That’s What Friends Are For! 08 September 2023
The 1,892 real estate and properties transactions totalled US$ 1.63 billion, during the week, ending 08 September 2023. The sum of transactions was 152 plots, sold for US$ 230 million, and 1,740 apartments and villas, selling for US$ 1.10 billion. The top three transactions were all for plots of land, one in Al Thanayah, sold for US$ 16 million, Al Satwa for US$ 16 million and in Wadi Al Safa for US$ 11 million. Al Hebiah Fifth recorded the most transactions, with forty-eight sales, worth US$ 42 million, followed by twenty sales in Madinat Al Mataar for US$ 18 million, and fourteen sales in Madinat Hind 4 valued at US$ 5 million. The top three transfers for apartments and villas were two residences in Palm Jumeirah, valued at US$ 55 million and US$ 28 million, and the other in Business Bay selling for US$ 36 million. The mortgaged properties for the week reached US$ 261 million, with the highest being for land in Al Safouh Second for US$ 54 million; seventy-nine properties were granted between first-degree relatives worth US$ 52 million.
Latest data from DXB Interact shows that August property sale transactions were 23.7% higher on the year at 12,035 – of which 9.0k were for apartments and 2.1k for villas, with sales values of US$ 4.93 billion and US$ 2.34 billion respectively. The balance was made up of Commercial, 309 transactions, worth US$ 133 million, and 601 plots of land, valued at US$ 1.77 billion. Prices, on the year, in the first three sectors, all headed north by 16.7% to US$ 354k, by 46.3% to US$ 817k and 23.6% to US$ 272k; land plots fell 17.2% to US$ 954k. Total Sales for the month were 38.8% higher at US$ 9.18 billion. Based on property demand, the top five locations were Business Bay, JBC, Al Merkadh, Dubai Marina and Al Barshaa South Third. By price range, 32% of sales value were in the under US$ 272k (AED 1.0 million) range, with 32%, 19% , 10% and 6% in the US$ 272k – US$ 545k (AED 1 million – AED 2 million) range, in the US$ 545k – US$ 817k (AED 2 million – AED 3 million), in the US$ 817k – US$ 1.36 million (AED 3 million – AED 5 million) and over US$ 1.36 million (AED 5 million). Mortgage transactions were also higher in August with 3,229 transactions, valued at US$ 2.86 billion – by 58.8% and 10.0%. The five most expensive apartments were sold in Palm Jumeirah, Marsa Al Arab, One Za’Abeel Tower, The Address Residences Dubai Opera and Seapoint Tower Dubai Marina with values of US$ 31 Million, US$ 18 million, US$ 16 million, US$ 16 million and US$ 15 million. The most expensive villas sold last month were in Emirates Living, Tilal Al Graf, The World, Palm Jumeirah and MBR City with values of US$ 57 million, US$ 25 million, US$ 22 million, US$ 21 million and US$ 21 million.
Rents also headed north with apartments, villas and Commercial up 16.3%, 25.9% and 23.5% at US$ 16k, US$ 46k and US$ 29k. By category 54% of sales value were for apartments and 26%, 19% and 1% for villas, Commercial and land plots.
The chairman of Damac Properties remains bullish on Dubai’s property sector and expects the market will continue to offer double-digit returns to investors; Hussain Sajwani noted that “we are focusing on Dubai because the city will continue to grow tremendously”. Damac has recently launched three new projects – Damac Coral Reef in Dubai Maritime City and Morocco 1 and Morocco 2 at its third and upcoming master development Lagoons. Sajwani also indicated that “a lot of Europeans also want to come to Dubai and make the emirate their home because of taxes, economic situation and war in the region,” He also expects the UAE will see strong economic growth in the coming years, thanks to its strong leadership, US$ 1 trillion-plus worth of sovereign wealth assets, stable currency and well-diversified economy. The Damac supremo expects that Chinese investors will pile into Dubai now that the country appears to be fully open after three years of pandemic restrictions.
According to Kabir Lumba, chief executive of Landmark Retail, the Group is expected to open hundreds of stores in the years ahead, and it will depend on internal funding for expansion with no listing plans any time soon. He posted “we continue to open one hundred and fifty stores a year, so on an average, we will probably end up opening two hundred to two hundred and fifty stores [globally] every year for the next three years.” He also commented that e-commerce now accounts for about 20% of turnover. The company, one of the largest retail and hospitality conglomerates in the ME and India, operates more than 2.2k outlets, covering more than 2.7 million sq mt in twenty-one countries. It has more than 50k employees across brands including Centrepoint, Babyshop, Splash, Lifestyle, Max, Home Centre, Shoemart and Emax.
A study by Alpen notes that the GCC retail sector grew by 15.7% to top US$ 298.6 billion and that it expects retail sales in the six-nation bloc to grow at a compound annual growth rate of 5.7% between 2022 and 2026 to reach US$ 370 billion. It also estimates that Saudi Arabia and the UAE will continue to lead the sector regionally, cumulatively accounting for 78.5% of total sales by 2026.
As part of its strategy to expand its global reach, Emirates has signed yet another codeshare partnership – this time with “United”, to include nine destinations in Mexico, in addition to Mexico City, which the airline also serves. At the same time, the agreement also provides more flexibility on flight timings, giving Emirates customers flying to Mexico City more options when choosing flights, and now includes one hundred and thirty-four destinations. Passengers can now plan their entire trip on a single-ticket and take advantage of hassle-free flight benefits, including the airline’s baggage allowance, in addition to convenient bag check-through to the final destination and can utilise Emirates’ Skywards.
Thani bin Ahmed Al Zeyoudi, Minister of State for Foreign Trade, reported that non-oil trade between the UAE and the G20 countries, accounting for 55% of the country’s total non-oil trade, topped US$ 341 billion last year – 21% higher on the year and up 56% and 34% on the previous two years. There was a 14.4% hike in H1 to US$ 181.9 billion. The minister, in India on the side-lines of the 2023 G20 New Delhi Summit, added that the total balance of direct Emirati investments in these countries reached more than US$ 215 billion by the end of 2021, which represents 92.5% of all Emirati investments worldwide. The total investment balance of G20 countries in the UAE reached US$ 74.2 billion, accounting for 43.3% of all foreign direct investment.
DP World announced a US$ 26 million investment in the logistics and warehousing sector in the state of Telangana. The global ports operator will spend US$ 20 million on its inland container depot operation in Hyderabad, and the balance to set up a cold storage warehouse, with a capacity of 5k pallets in the Medchal area. Part of the company’s strategy is to expand operations in India, and only last month, it announced a US$ 510 million investment to develop and operate a new mega-container terminal in the Indian state of Gujarat.
At this week’s federal Cabinet meeting, a law was passed to ban heavy vehicles, weighing over 65 tonnes, from UAE roads, effective next year, as part of a federal law that regulates the weight of vehicles. HH Sheikh Mohammed bin Rashid posted that the aim is to “preserve our advanced infrastructure” and enhance road safety. A smart electronic gate system will be installed to measure and monitor the weights and dimensions of heavy vehicles.
DMCC has welcomed thirty-one businesses to its newly opened Uptown Tower’s twenty-two floors of Grade A commercial office space, equating to 495k sq ft. This is the first wave of commercial tenants, with others moving in over the next few months. A wide range of retail and F&B outlets, including allday and Jones the Grocer, are already in situ. Uptown Tower is the first tower to be built within DMCC’s Uptown Dubai district, which will eventually be home for one more super tower, reportedly taller than the current tower, along with seven mid-rise buildings. Once complete, it will redefine mixed-use developments in the region, boasting diverse retail and F&B offerings, luxury hotels, experiential living and a sustainable community. Following 3.0k new companies joining last year, and a further 1.5k in H1, DMCC houses more than 23k member companies.
As it continues to connect global business communities, by organising exhibitions, conferences etc, Dubai World Trade Centre has announced its Q4 list of events, with over one hundred business and consumer events spanning vital sectors including, inter alia, technology, sustainability, food and beverage, healthcare, green economy. Before then, September will witness the likes of Plastics Recycling Show ME, Sleep Expo, ME Foam & Polyurethane Expo, Adhesives Sealants, and Bonding Expo ME, Gulf Bride Show, Frozen Musical Celebrations, Sign and Graphic Imaging ME Exhibition, Connecting Trade Worldwide, the Annual Dermatology Conference and Exhibition MEIDAM and the Forex Exhibition. The three-day ArabLab+ will take place between from 19 September and is set to host more than 10k delegates and 850 exhibitors. All these contribute to enhancing Dubai’s profile in the global arena and to adding to the emirate’s growth, as a business tourism destination, in line with Dubai’s Economic Agenda (D33).
Some of the major events in October include:
- Automechanika Dubai with exhibitors from fifty-five countries 02-04 Oct
- Agra ME the region’s largest agricultural trade show 09-10 Oct
- AccessAbilities 09-11 Oct
- GITEX Global the 43rd edition of DWTC-owned flagship show 16-20 Oct
- HR Summit & Expo 24-25 Oct
- Beautyworld ME the region’s largest international trade fair 30 Oct–01N
- GESS Global Educational Supplies and Solutions 30 Oct–01N
Major events in November will include Gulfood Manufacturing, the World Radiocommunication Conference, WETEX and Dubai Solar Show, Gulf Traffic, Paper World ME, Dubai Muscle Show, World Tobacco ME, International Apparel & Textile Fair, Brands of India. December will witness the holding of the Big 5 Global, while the premium international trade show for the plastics, petrochemicals, packaging and rubber industries, ArabPlast, will take place between 13-15 December.
In a bid to enhance its current investment portfolio, Dubai-based Alkhair Capital has launched a US$ 100 million fund to invest in healthcare technology ventures, targeting companies that are “harnessing cutting-edge artificial intelligence to bolster healthcare providers”. The Sharia-compliant asset management and investment banking company noted that the new investment vehicle will play “a pivotal role in addressing liquidity challenges that are “hampering the profitability and expansion of medical facilities”. The open-ended fund aims to provide liquidity to target companies to boost their growth, at a time when “the healthcare sector is experiencing remarkable growth, propelled by the region’s expanding senior citizen population, rising life expectancy and a surge in lifestyle diseases;” and “this surge has led to significant challenges, including insufficient infrastructure, higher medical claim settlements and liquidity constraints due to extended working capital cycles.” Alkhair Capital has partnered with Klaim Technologies, a FinTech, that provides AI-powered solutions for assessing insurance claims, as part of its proactive investment management approach to meet the objectives of the new fund.
The DFM opened on Monday, 04 September 2023, 9 points (0.2%) lower the previous week, shed 23 points (0.6%) to close the week on 4,067, by 08 September 2023. Emaar Properties, US$ 0.08 higher the previous fortnight, shed US$ 0.02 to close on US$ 1.91 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.70, US$ 4.55, US$ 1.54, and US$ 0.44 and closed on US$ 0.71, US$ 4.69, US$ 1.57 and US$ 0.44. On 08 September, trading was at 75 million shares, with a value of US$ 57 million, compared to 88 million shares, with a value of US$ 52 million, on 01 September 2023.
By Friday, 08 September 2023, Brent, US$ 4.19 higher (4.9%) the previous week, gained US$ 5.71 (6.7%) to close on US$ 90.43. Gold, US$ 24 (1.2%) higher the previous week, shed US$ 23 (1.2%) to US$ 1,966 by 08 September 2023.
After employees at Chevron’s Gorgon and Wheatstone plants in Western Australia went on strike, in a row over pay and conditions, natural gas prices have soared; these two plants account for more than 5% of global LNG capacity. The immediate consequence was a 10% hike in UK wholesale gas prices – but worse is to come because there is still supply available and then when that is used up, prices will skyrocket. While wholesale energy costs have fallen, since Russia’s invasion of Ukraine last year, pressure on prices remains. Oil prices rose this week, with Brent crude trading at about $90 a barrel, after Saudi Arabia and Russia extended their cuts to supplies to the end of the year. Two weeks ago, the 25 August blog ‘Life For Rent’ covered the possibility of this happening and the consequences if strike action was taken.
The man, who started his working life selling fizzy drinks on the streets of Alexandria only to become one of the most successful businessmen that Egypt has ever seen has died. His first major break was when he married Samira Khashoggi, the sister of Saudi millionaire arms dealer Adnan Khashoggi – who employed him in his Saudi Arabian import business. From these humble beginnings, he managed to forge new connections in Egypt and launched his own shipping business before building a business empire in the ME; in 1966, he became an adviser to one of the world’s richest men, the Sultan of Brunei. He moved to the UK in 1974 and, over the next decade, he acquired the Ritz Hotel in Paris, with his brother Ali, for US$ 25 million. In the mid-1908s, he paid US$ 775 million for Harrods, and in 1997, he purchased the freehold of Craven Cottage and became a major shareholder in Fulham Football Club. Three months later, he lost his son, Dodi in the Paris crash that claimed the life of Dianna, Princess of Wales on 31 August. Mohamed Al Fayed, who never realised his ambition to gain a UK passport, died in London one day short of twenty-six years after Dodi died; his net worth was estimated at US$ 2.0 billion.
IATA announced that July global passenger traffic rebounded to 95.6% of its pre-pandemic levels, with Asia-Pacific carriers posting the fastest growth; globally, total passenger traffic increased by 26.2% on the year, whilst international passenger traffic climbed 29.6%, and reached 88.7% of July 2019 levels, with all markets recording strong growth, and demand for domestic travel came in 21.5% higher, driven by increasing numbers of Chinese passengers. ME airlines posted a 22.6% year-on-year surge in July traffic, while European carriers’ passenger traffic rose 13.8%, and North American airlines were up 17.7%.
Moody’s Investors Service estimate a 10% decline in global sukuk issuance, with Saudi Arabia posting the largest decline in the GCC, with volumes falling 41% to US$ 15 billion in H1. Issuance activity in the UAE rose 82% to US$ 4.3 billion, mainly due to higher volumes on the corporate and banking side. The decline is attributable to lower volumes from major sovereign issuers, including the GCC and SE Asia, as their fiscal positions continued to improve on higher energy prices and sustained economic growth. Other factors included muted activity in Saudi Arabia, Indonesia and Turkey, amid robust commodity prices. The total gross short and long-term sukuk issuance is expected to fall between US$ 150 billion and US$ 160 billion this year, from US$ 178 billion in 2022. H1 issuance activity was at US$ 66 billion, down 28.3% compared to last year’s return. The consultancy expects a slight bounce back in H2 to between US$ 80 billion to US$ 90 billion, driven by a partial rebound in SE Asia and Turkey. Not surprisingly, Moody’s sees a bright future for green sukuk because of increased support, by both the private and public sectors, as sustainability becomes a “key theme in public policy agendas, as well as investors’ strategies”. This week, Abu Dhabi Commercial Bank PJSC priced a US$ 650 million green bond, the proceeds of which will be used to finance eligible green assets as outlined in ADCB’s Green Bond Framework; this is its second in a year, following an inaugural US$ 500 million green bond in September 2022.
This week, Lidl opened its largest warehouse in the world, near Luton, at a cost of US$ 375 million. Encompassing 1.2 million sq ft, the facility will service one hundred and fifty of the German supermarket’s UK stores and will create 1.5k new jobs. Bowing to sustainability issues, the building will include solar panels, whilst all its delivery vehicles will be fuelled by biogas made from food waste. So large is the warehouse, it could “fit three of Lidl’s existing warehouses inside” and is expected to move more than 9.4k pallets of goods each day. Lidl is part of the Schwarz retail group and operates about 12.2k stores in thirty-one countries.
With press reports indicating that Manchester United will remain with the Glazer family, its share value lost 18% in New York trading on Tuesday – its biggest ever one day fall, having wiped around US$ 700 million off Manchester United’s stock market valuation. It is now valued at about US$ 3.2 billion – still a healthy profit considering the US buyers acquired the club for US$ 709 million in 2007. Since the takeover the club has spent more than US$ 1.25 billion on interest and loan payments, plus share dividends – the majority of which have gone to the Glazer family. There are indicators that they may try again next year to sell MU when they hope to attract more bidders. It seems that the brothers, Joel and Avram, now want US$ 10.0 billion for any sale and that the two prospective bidders, Qatar’s Sheikh Jassim and UK billionaire Sir Jim Ratcliffe had not come close to offering that amount. Ten months ago, the family had announced that it was considering selling the Premier League club as they explored “strategic alternatives.
After news that Chinese authorities had banned government workers from using iPhones filtered through to the markets, Apple’s share value lost almost US$ 190 billion in forty-eight hours, (6.4%). China – accounting for 18% of the tech giant’s 2022 revenue – is Apple’s third biggest market and is also where its products are manufactured.
Seagate has been fined US$ 300 million by US authorities for allegedly violating export controls of hard disk drives to China’s Huawei; the tech firm had shipped more than US$ 1.1 billion worth of goods to Huawei, comprising 7.4 million drives, after export controls were introduced in 2020. The Commerce Department noted that it continued to do so “even after Huawei was placed on the Entity List for conduct inimical to our national security” – with US authorities alleging that such equipment may be used by China’s military. It also confirmed that the other two main hard drive suppliers had stopped exports to the Chinese firm, in accordance with the new rule.
It is reported that an agreement between Hyundai and LG will see an additional US$ 2.0 billion being invested in a battery plant, based in Georgia, USA. The move will result in a significant boost for the US motor sector and is expected to produce sixty gigawatt hours of car batteries per year, and to generate 2.6k jobs. With battery demand booming, this additional capacity will help reduce the massive battery shortage being faced by the electric vehicle production industry.
News reports indicate that Elon Musk took out a US$ 1 billion loan from SpaceX, prior to acquiring social media giant Twitter, which he later rebranded X. The space company he founded received some of Musk’s SpaceX shares as collateral with the company approving the arrangement last October. He repaid the entire loan, inclusive of interest, in the span of just one month, and at the same time he bought Twitter on 27 October. Reports show that he owns 42% of SpaceX’s shares but has 80% voting rights.
SHIB’s community recently introduced a new Layer-2 solution, Shibarium, marking a significant technological development in the Shiba Inu ecosystem, which has rapidly expanded its presence in the market and has managed to reach over one million wallets. Shibarium’s primary objective was to build an ecosystem that could comfortably tread on Ethereum’s network, while reducing costs significantly and providing a significant boost to its real-world utility. Having overcome these problems, and although its price has been under pressure recently, SHIB is optimistic that it can provide a significant boost to its real-world utility, drawing more extensive global acceptance and creating a potential for long-term value appreciation.
Although the UK-based Arm decided to have its IPO in New York, despite strong lobbying from the Sunak government, it will keep its material intellectual property, headquarters and operations in the UK. The UK-based chip designer is seeking to raise US$ 5 billion in this listing which would give Arm a market value of more than US$ 50 billion in its first sale of shares to the public since 2016. The company, owned by Japan’s SoftBank after a 2016 acquisition, was then valued at US$ 32 billion. In a regulatory filing Arm said it was selling 95.5 million shares in the deal at a price expected to be between US$ 47 and US$ 51 per share and that it had already lined up the likes of Apple, Google and Nvidia, as investors, who have committed to buying about US$ 735 million worth. Arm Holdings estimates that 70% of the world’s population uses products that rely on its chips, including nearly all of the world’s smartphones.
In August, Australian property prices rose 0.8% on the month for the sixth consecutive month – an indicator that the country’s housing market is well into recovery mode, driven by slowing inflation, signs that mortgage rates may have plateaued and a tight supply chain. In the month, Brisbane saw the highest increase in home values, followed by Sydney and Adelaide. Since February, average property prices have jumped 4.9%, by US$ 22.2k. August’s growth rate follows the previous three months’ hikes of 0.7%, 1.1% and 1.2%. CoreLogic pointed to Brisbane posting a 6.2% increase since March, whilst Hobart remained flat, with the ACT only nudging 1.0% higher. It appears that house values are recovering at a faster rate – 6.3% – whilst units are showing rises of 4.9%. Despite the RBA not touching rates this month, there is every chance that property prices will dip over the next twelve months, more so if stock levels rise. However, mortgage stress will continue well into 2024, as rates will not start heading south until fiscal Q1, but there is every likelihood that the percentage of borrowers, falling behind on their repayments, will continue to move higher throughout the rest 2023 and into next year.
A new report by PropTrack concludes that Australian housing affordability is now at its worst level, in at least three decades, and that it is likely property prices will continue to increase over the next six to twelve months. Real estate analysts noted that servicing a mortgage is “close to as hard as it has ever been”, where a household earning an average income “would need to spend a third of their income on mortgage repayments to buy a median-priced home”. The obvious two factors behind this scenario are the sharp rise in mortgage rates and increasing home prices. The study posted that those trying to buy a house in New South Wales, Victoria or Tasmania will have a tough time finding something they can afford with the situation particularly dire in Tasmania where a typical-income household could only afford 5% of homes sold in Tasmania in the past year — the lowest in the country. For Tasmanian families in particular, mortgage repayments account for 35% of household income — a record high. First-time home buyers – and lower income families – are taking it on the chin, with the double whammy of repaying mortgages at the current high rates and the difficulty of saving a 20% deposit; the average Australian household would need to save 20% of their income for more than five and a half years to buy a median-priced home.
In August, there was a 1.5% increase in the national rental index, and although it was the smallest monthly rise since November 2020, it was the thirty-sixth straight month of gain. There is an on-going concern around the lack of rental inventory, as the vacancy rate tightened in capital cities and regionally declined to 1.1% and 1.4% respectively. Gross rental yields – the difference between the amount of income landlords make in a month and their investment costs – have been dipping since April, and this is an indicator that housing values are edging up at a higher rate than rental rates.
Despite what Qantas’s Alan Joyce told the parliamentary committee last week, it seems that the Australian Competition and Consumer Commission think differently. It believes that permitting Qatar Airways to add more weekly flights at Australian airports would have made fares cheaper, as pressure mounts on the government to reconsider its decision to block the airline’s request to add twenty-one more weekly flights to the country. The Albanese administration said its action was in the “national interest”, saying that national carrier Qantas must remain viable and reducing airfares could threaten it in the medium- and long-term. The head of the ACCC, Gina Cass-Gottlieb, has agreed with her predecessors that allowing Qatar’s expansion would have reduced prices, which she would have “welcomed”. She added it was hard to predict by how much it could have cut prices, but quoted Virgin Australia’s estimate of 40%. Now aviation groups, and the opposition, have weighed into the argument that the government should reconsider their decision.
Alan Joyce was set to retire in November after fifteen years at the helm, to be replaced by the current CFO, Vanessa Hilton; however, he has “decided” to retire this week instead. He has had some success in delivering his last annual profit of a record US$ 1.6 billion, (maybe by taking advantage, and at the expense, of passengers and employees) but will leave behind a legacy of a much-tarnished brand plus a battered reputation, a class action, a lawsuit by the ACCC, his role in “Qatargate” and bowing to public pressure by scrapping the expiry dates on more than US$ 323 million worth of flight credits. Unfortunately, no happy ending for Mr Joyce.
In WA, there is no doubt that the lithium sector is booming, as Albermarle is offering US$ 4.3 billion for WA miner Liontown Resources which is developing the US$ 580 million Kathleen Valley project, due to come into production next year. The US chemical giant has now made a non-binding offer of US$ 1.94 a share – up from US$ 1.62, US$ 1.52 and US$ 1.29 on 27 March, 03 March and 20 October 2022. The board has confirmed that “should Albemarle make a binding proposal at AUD 3 per share, subject to agreement of a mutually acceptable binding scheme implementation agreement, the intention of the Liontown board is to unanimously recommend shareholders vote in favour of the proposal, in the absence of a superior proposal.” Last month, Perth-based Azure Minerals revealed it had rejected a US$ 647 million takeover offer, at US$ 1.50 a share, from Sociedad Quimica y Minera de Chile. Earlier in the year, the Chilean mining giant paid US$ 130 million for a 19% stake in Azure, and since then its share value has surged by over 1k%, on the back of its Andover lithium discovery, in WA’s Pilbara. It is also building a lithium refinery at Kwinana, with Wesfarmers, and the Mt Holland lithium mine near Southern Cross.
Embattled Chinese property developer, Country Garden, that recently posted an H1 US$ 6.7 billion loss, was due to make a US$ 540 million onshore private bond repayment last Saturday. It seems that a deal was thrashed out which enabled the firm to avoid defaulting on the debt, after Chinese creditors agreed to allow it to make the instalment payments over the next three years. Despite Monday seeing its share value 15% higher on the news, it is still 60% down YTD. It also paid a US$ 613 million payment on a Malaysian ringgit denominated bond. On Wednesday, it is due to make a US$ 22 million payment on two US dollar bonds it missed in August.
China’s property sector accounts for almost 25% of the country’s economy which is having a marked drag on the nation’s GDP. Late last week, the Central Bank initiated measures to pave the way for further cuts in lending rates, as the sector is still recovering from rules, introduced in 2020, that restricted the amount of money big real estate firms could borrow. The main casualty was Evergrande, then the country’s largest developer, which managed to rack up over US$ 300 billion in debt because of expanding far too quickly. The knock-on impact has been felt not only by the property industry but the whole economy, with many developers defaulting on their debts and leaving building projects unfinished across the country. Evergrande shares have lost more than 99% of their value in the past three years. The country’s economy has not only been battered by this but is also facing problems on a myriad of fronts such as weak economic growth, ballooning local government debt and record-high youth unemployment.
August was another bleak month for China’s trade – with exports and imports both down on the year – falling 8.8% and 7.3% – not helped by several post-pandemic challenges, including a property crisis, the on-going trade dispute with the US and weak consumer spending, both domestically and on the international stage. Indeed, this week, the US Census Bureau noted that China’s share of US goods imports fell to its lowest level, 14.8%, since 2006, and well below the 21.8% reported in the year ended March 2018. These figures came at the same time when China’s real estate market continues its slump, with many major developers trading in negative territory. It can only be a matter of time before Beijing introduces a large stimulus programme to boost the sagging economy.
With India increasingly reliant on hydroelectric power to meet its growing energy needs, the last thing it needed was a dry spell and a 12% reduction in the expected monsoon rain. This impacted on energy output, resulting in the need for the country to increase its coal imports to ensure the consistent functioning of power plants and to prevent power outages. With this, the world’s second-largest coal importer is having to shift to coal-fired power plants, leading to an increase in demand for fossil fuel. Currently, the country has imported 247 million tonnes. This import surge has had the knock-on effect because of the country’s commitment to mitigate climate change and to reduce its carbon emissions, with this higher coal consumption conflicting with its strategy. There is no doubt that the high consumption is probably the main reason for several Indian cities having poor air quality levels – and this situation may worsen with amplified coal burning.
Last Friday, India’s Enforcement Directorate arrested Naresh Goyal, and questioned him in relation to a US$ 65 million money laundering case linked to Canara Bank. The founder of Jet Airways was questioned extensively by ED officials in Mumbai and was accused of non-cooperation. The ED probe stems from a CBI case filed at Canara Bank’s complaint, naming Goyal, his wife, Anita, and a former airline director for “causing wrongful loss” to the lender and alleging diversion and siphoning of funds from loans taken for airline operations. Once India’s biggest private airline, Jet ran out of cash in April 2019 and filed for bankruptcy. Currently, talks are in deadlock, and it still has to settle with its many creditors to lift the airline out of bankruptcy.
Although employers added 17k more jobs than expected in August, at 187k, the latest Labor Department’s report shows a sign of a softening in the labour market and a possible indicator that the Fed may hold off pushing rates higher this month. There were also marked revisions downwards for both July and June returns – down 30k to 157k and 80k to 105k. The unemployment rate nudged 0.3% higher to a still historically low of 3.8%, whilst wage growth rose 0.2% on the month – its lowest gain since last year – as layoffs still hover near a historic bottom. Vacancies fell to a two-year low point of 8.8 million in July, with the quit rate staying moderately flat. It seems that the market is betting against Fed Chair, Jerome Powell, who has been warning that rates may yet have to rise again, whilst many analysts believe that rates will remain unaltered until year end.
The World Bank estimates that up to 12% of the global labour market operate in the ‘gig’ economy, with demand surging more so for women and youth in developing countries; on the flip side, social protections for those in this segment is lagging well behind. Two good examples are that in Sub-Saharan Africa, job postings on the largest digital platform grew by 130% while the growth rate in North America was just 14%, and almost 60% of firms surveyed in poorer countries reported increased outsourcing to gig workers, but only 30% in wealthier countries. The WB study noted that together, low- and middle-income countries account for 40% of traffic to gig platforms. It concludes that “online gig work could provide people in low- and middle-income countries an additional path out of poverty,” and “it can help address youth unemployment and it can support increased labour market participation for women”.
Following the flight chaos during the August bank holiday weekend, when UK’s air traffic control system was brought down in a “one in 15 million” event, the boss of Ryanair has slammed a report on the flights chaos seen over the bank holiday as “rubbish”. Consequently, hundreds of flights were delayed or cancelled as a result on 28 August, with Michael O’Leary claiming the findings “downplay the impact on the aviation industry” and said the report was “full of excuses”. Industry group Airlines UK argued that carriers incurred huge costs in providing accommodation and putting on more flights for customers who were stuck overseas and should be able to claim compensation that could be around US$ 25 million. O’Leary said that “there won’t be any issues” for customers claiming costs, but demanded that Nats, which controls the UK’s air traffic services, “accepts responsibility for its incompetence”. EasyJet boss Johan Lundgren also said that “many questions are still left unanswered”, and that “an incident on this scale should not have happened and must not happen again.”
It is readily apparent that today’s auction for seven UK offshore wind projects would flop and would be lucky to get any bid interest – and this has now happened. Offshore wind developers have been moaning that the price set by the Sunak government for the electricity they will generate would be too low to make projects viable. Energy firm SSE and Swedish firm Vattenfall had already ruled themselves out of the bidding, saying that the government had failed to allow for sharp rises in the cost of steel and labour when setting the electricity price. Under its wind power auctions, the government had set an electricity price which bidders compete to come in at or below. This arrangement is called a Contract for Difference (CFD). If electricity prices in the future rise above that level, the companies pay the excess back to the Treasury, if they fall below it the Treasury pays the company the difference. The US$ 55 (GBP 44) per megawatt hour price floor set for this auction failed to take account of development costs, according to industry insiders. They had been warning for some time that steel prices and wage rises had pushed their costs up by between 20% and 40% since the last auction was held at a similar price target. The fact that no new offshore wind project contracts have been bought by developers, at this key government auction, has dealt a hammer blow to the UK’s renewable power strategy, which was the “jewel in the UK’s renewable energy crown”. Although there were no bids for new offshore wind farms, the Department for Energy Security and Net Zero said “significant numbers” of solar power, onshore wind, tidal energy schemes, and for the first time, geothermal projects, which use heat from the ground to generate power, had been awarded funding.
No wonder then that Rishi had took the opportunity to replace the incumbent, Grant Shapps (Mr Bumble), before the news came out, with Claire Coutinho as Energy Secretary. With no experience to speak of, he was appointed Defence Secretary, noting that “Defence is in my DNA because Britain gave my family our freedom”. In a little over the year, the then Secretary of State for Transport, last July, announced his campaign for leadership of the Conservative Party, (but soon pulled out and endorsed Rishi Sunak), became Home Secretary in October under Liz Truss, then Home Secretary in the same month and Business Secretary by the newly arrived Rishi Sunak; in February, he was appointed Secretary of State for Energy Security. As his government runs from one crisis to another, it seems that the Prime Minister is running out of allies and had reached the state that he has to put incompetent supporters in key roles. Although he has history of dubious behaviour within – and outside – government, he has been appointed to one of the most important posts in the land – not on merit but on expedience. Rishi has to be careful on this choice with both men wrongly thinking that That’s What Friends Are For!
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