Let The Good Times Roll! 15 April 2021
As property prices start heading north in certain Dubai locations, a Colliers report indicates that investors are holding back the sale of their residential units to bargain for better prices. It has taken time for some observers to realise that the Dubai real estate sector is in recovery mode, (and probably has been since late last year), and that with the number of buyers now outnumbering the number of sellers, this is the start of a bull market after a seven-year hiatus. That being the case, it means that property prices will continue to increase but it must be noted that price rises will vary between villas and apartments, with location being an important contributor as to the level of price rises. Most of the economic indicators are positive, including the success of the vaccine programme, record low mortgage rates, attractive bank packages, Expo 2020 and the country’s golden jubilee celebrations at the end of the year. JLL said lower sales prices have yielded a 15% hike in Q1 sales volume for Dubai on the year and that there had been marginal 2% – 3% price increases on the quarter for some attractive villa and townhouse deals. It also noted that a further 10k units were handed over in Q1, with a further 46k expected before year end to add to the residential market stock of 607k units at the end of 2020.
According to the Dubai Statistics Centre, as at 31 December 2020, the number of apartments and villas in urban Dubai totalled 575.2k and 117.7k – an increase over the year of 37.8k apartments (7.0%) and 5.1k (4.5%) villas. With many of the big developers abandoning the release of new projects as long ago as two years, the number of new residential units will decline. This in turn will see the supply side drying up further, with the inevitable result of increased prices which will continue until either demand falls or the supply pipeline is turned on to pre 2019 levels,
Latest figures show that Dubai tourism performed noticeably better than any other country, except China, recording a 54.7% hotel occupancy rate last year, despite the impact of Covid-19 and the subsequent restrictions and lockdowns; the global rate dipped to 37% and ME hotels posted just 43% occupancy. Meanwhile, the slump in tourist activity was catastrophic, falling by 74% globally and 76% regionally. It is estimated that the UAE suffered the least globally in terms of tourist traffic with activity declining by just 45.2% – followed by Mexico, 52%, Italy (63%), Germany (69%), Turkey (73%), Saudi Arabia (76%), USA (77%), Spain (78%), the UK (82%), and Thailand (83%). In 2020, the UAE welcomed 14.8 million guests, who spent 54.2 million nights, in 1,089 different establishments that provided approximately 180k rooms; this resulted in an average 3.7-night stay per guest at US$ 87 per room. Domestic tourism added US$ 11.2 billion to the national economy.
According to Mastercard’s latest Recovery Insights report, the UAE witnessed a 2020 44% increase in the number of high-volume eCommerce trading partners. Before the start of 2020, e-commerce made up roughly US$ 1 out of every US$ 7 spent on retail, by the end of 2020; this was up to US$ 1 out of every US$ 5. Dubai Future Foundation has noted that the UAE’s digital economy, prior to Covid-19, contributed 4.3% to the UAE GDP,and that by the end of 2023 this is estimated to grow to US$ 62.8 billion. In 2021, it is forecast that the regional online shopping market will grow a massive 36.4% to US$ 30 billion. Three countries – Saudi Arabia, Egypt and the UAE – account for more than 80% of the overall e-commerce market. Interestingly, residents in Italy and Saudi Arabia are buying 33% more from online stores, followed by Russia, the UK and the UAE (21%).
It is reported that Cruise will launch its first international robotaxi service, outside the US, in Dubai in 2023. The tech company, backed by General Motors and Honda, has set 2030 as the year that “25% of the total transportation trips in Dubai to self-driving trips through various means of transportation.” Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed Al Maktoum, discussed the future of mobility with Jeff Bleich, chief legal officer of General Motors-Cruise, and also attended a signing ceremony of the strategic partnership between Cruise and the RTA. The agreement sees the set-up of a new Dubai-based entity, responsible for the deployment, operation and maintenance of the fleet. To date, Cruise has spent US$ 2.2 billion refurbishing the former GM’s Detroit-Hamtramck plant, from its original combustion motor beginnings to its new use for making batteries and electric vehicles., which will start production next year. Over the past three years, Cruise, valued at US$ 30 billion, and backed not only by GM and Honda but also the likes of SoftBank, T Rowe Price Group and Microsoft, has raised more than US$ 7.4 billion.
The Ministry of Energy and Infrastructure has outlined plans for developing the country’s energy, housing, infrastructure, and transportation sectors over the next fifty years. The Ministry aims to introduce energy efficient systems in industrial and mining facilities and enact legislation to produce clean energy. Included in the report was a study on the need for housing across the country, based on the availability of land and supply of housing until 2040, with the aim of determining the demand and supply in each emirate, along with the financing requirements for housing projects. The plans will ensure that all housing needs are in line with government directives to provide citizens with decent living conditions. To further develop infrastructure, the Ministry is working to promote digital identity in infrastructure, demographic changes and urbanisation, interactive smart cities, and resilient infrastructure. The UAE is already one of the largest global logistics hubs and, to add to its impressive seaports and international airports, it is building an extensive 1k km rail network across the country to speed up transport of freight. In addition, it aims to design safe, integrated and sustainable transport networks that will use advanced technology.
The Telecommunications and Digital Government Regulatory Authority (TDRA) has rebranded, following a September 2020 decree, and board approval at the end of 2020. Its first director general, Hamad Obaid Al Mansoori, commented that “we are witnessing a full digital transformation … electronic government was started before 2000, mobile government was started in 2013 and today we are talking about a digital government supported by data and [the] Fourth Industrial Revolution.” The authority is remitted to regulate the UAE’s telecom sector and to provide frameworks to government entities in the field of smart transformation; it will also monitor the impact of its changes on users and collect feedback to improve services.
The Ministry of Human Resources and Emiratisation has introduced a new penalty for private sector companies that do not pay salaries through the government’s Wages Protection System and do not pay its employees on time. If companies do not follow these rules, they will be penalised by seeing the insurance policy of an employee more than doubling to US$ 68. When the government introduced a new insurance policy, ‘Taa-meen’, in 2018, employers had the option of submitting a US$ 817 bank guarantee for any new employee or use the new insurance policy, which costs US$ 33 for two years. The maximum insurance coverage was at US$ 54k to cover payroll items such as non-payment of wages, end of service benefits, unpaid wages, annual leave etc. The policy covers the financial entitlements of the employees of relevant companies for thirty months.
“Even as we continue reviewing details and consulting with Emirati officials”, President Biden is going ahead with more than US$ 23 billion in weapon sales to the UAE; they include fifty advanced F-35 Lighting II aircraft, eighteen armed drones and other equipment. These sales were approved by Donald Trump, days before leaving the White House, as part of the Abraham Accords, and it seems that the new incumbent passed the deals so that he could review them. A State Department spokesperson estimated that the delivery dates on the UAE sales, if implemented, were for after 2025 or later, and that it anticipated “a robust and sustained dialogue with the UAE” to ensure a stronger security partnership,
Boeing’s troubles just do not seem to be going away. This week, the platemaker has told 16 airlines to address a potential electrical issue in a specific group of 737 Max planes, prior to further operations. It advised airlines to check that “sufficient ground path exists for a component of the electrical power system” and to temporarily remove them from service to address a manufacturing issue. Flydubai has confirmed that none of its fourteen Max aircraft fleet is affected. The airline, one of Boeing’s biggest customers for the plane, only resumed flying the 737 Max on 07 April.
In Q1, DAE Capital acquired thirteen aircraft and signed 48 lease agreements and extensions, bringing its fleet size of owned, managed, committed and mandated to manage aircraft to 425, with a book value of more than US$ 16 billion. During the quarter, it had sold seven aircraft, including the four it owned and three it managed. Last year, its revenue dipped 9.7% to US$ 1.3 billion, with profit 29.1% lower at US$ 250 million; it also reported new senior unsecured debt issuance of US$ 1.55 billion, with total bond repurchases and share repurchases of US$ 192 million and US$ 350 million.
Official data showed that, despite the negative impact of Covid-19, Dubai’s 2020 non-oil foreign trade performed remarkably well – at US$ 322.1 billion – only 13.7% lower on the year dominated by lockdowns and a marked global economic downturn. The overall value of exports came in 8% higher at US$ 45.5 billion, with imports and reexports totalling US$ 186.9 billion and US$ 89.7 billion. The emirate hopes to hit its trade target of US$ 595 billion (AED 2 billion) by 2025. Dubai is planning to consolidate its position as a leading regional/global trade and investment hub, with a new international trade map showing an expansion in air and sea navigation routes, which will see its existing network expanding 50% to 600 cities. Air, sea and land trade accounted for US$ 152.3 billion, US$ 114.7 billion and US$ 55.3 billion in 2020. Direct trade touched US$ 193.7 billion, with free zones and warehouses at US$ 152.3 billion and US$ 1.9 billion respectively.
Dubai’s top five trading nations continue to be China, India, US, Saudi Arabia and Iraq with totals of US$ 39.0 billion, US$ 24.2 billion, US$ 16.6 billion, US$ 14.7 billion and US$ 11.2 billion. External trade figures improved in H2, with Q-on-Q growth in Q3 and Q4 being up 34% and 7% (US$ 8.9 billion), as well as H2 growth 6% higher than in the same period in 2019. The top five listed traded items were gold, telecoms, diamonds, petroleum oil and jewellery with respective values of US$ 58.0 billion, US$ 41.7 billion, US$ 17.4 billion, US$ 15.5 billion and US$ 12.8 billion. There will be at least five extra drivers to further boost Dubai’s trading figures this year – the delayed six-month Expo 2020 starting in October, golden anniversary celebrations for the country in `December, the launch of the Dubai 2040 Urban Master Plan, the expansion of trade with Israel and the resumption of trade with Qatar.
Continuing to build up its financial buffers, Dubai Islamic Bank has secured its second sukuk in five months, after a five-year US$ 1 billion additional tier-1 sukuk, with a 4.25% annual profit rate, last November. Now the biggest Sharia-compliant lender in the UAE has secured a US$ 500 million perpetual five and a half years non-call bond, with a 3.375% annual profit rate – the lowest-ever pricing achieved by a GCC bank on an additional Tier-1 sukuk instrument. The order book was 5.6 times oversubscribed, with the bond listed on both Euronext Dublin and Nasdaq Dubai.
It is reported that the administrators of NMC Health Administrators, Alvarez & Marsal, have so far received about US$ 6.4 billion of claims, (from 927 creditors), with a further 10% of that total being added by ten other “main financial creditors” that have yet to file before the 30 April deadline. They have outlined a Deed of Company Arrangement plan which would mean lenders agreeing to a reduction in their claims in return for exit instruments in a new holding company, with a view to achieving a “controlled” exit from the company within three years; this would lead to more than US$ 4 billion of its debts being wiped out, with the group debt reduced to a more manageable level. If agreement is reached by 15 June, it would see 35 out of the 36 businesses placed into administration being restored as going concerns. If no agreement can be reached, and assuming that the group cannot be sold as one unit, then the companies would have to be sold off as separate entities which “is likely to yield a significantly lower recovery”.
Hotpack Global opened its 32nd GCC sales centre – its largest retail store for food packaging products, for both retail and wholesale customers, in the UAE – spanning 5.6k sq ft and located in Al Barsha. There is no doubt that the UAE food packaging industry is set for continual growth, with forecasts that it will expand 40% over the next five years to US$ 3.8 billion. It is also estimated that the regional market will grow at an annual faster rate of up to 7%, compared to the global forecast of up to 5%. The company, which manufactures and supplies over 3.5k disposable food packaging products, has a group turnover of US$ 259 million, with a footprint in 25 locations across the Middle East and UK, along with a network chain in other Gulf and African countries. The 25-year old company has also invested US$ 70 million in a state-of-the art manufacturing facility in Wrexham and has an ultra-modern PET extrusion plant in National Industries Park.
The latest Mergermarket report notes that Q1 M&A (Mergers and Acquisitions) activity, in the MEA region, was 52.1% higher, at US$ 32.7 billion, (and 41.7% for 85 deals). Inward foreign investment saw 52 transactions, totalling US$ 24.7 billion – the highest quarterly inbound value since Q4 2007 (US$ 26.2 billion). Tech deals still dominate the sector with their 31 transactions totalling US$ 14.7 billion, and the EMU (energy, mining and utility) sector accounting for 18 deals, valued at US$ 4.6 billion. There has been a noticeable increase in private equity deals, with 26 buyouts in Q1, totalling US$ 18.3 billion – the region’s highest quarterly buyout value and volume on record.
2020 foreign direct investment (FDI) into Dubai saw 455 projects valued at US$ 6.73 billion create an estimated 18.3k new jobs in the emirate. These figures, released by the Dubai Investment Development Agency, place the emirate among the top global FDI locations in 2020, ranking first in the MENA region and fourth globally in attracting greenfield FDI capital. Dubai also achieved a record global market share in greenfield FDI projects, attracting 2.1% of all such projects in 2020, exceeding the 2% mark for the first time.
Dubai SME, by utilising contracts from 61 local and federal government entities, was able to assist Dubai start-ups and SMEs to win government procurement contracts, worth US$ 244 million last year. The government agency, tasked to help such businesses to enhance their competitiveness and sustain growth, introduced the Government Procurement Programme that “reflects the continuity and firm commitment from the public and private sectors in the country to supporting SMEs”. Out of all contracts in 2020 won by Dubai SME members, 47% were from Dubai government entities, (with RTA the biggest provider), 22% came from semi-governmental entities, with Emirates providing US$ 21 million, 21% from the private sector, with the leading providers being Union Co-op worth US$ 37 million, Emaar and Etihad Airways, and 10% from federal government entities, led by the Ministry of Education.
Mohamed Alabbar, the founder, and former chairman, of Emaar Properties will head Zand, the UAE’s first digital bank, with a full UAE banking licence, that will cater to retail and corporate clients. It is hoped that it will prove successful in the UAE so that it can become a global player. It aims to service both retail and corporate customers by providing innovative, effective financial solutions that help simplify businesses and lives. Zand, a “digital economic accelerator”, to serve as a platform for wider digital services that focus on businesses and individuals, will launch imminently after final regulatory approval. Its chief executive will be Olivier Crespin, who most recently headed Eradah Capital in Dubai and previously worked for BNP Paribas, Citi, and DBS Bank. He noted that the bank was “backed by strong shareholders and working with the best bankers and technologists, we’ve built a bank that delivers on the promise of understanding and meeting customer needs”.
On the back Zand’s entrée into the digital banking world, comes news that Al Maryah Community Bank has also secured a licence from the Central Bank of the UAE. The new bank indicated that it would focus on ‘supporting individuals and small businesses within the UAE economy”, offering smart banking services built on AI. Tarek Al Masoud has been appointed the chairman of the board of founders for the bank that will develop products to bridge gaps in personal and business banking. The Abu Dhabi government owned ADQ was reported last year to be interested in setting up a UAE digital bank using a legacy banking licence held by First Abu Dhabi Bank.
Emaar Properties PJSC approved a 10% dividend of the share capital at their recent AGM, at which a new board of nine directors was elected. Those elected were Mohamed Ali Rashid Alabbar, Jassim Mohammed AbdulRahim Al Ali, Ahmad Thani Rashed Al Matrooshi, Jamal Majed Khalfan Bin Theniyah, Buti Obaid Buti AlMulla, Eman Mahmood Ahmed Abdulrazzaq, Ahmed Jamal H Jawa, Helel Saeed Salem Saeed Almarri, and Sultan Saeed Mohammed Nasser AlMansoori. Eman Abdulrazzaq, chief human resource officer at Emirates NBD, becomes the first ever female board member. Last year, the developer posted property sales of US$ 3.0 billion, of which US$ 1.7 billion was made in the UAE and the balance overseas. Currently, it has 26k units under development in the UAE and 12k overseas.
Dubai Investments’ AGM approved all agenda resolutions, including its 2020 financial statements and approval of an 8% cash dividend to its shareholders. The 2020 profit came in at US$ 95 million, whilst its US$ 219 million growth in total assets brought the company’s total to US$ 5.93 billion.
Despite the negative niggles of the pandemic, Ducab Group posted a 36% profit across all three of its business units – Ducab Cable Business, Ducab Metals Business and Ducab High Voltage. No financial figures were readily available. Its largest business unit, DCB, posted a 13% hike in profit, driven by a sales volume of nearly 80k conductor tonnes. Its main revenue stream remains the local market, but it also exports to 25 other locations. DMB, comprising Ducab Aluminium Company and Ducab’s Copper Rod Factory, saw a 33% jump in 2020 profits, as it sold 190k tonnes of metal products to forty-five countries. The best performing unit, with margins 42% higher on the year, was DHV, as it sold nearly 6k tonnes of specialised high voltage cable to several regional utilities and global EPCs.
Amanat Holdings has decided to stay with the DFM and not transfer its share listing to Abu Dhabi’s stock market, almost a year after it received shareholders’ approval for the move. The Dubai-based healthcare and education company posted an 86% fall in 2020 net profit, although revenue nudged higher. In another announcement, it advised that Dr Shamsheer Vayalil will also step down as managing director, although he will continue to serve as the company’s vice chairman. Last May, Dr Mohamad Hamade was appointed as chief executive. Last month, it was involved in one of the region’s biggest healthcare deals, when it invested US$ 232 million to acquire Cambridge Medical and Rehabilitation Centre from TVM Capital Healthcare, partly funded via a US$ 110 million bank loan; this was the company’s first local wholly owned healthcare investment., although it has healthcare investments in Saudi Arabia and Bahrain. Its education portfolio includes schools’ operator Taaleem, Abu Dhabi University Holding and Middlesex University Dubai, along with owning the property assets of the North London Collegiate School in Dubai.
Deyaar Development posted impressive Q1 results, with revenue coming in 51.0% higher at US$ 41 million, and profit almost six times higher at US$ 4 million on the year. The Dubai-listed developer, majority owned by DIB, “expects demand to grow even more with the economic recovery in the emirate and the effort that the government [is making] towards executing the Dubai Urban Master Plan 2040”. Earlier in the year, it announced the handover of its Bella Rose project, in Dubai Science Park, comprising 478 residential units and that construction had started on its residential project Midtown, adding eleven more buildings to the development.
Last week, it was all systems go for DFM’s first major IPO for over three years, with full page ads taken out in the local press amid much fanfare; it had announced plans to float 24% of its shares. Yesterday came the shock announcement that Dubai-based logistics company Tristar had dropped plans to float its company as “shareholders’ expectations were not met”, with the board having a last-minute change of mind believing that “that greater returns can be realised executing Tristar’s current growth strategy under the established shareholder structure.”
The bourse opened on Sunday 11 April and, having gained 25 points (1.0%) the previous week, was up a further 50 points (1.9%) to close on 2,633 by Thursday 15 April. Emaar Properties, US$ 0.03 higher the previous week, moved up another US$ 0.06 to close at US$ 1.06. Emirates NBD and Damac started the week on US$ 3.17 and US$ 0.33 and closed on US$ 3.26 and US$ 0.34. Thursday 08 April saw the market trading at 184 million shares, worth US$ 89 million, (compared to 172 million shares, at a value of US$ 45 million, on 08 April).
By Thursday, 15 April, Brent, US$ 6.21 (8.7%) lower the previous three weeks, dipped US$ 0.04 lower to close on US$ 63.38. Gold, up US$ 29 (1.6%) the previous fortnight, was US$ 5 higher, by Thursday 15 April, to close on US$ 1,761.
Opec revised oil demand growth upwards by 100k bpd for 2021, as the global economies begin to improve on the back of a stronger economic rebound, boosted by stimulus programmes, reduced lockdowns, and successful vaccine programmes in some countries in the world’s largest economies countries. It is forecast that global oil demand will increase by 6.6% this year to 96.5 million bpd. The producers will now bring back the 2 million bpd that was deferred three months ago due to uncertainty over any global economic recovery, and will start over the next two months – by 350k bpd and 450k bpd in May and June. Saudi Arabia, which had supported the group’s restrictions by volunteering to cut 1 million bpd until April, will phase out the curbs from May onwards.
Several commodities trading houses are currently investigating why their web domains have been imitated and registered to an email address of an employee of Liberty House – Sanjeev Gupta’s commodities trading and industrial group and part of his GFG Alliance conglomerate. Registrations include concordresources.net, (with the London-based trading house Concord Resources planning to send GFG a cease-and-desist letter), and szmhgroups.com (similar to the szmh-group.com site of the steel trading group, Salzgitter Mannesmann). An FT report notes that Greensill Capital’s administrators have been unable to verify some of the invoices used for Greensill to lend money to Gupta’s group. It seems that some of the companies listed on the documents denied that they have ever done business with GFG or is associated companies. Meanwhile, life sems to be getting more worrying for Greensill’s high profile special adviser, David Cameron, as his role and super connections with high government officials are the subject of more than one official government enquiry. The ex-prime minister was reportedly to receive 1% of Greensill’s value when it went public which could have been as high as US$ 800 million – now worth nothing.
The Japanese-owned ship that blocked the Suez Canal for almost a week last month is still stuck in the Suez Canal for different reasons. The Ever Green container ship is being held by officials pursuing a US$ 916 million compensation claim, including US$ 392 million, as a “salvage bonus”, and US$ 392 million for “loss of reputation”. The Suez Canal Authority’s chairman, Osama Rabie, commented that the Ever Given would not leave until the investigation was finished and compensation paid, adding that the canal had borne “great moral damage”, as well as shipping fee losses and salvage operation costs. Meanwhile, Maersk has warned customers that it does not expect a quick return to normal shipping in the Suez Canal and that global supply chains will be disrupted for weeks.
Toshiba’s chief executive, who had been masterminding a US$ 20 billion buyout bid from UK private equity firm, CVC Capital Partners, surprisingly resigned on Wednesday; a statement from Toshiba gave no reason for Nobuaki Kurumatani’s resignation. However, he had faced criticism from activist shareholders over the bid from CVC, his former employer, arguing that it was far below the company’s fair value. Toshiba’s chairman Osamu Nagayama said CVC’s bid was unsolicited and lacking in substance and requires cautious consideration. Its shares were up more than 6% in Asian morning trading on Wednesday, following media reports of potential rival bids for the company.
The fact that on its stock market debut, Cryptocurrency firm Coinbase, which runs a top exchange for Bitcoin and other digital currency trading, hit a market value of nearly US$ 100 billion is a sure indicator that cryptocurrencies are gaining wider acceptance among traditional investors. The firm has done well when compared to just three years ago when, following a private funding round, it was valued at just US$ 8 billion – now, as per its initial stock market valuation, it is worth more than BP and many key stock exchanges. Coinbase, whose main revenue stream derives from charging transaction fees, has more than 56 million users across more than 100 countries, holding some US$ 223 billion in users’ assets at the end of March. Its reported Q1 revenue of US$ 1.8 billion was more than its total for all of 2020 – driven by the boom in Bitcoin and other digital currencies.
The man who founded Bernard L Madoff Investment Securities in 1960 and went on to con thousands of investors, out of tens of billions of dollars, has died in prison, where he was sentenced in 2009, to 150 years, after admitting that he had defrauded investors through a Ponzi scheme; an estimated US$ 65 billion was tied up in the scam. Despite Bernie Madoff’s firm being investigated eight times by the US Securities and Exchange Commission because it made exceptional returns, it became one of the country’s largest market-makers and he also served as chairman of the Nasdaq stock exchange. The fraud exposed holes at the US Securities and Exchange Commission and was a wakeup call for the audit profession. The disgraced financier told the court he started the Ponzi scheme in the early 1990s, but many reckon he was scamming his clients much earlier than that. All he was doing was collecting money from investors (and there was no shortage of them) and used that to pay off existing investors. Investors were entranced by the steady, double-digit annual gains that Madoff seemed to generate, and which others found impossible to explain or duplicate. When the 2008 GFC happened, that was his final curtain, as investors tried to recoup US$ 7 billion, and the firm did not have any to pay out.
According to International Data Corporation, Q4 witnessed an 8.2% jump in the Gulf region’s mobile phone market to 5.38 million units, with smartphone shipments up 2.3% to 4.26 million users; feature phone shipments moved 38.3% higher to 1.12 million units. Value-wise, the smartphone market was up 39.5% to US$ 1.62 billion in Q4, growing faster than the feature phone market’s value with a 22.2% quarterly growth to US$ 19.2 billion. 5G shipments accounted for 16.5% of all smartphone shipments. The three best-selling brands were Samsung, Apple and Xiaomi, but all three suffered from supply shortages which will still cause problems in Q1, as sales will almost certainly decline by up to 1.0%.
Launched in 2012, Grab, the Malaysian ride-hailing and food delivery firm, is preparing to list US$ 4.0 billion worth of shares in the US which would value the company at around US$ 40.0 billion to become the largest US share offering to date by a South East Asian company. Shares will start trading in July, following a merger with US-listed Altimeter Growth Corp, set up, last year, as a Spac (special purpose acquisition vehicle), specifically for the purpose of finding a private firm to merge with and then take public on the stock market. (Known as “blank cheque companies”, they are seen as a faster route to taking a company public with less scrutiny). As is the case with many similar IPOs, Grab has yet to make a profit, with 2020 net revenue of US$ 1.6 billion.
Although Tesco has announced a 7.0% hike in sales to US$ 73.5 billion, it posted a 17.5% slump in full-year profits to US$ 1.17 billion, which included a US$ 1.24 billion abnormal spend to carry on trading through the Covid pandemic, including giving full pay to staff off work ill or shielding and US$ 736 million forgoing business rates relief. The sales growth was boosted by a 77% rise in online sales, whilst like-for-like sales rose by 6.3% for the group. The UK’s largest retailer expected that it would recover to a similar level in the previous financial year as well as a strong recovery in profitability as most of the costs incurred in the pandemic would not be repeated. Covid-19 hit Tesco Bank’s profits which moved into negative territory, with a loss of US$ 241 million, compared to a 2019 profit of US$ 266 million. The 2020 deficit was attributable to the pandemic resulting in less income from loans and credit cards and an increase in bad debts.
To tackle post-Brexit trading difficulties, retailer JD Sports has decided to solve part of the problem by opening a 65k sq ft warehouse in Dublin, after launchng a similar facility in Belgium; it is also considering a further warehouse in the EU from which it would process all the bloc’s online orders. Currently, the products it imports from East Asia attract tariffs when they are distributed onward to its stores across Europe. Its chairman, Peter Cowgill, noted that “there was no true free trade with the EU, because goods that JD Sports imports from East Asia incur tariffs when they go to its stores across Europe” and that “All the spin that was put on it about being free trade and free movement has not been the reality.”
It seems likely that that French lawmakers will ban short-haul flights of less than two and a half hours where rail alternatives exist. This is part of the Macron administration’s bid to reduce carbon emissions and will become law if passed by a further vote in the Senate. This could see the end of flights between the capital and cities such as Nantes, Lyon and Bordeaux. Noting that a plane will emit 77 times more CO2 per passenger than the train on these routes, the French consumer group UFC-Que Choisir called for all flights of less than four hours but this was cut following objections from some regions and the airline Air France-KLM. The vote to scrap certain flights came days after the French government more than doubled its stake in Air France, with the government previously offering US$ 8.3 billion in loans to help the airline battle the pandemic.
Microsoft Corp is set to spend almost US$ 20 billion to acquire Nuance Communications, a tech firm known for helping to develop Apple’s Siri speech recognition software. The tech giant’s second largest purchase, following its 2016 acquisition on LinkedIn, will reportedly bolster its software and AI expertise for healthcare companies at a time when so-called “telehealth” has boomed during the pandemic. Its chief executive, Satya Nadella, commented that “Nuance provides the AI layer at the healthcare point of delivery,” and “AI is technology’s most important priority, and healthcare is its most urgent application.” Nearly 80% of US hospitals are already Nuance customers and this purchase will dramatically expand Microsoft’s potential market in the health care industry.
It has not been a happy half year for Jack Ma that has seen the Chinese government suspend his Ant Group’s IPO last November, seemingly followed by a travel ban from leaving the country. Earlier, he had told a gathering of China’s leading regulators that they were stifling innovation. Now Alibaba has been fined by regulators a sum of US$ 2.78 billion, (4% of its 2019 revenue of US$ 69.5 billion) for “abusing its dominant position” for several years. Perhaps not surprisingly, the company said it accepted the ruling and would “ensure its compliance”. It was felt that Alibaba had restricted competition by stopping some sellers using other platforms. Other Chinese tech giants are being closely monitored by the regulators and last month, twelve of them, including Tencent, Baidu, Didi Chuxing and SoftBank, were fined.
Chinese authorities have begun to crackdown on the country’s fast-growing tech platforms, as regulators have ordered a sweeping restructure on the Ant Group, so the financial technology firm acts more like a bank. The People’s Bank of China will subject it to tougher regulatory oversight and minimum capital requirements. This comes after Ant Group’s US$ 37 billion IPO was surprisingly canned days before its November launch and last week its affiliate company Alibaba was fined US$ 2.8 billion over monopoly concerns. Ant is China’s biggest payments provider, with more than 730 million monthly users on its digital payments service Alipay. The central bank has also introduced a “comprehensive and feasible restructuring plan,” for Ant that would cut the “improper” linkage between Alipay, and its credit card and consumer loan services.
Although March Chinese factory prices hit a more than two-year high, at 4.4%, compared to a year earlier, and pointing to a stronger economic recovery, there are concerns it could filter through to the global economy whose recovery is well behind that of China; the country was the only major economy to expand last year. Now with the worldwide vaccination making a positive impact in many countries, with restrictions and lockdowns being lifted, demand for Chinese goods is beginning to rise. Much of the increase in Chinese factory gate prices has been due to factors such as rising international commodity prices, including oil, iron ore and copper, along with a jump in local production. Because the country is the largest exporter of manufactured goods, any inflationary pressure in China will inevitably be passed to other economies, giving central banks another problem to deal with, in addition to trying to maintain ultra-loose monetary policies and low interest rates as inflation levels begin to move higher. Last week, the IMF raised its growth forecast for China to 8.4%.
In Q1,China’s economy grew a record 18.3% but this figure is skewed somewhat because last year’s figures came in the midst of the economy contracting because of Covid-19; in Q1 2020, the economy had contracted by 6.8%. Other comparative data will be similarly impacted because of the pandemic. Industrial output for March rose 14.1% over a year ago, while retail sales grew 34.2%. Many analysts consider that the economy’s rebound is largely down to exports, as factories work to fill overseas orders as the global economy starts to improve.
Wall Street stocks have climbed to fresh record highs fuelled by strong earnings and US economic data, with the Dow Jones up 0.9% on Thursday to a new record high of 34,036. Not to be outdone, the S&P 500 moved higher on the day by 1.1% to close at its record high of 4,170, driven by tech stocks such as Apple, Facebook and Microsoft. The Nasdaq Composite rose 1.3% to 14,039. The markets were helped by solid results from the likes of Bank of America, (with Q1 profits double that of a year earlier), as Citigroup and Blackrock posting double digit profit growth. There was also favourable economic data, including US retail sales up 9.8% in March, weekly first-time claims for unemployment benefits falling 193k to 576k, the lowest level since March last year, and March manufacturing production increasing by 2.7% in the month.
Still trying to form a government and in the midst of its worst economic crisis, Lebanese inflation in February topped an annual 155.4%, 4.5% higher on the month and the eighth consecutive triple-digit CPI increase. Restaurant prices surged 618% in February and clothing/ footwear by 609%. The country will be the recipient of billions of dollars of aid from the IMF and donors, once a national government is in place. The jump in inflation is partly down to the inability of authorities to monitor and contain prices and also to the slump in the Lebanese pound which has been in free fall and lost as much as 90% of its value against the greenback on the black market. Before the onset of the latest crisis the pound was pegged at 1,507 to the US$, whilst on the black-market last month it was trading at 15,000 to the US$ before retreating to its current 12,000 level. In 2019, the economy contracted 6.7% and by 25.0% last year, with more of the same this year, more so if a government cannot be formed. By the end of January, the public debt had almost reached US$ 96 billion, equating to 194% of GDP.
Following January’s 42% slump in exports, between UK and EU trade, February saw a recovery, with growth figures of 46.6%; likewise, imports improved over the month, but at a weaker rate of 37.0%. Despite the much-improved figures, along with the UK economy growing 0.4% in the month, the fact is that the economy is still 7.8% smaller than a year ago; however, lockdowns and restrictions were still in place for the first two months of 2021. Although exports recovered well in February, imports have still not bounced back, as bureaucratic issues continue to hamper much progress. There is no doubt that consumer confidence is on the up and, notwithstanding a further lockdown, the UK economy will benefit from pent-up demand, which will result in increased spending in restaurants and pubs, with more people booking holidays.
March average UK house price hit a new record high of US$ 349k, as the market bounced back after Rishi Sunak extended the stamp duty holiday to 30 June which had been scheduled to expire on 30 March. Prices were 6.5% higher on the year, 0.3% on the quarter and 1.12% up, month on month. Apart from the stamp duty “present”, the sector has benefitted from the new mortgage guarantee scheme, (which encourages lenders to provide mortgages on deposits as low as 5%), continuing historically low mortgage rates and pent-up demand following the first lockdown. Prices have risen across the country, as demand continues to outstrip supply, with many buyers looking for larger properties and more outdoor areas. However, the canary in the coal mine remains that the UK economy has just gone through its worst year for centuries, with the economy contracting a record 9.9%, so when the stamp duty holiday is closed, taxes increase, rates edge higher and government rescue packages are tapered, it is inevitable that the longer-term UK housing outlook is not as rosy.
Following the end of its third lockdown, since the March 2020 onset of Covid-19, England’s hospitality sector received a US$ 430 million boost in the first week, after the reopening of the country’s restaurants, cafes and pubs. Following three months of closure, they finally opened their doors on Monday. With the vaccine campaign going so well in the country, consumer confidence continues to head north, up 3.0 to 106.4 in March. In 2019, hospitality was the country’s third biggest employer (3.2 million workers), generating US$ 180 billion in economic activity and contributing US$ 55 billion in tax. Pre-pandemic, it was estimated that individual households spent US$ 800 a week on dining which dropped to almost zero. After the first two lockdowns, diner numbers jumped 33% and 56% respectively, so it is no wonder that this week the numbers were even greater. To get the economic recovery moving faster, the short-term message to the country is to get out and spend money. Let The Good Times Roll!