Magical Mystery Tour

Magical Mystery Tour!                                                                      01 January 2021

Located in the heart of Jebel Ali, Azizi Developments officially inaugurated Aura, a 479-unit, 18-storey development, comprising 349 studio, 87 1 B/R and 43 2 B/R apartments. The project is a freehold residential development, featuring a comprehensive range of amenities, including two swimming pools, a fully equipped gym, a health club with sauna, open recreational areas, concierge service, covered parking, and a podium level with over 9k sq ft of retail space.

DP World’s interest in Africa continues with this week’s news that the port operator is in discussions with the Angolan government to operate the terminal in the Port of Luanda. It has been granted a twenty-year concession and plans to invest US$ 190 million into the multi-purpose terminal which will increase annual throughput to 700k TEUs (twenty-foot containers). The Dubai-based company already has African investments in Algeria, Djibouti, Egypt, Mozambique, Rwanda, and Somaliland, along with its biggest port investment deal in Africa last week, to develop Senegal’s Ndayane deep-water port.

HH Mohammed bin Rashid Al Maktoum has approved Dubai’s 2021 general budget which allocates US$ 15.6 billion for spending, with an estimated US$ 14.3 billion coming into the government’s coffers, despite a reduction in fees. The new budget takes into account the “exceptional economic conditions” of the 2020 fiscal year and the repercussions of the Covid-19 pandemic on the global economy. (This is in contrast to last year’s budget which assigned a record US$ 18.1 billion in spending). On the spending front, 80% of the total will be expensed on payroll (35%), grants and public support for community development and public services (25%), and general and administrative expenses (21%). The balance will be spent on investments in infrastructure (9%), servicing public debt (6%), capital expenses (3%) and private reserve (1%). A further analysis of spending sees a breakdown of 41% on developing infrastructure and transportation, 31% on health, education, housing, women and children’s care, 22% to be allocated to support security, justice and safety and the balance of 6% on innovation, creativity and scientific research. A breakdown of the revenue stream is split into non-tax revenue (59%), tax revenue (31%), return on government investment (6%) and oil revenues (only 4%). The government noted that the budget “sends a clear message to the business community that Dubai is pursuing an expansionary fiscal policy, which contributes to strengthening confidence in the emirate’s economy and attracting more direct investments.”

Having awarded construction and expansion contracts totalling US$ 379 million this year, Emirates Central Cooling Systems Corporation is looking forward to a bumper 2021, with an expected surge in the number of clients and contracts. Empower posted a 23.0% hike in the value of contracts and with the addition of new districts cooling plants and the expansion of its district cooling networks, as well as enhancing its internal processes, it is well prepared to service new business in the new year and improve its top line. The company, which holds 76% of the district cooling market in the Dubai city, has also ensured that its expansion policy is in line with the growing demand for environmentally friendly district cooling services. Its two latest contracts, valued at US$ 96 million, are for new district cooling plants in Za’abeel and Business Bay, with a total capacity of 100k refrigeration tons (RT).

Having received regulatory approval last week to operate a real estate investment fund, Al Mal Capital raised US$ 96 million, through the public float of its real estate investment. The asset management subsidiary of Dubai Investments will see the Al Mal Capital Reit begin trading next month on the DFM subject to final approvals. The new Reit will focus on long-term assets and lease agreements with investments expected in healthcare, education and industrial property sector assets, both locally and offshore. It is targeting Sharia compliant assets, with a return of around 7%, 80% of which will be income to investors.

In a blow to some in the country, TransferWise will no longer provide multi-currency accounts, (that allow customers to buy and sell and hold accounts in different currencies) to customers with a UAE address. The nine-year old UK-based fintech offers low-cost foreign exchange services allowing users to hold funds in over fifty currencies at very competitive rates. The firm, whichhas fourteen global offices, seven million global customers and processes US$ 5 billion in customer payments every month, is registered with Abu Dhabi Global Market’s Financial Services Regulatory Authority and started operations last April. Transferwise has noted that “our team on the ground is working hard on a solution and we hope to bring bank transfers back soon.”

Dubai Aerospace Enterprise has announced it has bought back US$ 100 million of its outstanding common shares. The region’s biggest plane lessor, which is owned by the Investment Corporation of Dubai, posted a 35.8% decline in nine-month profit to US$ 167 million, with revenue dipping 8.7% to US$ 984 million, to 30 September. The aviation sector has been one of the biggest casualties of the pandemic, which has seen air travel demand tank, and although the introduction of vaccines will prove beneficial, there are worries about what has been the first of many new strains, that is reportedly 70% more transmissible, and has seen the introduction of draconian lockdown measures in many countries. Earlier in the month, DAE delivered the first of eighteen Boeing 737 Max 8 aircraft to American Airlines as part of a purchase and leaseback agreement, signed in the third quarter of 2020.

DXB Entertainments has replaced its chief executive, Mohamed Al Mulla, with its chief financial officer Remi Ishak, who will also retain his current portfolio. He joined the theme park last April and he will hold his new position and will “focus on ensuring the smooth continued operations of the company while the board of directors continues its search for a permanent CEO.” The company is currently considering the ramifications of an offer by Dubai property company Meraas, which owns 52.29% of DXBE, to buy the remaining shares and take it private; this week, it has hired KPMG and Shuaa Capital, as financial advisers, and Allen & Overy, as legal adviser, to evaluate the buyout offer. The offer comprises acquiring US$ 1.2 billion of the DXB’s debt and converting its US$ 403 million bond for newly issued shares in the business, resulting in increasing its stake to 93.92%, following which it will buy out the remaining 6.08% shareholders.

The bourse opened on Sunday 27 December and, having slipped 22 points (0.9%) the previous week, shed 36 points (1.4%) to close on 2,492 by Thursday 31 December. Emaar Properties, US$ 0.02 higher the previous week, traded US$ 0.02 lower at US$ 0.96, whilst Arabtec is now in the throes of liquidation, with its last trading, late in September, at US$ 0.14. Thursday 31 December saw the market trading at 139 million shares, worth US$ 47 million, (compared to 154 million shares, at a value of US$ 57 million, on 24 December).

For the month of December and for the year 2020, the bourse had opened on 2,420 and 2,765 and, having closed the month on 2,492 was up 72 points (3.0%) in December but well down by 273 points (9.9%) YTD. Emaar traded lower from its 01 January 2021 opening but higher from its 01 November starting figures of US$ 1.10 and US$ 0.87 – down by US$ 0.14 but up by US$ 0.09 – to close December on US$ 0.96. 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, 31 December, Brent, US$ 10.21 (22.6%) higher the previous six weeks, was US$ 0.51 (1.0%) in this week’s trading to close on US$ 51.80. Gold, US$ 89 (5.0%) higher the previous fortnight, gained a further US$ 12 (0.6%) to close on US$ 1,895 by Thursday 31 December.

Brent started the year on US$ 66.67 and lost US$ 14.87 (22.3%) during 2020 but, having started December on US$ 47.59 gained US$ 4.21 (8.8%) during the month of December to close on US$ 51.80 Meanwhile, the yellow metal gained US$ 378 (24.9%) in 2020, having started the year on US$ 1,517 to close at the end of December on US$ 1,895, with the December price up US$ 118 (6.6%) from its month opening of US$ 1,777.

2020 will see a record write down in assets for the world’s oil companies and independent producers, as illustrated by seven super major oil companies and independent producers in the US and Canada writing off over US$ 150 billion this year. Asset values have diminished because of the short-term price impact on their property but also the long-term implications of the energy transition, (including the rise of renewables and electric vehicles), and socially responsible investing. With the prospect of relatively low oil prices in the short-term, and the move to renewable energy more long term, they would seem to be the main drivers behind these impairments, equivalent to 10% of the companies’ collective market value.

2020 was the second best ever, after 2007, for companies raising monies via stock market listings, collecting a global total of about US$ 300 billion; the US was the biggest contributor to the total with US$ 159 billion, along with Asia that witnessed a 70% year on year growth, to US$ 73 billion. The US blank cheque business accounted for US$ 76 billion of the cash raised in the country. In contrast, European listings disappointed, with a 10% decline to a total of US$ 24 billion.

With companies raising more than US$ 5 trillion this year, to raise cash to soften the pandemic economic blow, it is no surprise that investment banks around the world picked up nearly US$ 125 billion in fees for underwriting debt and equity offerings. Lenders earned US$ 43 billion arranging debts, 25% higher on the year, whilst fees underwriting IPOs skyrocketed 90% to US$ 13 billion, as overall equity underwriting revenue came in 75% higher at US$ 32 billion. The main beneficiary of the tech listings was Goldman Sachs, which led the likes of DoorDash, Snowflake and Unity Software IPOs to grab more than 10% of the market. One sector that saw a decline was M&A, with business down 10% on the year, but still earning around US$ 30 billion for the bankers. There was no surprise that the US Big five banks – JP Morgan, Chase, Goldman Sachs, BoA, Morgan Stanley and Citigroup – accounted for just under US$ 37 billion of the investment banking revenue, equating to 30% of the total.

Tata Group has paid Air Asia US$ 38 million to increase its JV stake in AirAsia India from 51% to 84%, as it looks to increase its stake in India’s airline industry; last week it submitted a bid to take over the struggling national carrier, Air India. The Tata Group, which actually founded Air India in 1932, only to sell it to the government in the 1950s, also operates the Vistara airline, in partnership with Singapore Airlines. Air Asia’s Tony Fernandes has been scaling back and trying to reduce its cash burn, with the Indian JV struggling in one of the toughest markets in the world made worse by high fuel taxes and fierce competition. In November, Air Asia’s Japanese unit filed for bankruptcy. However, Air Asia believes that cutting back in “a non-core market” will allow it to focus more on its key sectors – Malaysia, Thailand, Indonesia and the Philippines.

In order to protect their status as majority EU-owned companies, two airlines, Ryanair and Wizz Air, are to take away the voting rights of UK shareholders (and other non-EU investors). Ryanair posted that “these resolutions will remain in place until the board of the company determines that the ownership and control of the company is no longer such that there is any risk to the airline licences.” Meanwhile, the Hungarian-based carrier estimates that if no action were taken, 80% of Wizz Air’s shares would be held by non-EU nationals. (Wizz Air Abu Dhabi, a JV with Abu Dhabi state holding company ADQ, will begin operations from 15 January, flying to Athens, with fares starting at just US$ 35!).

It has not been a good year for some German tech companies, with their flagship Wirecard entering into liquidation, with several stakeholders facing the court in 2021 for fraud and money laundering. Now it seems that the Berlin-based Delivery Hero’s hopes of acquiring Woowa Brothers, which owns Baedal Minjok, in a US$ 4 billion has fallen foul of South Korean antitrust regulators who will only let the deal go through if the German company sold its existing South Korean, Yogiyo. There were concerns raised that if the deal went through, Deliver Hero would control up to 90% of the country’s burgeoning online food delivery market.

The Pope has finally decided to strip the Vatican’s central administration office of a tainted investment portfolio that has resulted in massive losses and has led to the arrest of Gianluigi Torzi, who acted for the Secretariat in London; he has been arrested and charged by the Vatican with “extortion, embezzlement, aggravated fraud and self-laundering”. Last month, the Vatican requested the Italian financial police to execute a search warrant against a group, associated with the Secretariat’s investments, including a suspended Vatican official and Raffaele Mincione who oversaw a luxury Chelsea property development. At the same time, the Pontiff has decided that the management of “Peter’s Pence” charitable donations would also be transferred to Apsa’s control, with this centralised asset manager also taking over the London investment portfolio.

Coinbase, the world’s second-biggest crypto exchange by volume, has suspended trading in the world’s third-biggest cryptocurrency XRP, after the US Securities and Exchange Commission accused Ripple Labs of conducting an unregistered security offering; it classified it as a security, subjecting it to a much stricter set of regulations governing how it is sold and traded. It was alleged that Ripple managed to raise US$ 1.3 billion in cryptocurrency markets over seven years through the sale of XRP, without submitting the proper documentation required for such sales. On Tuesday, the stock had slumped 27.7% to US$ 0.21821 on the Luxembourg-based Bitstamp exchange, with the cryptocurrency’s market cap 66% lower than its 24 November high. Investors seem to be transferring funds to Bitcoin, which jumped US$ 7k, over the week to  US$ 29k, and other digital coins.

Following a recent crackdown by the Chinese administration on his e-commerce and financial empire, founder Jack Ma has seen his Alibaba shares slump 9%, or losing US$ 116 billion in its market cap, on Monday, to its lowest level since June.  His upsized US$ 10 billion attempt to buy back shares failed to convince the market, which is also concerned that the antitrust investigation into the firm may carry heavy penalties and any negative conclusion would greatly change its valuation. The situation has not been improved by news that China’s central bank had requested his other company, Ant, to shake up its lending and other consumer finance operations, after suspending its US$ 37 billion IPO last month. Jack Ma must be ruing the fact that he publicly criticised the regulatory system for stifling innovation and now it is payback time for the government.

There are three main drivers behind the recent rise of gold on the global stage – massive stimulus from both the Fed and the Trump administration, optimism about the positive impact of the Covid vaccine and Joe Biden’s presidential victory. With the expectations next year for reflation trade, this will see the greenback trading lower, which in turn will have a positive impact on the gold price, which ended the year edging closer to the US$ 2k level, as US real yields hover below zero. However, if the pandemic peters out – an unlikely event at the time of writing – and there is a major roll-out of Covid-19 vaccines, then any major advance in price will be limited. Meanwhile, there is every chance that silver has the momentum to hit US$ 30 per oz. having currently more than doubled since it sank to US$ 12 per oz at the height of the pandemic; apart from the same drivers listed for gold, silver also will benefit from the expected pick-up in industrial demand next year and further development of renewable energy technology, likely to be introduced by the incoming Biden administration.

Covid-19 is one reason why property prices in both the UK and US moved higher in 2020. The UK registered its highest annual rise in six years – up 7.3% to US$ 314k, also helped by the government’s decision to nullify stamp duty on most properties until March 2021. December saw prices nudge 0.8% higher, whilst since the onset of the pandemic in March, prices are 5.3% higher, as there has been a shift in how people want to live, e.g., bigger properties or homes with gardens or in less densely populated locations. However, with the stamp duty holiday expiring in March, and an estimated one million joining the country’s dole queue in H1, there is no doubt that this will have an adverse effect on prices which could fall by 5% by June 2021.

Likewise, US house prices moved at their highest rate since 2014, with strong demand and limited supply pushing prices 7.9% higher in October, driven by similar drivers seen in the UK, as Americans seek more space for home offices, bigger kitchens and working out. The latest trend reported is that potential buyers are wanting to move from urban apartments to suburban homes, The three cities with the biggest growth rates were Phoenix (12.7%), Seattle (11.7%) and San Diego (11.6%).  In November, the number of homes for sale fell to record lows of 1.28 million, equivalent to last just 2.3 months at the current pace of sales.

For the sixteenth time in 2020, US interest rates slipped to a record low, with the average for a 30-year fixed loan falling one notch to 2.66%. Such low rates have proved a catalyst for a housing rally that, in turn, has managed to boost an economy beset with pandemic problems. However, as the number of cases move higher, there is some reason for concern if the rally can continue and a lot will depend on the efficacy of any vaccine and which direction the coronavirus will take. These lower rates, combined with demand for more space to ride out the pandemic, have pushed buyers into the market, whilst existing homeowners have managed to save money by renegotiating current loans in line with better rates. A low inventory of homes to buy, combined with the surging demand, has driven up prices but this could change quite quickly if rates started moving north again. Meanwhile, new-home sales in the US tumbled to a five-month low last month dropping 11% in a sign the market is cooling off as coronavirus cases surge, with the median selling price jumping 14.6%, the fourth straight month of double-digit increases.

In one of his last acts as President, Donald Trump seems to be doing his level best to delist China Mobile, China Telecom and China Unicom Hong Kong from the NYSE. Shares in the three tech giants, which earn all of their revenue in China and have no significant presence in the US, will be suspended next week whilst the regulators begin proceedings to move them off the bourse. Last month, the President barred American investments in Chinese firms, owned or controlled by the military and has been targeting a number of Chinese companies including TikTok, Huawei and Tencent on the grounds of national security; in a tit for tat move, China responded with its own blacklist of US companies.

US jobless claims in December fell by 19k to 717k, surprising the market that expected a figure in the region of 835k. The approximate number of citizens claiming state unemployment benefits also declined to 5.37 million. The damage afforded by the pandemic can be seen from comparing 2020 figures with those of the previous year; this year, the average weekly number has been 1.45 million, compared to 220k in 2019. The figures will remain roughly the same into January, with the recent stimulus package making a short-term impact but then the economic fall-out will see numbers heading north again.

Having criticised its “wasteful spending” and calling for higher pay outs to people hit by the pandemic, Donald Trump left it to the last minute before signing a US$ 900 billion coronavirus relief and spending package bill, averting a partial government shutdown; this was part of a US$ 2.3 trillion spending package, that includes $1.4tn for normal federal government spending. If he had not signed the bill, which he did reluctantly, more than fourteen million would not have received unemployment benefit payments and new stimulus cheques.  The departing US President described the package as a “disgrace” and full of “wasteful” items and would have preferred to give Americans a payment of US$ 2k instead of US$ 600. He also argued that the annual foreign aid money would be better served going to Americans, struggling by the impact of the pandemic.

According to the Centre for Economics and Business Research, China is set to overtake the US as the world’s largest economy by 2028; this is five years earlier than a previous forecast, mainly because it controlled the initial pandemic, through swift and extremely strict action, meaning it did not need to repeat economically paralysing lockdowns as seen elsewhere. Because of its “skilful” management of Covid-19, it is the only major economy to avoid an economic recession in 2020, whilst its relative growth, compared to the US and Europe, in coming years will be boosted.  It notes that China’s share of the global economy has risen from just 3.6% in 2000 to 17.8% now and the country will become a “high-income economy” within three years. The UK-based thinktank estimates the India will become the third biggest global economy by 2030, by overtaking the UK, Germany and Japan by 2024, 2027 and 2030 respectively.

Jun 21Unit    20202020201920182017201620152014
165Iron OreUS$Lb70.11%155.7091.5371.371.28754773
57.5Oil -BrentUS$bl-22.30%51.8066.6753.866.6256.8236.457.33
6,650FTSE 100-14.07%6,4817,5426,7217,6887,1426,2426,548
3,780S&P 50016.25%3,7563,2312,5072,6742,2382,0442,091

From the above, it can be seen that Brent, the rouble and the FTSE 100 posted the worst returns in 2020 – by 22.3%, 15.38% and 14.07% respectively. Notwithstanding Bitcoin more than tripling in value to over US$ 29k, the standout performer was iron ore climbing by 70.11%, with silver, copper, gold and cotton returning double digit growth. This year, most commodities will move north albeit at a slower rate. When it comes to currencies, the greenback is expected to take a backseat and that sterling, (thanks to Brexit) and the Aussie dollar (courtesy of record iron ore prices) will move higher at a much quicker rate than say the euro which will be beset by internal squabbling and higher unemployment. Markets will be largely flat after a volatile 2020.

In 2021, Dubai needs two events to occur – Brent to move at least 10% higher and the vaccine to take effect.  That being the case, Dubai will be the place to be, as it will have had a head start on most of the rest of the world. A weak dollar makes Dubai exports cheaper and will be a boom for the tourism sector, as European visitors will have more money to spend. It still needs to encourage SMEs and tech start-ups that will form the basis of Dubai’s new economy. The population mix will slowly change, with construction numbers falling, whilst population growth will soften. 2019 population growth stood at 5.1% at 3.356 million, whilst last year, because of Covid, growth was at 1.6% to end 2020 on 3.411 million. In 2021, optimum growth should be around 3.5%, to end the year with a population of 3.530 million. With the new economy, it will be a case of quality rather than quantity, which will see more money in circulation being spent supporting the local economy. Furthermore, there is the prospect of a successful Dubai Expo starting in October, with the emirate also benefiting from the fact the UAE celebrates its golden anniversary in 2021. Here in Dubai, one thing we know is that, in 2021, we are going on a Magical Mystery Tour!

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