators have giving themselves until this Sunday to seal a new trading pact, with some US$ 1 trillion in annual trade at risk of tariffs if no deal can be reached by then. Interest rates remain unchanged at record lows as the euro hits a 30-month high of US$ 1.218.

In October, the UK economy grew by just 0.4%, compared to 1.1% a month earlier – a sure indicator that recovery continued to slow in the face of tougher coronavirus restrictions, which will see November returns even lower because of the reintroduction of lockdowns. However, following April’s record 19.5% contraction, the economy has continued to improve for the sixth straight month, driven by marked growth in education, retail and car manufacturing, but it is still 8.0% off pre-pandemic levels. Although the arrival of a vaccine, and a potential mass rollout, will boost the economy somewhat, the Brexit transition remains a drag on any economic recovery. 2021 will see the country’s biggest economic decline in over three hundred years and, at this rate, the country will not return to pre-pandemic levels until the end of 2022, at the earliest.

Bob Dylan has become the latest singer-songwriter, after the likes of the Leonard Cohen, Bruce Springsteen, John Lennon, Kurt Cobain, Stevie Nicks and Billie Eilish, to sell the rights to his entire back catalogue to Universal Music Group (UMG), which will acquire over six hundred Dylan tracks. In probably the biggest deal of its kind, the company will pay the 79-year old up to US$ 450 million for rights to all future income from the songs, including all royalties and control of all future income from the songs. Both parties have yet to confirm actual details of the deal. The Minnesota-born star, whose self-titled first album was released in 1962, released his latest – his 39^th, entitled ‘Rough and Ready Ways’ – earlier in the year and became the first songwriter to receive the Nobel Prize for Literature in 2016. He is still touring and last year co-headlined a UK festival with Neil Young, at London’s Hyde Park. Finally, Bob Dylan has Found Shelter From The Storm.