Bottleneck Blues

Bottleneck Blues                                                                               29 July 2021

For the past week ending 29 July, Dubai Land Department recorded a total of 1,617 real estate and properties transactions, with a gross value of US$ 1.47 billion. It confirmed that 1,135 villas/apartments were sold for US$ 619 million and 88 plots for US$ 169 million over the week. The top three transfers for apartments and villas were all apartments – one was sold for US$ 110 million in Marsa Dubai, a second sold for US$ 67 million in Business Bay, and thirdly, an apartment sold for US$ 62 million in Palm Jumeirah. The top two land transactions were for a plot in Island 2 sold for US$ 33 million, and, interestingly, a plot that was sold for US$ 14 million in Palm Deira. The most popular locations were in Nad Al Shiba First, with 19 sales transactions worth US$ 18 million, Hadaeq Sheikh Mohammed Bin Rashid, with sales at US$ 36 million, and Jumeirah First with 9 sales transactions worth US$ 17 million. Mortgaged properties for the week totalled US$ 417 million, including a plot for US$ 84 million in Marsa Dubai. 24 properties were granted between first-degree relatives worth US$ 20 million.

Mo’asher, Dubai’s official sales price index, posted 6,388 real estate sales transactions in June totalling US$ 4.03 billion – the highest value of sales in eight years; compared to the previous month and June 2020, the figures were 33.2% and 44.3% higher. Q2 saw figures of 15.6k sales transactions, valued at US$ 10.04 billion – 33.3% (volume) and 46.8% (value) higher than in Q1. YTD there were 27.4k sales transactions totalling US$ 16.89 billion. For the whole of 2020 the figures were 35.0k, valued at US$ 19.58 billion. According to Property Finder, the top areas of interest in terms of sales transactions for villas/townhouses in Q2 2021 were Mohammed Bin Rashid City, Dubai Hills Estate, Dubai Land, Green Community and Town Square; for apartments, the top five locations were JLT, Dubai Marina, Meydan, Jumeirah Village Circle and Downtown Dubai.

According to Luxhabitat Sotheby’s International Realty latest Q2 report, Dubai’s prime residential market posted a 43.8% hike in sales volume, quarter on quarter, as property prices rose 1.4%. In the three months, there were sales of 4,681 apartments and 818 villas, valued at US$ 4.55 billion. The top five areas volume-wise were The Palm Jumeirah, MBR City, Downtown Dubai, Dubai Marina and Emirates Living, with sales of US$ 1.14 billion, US$ 662 million, US$ 657 million, US$ 430 million and US$ 390 million respectively. Although the Q2 sales volume was 48.0% higher, at US$ 1.61 million, on the quarter, the average prime villa price was slightly down, by 1.65%, at US$ 2.2 million. Apartment sales were 25.0% to the good, at US$ 2.23 billion, with an average prime apartment now costing US$ 572k, equating to an average price of US$ 392 per sq ft. In H1, the top four property sales in Dubai were all on the Palm, with three residences in The Palm Jumeirah XXII Carat selling for US$ 33 million, US$ 30 million and US$ 29 million and another on Frond N going for US$ 22 million.

According to Knight Frank, the average Q2 price for Dubai property was 1.0% higher at US$ 315 per sq ft – the first time since 2014 that the market has recorded a consecutive gain. One sector that performed well was houses valued at more than US$ 5.45 million (AED 20 million), with 128 such deals recorded in the six months to the end of June; this was higher than the 75 deals recorded for the whole of 2020 and was the highest level since 2014 when 137 sales were recorded.

French transport company MND has signed an early stage working agreement with the RTA to develop a network of high-speed suspended passenger pods in Dubai. Similar in design to those already presented by the Chinese Zhong Tang Sky Railway Group and USky Transport of Belarus, the MND Cabline is flexible, energy saving, and has only a minor impact on the urban environment. It is a fully automatic, driverless transport system, with self-propelled cabins moving along ropes at speeds of up to 45 kph. The RTA is hoping that it will be able to achieve their target of 25% of all trips in Dubai to be self-driving by 2030.

Dubai Economy has started imposing fines on companies that have not registered their Ultimate Beneficial Owner data with the authorities by the end of last month. An earlier 2020 Cabinet Decision had required all registered businesses in the UAE to reveal the identity and furnish details of their Beneficial Owner to be included in the commercial registry. The data required includes the name, nationality, gender, passport number, residence address and mobile number of the owner, with the law applicable to all categories of establishments, commercial, professional or industrial.

HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum issued Executive Council Resolution No. (19) 2021 on waivers and reductions of fees for a total of 88 services provided by various Dubai Government entities. They include Dubai Land Department, Dubai Maritime City Authority, Roads and Transport Authority, Dubai Municipality, Dubai Tourism, Dubai Courts, Dubai Economy and Dubai Health Authority. The decision will cut costs for many Dubai businesses, stimulate economic expansion and further enhance the emirate’s attractiveness as a business and investment hub.

The latest decree, No (27) of 2021, issued by HH Sheikh Mohammed bin Rashid Al Maktoum, sees the establishment of the ‘Emirati Human Resources Development Council in Dubai’. Including representatives from the public and private sector, it will oversee the implementation of policies, plans and initiatives aimed at enhancing the employment of Emiratis in the private sector. Emiratis will also be mentored and offered career planning advice and guidance on working in the private sector. Its first chairman will be HE Sultan bin Saeed Al Mansoori, while the Director General of the Dubai Government Human Resources Department will be the Vice Chairman. Other members, from the public sector, include the Directors General of the Knowledge and Human Development Authority, the Dubai Department of Economic Development and the Dubai Chamber of Commerce and Industry. Other members from the public sector will be from the Dubai Free Zones Council, the University of Dubai and the Director of Zayed University, whilst representatives from Emirates NBD, Emirates Group and Al Futtaim Group will represent the private sector. The council will work with companies to “increase the number of UAE citizens employed in some fields”.

The Dubai Government’s Department of Finance is to organise the Dubai International Public-Private Partnership Conference. The two-day event, set for 10-11 October, will help advance Dubai’s development strategy and raise its profile as a commercial and investment hub that plays a pivotal role in both global and regional economic growth. The international conference, under the umbrella of Expo 2020 Dubai, is in line with the vision of HH Sheikh Mohammed bin Rashid Al Maktoum.

Two Dubai companies – the sixty-seven-year-old Al Fardan Exchange and digital banking start-up Jingle Pay – have agreed a partnership that will offer instant remittances for workers who need no-fee accounts and low or no-cost cross-border money transfers. This buys into the recent trend of money exchange providers tying up with FinTechs to cater to the growing need of customers relying on apps, rather than having to go to physical outlets to remit money. Currently, Al Fardan’s total business is skewed 90:10, for retail:digital remittances, but this will become more on-line in the future. Last year, remittances by foreign workers in the UAE dipped 5.0% (US$ 2.3 billion) to US$ 43 billion, with transfers through exchange houses falling by US$ 4.93 billion or 13.8%, while outward remittances through banks increased by US$ 2.67 billion, or 28.8%. At the same time, Al Fardan has tied up with contactless mobile payment app Empay, which will allow the latter’s customers to utilise the exchange’s facilities to immediately transfer money to a bank account or withdraw instant cash.

Led by regional investors and venture capitalists, Udrive has raised US$ 5 million to be used to accelerate its growth over the next twelve months. The Dubai-based start-up aims to double its fleet size in Q3 and to target 500% revenue growth in the next 12 months. Its founder, Hasib Khan, commented that “as people return to work, we’re once again seeing an increased need for mobility”.

It will only be a matter of time before Dubai sees SPACs (special purpose acquisition companies) becoming a common occurrence. Colloquially known as blank-cheque companies, they are formed with the intention of raising funds through an IPO and then seeking to acquire existing companies. They start with no commercial operations and trade without business fundamentals. The Dubai-based Swvl will be the first ever tech start-up in Dubai and will list on Nasdaq, via a SPAC. The mass transit and shared mobility services provider is set to go public through a merger with Queen’s Gambit Growth Capital and has a US$ 1.5 billion valuation. Swvl, which was co-founded by Mostafa Kandil in 2017, in Cairo, allows commuters to reserve seats on private buses, operating on fixed routes and paying fares through its mobile app. It currently operates in Egypt, Kenya, Pakistan, the UAE, Saudi Arabia and Jordan, and to date more than 1.4 million riders have booked over 46 million rides through the app. Last year, it earned approximately US$ 26 million in revenue and is expecting to triple that figure this year.

A JV, between DP World and nuclear energy and technology company Rosatom, has been established to develop the Russian Northern Transit Corridor as a “viable and sustainable” route between Asia and Europe. The new entity will invest, build and operate transport and logistics capacity along the route that connects South-East Asia with north-western Europe. Apart from cutting nineteen days from the journey time between the two continents, there will be two other significant benefits – it will speed up trade flows between the two continents, that account for over 30% of global trade, and the shipping time saving will see a major reduction of carbon dioxide emissions. In 2020, a record 33 million tonnes of cargo were carried along the Northern Transit Corridor, and the forecast is to expand to 80 million tonnes by 2024. DP World has already committed to invest US$ 2.0 billion with the Russian Direct Investment fund. The Northern Transit Corridor aims to enable the development of ports and transport links along Russia’s north coast to sustain economic activity.

DP World Limited posted healthy returns, as it handled 19.7 million TEUs (20’ equivalent units) across its global portfolio of container terminals, with gross container volumes increasing by 17.6% on the year, on a reported basis, and 17.1%, on a like-for-like basis. Growth was seen across all regions, notably in India, Europe, Australia and Americas, with Jebel Ali reporting a 4.2% increase, handling 3.4 million TEUs. In H2, DP World handled 38.6 million TEUs, with gross container volumes increasing by 13.9%, year-on-year, on a reported basis and 13.3%, on a like-for-like basis. Group Chairman. Group Chairman Sultan Ahmed Bin Sulayem commented: ”Looking ahead, the near-term outlook remains positive, but we do expect growth rates to moderate in the second half of 2021. Furthermore, we remain mindful that the Covid-19 pandemic and geopolitical uncertainty could once again disrupt the global economic recovery.”

Etisalat Group posted a 3.2% hike in H1 revenue to US$ 7.19 billion, driving a 3.9% rise in consolidated net profit to US$ 1.28 billion, equating to a net margin of 18.0%. Consolidated EBITDA reached US$ 3.65 billion, with a 51% margin. Its global subscriber base climbed 7.0%, year on year, to 156.1 million, whilst its UAE subscriber base reached 12.1 million subscribers.

Emirates Integrated Telecommunications Company (Du) posted a year on year 11.4% hike in Q2 net profit of US$ 65 million, driven by cost-saving initiatives and lower provisions. Its revenue came in 7.0% higher at US$ 778 million, with EBITDA of US$ 308 million. Because of a 27.5% hike in capex to US$ 177 million, its operating free cash flow decreased 11.7% to US$ 131 million. Its customer base grew 2.2% to 6.6 million, as fixed revenues grew 6.5% to a record US$ 187 million, with its mobile revenue stream stabilising at US$ 353 million. The Board of Directors approved an interim dividend of US$ 0.027 per share.

Emirates NBD posted a 22.0% hike in Q2 net profit, attributable to equity holders, to US$ 670 million, with impairments for credit losses declining by 48.0% to US$ 232 million and allowances for bad loans coming in 52.0% lower as Dubai’s economic recovery continued to gain traction because of ongoing monetary and fiscal support and a successful mass inoculation programme. H1 profit was 17.0% higher at US$ 1.30 billion and 66% up on H2 2020, with expenses declining 6.0% to US$ 1.0 billion and impairment provisions falling 38% to US$ 711 million. Assets at the end of June remained flat at US$ 189 million, as both loans and deposits fell by 1.0%. The bank’s 2019 Turkish acquisition, DenizBank, contributed US$ 902 million – or 29% of group income. The bank expects “the recovery in the non-oil sector to gain momentum in the second half of 2021”, with a 3.5% growth forecast for 2021.

Dubai Islamic Bank, posted a Q2 net profit of US$ 274, almost identical to the figure last year, helped by declining impairments, (down 29% to US$ 5429 million), and stronger top-line growth, with customer deposits rising 6.0% to US$ 59.5 billion. The UAE’s biggest Sharia-compliant lender by assets also posted a H1 profit of US$ 518 million. It remains “committed to applying digital tech in every aspect of banking,” with “a singular focus to make remote banking easier for our customers.”

Dubai Financial Market registered an almost halving of H1 net profit at US$ 11 million, compared to US$ 21 million during the corresponding period of 2020, as Q2 profit sank 65.4% to US$ 4 million. Consolidated revenue was 24.6% lower at US$ 37 billion, of which US$ 24 billion was attributable to operating income and US$ 13.o0  million to investment income and others. Expenses were 3.3% lower at US$ 27 million.

The DFM opened on Sunday 25 July, 30 points (1.1%) higher the previous week, was up 22 points (0.8%) to the good to close the week on 2,766. Emaar Properties, US$ 0.08 lower the previous three weeks, was US$ 0.01 higher at US$ 1.08. Emirates NBD and Damac started the previous week on US$ 3.57 and US$ 0.34 and closed at US$ 3.65 and US$ 0.34. On Thursday, 29 July, 126 million shares changed hands, with a value of US$ 46 million, compared to 67 million shares, with a value of US$ 17 million, on 22 July.

For the month of July, the bourse had opened on 2,811 and, having closed the month on 2766, was 45 points (1.6%) lower. Emaar traded lower from its 01 July 2021 opening figure of US$ 1.14 – down US$ 0.06 – to close June on US$ 1.08. Two other bellwether stocks, Emirates NBD and Damac, started the month on US$ 3.65 and US$ 0.35 and both closed lower on 29 July on US$ 3.57 and US$ 0.354 respectively.

By Thursday, 29 July, Brent, US$ 3.67 (4.8%) lower the previous four weeks, clawed back some of that loss, gaining US$ 1.87 (12.6%), to close on US$ 74.92. Gold prices also moved northwards, having been down US$ 23 (1.3%) the previous week, regaining all that deficit, trading US$ 23 (1.3%) higher, by Thursday 29 July, to close on US$ 1,828.

For the first time in two years, Boeing posted its first quarterly profit, as deliveries of its 737 Max model rose and air travel demand improved; sales were 44% higher at US$ 2.4 billion. Q2 profit came in at US$ 567 million, compared to a US$ 2.4 billion deficit in the same period in 2020. Cash and investments in marketable securities decreased by US$ 400 million to US$ 21.3 billion, mainly driven by operating cash outflows. In Q2, the plane maker delivered more than 130 of its bestselling 737 Max aircraft, whilst global airlines have returned more than 190 previously grounded planes to service since the safety ban was lifted last November. Currently, Boeing is producing sixteen 737s a month and expects to almost double this number to thirty-one by early 2022. Having to deal with structural defects in 787 jets, Boeing plans to reduce production levels to less than five a month and expects to deliver fewer than half of the 787s currently in its inventory this year.

Meanwhile, Airbus posted a 70.0% surge in Q2 profit to US$ 14.18 billion, with a net profit of US$ 2.01 billion – a big jump from the US$ 1.23 billion loss a year earlier. For H1, its revenue jumped 30% to US$ 24.6 billion and profit was at US$ 2.7 billion compared to a loss of US$ 945 million in 2020. For the first six months of the year, it delivered 297 aircraft, 100 more than in 2020, and expects that figure will be 600 by 31 December, as well as launching an A350 freighter. It also doubled its EBITDA forecast to US$ 4.0 billion.

The same day Tesla announces a record Q2 revenue and profit, its shares rose 2.2% on the day to US$ 658 and have surged 113% over the past twelve months. Capex increased by 176% to US$ 1.5 billion, as cash balances decreased to US$ 16.2 billion, attributable to “net debt and finance lease repayments of US$ 1.6 billion, partially offset by free cash flow of US$ 619 million”. The electric carmaker noted that it met its production targets despite the negative impact of a global semiconductor shortage because of post-Covid supply chain disruptions. In the quarter, it delivered a record 201k vehicles, 8.9% higher quarter on quarter; of that total, 199k units were Models 3 and Y, with the 2k balance being the more expensive Models – S saloons and X SUVs. Tesla is forecasting a 50% average annual growth and is set to build its first Model Y vehicles at its Berlin and Austin factories this year and has decided to move its lorry launch until next year so it can focus more on these factories. In 2020, Tesla was the leading global manufacturer of electric vehicles producing over 500k of the global total of 3.2 million which was a rise of 43% from 2019.

Another carmaker feeling the double impact of the pandemic and the global semiconductor shortage is Jaguar Land Rover’s owner Tata Motors. The worry to the Indian owners is that the chip supply shortage is likely to worsen in the short term and that the impact on JLR may see production halved in Q3; this would be a major hit to the company financials as JLR, accounts for most of the group’s revenue, with quarterly sales 68% higher year-on-year. In H1, Tata’s losses have  almost reached US$ 1.6 billion, of which more than US$ 1.0 billion occurred in Q1.

Following reports that Softbank is planning to sell a third of its stake, (45 million shares, worth US$ 2.0 billion), in Uber, the ride-hailing firm’s shares have fallen about 5% in Thursday trading. The Japanese technology investment firm is reportedly trying to recoup some of the US$ 4 billion it has lost in the Chinese ride-hailing firm Didi and other investments after a series of actions by Chinese authorities spooked investors. Three years ago, Softbank invested US$ 7.6 billion in Uber and a further US$ 333 million a year later and is also Didi’s largest investor with a 20%+ stake; Uber also owns almost 13% of Didi. With Chinese authorities tightening their grip on their local tech giants, their stock market value on various international bourses has suffered, including Didi which has lost almost 40% of its value since it started trading in New York last month.

It seems that an increasing number of shareholders is against the proposed US$ 8.8 billion takeover of Morrisons by US firm Fortress Investment Group, which was backed by Morrisons’ board of directors. They include the likes of Silchester International, which owns a 15.14% stake in Morrisons, and is “not inclined to support” the agreed deal, and Hambro, which owns a 1.9% stake, indicating that the proposed price per share is too low. Next month, the shareholders are due to vote on the offer of US$ 3.52 per share, as well as a conditional special dividend at US$ 0.028 per share for investors.

Pfizer has raised its full-year sales forecast by 29%, for the Covid-19 vaccine it developed with Germany’s BioNTech, to US$ 33.5 billion, as countries continue to stock up on supplies. The updated sales forecast is based on signed deals of 2.1 billion doses – to date, it has shipped one billion doses since it received regulatory approval in the US, Europe and other regions. Some of its rivals have fallen behind, including AstraZeneca and Johnson & Johnson (J&J) who have faced global manufacturing and safety hurdles, whilst US mRNA vaccine maker Moderna Inc, has had trouble scaling up production; J&J has estimated full-year Covid-19 vaccine sales of US$ 2.5 billion, while Moderna has forecasted sales of US$ 19.2 billion. Pfizer and BioNTech plan to test a version of the vaccine specifically designed to take on the fast-spreading Delta variant next month, with the first batch already manufactured. The more transmissible variant now accounts for more than 80% of new US Covid-19 cases and has also become dominant in many other countries, including the UK.

India’s first listing, 38 times oversubscribed, of a local unicorn resulted in a spectacular opening day. Zomato Ltd saw its shares surge 82.8% last Friday which valued the food delivery firm at about US$ 12.0 billion Its two principal shareholders of the company, founded in 2008 by Deepinder Goyal, are online technology company Info Edge (India), with a 18.55% stake, and China’s Ant Group with 16.53%.  It operates in some 525 Indian cities in India and partners with 390k restaurants. The company had posted a US$ 92 million loss for the year ending 31 March 2021, on revenue of US$ 226 million. This was the first of several Indian internet start-ups going public, with the likes of Berkshire Hathaway Inc-backed Paytm, hospitality company Oyo Hotels and ride-hailing firm Ola, hitting the market in the coming months.

Chinese listed companies on the various US bourses had their biggest two-day fall since the 2008 GFC. Shares listed on the Nasdaq Golden Dragon China Index, which follows the 98 biggest US-listed Chinese stocks, have fallen by almost 15%  in Monday and Tuesday trading – and a 45% slump since its February record high; over the past five months, the index has shed a massive US$ 770 billion in value. Over the past few months, the Chinese administration has cracked down on its technology and education industries and only this week unveiled a massive overhaul of China’s US$ 120 billion private tutoring sector, under which all institutions offering tuition on school curricula will be registered as non-profit organisations. Other on-line service companies are also being hit hard by regulators with both Tencent and Didi losing 7% and 11% in Hong Kong trading on Tuesday. The former follows a ruling that it must end global exclusive music licensing deals with major record labels and the latter because of reports that it faces heavy fines because of allegedly illegally collecting users’ personal data.

A shortage of available property, allied with historically low mortgage rates, has sent Australian prices skyrocketing, with six cities recording record prices for the third consecutive quarter. Real estate Domain reports that Canberra prices rose more than 30% and Hobart by 28%, as well as   Sydney, and Darwin rising by over 20% in the last year. With experts warning the increases are “unsustainable”, as property becomes unaffordable for many, with the Domain House Price Report highlighting a “perfect storm” of rock bottom borrowing costs, a small number of properties on the market, strong demand, and government stimulus money amid the pandemic. Despite most of the country under some type of lockdown, the Australian economy has rebounded to be above its pre-pandemic level, with growth being attributed to soaring demand for commodities around the world and spending by consumers and businesses. It is obvious that the recovery is dangerously uneven and will lead to economic hardship for a large slice of the population in the future and an inevitable fall in property prices.

According to the latest EY Item Club report, the UK economy is experiencing its fastest growth, at an estimated 7.6%, since the WWII, and could recover to pre-coronavirus pandemic levels by the end of 2021, with a slight growth decline to 6.5% next year; the main reason for this unexpected improvement was a smaller-than-expected fall in consumer activity after England’s third national shutdown in Q1. Last year, the UK economy tanked by 9.8% and was then the worst performing economy in the G7. Even though it had “more lost ground to make up” than other countries, its economy has been boosted by the success of its vaccination protocol and the large pent-up savings, (estimated at US$ 275 billion), accrued over the lockdown. Following last week’s lifting of the remaining lockdown restrictions, the economy is expected to grow at an even faster rate, although the report warned “should increased production be required due to higher demands, rising prices and inflationary bottlenecks could occur.” The economy can do without any further Bottleneck Blues.

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