You’ll Be The One Who’ll Lose                                                         26 February 2021

Sobha, which is building the US$ 4 billion Sobha Hartland project, near to MBR City, confirmed that the company’s partnership with state-owned Dubai developer Meydan ended “in an amicable way” after the completion of the first phase of the project. It hopes that 2021 sales will reach US$ 680 million, 1.3k units, this year; last month, sales of US$ 70 million were made, with February business “progressing well”. The developer noted that that “there has been some active interest from markets that were not active before such as Europe and Canada”, some of which could be attributable to “an increased interest in Dubai, considering the way the Covid situation has been handled and the kind of infrastructure that is provided here.” The market was seeing signs of recovery, as supply started to slow prior to the arrival of Covid, which delayed any recovery, but now there are positive indicators of a move upwards, driven by several factors, the latest of which is a weaker US dollar. The outlook for villa sales in the secondary market and upscale apartments appears promising, with price increases already being noted in certain locations. Latest official January figures recorded a doubling of ready unit sales to US$ 1.2 billion, while mortgage transactions jumped seven-fold to US$ 2.6 billion.

The latest developer, to come up with a special offer to attract buyers, is Reportage Properties, who have introduced a system of no down payments for its 380-unit Alexis Towers development, in Downtown Jebel Ali SZR.  Those who wish to acquire a studio apartment for US$ 109k, will only have to commit paying US$ 2.2k per month. Earlier, the developer had come up with an offer to waive all services charges for the first ten years of occupancy.

Last year, the RTA was successful in attracting several foreign investors to assist with infrastructure and services developments projects, through PPP (public-public partnerships) models to Build, Operate, Finance and Transfer (BOFT). Investments with firms, from the USA and Europe, exceeded US$ 272 million for projects including the air-conditioned bus shelters and Union 71 Project. The authority is keen to entice international partners and foreign investments in the transport sector and has started to develop smart and innovative solutions for new partnerships in investment and funding transport projects.

The first meeting between the UAE and Qatar, following the Trump-driven Al-Ula Declaration, took place in Kuwait on Monday. The main discussions were around ways to implement the Declaration, whilst stressing the importance of preserving Gulf unity, and developing a joint GCC action plan, in the common interest of all six member states. Both sides thanked  t heEmir of Kuwait, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, for his country’s efforts to heal the rift.

One sector that benefitted from the pandemic in 2020 was online sales within the country’s food and beverage market, which grew 225% to top US$ 412 million. The Dubai Chamber of Commerce and Industry’s latest report also forecast that this would have an 8.5% compound annual growth rate over the next five years to reach US$ 619 million by 2025. According to Hassan Al Hashemi, Vice President of International Relations at Dubai Chamber, the impressive growth figures were also down to Dubai’s advanced technology infrastructure, world-class logistics facilities, high-Internet penetration rate and high disposable income among consumers.

This week, the five-day Gulfood 2021, with 2.5k companies from 85 countries, became the world’s first in-person F&B event for twelve months. Known as the world’s most competitive sourcing hub, it has been run under strict and proven health and safety protocols. At a presentation at the event, the 26^th edition of the world’s largest annual food festival, some interesting facts were revealed by Dubai Chamber’s Nizami Imamverdiyev,. The six biggest food importing countries, accounting for 53% of imports, were India (19%), New Zealand (13%), Pakistan (9%) and 4% from the USA, Egypt and Canada. Legumes, powdered milk, rice, sugar, onions and potatoes were the six leading imported food products, accounting for 17%, 14%, 13%, 9%, 7% and 5% of the total. When it came to reexports, sugar, legumes and dates were the top products. It was also reported that the UAE recorded a 6% growth in 2020 sales of fresh food products, up 6.0% to 2020, reaching US$ 7.9 billion, whilst sales of canned food products grew 4.0%.

Majid Al Futtaim posted a 7.0% decline in 2020 revenue to US$ 8.9 billion, with EBITDA down 19.0% at US$ 1.0 billion. Revenue from the conglomerate’s properties declined 14% to US$ 954 million, as EBITDA dropped 21% to US$ 627 million. The company’s Carrefour returns saw a marginal 1.0% dip in revenue at US$ 7.6 billion but EBITDA headed 14% higher to US$ 436 million. The company noted that it had enough cash, and available committed facilities, to cover all its financing needs for the next three years.

The latest in the Finablr saga sees the possibility of the consortium of Switzerland’s Prism and Abu Dhabi’s Royal Strategic Partners combining the former BR Shetty, and heavily indebted foreign exchange company, with Bahrain’s BFC Group Holdings. Initially, trading in gold bullion, Bahrain Financing Company, formed in 2017, moved into the remittance markets in the 1970s and was later acquired by Islamic lender Bank Alkhair, with its operations expanding into the UK, Kuwait and India. If the discussions prove successful, it would create “a market-leading, pan-global financial services company in the region”, servicing 24 million customers in 30 countries.

At the onset of Covid-19 last March, the Securities and Commodities Authority ordered the UAE bourses to limit cap per day to 5% of the last closing price. However, this has been amended to 10%, starting on Sunday 28 February

The bourse opened on Sunday 21 February and having shed 157 points (5.6%) the previous four weeks, lost a further 106 points (4.0%) to close on 2,527 by Thursday 25 February. Emaar Properties, US$ 0.02 lower the previous week, lost a further US$ 0.06 to close at US$ 0.95. Emirates NBD and Damac started the week on US$ 3.12 and US$ 0.33 and closed on US$ 3.05 and US$ 0.32. Thursday 25 February saw the market trading at 338 million shares, worth US$ 43 million, (compared to 116 million shares, at a value of US$ 49 million, on 18 February).

By Thursday, 25 February, Brent, US$ 8.43 (10.2%) higher the previous fortnight, gained US$ 1.15 (1.7%) in this week’s trading to close on US$ 66.68. Although the crude stockpile jumped surprisingly by 1 million bpd, over the week, oil prices have edged higher, mainly due to continued outages in the United States and a weaker dollar.  Gold, US$ 100 (5.3%) lower the previous four weeks, lost a further US$ 5 (0.3%), by Thursday 25 February, to close on US$ 1,771.

It seems that Boeing problems will not go away, with the US plane manufacturer recommending that all its 777-models, using Pratt & Whitney 4000-112 engines, should be grounded. This follows an incident last Saturday in which a United 777 had an engine failure which shed debris over Denver in Colorado.  Fortunately, the suspension only affects 128 planes, of which 69 are currently in service for United, Korean Air and two Japanese carriers. The Federal Aviation Administration has ordered extra inspections of Boeing 777 jets fitted with the Pratt & Whitney 4000 engine, following the incident. The initial finding of the National Transportation Safety Board is that damage was mostly confined to the right engine, with two fan blades fractured and the others impacted. Since the UAE General Civil Aviation Authority has been closely monitoring the grounding of 777 jets this has had no impact on the local airline because of the simple fact there are no registered aircraft operating with PW4000 engines in the country’s airspace and at the airport.

There was no surprise to see Qantas turning in a US$ 855 million loss, (pre-tax – US$ 1.3 billion), on the back of a US$ 5.5 billion slump in 2020 revenue; it is reported that the carrier has US$ 3.3 billion in available cash to ride out the “storm”, until Australia’s international border reopens, and domestic travel ramps up to more like pre-pandemic levels. The airline is running at just 8% of international capacity through trans-Tasman and repatriation flights. Qantas expects international travel to resume by the end of October, once Australia’s vaccine rollout is complete, and hopes that it will achieve 80% of pre-pandemic domestic capacity by the end of June. The carrier is expecting to have 40% of its international traffic back by the end of 2022 and not at 100% until 2024.

In a bid to boost its flagging cash reserves, BA plans to delay US$ 630 million in pension payments and will also draw down a five-year US$ 2.8 billion UK Export Finance-backed loan agreement with a syndicate of banks by the end of this month. The airline, owned by IAG, posted a US$ 1.5 billion Q4 loss and shares are trading 55% lower over the past twelve months. This follows the worst year in aviation history that has seen global passenger traffic slump by almost 70% in 2020 with the worst falls coming in April, at the beginning of the pandemic, and towards the end of the year – and into 2021, when further lockdown measures were introduced.

Since his departure from the Bank of England, Mark Carney has been busy becoming United Nations special envoy for climate action and now appointed to the board of Stripe. He is expected to help the financial technology business in preparing a new funding round to finance emerging carbon removal technologies. Founded in 2010, by Irish brothers John and Patrick Collinson, (and now each worth an estimated US$ 4.3 billion), Stripe sells software, allowing businesses to accept online payments. The company, valued at last April’s funding round, at US$ 36 billion, claims Amazon and Zoom Video Communications among its customers. It recently branched out to offer bank accounts to businesses through e-commerce providers.

The link between governments, banks and big business goes on throughout the financial world but sometimes it can become a little too cosy The UK has seen many cases where departing ministers will take on directorships or consultancies, with major commercial enterprises – banks being the usual favourites. Now the ongoing government enquiry into the shenanigans at Wirecard, once touted as a rare German technology success, has discovered that Werner Steinmuller, a Deutsche Bank executive board member, brokered meetings and conference calls between leading Wirecard executives and potential Asian clients for eighteen months until his retirement in July 2020. A parliamentary enquiry spent months looking into the implosion of Wirecard before it filed for bankruptcy in June 2020, after disclosing that US$ 2.2 billion of its cash, listed in its accounts, did not exist. Steinmuller had organised high-level meetings for the payment company’s CFO, Burkhard Ley, and a senior adviser, and former Wirecard deputy chairman, Alfons Henseler, in Hong Kong.

With the smell of some UK officials, either directly or indirectly making money from the sale of personal protection equipment, still whiffing around, comes news that Italian prosecutors are investigating a US$ 1.5 billion government purchase of PPE from China. It is alleged that a group of shady businessmen were paid tens of millions of dollars in illegal commissions to secure the contracts. The deals involving four Italian companies – Guernica, Microproducts It, Partecipazioni and Sunsky – “illicitly served as concealed intermediaries” between the government and a Chinese consortium, receiving illegal payments from the Wenzhou-based groups. Facing a shortage of masks last March, the government placed an order for 800 million of them from three Chinese companies – Wenzhou Moon-Ray, Wenzhou Light and Luokai Trade – with the tender being awarded because of the mediation of the Italian companies’ owners, who allegedly received the “backhanders”. One of the Chinese companies, Luokai Trade was only incorporated five days before the order was formalised. Three of the Italian “alleged benefactors” were Sunsky, who were paid US$ 69 million by the Chinese for delivering  the PPE to Italy, Ecuadorian Jorge Solis, a friend of Daniele Guidi, a business partner of Sunsky’s chief executive, Andrea Tommasi  – US$ 7 million and US$ 14 million to the founder of Microproducts It, Mario Bennoti, (a long-time acquaintance of Domenico Arcuri, Italy’s emergency commissioner for the pandemic response), for introducing Solis and Tommasi to the commissioner’s office.

The latest high-level Austrian corruption probe seems to be slowly entangling chancellor Sebastian Kurz. Late last week, fraud police raided the house of finance minister, Gernot Blumel, who is regarded as a key suspect into a graft inquiry between the country’s lawmakers, senior officials and the Austrian gambling company Novomatic. In the arresting warrant, Kurz’s name was mentioned 42 times and his minister, a close confidant, only 23 times.  The chancellor is no stranger to scandals, as a political corruption scandal brought down his first government in 2019. This enquiry centres on Blumel’s 2017 role to lobby the Italian government for a US$ 46 million tax rebate in return for political support.

With twelve banks joining its financing deal, Tencent raised US$ 8.3 billion, with its biggest ever loan to be used for general corporate purposes. Last month, it received a US$ 1.6 billion loan to help it acquire more shares in Universal Music Group International. The creator of the messaging platform, WeChat, has seen its market value jump over US$ 200 billion to almost US$ 1 trillion. What started life as a social media platform has, over the past decade,  expanded into other areas such as grocery delivery and has invested billions of dollars in a wide range of promising start-ups.

Amazon had a rare win in India this week, with the Supreme Court putting an end – albeit temporarily – to Future Group’s US$ 3.4 billion sale of retail assets to Reliance Industries; the US tech giant challenged the deal amid fierce competition for domination of the country’s US$ 1 trillion retail sector. The court petition contested that Reliance Industries’ transaction violated Amazon’s contract with Future Group and it overturned the contrary decision by a lower court as well as not permitting the companies tribunal from approving the deal until further notice. Future Group is an old-fashioned bricks and mortar retailer, badly hit by the pandemic and associated lockdowns, that could go bankrupt if the deal with Reliance is permanently shelved. Amazon sees a big future in a fast-expanding Indian market of 1.3 billion people and is spending billions to obtain a bigger slice of the e-commerce cake.

Just when you thought that it was safe to go back into the water, GameStop’s share price, more than doubled in the final trading hour on Wednesday to US$ 91.71, There is no logical reason in the world why US investors have piled back into what is a struggling bricks and mortar video game retailer. Last month, to say the stock was volatile would be an understatement, as it surged 2,400%, reaching US$ 483. The stock was the subject of an epic “short squeeze”, as amateur traders on Reddit forums helped send its share value to unprecedented highs in a manner to punish hedge funds, such as Melvin Capital, that had taken outsized bets against the company; complicating matters further on Wednesday, not only did the system crash but also Reddit’s website was down shortly after 8:00am AEDT, leaving thousands of users unable to get onto its platform.

Uber received a major blow when the UK Supreme Court ruled that their drivers are not part of the gig economy but are “workers” and are entitles to labour rights such as a minimum wage, holiday pay and rest breaks. This is a financial problem not only for the US tech giant but also against the gig economy which relies on not having to pay their “employees” normal industry rates and rights. There are many who consider that the rights of such workers, who are only paid on a sort of piece rate, have been abused.

Nobody really knows who won the big fight down under, with both sides claiming some sort of victory. A week earlier, and after what seemed to be acrimonious negotiations, Facebook decided to cut off news content in Australia, followed by a Mexican standoff for several days. Then Facebook accepted a number of technical concessions from the Australian government and agreed to restore news content. Whilst Facebook were happy with these amendments, opposition lawmakers warned that smaller media players may be overlooked, Australian Competition and Consumer Commission Chair Rod Sims said the bargaining power imbalance had been righted. It does appear that Australia has become the first country in the world to stand up to the bullying tactics of the tech giants, who in future will have to pay rates, as set by the government arbitrator if negotiations with media companies fail. (The fight against the tech giants may now have been taken to India, with calls from that country’s largest newspaper, with a 71 million circulation, for Google to pay publishers 85% of ad revenues).

It is reported that Asda is planning a major restructuring of its business which could put about 5k jobs at risk, including 3k non-store jobs, such as cash management, where work has diminished because of increased on-line shopping. There could be cuts and closures at two online-only stores, in Dartford and Heston, that are used to pick online orders; this could result in 800 lost jobs, as orders will be taken by using regular stores. It also plans to change about 1.1k store management roles. The changes have come about from the rise in online shopping, accelerated by Covid-19, a trend that seems certain to continue even if and when Covid-19 abates. The company said it planned to create 4.5k jobs, mainly as order pickers and delivery drivers.

It seems that Hermes has recovered well from the initial Covid-19 blow, returning strong sales in the latter half of 2020. The French Birkin bagmaker posted a 16.0% hike in Q4 global revenue, helped by sales increasing 47% in Asia, driven by marked improvements in China, South Korea and Australia, as well as much improved online activity. Profitability came in better than expected, with the gross margin reaching a record 37% in H2. Noting that “the absence of tourists was offset by the loyalty of our local customers and a strong increase in online sales”, executive chairman Axel Dumas advised that 2020 revenues, at constant exchange rates, declined by just 6.0% to US$ 7.7 billion.

In line with other carmakers, Renault has had a miserable year, posting a record annual loss of US$ 9.7 billion, with much of the deficit coming in H1 when almost universal lockdowns crippled vital shipments. About US$ 5 billion of the loss, mostly incurred in H1, was attributable to Nissan. H2 saw marked improvements when it generated an operating margin of 3.5%, which resulted in a positive automotive operational free cash flow. The French company warned that 2021 will not be much better and that a global shortage in auto chips could cut its car production by 100k vehicles and that the industry will be faced with lingering coronavirus restrictions and supply chain challenges. Chief executive, Luca de Meo, commented that in 2021, “the priority is profitability and cash generation.”  

The Hong Guang Mini EV, selling in China for US$ 4.5k, is currently outselling Tesla’s more upmarket cars. The budget electric car is made by China’s leading automaker, the state-owned SAIC Motor, in a JV with General Motors. In January, sales of the compact car, at 25.8k, were almost double that of Tesla, (which has  recently been questioned over safety issues). The EV was the second most popular car, behind Tesla, with sales of 112k vehicles. The company also markets an upgraded model, with A/C, for just over US$ 5k, and although their technology is not as good as Tesla’s, when it comes to battery, range and performance, it does have a top speed of 100kph and can cosily hold four people.

This week, the US Central Bank saw the system, that it uses to process transactions  every day of more than US$ 3 trillion, fail. The Fed, which handled over 184 million transactions last year, confirmed that the disruption was caused by an “operational error”, with some services restored within three hours. However, others continued to take longer to fix, including its Fedwire Funds system. The crash added to the pressure the bank is facing to keep up with tech disruptors. Earlier in the week, Fed Chair, Jerome Powell, was asked what plans the bank had for digital currencies and replied that extensive research into the idea of a digital dollar would be carried out in 2021 and added it was a “high priority project”.

Last Friday, Bitcoin hit a record market capitalisation of $1 trillion, once again silencing its many critics warning that it is an “economic side show” and a poor hedge against a fall in share prices; when it reached US$ 56.4k, crypto currency had gained an impressive 14% in one week’s trading – and 70% in the first nineteen days of February. Time is proving an ally for Bitcoin, which accounts for about 59% of all digital coins, as an increasing number of mainstream companies, including Mastercard, BNY Mellon and Tesla are beginning to use the cryptocurrency. There are some who consider that there is still a lot of upside for Bitcoin, noting that the market cap for gold is estimated at this side of US$ 10 billion, so if it only reached half of that level, it could easily top US$ 250k. Others are concerned that because of its volatility, and lack of regulation, it will not really work in the everyday commercial environment

Applications for US state unemployment benefits fell 110k to 730k – their lowest level since November – a sure indicator that employment is recovering, as vaccinations begin to make an impact and cases are declining.

Having spent the first few days of his presidency undoing many of the changes that Donald Trump had introduced, President Joe Biden, has frozen sales of some arms and ended the US support for Saudi’s six-year war in Yemen. But with the Houthi rebels attacking a civilian plane in Saudi last week, the US came out saying it would “not stand by” while the Houthis launched such attacks and was committed to “bolster” Saudi defences against incursions. It also appears that future formal discussions will be held with King Salman, rather than his son Crown Prince Mohammed. This represents a marked difference to the approach taken by Donald Trump, who sometimes spoke directly with the Crown Prince and even invited him to the Oval Office. It also seems a matter of time before the Biden administration re-enters the Iran nuclear accord, from which the former President extricated the US in 2018.

By the end of Thursday trading, the US markets had posted losses on the day, with the Dow Jones 1.75% lower at 31,402, the tech heavy Nasdaq down 3.52% to 13,119 and the S&P 500 2.45% weaker on 3,829. European bourses also posted declines, but on a smaller scale, with the FTSE 100, the DAX and CAC 40 closing 0.11% down at 6,652, 0,69% lower at 13,879 and 024% weaker at 5,784 respectively. Tech shares led the US declines which coincided with a selloff in global bonds, as the benchmark treasury yield hit a one year high. After Jerome Powell’s reassurance that current policy will continue, yields will keep heading north.

The latest lockdown restrictions resulted in January UK retail sales falling 8.2%, month on month, as many stores closed, with department and clothing store sales facing the brunt of the decline. As has happened throughout the eleven months of Covid-19, online sales continued their upward trend, accounting for 35.2% of total spending. January was the second worst performing month in the Covid era. Figures could have been worse, but it seems that retailers sold more food and alcohol because of the enforced closure of pubs and restaurants.

At next Wednesday’s budget, UK Chancellor, Rishi Sunak. Is expected to extend the stamp duty holiday a further three months, until the end of June. There were concerns that the property market would collapse if it all ended on 31 March, with the conveyancing system struggling, with a recent surge in transactions. The “holiday”, introduced last July, by which the first US$ 707k (GBP 500k) of the purchase price of a main residence in England and Northern Ireland was exempted from stamp duty; this could save potential house buyers – both UK residents and overseas parties – up to US$ 21k (GBP 15k) on the closing price. UK house prices jumped 8.5% last year, to US$ 356k because of this tax break and pandemic-induced demand for more space.

Latest data confirms that the furlough scheme in the UK, until the end of January, had cost the taxpayer US$ 76.2 billion to date, (and probably over US$ 100 billion when it is stopped), with the jobs covered by the scheme topping 4.7 million; furlough protection is due to end at the end of April. To pay for this – and other costs associated with tackling the impact of Covid-19 on the economy, including borrowing costs of the US$ 570 billion already incurred this financial year – the Chancellor has to start looking at ways to raise government revenue which will inevitably see taxes moving higher. One obvious candidate, in next week’s budget, is an inevitable rise in Corporation Tax.

Last month, UK government borrowing hit a record January high of US$ 12.4 billion and it was the first time in a decade that more has been borrowed in January than collected through tax and other income. There was extra spending of US$ 11.3 billion for PPE and vaccines and US$ 7.1 billion on wage support, including furlough. Some positives in the month were a US$ 3.0 billion reduction in interest payments and the saving of US$ 3.1 billion for no longer contributing to the EU budget. In the ten months of the fiscal year, government had spent US$ 381.8 billion, compared to just US$ 68.6 billion a year earlier; by the end of the year in March, the figure could top US$ 555 trillion. With the national debt now at just under US$ 3 trillion, the country’s overall debt equates to 97.6% of GDP a level not seen in nearly sixty years. Gone have the day when January was a time when the Treasury coffers filled and more paid into the kitty than spent.

The UK has agreed to a month’s extension, to the end of April, to let the EU ratify their post-Brexit trade deal, bringing more uncertainty to the fragile start to their new relationship. Although the agreement, covering trade, security and fisheries, was signed on Christmas Eve, the EC applied the deal provisionally to give members of the European Parliament time to study its contents further before ratifying the deal. Although this should be a formality, there are more than a few Europeans, including Maros Sefcovic, the EU commissioner in charge of overseeing the Brexit deal, who may disagree. He is on record saying “we have already seen some of the changes brought about by this and I think it is clear to everyone now that our partnership with the UK does not replicate or resemble its former membership of the EU.”

According to financial consultancy Bovill, 1.5k EU finance firms, including money managers, payment firms and insurers, are considering opening offices in the UK for the first time. If these forecasts bear fruition, it will be good news for the various UK professional firms, including accountants, lawyers, consultants etc, as well for the services sector in general. That total included 400 insurance firms and 100 banks, with three countries providing 39% of the firms – Ireland (230), France (186) and Germany (168); the next three were Cyprus, Netherlands and Luxembourg with 151, 106 and 101 firms interested in a move to post Brexit Britain. As mentioned in previous blogs, it is important that both the UK and the EU reach an agreement on financial services equivalence. Eight weeks after Brexit, it seems that the UK is currently in a stronger economic position than the EU and there is a feeling that those Brexiteers were right to warn their European partners that You’ll Be The One Who’ll Lose!