Out Of Time!

Out Of Time!                                                                                                  22 July 2021

A new survey Numbeo confirmed what many Dubai expats knew already – that the country’s residential rents are on the high side. UAE was ranked fourth globally spending the highest percentage of their monthly expenditure on rent. Using a three-bedroom house as the base, a study by money.co.uk noted that in the typical family of four, living in the UAE, spent an average 39.85% of their monthly outgoings on rent – US$ 1.9k – whilst their monthly cost of living came in at US$ 2.9k. The three countries were rent came in higher were Hong Kong, Singapore and Qatar, at 50.25%, 47.08% and 43.73% as a percentage of total spend; in terms of expense, Hong Kong, Singapore and Switzerland were the most expensive at US$ 3.8k, US$ 3.1k and US$ 2.6k. Kuwait, Ireland, the US, Bahrain, Australia and New Zealand round out the top ten list of destinations where rent accounts for maximum household spend. The cheapest country is Saudi Arabia, at US$ 0.6k, equating to 19.07%, while other expenses add up to US$ 2.5k. In Europe, Greece has the lowest rent of US$ 0.62k, compared to the cost of living, at US$ 2.52k, or 19.73% of the average monthly expenditure. In US$ terms, Turkey had the lowest rent at US$ 0.342k but average cost of living expenses were almost four times higher at US$ 1.36k.

Having sold US$ 163 million worth of units in Q1, Sobha is on track to reach sales of US$ 681 million, (AED 2.5 billion), in 2021 as the Dubai property sector gains traction and prices move markedly higher; it aims to deliver 1.6k units this year. The Dubai developer is building the eight million sq ft US$ 4 billion Sobha Hartland master development near Mohammed bin Rashid City, which started in 2014 and is slated for completion by 2025; 50% of the construction work has been completed. Sobha estimates that more than half of its customer base is from the UAE, with international buyers from India, China, Africa, Europe and other Gulf countries making up the rest. It has plans for further big master developments like Hartland in the future which will be financed through a mix of debt and equity.

HH Sheikh Mohammed bin Rashid Al Maktoum has introduced legislation that will see the creation of Dubai Academic Health Corporation that will comprise DHA’s Dubai Healthcare Corporation, including the hospitals and organisational units under it – the Mohammed Bin Rashid University of Medicine and Health Sciences, Dubai Dental Hospital, Al Jalila Foundation and Al Jalila Children’s Specialty Hospital; the whole consolidation process should take about six months. The primary aims of the exercise are to enhance the emirate’s position as a global hub for medical and life sciences, a healthcare and medical tourism destination and a leading centre for medical education, research and scientific innovation. The new entity is tasked with managing and operating health facilities including hospitals, primary healthcare centres, specialised care centres, medical fitness centres, and public health and occupational health centres.

DIB, one of the main creditors in the NMC Healthcare scandal, has confirmed that it remained committed to the restructuring of NMC Healthcare but said the process “must be based on an acknowledgement of existing legitimate security interests” after winning the latest round of a legal tussle with the joint administrators.  Alvarez & Marsal, had brought legal action against the bank in March in a dispute related to the lender’s attempts to enforce its security over sums held by twelve insurers that the healthcare company had set aside as collateral for loans. The bank had challenged a September court decision that ruled that a moratorium on all legal proceedings related to the healthcare group had been secured once NMC Healthcare and thirty-five other entities were placed into administration. It is reported that DIB would only recover US$ 19 million through the formal restructuring process, without imposing security, or US$ 86 million through the imposition of securities. It is easy to understand why the bank took the steps it did.

Last Friday, a court in the UK ruled that NMC’s former deputy chief financial officer, Suresh Kumar, will have to proceed with his defence of a US$ 1 billion fraud case brought by the healthcare group’s biggest lender, Abu Dhabi Commercial Bank, against former directors. Other company officers had challenged the UK court’s jurisdiction to hear the case.

Meanwhile, BR Shetty, the founder of NMC Health, has filed a case in New York accusing ex-directors, two banks and the company’s former auditors of conspiring to “artificially inflate the financials of NMC” and other group companies. He alleges that this fraud, involving eight different parties, resulted in shareholders suffering estimated losses of US$ 10 billion as the result of the “massive financial fraud”. The eight defendants include NMC’s former chief executive Prasanth Manghat, ex-UAE Exchange chief executive Promoth Manghat, Neopharma executive Vadakke Kootala and Nexgen Pharma executive Suresh Kumar Nandiraju, along with Netherlands-based Credit Europe Bank, India’s Bank of Baroda and auditors EY’s global and Europe, Middle East, India and Africa division, who allegedly acted as conspirators.

Despite the negative impact of Covid-19 on the banking sector, Mashreq managed to turn in an H1 profit of US$ 436 million – 4.6% higher than a year earlier – on a 1.4% rise in operating income to US$ 790 million, attributable to improvements in fees and commission; its non-interest income to operating income ratio improved to 49.8%. The rise in profit was “as a result of increased operating income and reduced operating expense.” Its impairment provision was 53.4% higher at US$ 409 million, “reflecting conservative provisioning policy.”

The bank’s focused strategy and advanced digital transformation program served Mashreq well throughout the first half of 2021. Three major indicators – capital adequacy ratios, Tier 1 ratio and liquid-to-total-assets ratio – came in at 14.0%, 12.8% and 31.8% respectively, with loan growth and customer deposits 8.0% and 8.1% higher.

Because of the Eid Al Adha holiday break, the bourse was only open for one day this week. It opened on Sunday 18 July, 149 points (5.2%) lower the previous four weeks, was 30 points (1.1%) to the good to close the shortened week on 2,744. Emaar Properties, US$ 0.08 lower the previous fortnight, closed flat at US$ 1.07. Emirates NBD and Damac started the previous week on US$ 3.61 and US$ 0.34 and closed at US$ 3.57 and US$ 0.34. On Sunday, 18 July, 67 million shares changed hands, with a value of US$ 17 million, compared to 120 million shares, with a value of US$ 59 million, on 18 July.

By Thursday, 22 July, Brent, US$ 2.64 (3.4%) lower the previous three weeks, shed a further US$ 1.03 (1.4%) to close on US$ 73.05. Gold, up US$ 78 (4.5%) the previous fortnight, shed US$ 23 (1.3%), by Thursday 22 July, to close on US$ 1,805.

Following overtures from the UAE and other members, Opec+ has decided to bring back a further 400k bpd from next month and will revise baselines used to calculate quotas from May 2022. Producers such as Iraq, Kuwait, Saudi Arabia, and Russia will see their baselines rise, whilst the UAE’s production will rise 0.332 million bpd to 3.5 million bpd. After weeks of deadlock, the members finally agreed to phasing out 5.8 million bpd of withheld supply, with a further review at the end of the year, and to extend its agreement until the end of December 2022.

According to the State Bank of Pakistan, the country posted a record US$ 29.4 billion of workers’ remittances for the twelve months ending June 2021 – a marked 27.1% increase from a year earlier; this included a total of US$ 2.7 billion remitted in June – the thirteenth straight month of monthly remittances of over US$ 2.0 billion. The top four remitting countries were Saudi Arabia, UAE, UK and USA, with figures of US$ 7.7 billion, US$ 6.1 billion, US$ 4.1 billion and US$ 2.7 billion respectively. This inward flow of funds has greatly assisted Pakistan’s external sector position, despite the challenging global economic conditions in the past year. Drivers behind the increase in remittances include the pandemic curtailing international travel, measures taken by the Khan government to incentivize the use of formal channels and altruistic transfers to Pakistan amid the pandemic.

One business to benefit from the pandemic is Crocs, posting record Q2 sales of US$ 640 million nearly twice as much as the same period last year, as net income before tax more than trebled from US$ 55 million to US$ 190 million. Making up about a third of the total, digital sales increased by 25.4%. The quirky shoemaker, noting that there was a strong global demand for shoes, upgraded 2021 revenue forecast growth from 50% to 65%. Crocs’ success has resulted in a surge of copycat companies, that inevitably bite into its sales figure, and it has filed a complaint with the US International Trade Commission and also trademark infringement lawsuits against twenty-one shops, including retail giant Walmart.

To many observers, Jamie Dimon is a lucky man, having already amassed a US$ 2.1 billion fortune. JP Morgan is lining him up for 1.5 million stock appreciation rights, that could be worth around US$ 50 million on paper. The bank’s chief executive, who was appointed in 2005 and has taken JP Morgan through the GFC, as well as making it the biggest and most profitable US bank, received almost US$ 32 million in compensation last year. The 65-year old has seen the bank’s share price nearly quadrupling over the past decade and is up 18% YTD.

McLaren Finance is to raise a bond issue of US$ 620 million, in an attempt to recoup losses, as it seeks to refinance existing bonds and bolster its balance sheet with the additional debt, arising from the impact of the coronavirus pandemic. The supercar-maker has already raised US$ 760 million from investors and has also sold and leased back its headquarters in Woking, near London, as well as a third of its racing unit to a consortium of US-based investors, in a bid to bolster flagging finances. The new bond is expected to be rated among the lowest rated debt.

US-based ice cream maker, Ben & Jerry’s, has upset some of its customer base by stop selling its products in the Israeli-occupied West Bank and East Jerusalem, saying the sales in the territories are “inconsistent with our values”. The Vermont-based company added that “we have a long-standing partnership with our licensee, who manufactures Ben & Jerry’s ice cream in Israel and distributes it in the region,” and “we have been working to change this, and so we have informed our licensee that we will not renew the license agreement when it expires at the end of next year.” Last month, a group, called Vermonters for Justice in Palestine, had called on Ben & Jerry’s to “end complicity in Israel’s occupation and abuses of Palestinian human rights”.

Driven by new, younger customers attracted to the brand’s savvy marketing campaigns, Burberry posted a massive 86% jump in revenue to US$ 661 million for the quarter to 26 June; strong growth in trench coats and handbags helped the cause, as comparable shop sales climbed 90% on the year, and up 1% on 2019 figures. The retailer was badly hit by Covid-19 and even sixteen months after the onset of the pandemic eleven of its 454 stores are still closed, whilst lack of international visitors is seeing revenue being affected; in addition, 35% of stores are still on reduced hours. Burberry has opened a flagship store in London and is expected to open three more in the coming year; these will become a major draw once air travel returns to pre-pandemic levels. Although Europe has yet to recover fully because of ongoing lockdowns, both Asia Pacific, (with strong growth in China and South Korea), and the Americas have witnessed sales growth of 27% and 341% respectively. Burberry sees revenue mileage in NFTs (non-fungible tokens), a type of digital asset, designed to show someone has ownership of a unique virtual item, such as online pictures and videos or even sports trading cards; it seems that Burberry is keen to tap into gaming and the fast-growing desire for NFTs with its collaboration with mythical games.

To meet the demands of increased interest in cryptocurrencies, including Bitcoin, Sarwa has launched its Sarwa Crypto portfolios, which have been globally diversified across class assets to include a 5% in Grayscale Bitcoin Trust (GBTC), the world’s first and largest publicly quoted Bitcoin Investment vehicle. This should be a safe way for many investors who have shown interest in cryptocurrencies but have shied away because to many it is seen to be a complex and inaccessible ‘asset class’, and they will be able to buy, store, and safekeep Bitcoin directly. Sam Bankman-Fried, a former trader at Jane Street Capital, founded the digital exchange, FTX, in May 2019, with the aim of building an exchange robust enough to be used by professional traders but easy enough for first-time users to manage. Last year, it managed to raise US$ 40 million from investors that gave the company a market valuation of US$ 1.2 billion. Following a later Series B round, in which it raised US$ 900 million to accelerate its growth plans and expand its global presence, it is now valued fifteen times higher at US$ 18 billion. FTX now has a customer base in excess of one million and an exchange that completes an average of US$ 10 billion worth of trades every day.

On Tuesday, Bitcoin fell below the US$ 30k level only to soar back the next day, trading 5.75% higher to close on US$ 31.4k, as Elon Musk said Tesla is “most likely” to start accepting it as payment again, having said in May that it would no longer accept the cryptocurrency for purchases. It had cited concerns over the environmental impact of Bitcoin mining which uses huge amounts of electricity. The Tesla chief told a B Word cryptocurrency conference that he had been investigating fossil fuel usage in Bitcoin mining. Critics had argued that it seemed incongruous that an environmentally friendly electric vehicle maker was allowing buyers to use energy-intensive cryptocurrency to purchase them. He also remarked that, along with the Bitcoin owned by Tesla and his rocket company SpaceX, he personally held Bitcoin and the cryptocurrencies Ethereum and Dogecoin. He also addressed claims that he had helped to artificially increase the price of cryptocurrencies before selling them saying “I might pump, but I don’t dump…. I definitely do not believe in getting the price high and selling… I would like to see Bitcoin succeed.”

New cryptocurrency laws proposed by EU regulators would see companies that transfer Bitcoin or other crypto-assets having to collect details on the recipient and sender. This law would make crypto-assets more traceable and would help stop money-laundering and the financing of terrorism; it would also ban anonymous crypto-asset wallets. The aim is for cryptocurrencies to be under tighter control and operate the same rules and regulations as wire transfers as well as ensuring that due diligence rules on customers take place.

After eight months of negotiations with US antitrust regulators, cloud computing company Salesforce has finally acquired Slack Technologies for US$ 27.7 billion.  Last year, Salesforce agreed to pay the messaging app’s shareholders US$ 26.78 for each company share, as well as a 0.0776% stake of Salesforce. The companies, that will now be a stronger rival to Microsoft’s Teams app, aim to offer solutions that let business entities use a single platform for connecting employees, customers and partners with each other and the apps they use every day – all within their existing workflows.

Whilst maintaining its two-year growth forecasts at 8.1% and 5.5%, the Asian Development Bank revised its growth projection for the Indian economy to 10.0%, down from 11.0%), and 7.5% (up from 7.0%), for 2022. For the 46-member bloc, it lowered 2021’s forecast to 7.2% and next year’s to 5.4%, from 5.3%. In Southeast Asia, the ADB’s revised 2021 growth forecasts were all lower, including Indonesia down 0.4% to 4.1%, Thailand down 1.0% to 2.0%, Malaysia 0.5% to 5.5% and Vietnam 0.9% to 5.8%. It expects Singapore to grow by 9.3% to 6.3%, with the Philippines flat at 4.5%. The ADB Chief Economist Yasuyuki Sawada commented that, “Asia and the Pacific’s recovery from the Covid-19 pandemic continues, although the path remains precarious amid renewed outbreaks, new virus variants, and an uneven vaccine rollout.”

Figures released by the AA notes that UK petrol prices, at US$ 1.83 a litre are at their highest level in almost eight years – and more than US$ 0.27 higher, compared to November 2020. With oil prices climbing 70% over the past twelve months, it is inevitable that this would fuel inflation as the June rate touched a three-year high of 2.5%. According to the AA, “surging pump prices continue to drain family and other consumer spending.”  Meanwhile, the RAC has estimated that drivers are planning an estimated 29 million UK holidays this year, with 16 million of these in the school holidays alone, with bookings 20% higher from April.

The Office for National Statistics posted that the Q2 number of job vacancies in the UK surpassed pre-pandemic levels – with 862k jobs on offer – and 9.6% higher than the same period in 2020. The main driver was vacancies in hospitality and retailing. At the same time, the number of people employed climbed 1.2% (354k) to 28.9 million but this is still 206k down on pre-pandemic levels. The unemployment level stood at 4.8% for the quarter ending May 2021 – an improvement from the previous quarter’s 5.0% mark. What should be good news hides other problems, the main one being that of a skills shortage. According to the British Chambers of Commerce, “the recruitment difficulties faced by firms go well beyond temporary bottlenecks and, with many facing an increasing skills gap, staff shortages may drag on any recovery.” This current tight labour market will continue for some time and will only improve with retraining on a mega scale to upskill those workers who have left the workforce so they can meet some of those skills shortages that could hold the recovery back.

In June, the UK government spent a record US$ 11.97 billion in interest on repaying its debts, with the figure almost triple that of the June 2020 figure of US$ 3.71 billion; the main reason was put down to a surge in inflation, which raised the value of index-linked government bonds. Overall borrowing, (the difference between spending and tax income), at US$ 31.38 billion, was US$ 7.57 billion lower compared to a year earlier. Pandemic-driven borrowing has  pushed government debt to US$ 3.02 trillion, equating to 99.7% of UK’s GDP, as it is estimated that the Johnson administration had borrowed a total of US$ 409.74 billion in the fiscal year to March – equivalent to 14.2% of the country’s GDP, and the highest level since WWII. Because of the pandemic, day-to-day spending by the government rose by US$ 280.5 billion to US$ 1.29 trillion last year. The forecast for borrowing this fiscal year, ending March 2022, has been revised down by US$ 41.2 billion to US$ 294.0 billion.

In the US, as jobless claims hit a two-month high, the S&P 500 and the Dow indexes fell on Thursday; although unemployment claims jumped by 51k, to a seasonally adjusted 419k by 17 July, there is every chance that this month will see a strong job growth. The Fed will be aware that if the figures continue to decline, allied with higher inflation data, it may have to cut back on its stimulus measures sooner than expected.

Despite the worries from the fast-spreading Delta variant of coronavirus, that could lead to further lockdown restrictions, the EU is confident that the economy will grow faster, at 4.8%, than the 4.3% level expected in April, but inflation is also expected to move higher; it forecasts 2022 growth in the nineteen-member bloc to be 4.5%. The forecast comes with the now usual caveat that it is based on further easing of pandemic-induced restrictions in H2. Time will tell whether the “new” more contagious Delta virus will play havoc with their prognosis. To date, more than 62% of the adult EU population has received at least one vaccine dose and 45% are fully vaccinated. The three major economies – Germany, France and Italy – are expected to grow by 3.6%, 6.0% and 5.0% this year and 4.6%, 4.2% and 4.2% next. Whilst forecasting inflation this year at 1.9%, (below its 2.0% target threshold), the ECB notes that “inflation may turn out higher than forecast, if supply constraints are more persistent and price pressures are passed on to consumer prices more strongly”. The eurozone economy is projected to return to its pre-crisis level in Q4, although it will remain below the level expected before the pandemic hit.

According to the IMF, the global economy has lost US$ 15 trillion in output because of the pandemic, with central banks providing more liquidity in the past year than the previous ten years combined. It is estimated that since March 2020, the world’s central banks have seen their balance sheets increase by a cumulative US$ 7.5 trillion. The world body estimates that, without this intervention, the recession “would have been three times worse.”, whilst warning that the post Covid recovery will take years for most countries if reforms are not implemented. Unfortunately, some of the poorer nations will inevitably fall Out Of Time!

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