Go East Young Man

Go East Young Man!                                                                                     24 June 2021

For the past week ending 24 June, Dubai Land Department recorded a total of 1,982 real estate and properties transactions, with a gross value of US$ 2.10 billion. It confirmed that 1,336 villas/apartments were sold for US$ 706 million and 98 plots for US$ 187 million over the week. The most popular locations were in Marsa Dubai, with 131 sales transactions worth US$ 93 million, Al Thanyah Fifth with 119 sales, at US$ 32 million, and Dubai Investment Park, with 117 sales for US$ 9 million. Mortgaged properties for the week totalled US$ 1.18 billion, including a plot for US$ 272 million in Business Bay. 84 properties were granted between first-degree relatives, worth US$ 91 million.

A European investor has paid US$ 90 million for a plot in Palm Jumeirah – the highest valued Dubai land sale this year. Located adjacent to the Zabeel Saray five-star hotel, it encompasses over 671k sq ft; the anonymous buyer has yet to reveal what is going to be built on the land. The site is one of forty plots marked for hotel/mixed use projects on the Palm’s Crescent – and one of the last such sites available.

Knight Frank’s latest (Y)our Space report, places the UAE home to 869 green-rated buildings, 14th globally for the highest national concentration of sustainable buildings. Other GCC countries were somewhat eclipsed by the UAE with Saudi Arabia, (38 green-rated buildings) Kuwait (12) and Oman (12) being ranked 54th, 69th and 70th. The UAE is committed to the Paris Agreement on climate change to reduce its greenhouse gas emissions by 23.5% by the end of the decade.

Ahead of this week’s four-day Arab Health medical equipment exhibition, JAFZA announced that it had seen a 12% expansion in its healthcare and pharmaceuticals customer base last year. The free zone’s specific segment spans an area of around 170k sq mt, and houses 174 companies from 41 countries. Employing 1.1k, the sector was valued at US$ 273 million, with a 25k metric tonne volume.

Before the school summer holidays, and the Eid Adha long holiday next month, Dubai International is expecting a marked improvement in passenger numbers, which will see an extra 3.5k personnel required to deal with the rush, as its main terminal reopens this week. For the past fifteen months, sixty-six airlines have been utilising Terminals 2 and 3 and today they have shifted operations to Terminal 1, with Terminal 3 being solely used by Emirates, flydubai and Qantas; Emirates has posted that it expects 90% of its flight schedule back to normal by the end of July.The new Terminal 1 arrangement will allow the airport handle a further 18 million passengers. In 2020, traffic slumped 70% to just 25.9 million but the operators are confident of returning to 90% of pre-pandemic levels by the end of the year.

Following completion of the first phase of the port’s expansion this week, DP World and the Government of Somaliland inaugurated the new container terminal at Berbera Port which sees its container capacity more than triple from 150 20’equivalent units to 500 TEUs. The terminal, which can handle the largest container vessels in the world, has a 17 mt deep draft, along with a quay of 400 mt and three ship to shore gantry cranes; it also includes a modern container yard with eight rubber tyred gantry cranes with a new port One Stop Service Centre, ready by the end of Q3. DP World has committed to investing up to US$ 442 million to develop and expand Berbera Port to help it become a major regional trade hub to serve the Horn of Africa.

Mercer’s latest Cost of Living survey sees of 209 cities sees Dubai dropping to 42nd, down from 23rd last year, and Abu Dhabi to 56th from 39th in 2020. The UAE has seen its cost of living declining due to the diversification of its economy, which reduced the impact of low oil prices on GDP, and subsequently deflation. The three most expensive cities for expatriates to live and work in were Ashgabat in Turkmenistan, Hong Kong and Beirut, which had been placed at 45th a year earlier. More than half of the top ten cities were in Asia, with Shanghai (6th), Singapore (7th), with Beijing (9th). Zurich (5th), Geneva (8th) and Bern (10th); New York and London came in at 14th and 18th. The world’s cheapest city is Bishkek, the capital of Kyrgyzstan, followed by Lusaka in Zambia and Tbilisi, Georgia. The ranking measures the comparative cost of more than two hundred items, including housing, transportation and food.

In a bid to bolster the SME sector, state-owned Emirates Development Bank has signed an agreement with Dubai-based Beehive who will be provided with over US$ 8 million to provide loans to “creditworthy” clients. The Dubai-based peer to peer platform will help firms expand their operations or boost their working capital with much needed funding. Over the next five years, EDB has a five-year plan to provide US$ 8.17 billion (AED 30 billion) financing to support the country’s efforts to more than double the size of its industrial sector by 2031, as well as generating 25k new jobs. The bank has also signed two separate agreements with RAK Bank and CBD to offer credit guarantees and participate in co-lending programmes to SMEs.

Although already rising at a comparatively fast rate, Covid-19 accelerated the growth of online retail even higher to 53% to US$ 3.9 billion last year, equating to 8.0% of the country’s overall retail market. A Dubai Chamber of Commerce and Industry report projected the value of the online retail e-commerce market will more than double to US$ 8.0 billion by 2025. Drivers behind this surge include high internet penetration, developed transport logistics, modern digital payment systems, a tech-savvy youth and strong government support. E-commerce sales in the Middle East and North Africa region are set to triple to US$ 28.5 billion in 2022, from US$ 8.3 billion in 2017.

Dubai Economy has extended the deadline to 30 June for all registered businesses in the emirate to add their Beneficial Owner data to the commercial registry, in line with the UAE Cabinet Decision No. (58) of 2020. The Decision requires all registered businesses in the UAE to reveal the identity and furnish details of their Beneficial Owner to be included in the commercial registry as part of enhancing corporate compliance in the country per global best practices. All registered businesses in Dubai must register their Beneficial Owner data, irrespective of their category.

Under its Euro Medium Term Note Programme, Dubai Government has repaid a ten-year US$ 500 million Fixed Rate Note that matured on 22 June 2021. Abdulrahman Saleh Al Saleh, Director General of DoF noted that “the government’s solvency has allowed it to fulfil its past and current obligations and will continue to enable it to meet all future obligations on time.”

According to Humaid Al Miuhairi of the Ministry of Economy, government economic Covid-related support initiatives has reached a total of US$ 107.6 billion. He also indicated that the UAE Central Bank estimated a 2021 growth of 3.6%, slightly higher than the IMF’s latest forecast of 3.1%. He also commented that “the growth rate of government revenues from economic activities has increased by 115% in Q4 2020, compared to Q3; Q1 came in 13% higher than the previous period. The country also saw the number of newly registered companies up 4% in 2020, year on year.

Led by GMP Investments, locally-based The Luxury Closet has raised US$ 14 million to finance global expansion, as the online marketplace witnessed a surge in online sales and demand for recycled fashion. The nine-year old on-line marketplace resells luxury goods in eighty-five countries from its platform and has benefitted from the worldwide restrictions and lockdowns which has seen a real boost in its business. Founder, Kunal Kapoor, commented that “resale is the future of shopping. We expect one in six transactions to be pre-owned by the end of the decade.”

This week, “The Bitcoin Fund”, Canada’s largest digital asset investment fund manager, was launched on Nasdaq Dubai and becomes the first listed digital asset-based fund in the MENA region; it will be dual listed as it has been trading on the Toronto Stock Exchange. 3iQ, with more than US$ 2.0 billion in assets, will manage the fund that offers investors indirect exposure to Bitcoin by trading its units within a world-class regulated and transparent exchange environment. The fund will have Dalma Capital and Canaccord Genuity as the joint-lead arrangers, with BHM Capital having been appointed as the Fund’s Liquidity Provider.

It seems that Maple Invest has notified Damac Properties that it is delaying its offer to buy out the traded shares of the Dubai developer, awaiting the findings of a regulatory review. The developer’s founder, Hussain Sajwani, owns both Maple Invest and 72% of Damac and has made a US$ 595 million offer to buy the remaining shares, equating to US$ 0.354 a share. Damac has appointed KPMG Lower Gulf as valuer and Arqaam Capital as financial adviser to evaluate the offer from Maple, with Al Tamimi & Company being named as legal adviser.

Another step in the Arabtec Group companies’ liquidation was taken this week with the Court appointment of trustees for each of the seven companies involved – Arabtec Holdings, Arabtec Construction LLC, Austrian Arabian Readymix, Arabtec Precast, Arabtec Constructions LLC, Emirates Falcon Electromechanical Co, with one more bearing the same name. They have been given thirty-five days to record all the creditors and review the accumulated debts. The Dubai Court of First Instance also instructed each trustee to prepare an “initial separate report” on the that company’s assets and its rights with third parties, as well as to submit their opinion of the management and the preservation of company assets.

The bourse opened on Sunday 20 June, 238 points up (9.1%) the previous seven weeks, was flat shedding just 6 points to close on 2,857 by Thursday 24 June. Emaar Properties, US$ 0.06 higher the previous week, gained US$ 0.03 to close at US$ 1.15. Emirates NBD and Damac started the previous week on US$ 3.81 and US$ 0.35 and closed at US$ 3.76 and US$ 0.35. On Thursday, 97 million shares changed hands, with a value of US$ 55 million, compared to 123 million shares, with a value of US$ 71 million, on 17 June.

By Thursday, 24 June, Brent, US$ 7.63 (11.7%) higher the previous five weeks gained US$ 2.55 (3.5%) to close on US$ 75.50. Gold, US$ 112 (5.9%) lower the previous week, shed US$ 7 (0.4%), by Thursday 24 June, to close on US$ 1,777.

Within two years, Lego plans to be using bricks made from recycled drinks bottles but will have to ensure that the product can last for decades and that they can be used in conjunction with their existing bricks made from acrylonitrile butadiene styrene (ABS), a virgin plastic made from crude oil. Lego makes about 3.5k different bricks and shapes.  In 2018, Lego set a goal to make all of its core products from sustainable materials by 2030 and now the target is to find a product good enough that people do not notice the difference. The toy manufacturer wants to start using the US-sourced bottle-made ones “as soon as possible” with the next stage adding colours to the prototype bricks, and then user testing. Green Alliance said the recycled plastic plan is “certainly preferable to using virgin plastic but “hopes the supply of single use plastic bottles falls in future as people embrace reuse”.

With Morrisons rejecting an initial US$ 7.7 billion takeover offer from Clayton, Dubilier & Rice, a US private equity giant, its share value increased by 30% on Monday. The US private equity giant is backed by Sir Terry Leahy, who headed up Tesco for fourteen years. The Board rejected this unsolicited offer on the basis that the “conditional proposal significantly undervalued Morrisons and its future prospects” on the day the shares were trading at US$ 3.316, US$ 0.098 higher than CD&R’s offer price. This would point to an increased offer on the cards which has kept Morrison’s shares moving higher and, under UK takeover rules, CD&R has until 17 July to announce a firm intention to make an offer. Coincidentally, last week the UK competition watchdog approved the US$ 9.52 billion buyout of Asda by the Blackburn billionaire Issa brothers, as shares in competitors, such as Ocaido, Sainsbury’s and Tesco, rose 4.4%, 3.0% and 2.7% on the chance that the latest takeover offer could be the forerunner of more takeovers in the future.

China continues to show its displeasure at the use of cryptocurrencies by telling banks and payments platforms to stop supporting digital currency transactions and to take tougher action over the trading of cryptocurrencies; with that report on Monday, the currency, along with others, fell 10%. This follows last week’s government directive shutting down Bitcoin mining operations in Sichuan province. It is reported that the country mined 65% of 2020 global production. This comes a month after China’s cabinet said it would crack down on cryptocurrency mining and trading as part of a campaign to control financial risks. Also, at the beginning of the week, a short-term average trendline crossed below a long-term average trendline, known as a “death cross” occurred which was another factor for the price fall. Despite all this, Sotheby’s is getting in on the act by allowing cryptocurrencies to be used when it puts up a rare pear-shaped diamond that is expected to sell for as much as US$ 21 million at an auction next month.

By Tuesday, Bitcoin dipped below the US$ 30k mark and briefly dropped to US$ 28.6k – a five-month low. The value of the cryptocurrency has fallen by around 50% since hitting a record high US$ 63k+ in April and ended on Thursday trading at US$ 34.6k. Other cryptocurrencies were dragged down with Bitcoin, including Ether and Dogecoin. As short-term fundamentals continue to worsen, there is every chance that its new bottom may well be around US$ 20k as the long-running bull market comes to an end – only for the time being.

Last year, when the bilateral trade spat was becoming more acrimonious, China imposed up to 218% tariffs on incoming Australian wine in retaliation. It is going to file an official complaint with the World Trade Organisation after extensive consultation with winemakers. The Morrison government, which has denied China’s claim that the tariffs were increased because of trading malpractice, including dumping, confirmed that it was open to engaging directly with China to resolve the issue. Until then, China had been Australia’s top wine export market and the imposition of such high tariffs has wreaked havoc on the industry. In Q1, the total value of exported wine to China was just US$ 9 million, compared to US$ 250 million in the same 2020 period.

CBA, Australia’s biggest home lender, became the third major bank, (after Westpac and ANZ), to warn that interest rates will rise before the end of 2022, a lot earlier than the 2024 date that the Reserve Bank of Australia had been forecasting that it would be raising the cash rate. CBA considers that the current 0.1% rate will reach 1.25% by September 2023, with the first increase of 0.15% commencing in November 2022.If that were to happen, it would take the official rate back to what it was in June 2019 and only slightly below the 1.5% rate in 2016. If the CBA’s forecast turns out to be true, the typical owner-occupier mortgage rate will rise from 3.10% to 4.25% and the average investor rate from 3.44% to 4.59%. On a US$ 380k (AUD 500k) mortgage, that rate increase would result in a US$ 247 (AUD 324) per month increase in repayments.

The latest May statistics, produced by IHS Markit/CIPS, indicate that consumer prices have risen and that input costs rose at the fastest rate since 2008. Furthermore, as raw material prices soar, with supply chains spluttering, inflation of prices charged by firms hit its highest since records began in 1999; it sees May CPI at 2.1%, a two-year high, at a time when the IPS Markit/CIPS Composite Purchasing Managers’ Index’s reading was 61.7 – a sure sign that the UK economy is expanding faster than most analysts had predicted. There is now a real possibility of the economy overheating and that being the case, the BoE will be forced to raise rates earlier than they had hoped to slow down rising prices. However, those in the other camp expect that the current uptick in the economy could be a temporary blip and that prices pressures will soon ease.

Q1 saw UK food and drink exports to the EU dip 47% from the same period a year earlier, with the main drivers being UK’s shaky trading relationships with the bloc, over-zealous EU bureaucracy and the impact of the pandemic. The Johnson government noted that it was “too early to draw any firm conclusions” on the long-term impact of Brexit but indicated that the last two months had seen a marked uptick in trade, exceeding the average monthly levels across 2020. Badly hit sectors included exports of cheese, fish and chocolate – all down by 72%, 52% and 37% on the year. Country-wise, the five countries which saw comparable significant trade falls were Ireland, Spain, Italy, Germany and Denmark, with falls of 70.8%, 62.9%, 61.0% 54.9% and 39.9% respectively. For the first time this century, shipments to Europe accounted for less than 50% of the UK’s total exports, with Q1 non-EU exports accounting for 55% of the country’s total exports.

In the UK, May retail sales dipped a disappointing 1.4%, month on month, as many seemed to prefer visiting reopened bars and restaurants instead of buying food at supermarkets. Interestingly, sales at non-food shops rose 2.3%, on demand for outdoor furniture, whilst online sales were lower, (for the third consecutive month but still 60% higher, year on year), as people returned to physical shops. With sales decreasing 5.7% at food stores, sales in the hospitality sector moved in the other direction Although there were declines in sales for both clothing and department stores, (following strong growth in previous months), year on year both were up 28.9% and 12.6%. One worrying statistic is that that credit and debit card payments in the seven days to 10 June were 5% lower compared to February 2020 and there is a chance that the current pent-up spending may fizzle out sooner than many had forecast – and when the furlough scheme is pulled and inflation nudges inexorably higher.

Having applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on 01 January 2021, (the day after leaving the EU), the UK is set to start negotiations with the eleven-nation bloc which includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Membership of the CPTPP, which has a 500 million plus population, would reduce tariffs on UK exports such as cars and whisky. If the UK succeeds with its application, it would become the first non-founding country to apply to join the CPTPP and would be its second biggest economy after Japan. The free trade agreement aims to reduce trade tariffs between member countries and includes a promise to eliminate or reduce 95% of charges on traded goods. International Trade Secretary Liz Truss said that membership would help “farmers, makers and innovators sell to some of the biggest economies of the present and future, but without ceding control over our laws, borders or money”. In reality, with deals already in place with eight of the CPTPP members, joining may add as little as 0.1% to the size of the UK economy, and the UK may have to concede some points to get the deal through. To put matters into perspective, trade with the US is twice as important to the UK as all the CPTPP nations put together. However, as trade between the UK and the EU declines, trade with the existing eleven members is set to increase by 65%, to around US$ 52 billion, between now and 2030. On top of that, there is every chance that bloc numbers will expand, with the likes of Indonesia, the Republic of Korea, the Philippines, Taiwan and even the US as possible joiners. Traditional advice to exporting businesses used to be Go West, now it seems that the government’s guidance may change to Go East Young Man.

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