Gangsta’s Paradise

Gangsta’s Paradise                                                                                         24 October 2019

Property Finder has noted that for the nine months to 30 September, there were 18.9k transactions involving properties, costing up to US$ 409k (Dhs 1.5 million); this figure was 11.0% up on the previous year, indicating there is a growing appetite for sales at the more affordable end of the market. The main driver appears to be the on-going softening in the Dubai property market, making prices more affordable. Off-plan sales accounted for the majority of the 11k deals so far this year. In the price ranges of US$ 410k – US$ 817k (Dhs 1.5 million – Dhs 3.0 million), US$ 818k – US$ 1.362 million (Dhs 3.0 million – Dhs 5.0 million) , US$ 1.363 million – US$ 2.725 million (Dhs 5.0 million – Dhs 10.0 million) and US$ 2.726 million (over US$ 10 million), there were 6.9k, 2.2k, 0.7k and 0.5k deals respectively, totalling 10.3k. Demand for ready or newly-completed properties grew a marginal 1.0% to 13.1k, with off-plan sales 23.6% higher at 16.1k; the highest number of off-plan sales were seen in Dubai Hills and Downtown – both having sales of 1.7k.

Meanwhile, JLL reported that YTD completions totalled 23.0k, including 6.3k in Q3, bringing the total for Dubai’s portfolio of total residential stock to 542k – a 3.6% increase since January. The company estimates that a further 33k are scheduled to complete by the end of the year – obviously this will not happen! There is no doubt that there has been a marked slowdown in supply, and this is reflected in the fact that projects, comprising only 7.8k new units, have been launched so far in 2019 – the lowest figure in three years.

According to Knights Frank, Dubai property prices have fallen 9.5% over the twelve months to June 2019 – only surpassed by Sydney’s 9.6% – in their survey of 150 cities; only 20% of the total registered annual losses including London, New York, Auckland and Rome. It was noted that in a number of locations, including Dubai, the prime sector continued to outperform the mainstream market but overall, the global market continues in the doldrums; the silver lining is that there is evidence that the rate of decline is beginning to fall. The fastest growth rate was seen in Xi’an, with an impressive 25% growth, whilst the average growth level was at 3.5%, with the average price rise being 5.9% and 2.0% in emerging markets and developed markets respectively.

One of the emirate’s biggest private developers, Nshama, is “waiting for the right time” to launch new projects and is holding back until a bounce returns to the property market. The developer, which is building the 21k-home Town Square community, is also awaiting directions from the newly formed Higher Committee who have been appointed to oversee and advise on the local real estate sector’s future priorities. The demand-supply conundrum continues to phase the sector and one of the main problems facing the new authority is to bring equilibrium to the market, as concern spreads about newly completed homes overwhelming actual demand, forcing further price drops. Nshama indicated that the current market demand is for units that are ready or near-ready; that being the case, the developer will continue to build but cut back on launches until they reach near-completion stage. To date, the developer has handed over 3k units (7.3% of the total) and expects that figure to top 5k by year-end.

To prevent financial catastrophe, in case of a sudden and unexpected slump in the realty sector, the UAE Banking Federation is proposing a cap on lending to real estate companies, which stood at US$ 66.3 billion last year. Any major problem occurring in this market would have a negative impact on the whole banking structure. The current downturn in the real estate market started in 2014, following a marked deterioration in the price of oil and the start of a market oversupply of property. There are now government initiatives afoot – including Expo 2020, long-term resident visas and amendments to freehold property law – that will hopefully pull the sector from its present depths.

Emirates National Oil Company is to enter into competition with the fledgling Al Ghurair-backed start-up, Cafu, whose app allows users to have their car’s petrol tank filled up, at their own residence, with a click of a button. The company is not worried that Enoc may steal some of its market share, suggesting that it will only fuel increased awareness for the benefit of both entities, as the consumer base expands.

It is reported that Creative Zone has acquired an undisclosed stake, at an unknown cost, in insurance comparison platform, valued at US$ 80 million. It is part of the Dubai-based business formation firm’s strategy to further the growth of an ecosystem to support start-ups, by becoming a one-stop shop for all the business requirements of a new-start-up. Part of AFIA Insurance Brokerage Services, the company is a digital platform for comparing all types of insurance, having already serviced over 200k since its inception.

Lonely Planet’s Best in Travel for 2020 guide places Dubai at ninth spot for the best cities to visit next year. The top three cities were Salzburg, Washington DC and Cairo. Rather gushingly, it notes “the future is now in Dubai as the superlative-craving emirate launches several boundary-pushing marquee projects in 2020,” including Expo 2020 Dubai, the Museum of the Future and The World Islands, as must-see attractions.

According to Dubai’s Department of Finance, total Expo-related projects will have cost US$ 8.2 billion by the time of its opening on 20 October 2020. Much of the funding has been financed from a budget surplus, as a result of “prudent financial policies”, according to its Director-General, Abdulrahman Saleh Al Saleh. He also revealed that the emirate’s sovereign debt reached US$ 32 billion, equating to 27.9% of GDP (compared to say the 120% mark attained by Australia), whilst the debt-service coverage ratio was only 5.0% of the general budget. The good news for residents is that he confirmed that there would be no increase in government fees, already frozen since March 2018.

The Department has already completed the general policy pertaining to the relationship between public and private sectors, and that PPPs will be seen in many future government joint projects.

The Dubai Free Zone Council has introduced a “one free zone passport” scheme which will allow businesses to operate out of multiple free zones in Dubai through a single license; this will result in cost savings for those entities that currently work out of multiple locations. The council is also considering allowing free zone entities to take up rental contracts from the current twenty-five years to fifty years. It is hoped that such initiatives will make the emirate a leading global destination for investment and business set-up and draw in an increased number of overseas companies and entrepreneurs. This initiative complements the recent regulation that saw free zone-based entities allowed to operate freely in “onshore” Dubai – as well as offshore. The DFZ Council is also reportedly looking at a “Free Zone 10X” platform, which would create a financial market exclusively for free zone enterprises to tap funding through IPO listings.

DP World posted a 1.1% like on like Q3 hike in its global container terminals, handling 17.7 million twenty-foot equivalent units– and over the nine months to September a 0.7% growth to 53.5 million TEUs was recorded. Whilst there was robust growth in Asia, particularly in ATI in the Philippines and China’s Qingdao, its home base Jebel Ali saw a 1.0% decline to 3.6 million TEUs, with volumes stabilising after a shift of low-margin cargo. However, figures were not helped by operations discontinuing in Indonesia’s Surabaya and China’s Tianjin.

A former Pakistani bank employee has fled the country leaving his wife to face authorities investigating five-year scam; he had been accused of embezzling US$ 2 million from a Dubai bank between 2011-2017. The accused transferred money to different accounts, by forging documents and manipulating the amounts of cash. His wife has been charged with criminal abetting and money laundering in a Dubai court, alleging that she withdrew the money via an ATM and subsequently issued cheques to her husband to transfer the money.

TransferWise has been granted a licence by the Abu Dhabi Global Market’s Financial Services Regulatory Authority to operate in the country under the name ‘TransWise Nuqud Ltd’. The low-cost fast money transfer platform will start operations next year and has become one of the first entities to be operational in ADGM’s ‘providing money services’ category. Their entry will ensure that the country’s 50+ banks and exchanges will have to raise their game – by lowering fees and improving service levels – to compete in the lucrative money remittance sector. On a global scale, TransferWise serves 6 million customers and processes US$ 5 billion in monthly customer payments.

Nasdaq Dubai saw the listing of two bonds, with a total value of $1 billion, from the Industrial and Commercial Bank of China. This makes the world’s largest bank by assets the holder of the highest value of conventional bond listings on the exchange by any overseas issuer – at US$ 4.6 billion.

Noor Bank posted a disappointing 12.0% dip in Q3 profit to US$ 50 million, despite revenue being 3.4% higher at US$ 149 million. The results were not helped by a 38.6% jump in impairment charges and an 11.5% reduction in income from Islamic financing to US$ 78 million. For the nine months to 30 September, the bank posted a 12.4% increase in profit to US$ 162 million, whilst operating income was up 6.7% to US$ 436 million. The Dubai-based Sharia-compliant lender is soon to be taken over by its larger rival Dubai Islamic Bank; the Investment Corporation of Dubai has stakes in both financial institutions.

Commercial Bank of Dubai posted a 28.3% Q3 increase in net profit to US$ 99 million, as operating income came in 6.1% higher at US$ 199 million. Based on these results, the bank is looking at record annual figures come the end of December. For the first nine months of the year, there was a 26.1% increase in net profit to US$ 290 million, with operating income 11.1% to the good at US$ 61.0 billion. Impairment allowances for loans and advances and the bank’s Islamic financing portfolio fell 17.7% to US$ 45 million and 2.6% to US$ 143 million respectively.

Etisalat Group reported a 2.1% increase in consolidated nine-month net profit after Federal Royalty, at US$ 1.8 billion, as consolidated revenues topped US$ 10.6 billion. It also posted a 5.0% hike in aggregate subscriber base to 148 million, whilst its UAE subscriber base reached 12.4 million.

The capitalisation of the two UAE bourses grew by 5.6% in 2018 to US$ 244.0 billion and should easily top Dhs 900 billion (US$ 245.2 billion) by year-end. This figure indicates that the capitalisation of traded companies accounted for 63% of the UAE’s GDP (59% in 2017), driven by increased share capital and enhanced FDI flows. Of that total, the banking sector accounted for US$ 127.7 billion, or 52.3%, of the total.

The bourse opened on Sunday 20 October and, having lost 30 points (1.1%) the previous week, regained a slight amount of that deficit to close 4 points up at 2784 by 24 October 2019. Emaar Properties, having shed US$ 0.03 the previous week moved US$ 0.01 higher to close at US$ 1.22, whilst Arabtec having jumped US$ 0.10 last week, nudged up US$ 0.01 to US$ 0.54. Thursday 24 October saw similar – and continuing relatively low – trading of 219 million shares, worth US$ 50 million, (compared to 180 million shares, at a value of US$ 69 million on 17 October).

By Thursday, 24 October, Brent, having gained US$ 2.04 (3.5%) the previous fortnight, kept in positive territory, up US$ 1.48 (1.8%) to US$ 61.39. Gold, having shed US$ 17 (1.1%) over the previous three weeks, was up US$ 7 (0.5%) , closing on Thursday 24 October at US$ 1,498. 

Just days before its planned (perhaps only 2%) partial initial public offering, Saudi Aramco delayed it again with reports that the US$ 2 trillion valuation may be, to put it nicely, on the high side; the IPO was expected to raise US$ 40 billion but the figure may now come in lower. Advisers are awaiting Q3 results which may see the sale figure lowered, with the eventual price being negatively impacted by other factors, such as weak oil prices, a sluggish and moribund global economy, along with September’s attack on the company’s biggest processing plant.

New York authorities are planning to take Exxon Mobil to court over claims it misled investors about the potential costs of climate regulation to its business. This could be the first of many similar cases expected to be faced by oil and gas firms in the future. It is claimed that the oil giant evaluated new projects based on lower cost forecasts for expenses associated with climate change than what was being relayed to investors. By making such investments look less risky, than they actually were, “ExxonMobil made its assets appear significantly more secure than they really were, which had a material impact on its share price.”

South African utility, Eskom, has received a US$ 4.1 billion government lifeline, as it battles to service a US$ 31.0 billion debt, following six months of spasmodic blackouts, caused mainly by previous underfunding, leading to an old and inefficient creaking fleet of coal-fired plants. The state of the country’s power sector is one of the main causes for the South African economy being dragged into contraction. There have been hints that the company has been beset with mismanagement and graft; indeed, with the resignation in May of Phakamani Hadebe, he became the tenth chief executive to quit the state-owned company in a decade.  

The perilous state of the UK High Street has been laid bare, with estimates that 85k retail jobs have been lost over the past twelve months, with Q3 retail numbers 2.8% down on the same period in 2018; full-time jobs saw a 4.5% decline, as part-time employment shed 1.5% of jobs. The quarterly figures were the 15th straight quarter of year-on-year declines, as the proportion of all empty shops touched 10.3%, its highest level since January 2015. The two main drivers continue to be Brexit uncertainty and weak consumer demand, with calls for government reforms, to business rates and the apprenticeship levy, to boost the sector.

In the UK, HM Revenue & Customs has warned Airbnb that an ongoing tax enquiry could lead to legal proceedings against the home rentals site. This was revealed in their latest accounts which had a note that it had been contacted by HMRC over “tax laws or regulations impacting the company’s business”, involving operations and intra-company transactions. There is no smoke without fire when one considers that Airbnb UK paid tax of US$ 189k on profits of US$ 589k, and a US$ 18.4 million turnover, whilst its payments arm had a turnover of US$ 353.7 million but only made a US$ 1.5 million profit and paid tax of US$ 304k. The company claimed it follows the tax laws and that the Airbnb model had boosted the UK economy by US$ 5.4 billion in 2018. The company is not alone in facing criticism about the level of tax it pays in the UK and joins a list of other big global technology firms such as Apple, Amazon, Facebook and Google. Even the Organisation for Economic Co-operation and Development is proposing tax changes, aimed at making such firms pay more tax.

Unable to raise money, WeWork’s board has finally caved in and accepted a Softbank bid to buy billions worth of shares, including US$ 1 billion from co-founder Adam Neumann, who decided not to accept a JP Morgan offer, by receiving his shares, along with a US$ 185 million consulting fee and a credit line.    The Japanese investment giant will take over control of the company, now valued at just over US$ 8 billion – some way off its June proposed IPO price of more like US$ 50 billion, and this despite an H1 loss of US$ 900 million. Yet another case of the market losing its marbles.

Three global tech giants posted mixed Q3 results. Although Amazon reported another 20%+ growth in quarterly sales, (up 24% to US$ 74 billion), a 46.0% hike in shipping costs to U$ 10.0 billion was the main driver in a 25.0% profit decline to US$ 2.1 billion. The company’s new strategy of pushing one day deliveries to its Prime members had two outcomes – increased purchases in that sector but also higher transport costs. The cut in profit, added to a disappointing Q4 sales growth forecast, disappointed market watchers and drove the shares 6% lower on the day.

Twitter shares fell even more – by 17% in early trading – as quarterly results of a 9.0% rise in revenue to US$ 842 million and a US$ 37 million profit were lower than market expectations. The micro-blogging site reported that revenue was hampered by product bugs and unusually low demand over the summer. At the same time, it lowered its Q4 forecasts.

However, Tesla leapt 18.6% on Thursday following the company’s announcement that revenue reached US$ 6.3 billion, with its gross margin up from 18.9% to 22.8%. quarter on quarter – and moving closer to its 25% target; this increase comes despite reductions in the average selling price of its Model 3 but because of operating expenses continuing to head south. At the end of September, Tesla had its highest ever balance in cash and cash equivalents of US$ 5.3 billion.

This month has been a wake-up call for many investors, as at least three leading fund managers have been caught wanting. For example, Mark Denning, a 36-year company veteran, who managed more than US$ 300 billion for Capital Fund, which itself has US$ 2 trillion of assets under management, has been forced to resign after breaking investment rules. A BBC investigation found that, inter alia, he was secretly acquiring shares for his own benefit in some of the same companies as his funds.

A more drastic fall from grace concerns the iconic ‘stockpicker’, Neil Woodford, a former big winner for investors and now leaving many in severe debt. In his first 26 years in business with Invesco Perpetual, anyone who invested US$ 10k at the start would have pocketed US$ 250k when he left to form his own UK Equity Income Fund, which at its peak managed around US$ 13 billion. Now following a rash of poor decision-making and disastrous investments, the company has closed, as big pension funds and armchair investors started pulling out their money in droves. In June, the fund was suspended by its administrators, Link Fund Solutions, valuing what was left at a little over US$ 3.0 billion.

Last Friday, Bryan Cohen, a Goldman Sachs Group Inc. investment banker, was arrested over allegations of insider trading, that reportedly saw US$ 3 million in illicit gains being made. The leaking of non-public information continued for around three years and was tied to pending deals involving Syngenta AG and Buffalo Wild Wings Inc. The bank confirmed it was unaware of the allegations, until the employee’s arrest, and that the investment banker had worked in the consumer retail division.

Malaysian authorities have publicly demanded that Goldman Sachs pay a mouth-watering US$ 7.5 billion in damages for its role in the now infamous 1MDB scandal; however, it seems that probably a third of that figure would be more in line with expectations. By 2013, the bank had picked up over US$ 600 million for helping the fund raise US$ 6.5 billion, much of which went missing under mysterious and shady circumstances. The 94-year old Prime Minister Mahathir Mohamad has pledged that he would recoup money lost by this global scandal and reportedly he has sent Daim Zainuddin, a known top dealmaker, to arrange a quick and sizeable settlement from the US bank. Seventeen current and former bank executives have been charged and face court action in the Asian country.

Unfortunately, for Goldman Sachs, this sordid episode has had impact in other locations such as Abu Dhabi where this once lucrative market has gone flat. Investors have also been probing the firm’s role in a controversial deal involving Etihad Airways. In 2016, three staff members left the bank following alleged breaches of guidelines, when advising a potential buyer on an investment in fast-food company Kuwait Food Co. After missing out on at least US$ 25 billion in deals in the emirate, it is now focussing its emphasis on Saudi Arabia. This week, another of its senior bankers in the UAE has been dismissed over compliance violations.

The Royal Bank of Scotland, still 62% owned by UK taxpayers, has gone backwards as it posted a Q3 US$ 10 million loss, caused mainly by a US$ 1.2 billion charge for PPI (payment protection insurance); this compares to the US$ 1.2 billion profit posted for the same period last year and was the bank’s first quarterly loss since Q4 2017. Its investment banking arm, NatWest Markets, reported a US$ 255 million Q3 loss caused by a “deterioration in economic sentiment for the global economy” and a fall in bond yields.

Westpac continues to rack up costs, now rising to US$ 1.4 billion following the latest addition of US$ 253 million, as a result of its misconduct and shabby treatment of customers. The other three big Australian lenders – ANZ, CBA and NAB – have also seen 2019 provisions higher relating to costs from the banking royal commission, which was highly critical of the unethical and scandalous behaviour of the country’s banking sector. Furthermore, Westpac will also be hit by a significant penalty, (probably in the region of US$ 100 million) from Australian regulators, for its failure to report “a large number” of International Funds Transfer Instructions (IFTIs).

In Australia, the Lower House has passed a controversial bill to ban cash payments of US$ 6.9k (AUD 10k) and that anyone using cash above that limit to pay for purchases could end up with a two-year jail sentence and fines of up to US$ 18k. In a move that would obviously breach individual privacy, the Currency (Restrictions on the Use of Cash) Bill 2019 has been passed by the House of Representatives. The law is supposed to alleviate tax evasion, money laundering and other crimes and would force Australians to use electronic transactions or cheques over cash for payments above the threshold.

The Australian Tax Office is evidently not doing its job properly when its latest report shows that debts, mainly from SMEs, are on the increase, as tax debt hits record highs. In the last tax year, audit activities saw tax funds gain US$ 10.5 billion, whilst US$ 29.4 billion was handed back as tax refunds.

More trouble hit Boeing this week with the unwelcome news that messages were sent between its employees about issues with the automated safety system on the 737 Max prior to its final 2016 certification. The Federal Aviation Administration is “concerned” and has requested an “immediate” explanation for the delay in turning over the documents. Meanwhile, the US plane maker confirmed it is cooperating with the investigation of the 737 Max, and “we will continue to follow the direction of the FAA and other global regulators, as we work to safely return the 737 MAX to service.” Both Boeing and the US regulator have been roundly criticised for inadequate oversight of the risks associated with MCAS (Manoeuvring Characteristics Augmentation System), which was designed to make the aircraft easier to fly. Its shares slumped by 10% on the two days’ trading, following the announcement. The week did not get any better as on Wednesday, it declared a 53% decline in Q3 profits, with a negative cash flow of US$ 2.9 billion, compared to a positive US$ 4.1 billion in 2018.

Despite being one of the chief scaremongers, and apparent Remain supporter, Mark Carney, has indicated that the new Brexit deal struck by the government is “welcome” and a “net economic positive”. Despite the BoE governor’s remarks, and IMF support of the deal, Boris Johnson failed in his attempt to move parliament to vote for immediate departure from the EU. By Thursday, the PM has said he would give MPs more time to debate his Brexit deal if they backed a 12 December general election. His promise to leave the EU by 31 October lays in tatters – despite his best efforts and because of a vacillating and shambolic parliament. So much for the democratic process, with the House of Commons beginning to look like Gangsta’s Paradise.

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Won’t Get Fooled Again!

Won’t Get Fooled Again!                                                                                17 October 2019

Still heading south, albeit at a markedly slower rate, there are indicators that a recovery in the realty sector could soon take traction. Dubai Land Department has reported that YTD, property transactions are 12% higher than in 2018. This week, property website Bayut reiterated that the current environment presents good conditions for all stakeholders – buyers, investors and renters.

Although most locations have seen twelve-month price declines in the region of 6%, lower falls have been reported in Dubai Sports City and Dubai Silicon Oasis. The DLD estimates that last year first-time buyers equated to 66% of total investors. In Q3, villa sales saw a 6.6% decline in average price per sq ft to US$ 600, whilst the decline was higher for apartment sales, with prices 8.1% down at US$ 357.

The latest updates from Luxhabitat show that the most expensive YTD property sale in Dubai was for a villa, at US$ 25 million, located at MBR City, an area that is still under development and away from the usual expensive hot spots. The other three that make up the four most expensive purchases in Dubai this year are US$ 20 million for a penthouse on The Palm, US$ 17 million for a villa in Sector V, Emirates Hills, and the same amount for an apartment in Il Primo, Downtown.

Hilton Worldwide has announced the launch of Hampton by Hilton Dubai Al Barsha, its second such entry in the emirate. The agreement, between the hospitality management company and Abdullah Al Neyadi, will result in an increase in the number of affordable hotel offerings in the mid-range sector, by a further 153 rooms.

There is no doubt that gold and jewellery play an important role in the UAE economy, with precious metals and diamond trading generating 20% of the country’s total non-oil exports. In H1, total trade was 3.0% higher at US$ 49.0 billion, with the global value of trade at over US$ 350 billion. This week, the federal cabinet has approved several policies which will benefit and consolidate the country’s gold and jewellery sector. One of the main aims is to strengthen the country’s global standing by enabling the tracking of gold with international standards being introduced to enhance transparency. Such a step will lead to a positive boost for the local industry and consolidate a currently fragmented sector with the introduction of a federal trading platform that will also be responsible for the supply of gold and marketing the UAE on the worldwide stage.

It just has to be Dubai when Italian designer Antonio Vietri unveiled his latest offering as part of MIDE (Made in Italy, Designed in Emirates) Fashion Week. His latest design, The Moon Star shoes, has been priced at US$ 20 million.

DEWA has decided to select an as yet unnamed contractor to build a 900-megawatt solar power plant in Dubai. The record low bid, at US$ 0.017 cents per kilowatt-hour for the photovoltaic plant, needs further extensive study before further details are released. The plant is phase 5 of the Mohammed bin Rashid Al Maktoum Solar Park project which will generate 5 gigawatts of installed capacity by 2030. The latest bid “represents the lowest price worldwide,” and shows a marked reduction from the US$ 0.073 lowest offer for phase 4 in 2017, submitted by ACWA Power International and Shanghai Electric Group Co.

This week, DEWA also awarded a US$ 267 million contract to Ghantoot Transport & General Contracting and Ghantoot Gulf Contracting to construct their new HQ, Al Shera’a (Arabic for ‘sail’) in Jadaf. Encompassing two million sq ft, the twenty-floor building, (including a basement and four floors for parking, whilst housing 5k), will be the tallest, largest, and smartest government zero energy building in the world.

On the occasion of an official visit by Vladimir Putin, the UAE and Russia signed an agreement to boost air traffic to different cities, within the two countries; further discussions will be held in St Petersburg early next year. This move will undoubtedly expand tourism and trade links for the benefit of both countries. Currently, Russia has moved two places higher to sixth as a source market of inbound tourism for Dubai, with a 28.0% hike in tourist numbers to 678k last year. Other deals, worth more than US$ 1.3 billion, notably in the energy, advanced technology and health sectors, were made.

Among those signed by the Russian president was one with the Investment Corporation of Dubai to “explore mutually beneficial investment opportunities”, with its sovereign fund, the Russia Direct Investment Fund; it will focus on potential investment opportunities in both countries. One other major deal was ADNOC’s sale of a 5% share in the Ghasha concession to Russia’s Lukoil.

Dubai Airport Free Zone Authority posted a 7.9% hike in its H1 total value of foreign trade to US$ 21.0 billion, driven by an 11.0% hike in reexports to US$ 12.2 billion, which equates to 21.0% of Dubai’s total reexports. DAFZA also accounted for 12.0% of the emirate’s foreign trade and saw its trade surplus surge 35% to nearly US$ 3.0 billion. Trade wise, its three biggest countries – India, Switzerland and China – accounted for 50.1% of the total – with figures of US$ 3.8 billion, US$ 3.4 billion and US$ 3.3 billion respectively. So far this year, the likes of Airbus, Michelin and TNA have opened up regional headquarters.

Following the recent collapse of Thomas Cook, it is reported that Dnata has been exposed to its impact which is still being assessed. It is expected that the exposure involves “not a small amount” and will be accounted for in the Emirates Group’s airport services unit’s H1 results. The fallen tour operator, and the world’s largest travel company, was a major customer for its services such as ground-handling and catering.

A new budget airline has been announced with a JV between Etihad Aviation Group and Air Arabia forming Air Arabia Abu Dhabi. This will benefit both airlines, with improved networking opportunities and a wider range of aircraft being made available. The new carrier will operate out of Abu Dhabi International Airport and have board members from both companies who will be responsible for the new airline’s independent strategy and business mandate. Whether this results in more routes (demand) coming online for all the UAE carriers to service – or the opposite (an increased supply chasing similar demand) – remains to be seen. 

Deyaar Development posted a nine month increase in revenue – by 3.6% to US$ 132 million – with profit reported at US$ 14 million. This year, the developer opened the Millennium Atria Business Bay and Millennium Al Barsha which will deliver on-going revenue streams, as well as completing its Afnan District project in Midtown; the second of six residential districts, Dania comprising 579 apartments, should be finished by year-end.

Emirates NBD is to have a 35.4% discounted rights share offering to raise funds of US$ 1.76 billion for overseas expansion and to boost its capital structure. 758.8 million shares will be offered at US$ 2.32 (compared to its US$ 3.58 market value at 16 October). Only last month, Dubai’s biggest bank raised the cap on foreign ownership holding in its shares to 20% from 5%, with expectations that this may double to 40% in the near future.

Dubai Islamic Bank beat market estimates by posting a 1.0% in Q3 profit to US$ 341 million, as income jumped 10.5% to US$ 891 million. The country’s largest Sharia-compliant lender did see impairment charges climb 86.4% to US$ 90 million. Over the first nine months of the year, the bank reported a 20.0% growth in total income to US$ 2.8 billion, whilst profit came in 8.0% to the good at US$ 1.1 billion. The bank is focusing on future double-digit growth which will be boosted by its acquiring fellow Islamic lender Noor Bank, thus creating a Shariah lender, with US$ 75.0 billion in assets.

The DFM has introduced much needed reform for loss-making firms trading on the bourse. The rules dictate that companies posting losses in excess of 50% of their capital base need to explain the reasons for their losses and forward a detailed timetable with a plan to affect a turnaround. Those entities reporting losses of 20% or more of their capital will in future be closely monitored and will be classified and colour-coded, (yellow compared to the red for companies beyond the 50% threshold), on the DFM’s website so investors are aware of their situation.

The bourse opened on Sunday 13 October and, having gained 49 points (1.8%) the previous week, lost 30 points (1.1%) to 2780 by 17 October 2019. Emaar Properties, having nudged US$ 0.01 higher the previous week, shed US$ 0.03 to close at US$ 1.21, whilst Arabtec regained all and a lot more of the US$.0.03 lost the previous week, jumping US$ 0.10 to US$ 0.53. Thursday 17 October saw similar trading of 180 million shares, worth US$ 69 million, (compared to 175 million shares, at a value of US$ 43 million on 10 October).

By Thursday, 17 October, Brent, having gained US$ 1.23 (2.1%) the previous week, kept in positive territory, up US$ 0.81 (1.4%) to US$ 59.91. Gold, having shed US$ 14 (0.9%) the previous fortnight, was US$ 3 (0.2%) lower, closing on Thursday 17 October at US$ 1,498. 

Following a report indicating that crude inventories rose by 10.5 million barrels last week, oil fell, as the market entered an inequilibrium hiatus, with supply growing whilst demand ebbs. With the global economies slowing – and increased new supplies from the US, Brazil and the North Sea – the short-term outlook is dim, unless there is an early end to the global trade/tariff war.

Last year, Softbank raised US$ 21 billion by selling some of its shares in the market – it was estimated bankers and advisers picked up US$ 535 million in fees. Next month, Saudi Aramco is to dip its toes in the water and offer about US$ 40 billion in an IPO; the oil giant is set to pay between US$ 350 million-US$ 450 million to a group of more than 20 banks, working on its initial public offering, with JPMorgan Chase & Co and Morgan Stanley expected to be the main beneficiaries.

One of the recipients of this year’s Nobel prize for Economics, Esther Duflo, becomes not only the second woman to receive the US$ 1 million award since its 1969 inception, but, at 46, also the youngest. She shares the prize along with her husband (and her PhD supervisor), Abhijit Banerjee, and Michael Kremer. Their research, focused on poor communities in India and Africa, indicated which investments were worthwhile and also what had the biggest impact on the lives of the poorest people. In real terms it had a positive impact on the ability to fight global poverty in practice with one of their studies showing whether medicine and healthcare should be charged for and, if so, at what price.

Hunter Biden has decided to resign from the board of BHR (Shanghai) Equity Investment Fund, following fierce criticism of his role by President Trump. The 49-year old son of former US vice-president Joe Biden has denied any wrongdoing in either China or the Ukraine as a result of his connection with the Chinese Equity Investment Fund and confirmed that he did not profit from his connection.

Lina Di Falco, 54, lost her case against Emirates after claiming that the airline did not provide her with enough water on her 2015 twelve-hour flight – and she now faces potential costs running into hundreds of thousands of dollars. She had claimed that the denial of adequate water caused her to faint and fall on her flight from Melbourne and that the resultant injury led to constant pain, two months off work and the failure of her marriage.

A worrying statistic for most Australians is that the country has the world’s second largest household debt, (just behind Switzerland), equal to about 120% of the country’s GDP. In other words, household debt is 20% more than what the country produces every year. In the past twenty eight years – around the time of the country’s last recession – the debt has almost trebled and housing debt has more than doubled in real terms since the turn of the century; then, the average mortgage debt stood at US$ 109k, compared to the current level of US$ 239k.

There was good news and bad news for the Australian employment sector, with the unemployment level dipping marginally in September to 5.2%, helped by the creation of 26.2k full-time jobs and the participation rate nudging lower to 66.1%; the underemployment rate dropped to 8.3%. However, most observers expect the situation to deteriorate early next year, with the rate moving inexorably north toward the 5.5% level and moving in the opposite direction to the RBA’s 4.5% target. The next meeting of the Reserve Bank on 05 November will produce no fireworks, with expectations of a further rate cut dampened by the news.

As China’s manufacturing sector slows down, declining at its fastest rate in over three years to an annualised 1.2%, it seems inevitable that the government will introduce further stimulus packages to boost local demand. It comes at the same time that consumer prices jumped at their fastest pace in almost six years, driven, by of all things, a marked increase in pork prices brought about by the country’s hog herds being hit by African swine fever. There is every chance that China’s GDP could fall below 6.0% in Q3, as both imports and exports are being hit by the bilateral dispute with the US. Expect cuts in interest rates and increased government spending, among other stimulus measures, to be implemented shortly to help boost the slowing economy.

Following “a very, very good negotiation with China,” an optimistic Donald Trump has agreed to directly meet with Vice Premier Liu He at the White House on Friday. Earlier, the US government blacklisted 28 Chinese entities, allegedly “implicated” in human rights abuses, and also imposed additional visa restrictions for several Chinese government officials. Of that number, all but eight, (that included some of China’s leaders in artificial intelligence), were government security bureaus. This follows reports of more than a million Uighurs, and other mostly Muslim minorities, being detained in detention camps in Xinjiang province.

Not famed for their forecasting skills, the IMF have made their fifth revision, with a 3.0% 2019 global growth now expected in what is described as a “synchronised slowdown” – and the slowest growth rate in the eleven years since the GFC. The main driver appears to be a slowdown in emerging market economies, brought about by trade tariffs, increased protectionism and slowing manufacturing, along with uncertainty relating to trade and geopolitics. It is expected that there will be a minor recovery next year to 3.4% – but don’t hold your breath!

Without monetary stimulus by many central banks, the growth would have been more dire at 2.5%. More worrying, the world body estimates that 2020 growth will fall a further 0.8% if scheduled October and December tariffs are imposed. The two superpowers will see reduced growth with levels of 2.4% (for the US) and 6.1% for China. However, in a US election year, expect the incumbent president to pull out a few rabbits from the hat.

So much for the scaremongers – UK 2019 growth is expected to weaken from 1.4% to 1.2%, year on year, the same level as the EU which is expected to have the same growth level but down from its 2018 growth figure of 1.9%.

The economies of the Middle East and Central Asia will grow 0.9 per cent this year, rising to 2.9 per cent in 2020 – well down on previous estimates of 1.8% and 3.3% – and driven by the impact of US sanctions on Iran’s economy; Iran is set to contract by a massive 9.5%, compared to 4.8% last year, with inflation moving higher to 36%. Based on average oil prices of US$ 61.78 this year and $57.94 next, Saudi Arabia’s economy will trickle to a miserly 0.2% in 2019. Meanwhile, Australia – in its 29th consecutive year of economic growth – has seen its forecast cut from 2.1% to 1.7% but is still to have the fastest growth of any G7 economy, except that of the US.

There was a surprise to see a September 0.3% decline in US retail sales, as consumer confidence wanes which will probably result in a third straight Federal Reserve interest-rate cut; this follows a revised 0.6% increase posted in August. Following the news, prices on ten-year Treasuries rose and US stocks fell. The hope is that a truce in the Sino-US trade war, and no further tariff increases, would be the optimum output which would have a positive impact on US economic data and consumer confidence. There is a feeling that there has been a loss of economic momentum ahead of the 2020 re-election year.

However, there were signs of a manufacturing recovery following the battering it received earlier in the year with Donald Trump’s trade shenanigans. In Q3, US manufacturing rose 1.1%, driven by computers/electronics, autos and appliances; this was still 1.0% lower over the past twelve months. The month-long GM strike, involving 50k, has not helped figures but fortunately there are signs that a deal on the horizon could see an end to the work stoppage in the coming days.

Yet again, the many doomsayers have got it wrong when it comes to sterling, as the currency headed to its highest rate in three months on Monday to US$ 1.2682 (as well as jumping 1.7% higher to Euro 1.1489). The hike came about because of renewed hopes of a last-minute Brexit deal, initiated by a UK/Irish prime ministerial meeting, concluding that there was “a pathway to a possible deal”, and even the EU Brexit negotiator Michel Barnier speaking of a constructive” meeting with UK Brexit secretary, Stephen Barclay.

On Thursday, the pound reached its highest level – at US$ 1.29 – on news that Boris Johnson had secured a Brexit agreement with the EU Mandarins. There is no doubt that a majority of the UK population (and the financial markets) is sick and tired of Brexit and just want a quick resolution – parliament may think otherwise when they vote on Saturday. It is anybody’s guess whether we Won’t Get Fooled Again!

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Easy Money

Easy Money                                                                   10 October 2019

The Sheikh Zayed Housing Programme has approved 522 housing assistance applications for Emirati citizens, totalling US$ 111 million; the initiative is in conjunction with housing institutions around the UAE. Encompassing three residential districts, the project includes 341 residences in Dubai’s Tolerance Village, as well as two others in Ajman and Ras Al Khaimah.

Last year, Gulf Sotheby’s UAE operations acquired SPF Realty; this month, an exit agreement sees the firm back in the hands of Ranjeet Chavan. He has been joined by three other founding members and plans to revive the brand and has targeted a sales volume of US$ 204 million in the first year of relaunch, focusing on inward investments, preferably at the premium end. Whilst acknowledging that real estate prices may continue heading south, Chavan is certain that the market will see a turnaround and a return to new peaks at some point.

Indeed, employment figures released by the Central Bank reiterates the importance of the real estate – and associated – sectors to the country’s economy. It is estimated that the realty and construction sectors account for 45.7% of the country’s workforce and that in Q2, these two sectors grew by 5.0% and 8.2% respectively, well up on the 4.4% and 4.9% growth returns seen in Q1.

Dubai Municipality has launched a PPP (private-public partnership), with French company Veiola, to build a high-tech biogas power generation plant. The Warsan Sewage Treatment Plant will use biogas to produce clean energy and aims to reduce CO2 emissions by 31k tonnes annually, equivalent to 7k homes that will convert 58k cu mt per day of biogas into electricity. Work on the 25-year project, which will reduce the annual operating costs of the sewage treatment plant by using the biogas, will commence in 2021.

Dubai residents will soon be able to hire a driver for their vehicles at an hourly cost of US$ 11; the requisite DTC app should be running by the end of the month. Another new service will allow users to request an electric Tesla vehicle, a family limo, a vehicle for people of determination, a dedicated limo for ladies or a standard limo; costs will be lower than local rivals, Uber and Careem.

This November’s Dubai Air Show expects to host 87k aerospace trade professionals and an 8.3% increase in exhibitors to 1.3k, with some major announcements expected. However, already troubled Rolls Royce has indicated that there is little likelihood of a US$ 21 billion engine order for seventy new A350 and A330s, (as well as restructured engine orders for the remaining A380s on order), being announced at the show in  November; the UK engine-maker cites the main reason being concerns involving the price and the performance of the planes. This comes after Emirates indicated that it would no longer accept jets that did not meet specifications given by Airbus, Boeing and their engine providers. It also has forty Boeing 787s on order and the airline is concerned about the engines’ reliability and that ongoing issues had not been resolved.

It is estimated that the air transport sector contributes 13.3% to the UAE GDP, equating to US$ 47.4 billion, and adding 800k jobs. IATA estimate that if the government continues with its current positive agenda for the sector, the market could generate an extra US$ 80 billion to the GDP and add a further 620k new jobs by 2037.

The Federal Tax Authority will introduce an excise tax on smoking devices and sweetened beverages as from 01 December 2019; it has requested that producers and importers register early to avoid late registration fines. In October 2017, the FTA introduced a tax on harmful goods, (encompassing 1.7k items), such as soft and energy drinks and tobacco – with duties of 60%, 14% and 26% respectively.

H1 saw Dubai post a 5.0% hike in non-oil foreign trade to US$ 184.2 billion (and 87% higher over the past decade). Despite a tough global trading environment, Dubai has managed to increase both exports (17.0% higher at US$ 20.7 billion) and reexports, up 3.0%, at US$ 57.2 billion. Imports rose 4.0% to US$ 106.3 billion. Trade volumes climbed 31.0% in H1 to 56 million tonnes, with exports, reexports and imports higher by 46%, 39% and 26% at 10 million, 9 million and 38 million tonnes.

It is reported that the UAE, along with Switzerland and the Marshall Islands, will soon be removed from an EU blacklist of countries deemed to be tax havens. It was only last March that the country was returned to the list, first drawn up in 2017, much to the dismay of the government. According to local officials at the time “this inclusion was made despite the UAE’s close cooperation with the EU on this issue and ongoing efforts to fulfil all the EU’s requirements”.

A US$ 436 million Etihad Railway contract has been awarded to Hitachi Rail, relating to systems and integrations work for the UAE’s national railway’s second phase. It involves design and build of the power distribution network and electronics subsystems, that runs for 800 km. This the latest major contract seen this year following March awards totalling US$ 409 million to extend the network by a further 605 km and deals of US$ 1.2 billion in July for lines stretching 216km and 94 km, connecting the network to Khalifa Port and Khalifa Industrial City, as well as to Jebel Ali Port.

To celebrate, and in keeping with, the UAE’s Year of Tolerance, the Ministry of Human Resources and Emiratisation has cancelled fines, prior to 01 August, involving 27k companies and 12k workers. Furthermore, Jebel Ali Free Zone came to the party, by waiving US$ 10 million in fines owed by businesses within the free zone.

Troubled Arabtec Holding has secured a US$ 76 million contract through its wholly owned subsidiary, Target Engineering. The Saudi Aramco deal involves the expansion and upgrade of a water disposal facility at its Qatif’s gas oil separation plant.

The bourse opened on Sunday 06 October and, having shed 93 points (2.5%) the previous three weeks, gained 49 points (1.8%) to 2810 by 10 October 2019. Emaar Properties, having declined US$ 0.12 the previous fortnight, nudged up US$ 0.01 to US$ 1.24, with Arabtec, gaining US$.0.03 the previous week, losing that gain and down US$ 0.03 to US$ 0.43. Thursday 10 October saw improved trading of 175 million shares, worth US$ 43 million, (compared to 80 million shares, at a value of US$ 24 million on 03 October).

By Thursday, 10 October, Brent, having shed US$ 6.63 (10.7%) the previous fortnight, regained some of that loss, up US$ 1.23 (2.1%) to US$ 59.10. Gold, having shed US$ 9 (0.9%) the previous week, was US$ 5 (0.4%) lower, closing on Thursday 10 October at US$ 1,501. 

US sanctions are beginning to hurt the Iranian economy, as China National Petroleum Corp pulls out of a US$ 5 billion deal to develop a portion of Iran’s massive South Pars offshore natural gas field; the 2015 agreement came after the global nuclear deal  and initially involved Total SA, CNPC and Iran’s PetroPars, with shares of 51.1%, 30.0% and 19.9% respectively. Total had earlier withdrawn from the agreement over US sanctions so now there are no international parties to support this venture. This latest episode is bad news for the sector that needs international partnership to utilise the fact that it has the world’s second-largest known reserves of natural gas and fourth-largest oil reserves.

Samsung Electronics has announced an expected 56.2% slump in Q3 profits to US$ 6.4 billion, (on the back of a 5.3% fall in revenue), driven by a dismal performance in the global chip market. With the decline in semiconductor prices, and weakened demand for its mobile devices, this will be the fourth straight quarter of profits heading south. It still has a 23% share of the global smartphone market and is ahead of Huawei, Oppo and Apple in fourth. Although the company gained some market share, because of the US trade ban on Huawei with its mid-to-low Galaxy A handsets, and increased demand for its OLED display panels, it has suffered from a trade war between Japan and South Korea, stemming from World War II disputes.

A 40-year old independent family travel agency has agreed to acquire the 555 UK outlets of the fallen Thomas Cook Group; Hays has already recruited 421 of its former staff members, with many more expected to join their ranks. This comes the same week that the government completed the country”s biggest peacetime repatriation, returning 140k stranded Thomas Cook customers from overseas locations.

The week that many parties were set to sign an agreement to formally join Facebook’s controversial Libra Association, PayPal pulled out “to continue to focus on advancing our existing mission and business priorities”. This is a severe blow to Facebook Inc’s efforts to develop a digital currency which has already faced severe government pressure and criticism. Despite the withdrawal, the payments company remains committed “to remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future”. In other words, glad to get out when it can.

Having culled 4k posts in August, 2% of its labour force, (as well as seeing a political resignation of its chief executive, John Flint), there are reports that HSBC may be laying off a further 10k; much of this will see the loss of high-paid roles.  Like other banks, it is struggling with almost negative interest rates, the tariff war and even Brexit. Interim boss Noel Quinn thinks this is an opportune moment to reduce its cost base, a large proportion of which is payroll driven. All this is despite H1 profit jumping 18.6% to US$ 8.5 billion – what would have happened if profit levels had dipped? There has been recent downsizing by the likes of Commerzbank, Deutsche Bank and Société Générale with job cuts of 4.3k (10% of the payroll), 18k and 1.6k respectively.

India has cut interest rates for the fifth time (by a total of 135 bp) this year in a continuing bid to boost its slowing economy and to ensure that inflation levels remain within the 4% target; the 25bp reduction sees the benchmark repurchase rate at 5.15%. The central bank also reduced its 2019 growth forecast to a seven year low of 6.1%, down from a previous estimate of 6.9%. The markets were not impressed, as the benchmark stock index and the rupee fell, along with ten-year bonds rising to 6.65%. There is no doubt that further cuts are needed and will be seen in Q4.

One area of many concerns for the Indian economy is the lack of liquidity to fund construction of apartment complexes, not helped by last year’s default of one of the country’s shadow banking sector’s leading lenders, Infrastructure Leasing & Financial Services. Now the loans from the bloated shadow-banking sector, that were fuelling the property boom, have all but dried up, leaving a total of US$ 63 billion of stalled residential projects across the country. The end result sees an offload of properties at discounted prices, developers unable to fund construction and stalling on repayments as well as shadow banks failing, all because cash flow has dried up.

In September, figures showed that the US unemployment rate had fallen to a 50-year low – down to 3.5% from 3.7% – with a revised168k and 136k jobs created in August and September. It is argued that 100k new jobs are needed each month to keep up with growth in the working-age population. Although there was weak data, with manufacturing activity hitting a decade low, along with a sharp slowdown in services industry growth (at a three-year low), the employment figures were a counterbalance easing immediate recession worries. The US economy has been in continuous expansion for the past eleven years and to keep this trend going, it seems that a further interest rate cut is inevitable this year, with a possibility of a second one in December.

Several former colleagues have gone to war with Mario Draghi, criticising his latest monetary-stimulus initiative and the ECB’s stance to its inflation goal. They believe (quite rightly) that “interest rates have lost their steering function and financial stability risks have increased. The longer the ultra-European Central Bank President’s low or negative interest rate policy and liquidity flooding of markets continue, the greater the potential for a setback.” They do not agree with a myriad of issues, including the financing of governments, through asset purchases, which restarted last month, arguing that with low rates, it keeps weak banks and companies afloat. Other concerns include Draghi’s mistaken diagnosis and approach to complying with the price-stability mandate and the adverse effect of negative interest rates on the entire financial sector.

One has to agree with Oswald Gruebel, once a major figure in the Swiss bank fraternity, who has criticised negative interest rates. He reasons that negative interest rates point to the fact that “money is not worth anything anymore,” and that the financial industry will continue to shrink as long as such rates continue. The world’s economy is undoubtedly suffering – and will continue to do so –  from too much Easy Money!

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Counting Airplanes

Counting Airplanes                                                        04 October 2019

HH Sheikh Mohammed bin Rashid Al Maktoum has vowed to create 20k new jobs for Emiratis, over the next three years, in a wide range of sectors including aviation, banking, insurance, real estate and telecommunications. He also approved a US$ 82 million budget to train 18k citizens. In future, UAE nationals will be given priority for any position in 160 professions in all government, semi-government and private sector companies. The Dubai Ruler also added that the government will pay up to 40% of payroll costs of 800 new graduates and warned that those entities that do not achieve the required Emiratisation level will have to contribute financially to the government’s efforts. Sheikh Mohammed indicated that the government is set to introduce a national economic development plan to stimulate the economy, concluding that “My message to everyone is: ‘We will not stop as, in the UAE, we don’t like to do so’”.

Another initiative this week saw Sheikh Mohammed introduce a long-term ‘cultural visa’ for innovators, artists and authors. In a bid to position Dubai as a “global art destination”, and as part of a “new cultural vision”, it will utilise 6k arts and culture companies, five creative clusters, twenty museums, and more than 550 annual cultural events. The Dubai Culture & Arts Authority, chaired by the Ruler’s daughter, Sheikha Latifa, will play an important role. It was also reported that Dubai will launch a new “international literature season” with a book fair and events, expected to attract over two million visitors.

Two of Sheikh Mohammed’s sons were involved in separate launches this week. Sheikh Hamdan, Dubai’s Crown Prince, initiated an e-commerce strategy that involved slashing direct costs – such as storage, customs duties and VAT on transportation – by 20%. The primary target is to increase the sector’s contribution to the emirate’s GDP which will see it grow to US$ 3.3 billion by 2023 and also to increase the regional and global share of e-commerce companies operating in Dubai to US$ 6.5 billion. The plan is also to establish e-logistics distribution centres and encourage international companies to have a presence in Dubai that will in turn consolidate its position as a leading global e-commerce platform location.

Meanwhile his brother, Sheikh Maktoum, Deputy Ruler of Dubai, launched the region’s first ‘Virtual Company Licence’, which is part of a bigger strategy to build a ‘Virtual Commercial City’ in the emirate. This will enable most international investors to carry on business here without the need of a resident’s visa. Only verified non-resident individuals, tax resident in countries that have implemented the Convention on Mutual Administrative Assistance in Tax Matters, will be allowed to apply.  It will permit licence holders to work digitally and may be another unique selling point for the emirate in its bid to open new horizons for business competitiveness and growth in Dubai This is yet another innovative stride in the race to make Dubai one of, if not the best, business hubs in the world. To date, the emirate has always been one of the more tech-savvy international environments, with advanced and sophisticated infrastructures.

Every cloud has a silver lining and it would appear that the troubles in Hong Kong could have a positive knock-on effect here in Dubai. It is reported that there is an increasing demand for new residential passports, as protests continue to cast a cloud over the territory’s future. Consequently, according to various immigration agencies, there has been a marked increase in interest from Hong Kong residents in investor visa schemes. Costs of such visas vary wildly ranging from US$ 100k, in Antigua & Barbuda, to US$ 2.2 million in real estate investment for Cyprus. It is inevitable that Dubai would benefit from some of these residents deciding to move here.

By the end of 2019, Savills estimates that Dubai will become the world’s biggest market for “branded residences”, taking the number one position from New York which slips to second, followed by Miami.  On a global scale, there are at least 430 branded schemes comprising 65k units; 2019 has seen 9k (and 60 projects) been added to the portfolio, with a further 70 schemes expected to go live next year. Hotel branded schemes, led by Marriot International, whose brands include Ritz Carlton, St Regis and W, account for 86% of the completed projects and 96% of the pipeline supply. Globally, Accor now has the same size pipeline as Marriott and on a regional scale, Emaar Hospitality Group is growing fast under its Address and Vida umbrella.

UBS has indicated that, although Dubai property prices have yet to hit their bottom, it was a good time to buy at a “fair value”, adding that “affordability has improved even though incomes have declined amid slower economic growth”. Stating what everybody seems to know that the market is over-supplied, (with property prices down 35% from their mid-2014 levels), it pointed to the fact that Dubai had the highest population growth of all the locations in their ‘Global Real Estate Bubble Index’ and that “easier visa requirements and next year’s Expo should support the market.”

Despite all the problems, most of which are out of the airline’s control, Flydubai reported that H1 loss had decreased 38% year on year to US$ 54 million, driven by a shrinking fuel bill (17.3% lower) and the recent introduction of cost efficiencies. However, external problems including the grounding of the Boeing 737 Max (which meant the use of older, less efficient 737-800s), and regional geo-political problems, continue to dog the carrier. One other problem is that because of the new jets still grounded, and lease contracts on other planes expiring, the fleet will decline to 2014 levels; in H1, five jets were returned to lessors and a probable four more in H2. Because of these problems, capacity fell by 14.9% and passenger numbers dipped 5.0% to five million.

It is hard to disagree with the CEO of Majid Al Futtaim Holding when he said  “consumer confidence has been impacted negatively in the past three to four years and I think currently the regional instability, the volatility globally, the trade wars and so on are taking a toll on consumer sentiment.” Alain Bejjani is hoping that, over the next twelve months, negative consumer confidence will improve, aided by the fact that 50% of the regional population is under 25 with a comparatively high internet penetration rate. Not surprisingly, he estimates that domestic demand plays a more important role than tourist trade, by around 85:15, for MAF operations in fifteen countries.

Dubai Aerospace Enterprise has signed a US$ 300 million, seven-year unsecured loan – arranged by Abu Dhabi Commercial Bank, with a group of six banks – to repay secured debt and support the future financing needs of the company.  This brings the total liquidity it has raised since early 2018 to US$ 3.5 billion and will help the Dubai-based aircraft leasing company with its aggressive growth agenda.

One of Sheikh Saeed bin Ahmed Al Maktoum’s companies, SEED Group, has partnered with a leading Asian blockchain provider to bring its Aergo platform to the region. Blocko, a Samsung-backed company, has already established a presence in South Korea, the UK and Hong Kong and built 38 full-scale enterprise blockchain solutions for companies like Samsung, Cisco and Hyundai Motors. It is now hoping to replicate this success in the Gulf and particularly in the UAE where the government’s Emirates Blockchain Strategy 2021 aims to transform 50% of government transactions into the blockchain platform by 2021; if this happens, estimated savings will be in the region of US$ 3.0 billion.

The UAE’s Financial and Economic Committee – chaired by Sheikh Hamdan bin Rashid Al Maktoum – approved a 2.0% hike in the 2020 federal budget to US$ 16.4 billion, and the highest on record. The three biggest beneficiaries will be social development, education and the health sectors, receiving 42.3%, 17.0% and 7.3% of the total.

There has been a US$ 0.010 fall in the October price for Special 95 to US$ 0.578, whilst diesel nudged US$ 0.008 higher to US$ 0.657 per litre.

An RTA public auction of 100 car number plates raised US$ 7 million this week, with ‘T 50’ being sold for US$ 664k and ‘L 21’ for US$ 637k. Twenty of the plates auctioned, with codes starting from ‘H’ to ‘Z’, displayed the Expo logo for the first time.

As part of Emaar’s $2 billion bond issuance programme, Nasdaq Dubai listed the developer’s US$ 500 10-year million, 3.875% sukuk on Monday, with the money being used for both regional and international expansion plans. This is the third time that Emaar has tapped this market following a US$ 750 million 2014 listing by Emaar Malls and the same amount by Emaar Properties in 2016.

The bourse opened on Sunday 29 September and, having shed 93 points (2.5%) the previous three weeks, lost a further 37 points (1.3%) to 2761 by 03 October 2019. Emaar Properties, having shed US$ 0.12 the previous fortnight, dipped US$ 0.01 to US$ 1.23, with Arabtec, gaining US$.0.03 the previous week, coming in US$ 0.01 lower at US$ 0.46. Thursday 03 October witnessed trading at still dire levels of only 80 million shares, worth US$ 24 million, (compared to 78 million shares, at a value of US$ 45 million on 26 September). For the month of September, Emaar, having opened the month on US$ 1.35, closed US$ 0.09 lower on US$ 1.26, with Arabtec US$ 0.04 higher from its opening of US$ 0.44 to US$ 0.48.

By Thursday, 03 October, Brent, having shed US$ 1.76 (2.6%) the previous week, took a major hit, slumping US$ 4.87 (7.8%) to US$ 57.87. Gold, having gained US$ 8 (0.8%) the previous week, moved in the other direction losing US$ 9 (0.9%), closing on Thursday 03 October at US$ 1,506. 

The perilous sate of the global construction sector can be seen from this week’s announcement by the region’s largest, and the 17th biggest globally, international contracting group. Athens-based Consolidated Contractors Company, with 70% of its work concentrated in the Gulf, is planning to send 2.5k of its core staff on extended leave until the market for new projects picks up; such staff total 13k that form part of the 145k employed by the Group. The family-owned company considered, that with next year’s revenue falling 40.5% to US$ 2.5 billion, a downsizing of staff was the only option available.

Just when it seemed that it had gotten over its 737 Max problems, Boeing has now been ordered by US aviation regulators to carry out inspections of Boeing 737 NG aircraft, after cracks were found on some planes. No numbers were readily available, but the manufacturer confirmed that the affected 737 NG operators have been contacted and that a recommended inspection plan for certain airplanes will soon be implemented.

As intimated in an August blog, Forever 21 has finally opted for bankruptcy protection, through a Chapter 11 filing in Delaware; its consolidated total liabilities could be as high as US$ 10 billion. The US fashion merchant, which plans to close most of its Asian and European locations, had already received funding of US$ 350 million, almost 80% of which was from JP Morgan and the balance from TPG Sixth Street Partners.

Over the Pond, another UK retailer in trouble is Ted Baker, whose share value slumped 35% on news that it had posted a H1 US$ 28 million loss, compared to a US$ 35 million profit over the same period in 2018; the main drivers, for falls in both retail and online revenue, were fierce competition, distressed discounting and unseasonable weather. Much of the same is expected for H2.

The European Court of Justice has ruled in favour of 500k indebted Polish homeowners, many of whom have gone bankrupt because they took out Swiss franc mortgages – at a much lower interest rate – some years ago, only to see the currency more than double. Now the court has ruled that they can ask Poland’s courts to let them convert their loans into the Polish zloty. With an estimated one in five Polish mortgages held in Swiss francs, this is a major victory for those homeowners (known as “Frankowitzes”), but a stunning blow for Polish banks, who will now face losses running into tens of billions of zloty. Other nationals, including Austrians, Croats and Hungarians, fell into the same trap.

When the plan was to make the country a “top 10” weapons exporter, it is strange to see that Australia has become the second largest global arms importer, behind Saudi Arabia. The Stockholm International Peace Research Institute also noted that the country’s position as a military exporter has dropped seven places to just 25th in the world. (In contrast, the UAE ranks eighth (for imports) and seventeenth as an exporter. Despite last year’s introduction of a new loan scheme for exporting defence companies, it is unlikely that Australia will reach the top ten in the exporters’ league in the near future.

There was no surprise to see the RBA cut rates to below 1.0% – its third one in four months on the back of the Australian unemployment rate rising from 4.9%, at the beginning of the year, to its current level of 5.3%, along with low wage growth. The RBA also took notice that if the currency stayed at a relatively high level, exports may have become more uncompetitive on a global scale. Not all the rate cut will be passed on to customers, with the banks, having held back on about 20% of the 50 basis points from the June and July rate cuts, expected to hold back an even bigger percentage this time.

It seems that the four major Australian banks – ANZ, CBA, NAB and Westpac – continue to defy Treasurer Josh Frydenberg by not passing on this week’s full 0.25% rate cut on their home mortgages, with all of them holding back between 40%-50% of the 25 bp reduction; the “robbing” banks claim that they have to balance their own business performance with the country’s needs to stimulate the economy. It is estimated that because of the cut, the mortgagee, (depending on which of the four banks is used), has gained between US$ 258-US$ 298, whilst the bank has “gained” (and customer has “lost”) between US$ 197-US$ 216.

At the same time, NAB has more than doubled the cost (to US$ 1.4 billion) of compensating customers for a decade of misconduct, mainly for fees paid to self-employed wealth advisors between 2008-2019. More may be added to this figure because “until all customer payments have been completed, the final cost of such remediation matters remains uncertain”.

Meanwhile, CommInsure, CBA’s insurance arm, is facing 87 charges for “hawking”, by trying to sell insurance products through unsolicited phone calls, via its Simple Life brand. This is but the first major financial institution to be charged for insurance-related offences, since the banking royal commission.

S&P Global Ratings has slashed India’s 2020 growth projection by 0.8% to 6.3%, slightly lower than the Asian Development Bank’s amended forecast of 6.5%. This comes after Q2 growth was a miserly 5.0%, brought about by a slump in private consumption to just 3.0% which over recent years had been the engine of growth. Evidently, the recent tax breaks will have minimal impact on growth, having cost 0.7% of the GDP, unless it boosts business confidence.

There could be fireworks in India next week as Donald Trump visits after he has tweeted on several occasions that India’s tariffs are “unacceptable,” and has described the country as the “king” of tariffs. Indeed his concerns are mirrored by the WTO who stated that India’s tariff rates on other members of the organisation remain “the highest of any major economy.” It has estimated that India’s average tariff rate was a high 17.1% in 2018, compared to the rates of between 3.4% – 5.2%  found in the US, Japan and the EU; only one country was higher – Egypt at 19.1%. These figures are expected to move higher, as tariffs in 2019 have become more prevalent as a lever of global trade policy.

A ruling by the World Trade Organisation seems to have given the US carte blanche to impose tariffs of US$ 7.5 billion on EU imports; the US had claimed US$ 11.0 billion for EU illegal aid to Airbus. Goods affected will include a wide range from aircraft parts, Scotch whiskey and even shellfish and is the result of a fifteen-year tussle, involving supposedly illegal subsidies for the world’s two biggest plane makers, Airbus and Boeing. This battle has been won by Boeing but there is more to come when the WTO rule next year on whether the American plane maker has received illegal subsidies from US federal and state governments. Then we will see if both the US and EU are subsidising and Counting Airplanes.

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A Spaceman Came Travelling (Hazza Al Mansouri)

A Spaceman Came Travelling (Hazza Al Mansouri )          26 September 2019

More than one hundred developers, consultants and architects showcased at this year’s three-day Cityscape Global exhibition, which will close tomorrow – 27 September. Developers are hoping to incentivise potential buyers at this year’s meet by offering discounts, fee waivers and other deals as the market for property purchases remains soft. Developers participating in the event include Aldar Properties, Arada, Nakheel, Azizi Developments and Sobha Group, among others. Business may be boosted by the fact that a 500-strong delegation of North American agents and brokers, with combined 2018 sales of US$ 2.2 billion, are in attendance, as part of the show’s strategic partnership with the Dubai Land Department and Dubai-based Century 21.

It is reported that since the 02 September inception of a higher committee to oversee the realty sector, there has been 134% hike in Dubai’s real estate transactions. A new law, applicable to all major projects and jointly owned properties in Dubai, has been enacted to oversee the upkeep of “jointly owned properties” in Dubai, including the way facilities management companies bill clients. Such firms will have to submit six-monthly reports to Rera on the management of the property and common areas and will also have to obtain insurance coverage for each project. The agency can also appoint another FM company, in case there has not been proper maintenance of the common areas.

A US$ 1.4 billion JV between Meraas and Brookfield Asset Management will see both parties managing and expanding a portfolio of local retail assets, including La Mer, City Walk and The Beach in Dubai. One of the main aims of the exercise is to “leverage Meraas’s regional brand recognition and experience in curating lifestyle-focused mixed-use developments” with the Canadian company’s worldwide reach utilising US$ 385 billion of global assets, including US$ 194 billion of real estate.

Construction has begun on phase one of the UAE’s new 370-hectare Riviera project in Ghantoot, with Abu Dhabi-based developer Imkan joining forces with Nael & Bin Harmal Hydroexport Co.  Al Jurf, a second-home destination, with 3.4km of azure beachfront, will comprise three distinct districts – Al Jurf Gardens, Jiwar Al Qasr and Marsa Al Jurf. Al Jurf Gardens, with 293 residential villas and land plots, along with a wellness clinic resort, a private beach, a marina and a community centre, is scheduled for a 2021 completion.

Dubai was the ME launch location for Delta Hotels by Marriott, with the opening of Delta Hotels by Marriott Jumeirah Beach. The property, with 360 keys, has a range of rooms, suites and serviced apartments, along with three multi-function rooms and a business centre spread over 145 sq mt of event space.

It is forecast that the US$ 680 million Dubai’s Deep Tunnel Project will be ready one month before the October Expo 2020 opening. Currently 65% complete, and 10 km long covering 490 km, it will drain rainwater in the Airport City and Expo 2020 areas. The three final foundation stages will use about 55k cement pieces in the tunnel, each weighing 2 tons, along with the installation of 4.4k huge metal rings. To date, four million man-hours have been utilised in what is one of the biggest such projects in the world.

Farnek has won a five-year contract from Dubai Airports to carry out the cleaning of Terminals 1 and 2, Concourse D, and Cargo & Logistics at DXB, as well as Dubai World Central. The contract covers the cleaning services management of landside and airside facilities, and also managing the passenger baggage trolley services. The facilities management company expects to utilise 800 of its 5k employees on this contract.

DAE has finalised a US$ 1.4 billion multi-year deal, with an unnamed hedge fund, to source and manage aircraft. Dubai Aerospace Enterprise’s Investor Services platform will be responsible for acquiring narrow-body and wide-body aircraft, 25% of which have already been sourced. This deal brings the value of its managed assets to US$ 2.7 billion, with a target of US$ 5 billion over coming years.

As the country’s working population reached 5.1 million by the end of June 2019, 51.6% of that total were employed in Dubai and 26.9% in the capital. The 0.5% hike in Q2 was driven by the real estate sector, which has seen a 5.0% growth in numbers over the past year.

Although overseas remittances topped US$ 11.6 billion in Q2, they were still 4.2% lower than the same quarter last year; this was attributable to a slowdown in employment. In 2018, US$ 46.1 billion (up 3.0% over 2017), was sent overseas, with India accounting for 37.2% of the total, despite only accounting for 27.5% of the country’s 9.6 million population. Pakistan, Philippines, Egypt and the UK took the other four top spots, with totals of 10.5%, 7.2%, 6.3% and 3.8% respectively.

The UAE’s waste management sector witnessed further consolidation this week with the Averda acquisition of rival Zenath Recycling & Waste Management; no financial details were readily available. The sale involved Zenath’s 1k customer base, 150-srong labour force and assets including eleven compactors, eleven chain loaders and nine hook loaders. It will allow Averda to enhance its long-term value and market position in a fast-growing waste management industry. In August, there were reports that the Dubai-based company was in preliminary discussions about a possible London Stock Exchange IPO that could value it at US$ 870 million.

It seems that Emirates will have to delay the introduction of a fourth class – premium economy – because of a possible delay in the delivery of the new Boeing 777x jetliner, due to problems with its General Electric-made turbines. Because the first delivery, of the 150 planes that the airline has ordered, could be pushed back from its original June 2020 date, the new class could start with the Airbus SE’s A380 in December 2020.

Emirates also expects that H1 profits to September will be better than those reported over the same period in 2018 – and this despite the 45-day closure of the southern runway at Dubai International earlier in the year. In 2018, the H1 figures had shown a massive 86% fall in profits, driven then by higher oil prices and a stronger greenback. Since then, the end of the Airbus A380 programme, and a sluggish global economy, have seen the airline introduce a major strategic review, including staff cuts.

As part of the UAE-India food corridor project, it is estimated that UAE companies will pump in over US$ 7 billon, US$ 5 billion of which will be in various mega food parks, (in locations such as Pawarkheda) and a logistics and warehouse hub in Itarsi, with the balance for contract farming. The project, coordinated by the Emaar group and employing up to 200k, will involve food security for the UAE. This investment will help reduce the estimated 30% wastage that is caused by the lack of appropriate infrastructure for storage, processing and transportation in India – a country that grows enough to feed its 1.3 billion burgeoning population. It looks as if this is a win/win for both parties – the UAE can buy this food at a cheaper price, while Indian farmers get a comparatively better price for their crops because of the reduction in wastage levels.

Following August’s UAE launch of its RuPay card, National Payments Corporation of India is planning to introduce its Unified Payments Interface digital payment system to the UAE. UPI, introduced in India three year ago, is a mobile platform that instantly transfers funds between bank accounts, makes purchases and remits money. The developer is confident of its success in the region more so because of the large number of expat Indians in the country with it being the number one trade partner for the UAE and the UAE the third-largest trade partner for India.

Still not fully recovered from the 2010 property crash, Dubai banks are facing a double whammy of falling home prices, (down 27% by some estimates over the past five years) and a growing non-performing loans book which stood at 4.99% of gross loans at the end of last year, compared to 4.01% in 2017. This compares to 1.5% in Saudi Arabia and 1.9% in Qatar at the end of 2018. The price downturn is attributable to a raft of factors, some of which are outside the government’s control, including lower oil prices, geopolitical tensions and a strong greenback (dirham); other issues in play are an oversupply (which is now being addressed) and weaker consumer confidence. It is estimated by Fitch that 20% of Q1 loans were incurred by real estate and construction – and this figure may be higher if retail mortgage lending, and some lending to investment companies that finance developers, are added.

Fitch also consider that a “significant portion” of government loans of US$ 23 billion, set to mature in 2021, may have to be restructured. Hopefully, we are some way off the 2009 GFC position, when state-owned Dubai World restructured US$ 23.5 billion of debt and property developer Nakheel PJSC had $10.5 billion of unpaid bills on its books.

A recent Dubai Chamber report studied the banking challenges faced by new and emerging businesses and found that nearly 65% of the country’s entrepreneurs surveyed believed that banking was the first challenge they faced, with opening a bank account taking up to three months in some cases. Interestingly, this week two major Dubai banks have introduced some sort of digital banking for SMEs.

Emirates NBD launched the E20, the country’s first digital business bank for entrepreneurs and SME businesses, as well as for sole proprietors, freelancers, gig economy workers, fintechs and insurtechs. It will help customers access banking services seamlessly and conveniently, and reduce time spent on banking to a minimum.

Mashreq’s offering of NeoBiz, with the motto ‘Built for Business’, will see the implementation of key services, including digital onboarding, transparent and simplified products, digital assistant and full transaction capability online, targeted at start-ups and young businesses.

There was good news from the UAE central bank which revised up its 2019 growth forecast from the last one in May of 2.0% to 2.4%, of which the non-oil growth would be 1.4% and the oil sector at 5.0%; the Q2 growth was 2.2%, with the non-oil sector posting a 1.5% hike (a major improvement on Q1’s 0.3%). This improvement should manifest itself in rising public and private spending, along with higher investment prior to Expo 2020. In Q2, the PMI pointed to an improvement in economic sentiment – at 58.2, its highest level since 2014, with Q2 employment also on the rise, up to an annualised 1.0% (compared to just 0.1% in the previous quarter). The doom and gloom expat merchants should compare this growth with the likes of say UK, South Africa, Germany and Italy with lot lower levels at 1.2%, 0.6%, 0.4% and minus 0.1%; there is no barbed wire around Dubai International to stop such people leaving!

The Q2 Dubai Economy survey indicates that the Composite Business Confidence Index (BCI) was 2.2 points higher at 114.9, boosted by Expo 2020, with new export markets and projects being launched. The survey also indicated that 83% of Dubai businesses rated their situation as ‘good’ or ‘stable’, as there was a marginal improvement, at 46%, in the number of companies expecting an uptick in their business situation. One worrying factor was to see hiring intentions continuing to soften.

The bourse opened on Sunday 22 September and, having shed 71 points (2.5%) the previous fortnight, lost a further 22 points (0.8%) to 2798 by 26 September 2019. Emaar Properties, having dipped US$ 0.04 the previous week, took a US$ 0.08 dive to US$ 1.24, with Arabtec, regaining the US$.0.03 lost the previous week, up at US$ 0.47. Thursday 26 September witnessed trading returning to dire levels of only 78 million shares, worth US$ 45 million, (compared to 310 million shares, at a value of US$ 142 million on 19 September).

By Thursday, 26 September, Brent, having gained US$ 4.02 (6.7%) the previous week, due to the attacks on two Saudi oilfields, shed US$ 1.76 (2.6%) to US$ 62.74. Gold, having lost US$ 30 (2.0%) the previous fortnight, moved US$ 8 (0.8%) higher, ending on Thursday 26 September at US$ 1,515. 

Brazilian police are expected to bring charges against mining giant Vale and German safety firm Tüv relating to January’s dam collapse that left 248 dead. Both companies have been accused of falsifying documents, claiming that the dam had been safe and stable that resulted in the country’s worst ever industrial accident. The mining company has already been ordered to pay compensation for all damages.

Yet another case of unauthorised trades by an employee has left the financial world pondering on what went wrong. This time, Japanese trading house Mitsubishi Corp has lost US$ 320 million from its Singapore-based subsidiary. It seems that the person involved was hired “to handle its crude oil trade with China”, but “was discovered to have been repeatedly engaging in unauthorised derivatives transactions and disguising them to look like hedge transactions since January of this year”. Fortunately for the Japanese trading house, and following investigations of other group companies and in-house departments, it seems that this was a lone wolf operation. This was not the first such fraud, (only last year two top officials at Chinese firm Unipec lost $656 million), and will not be the last.

Under strong boardroom pressure, WeWork co-founder Adam Neumann, has been ousted as chief executive but will stay on as chairman. The nine-year old company’s investors were set for an apparent golden nest egg, with an expected US$ 50 billion September IPO, only to see its value fall to US$ 10 billion for a myriad of reasons; these included Neumann’s loose and unconventional approach to corporate governance, various examples of conflicts of interest and rumours detailing drug/alcohol use within the organisation. The fact that the company had not made a profit may have also influenced decision-makers.

Ericsson is to make a US$ 1.2 billion provision to cover the costs of resolving a US corruption investigation. The Swedish telecoms equipment maker has been in discussions with US authorities over the past six years to resolve several breaches of its code of business ethics covering operations in six countries – China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. The company will take the “hit” in its Q3 results, set to be announced next month, and concurred that there had been “a failure to react to red flags and inadequate internal controls which enabled a limited number of employees to actively circumvent internal controls for illegitimate purposes.”

Early Monday morning, the inevitable happened as the 178-year old Thomas Cook went into liquidation, leaving 22k jobs at risk worldwide, of which 9k are in the UK. The Civil Aviation Authority (CAA) is coordinating what will be the country’s largest peacetime repatriation, codenamed Operation Matterhorn, as the UK government is left to fly around 155k customers from 18 countries back home. The company was left burdened with a debt of US$ 2.1 billion. Meanwhile, Condor, the German arm of Thomas Cook, was rescued with a last minute US$ 300 million government bailout, with their staff cheering the news and applauding Condor’s chief executive, Ralf Teckentrup.

No such celebrations for the former UK bosses of the stricken travel firm, as news filtered through of them receiving pay-outs, worth more than US$ 44 million over the past 12 years. Who can forget Manny Fontenla-Novoa, who received US$ 22 million over his four-year tenure, ending in 2011, that saw the company rake up debts of over US$ 1.2 billion (and almost collapse) and 2.8k losing their jobs following the merger with MyTravel? Then Harriet Green was paid nearly US$ 6 million (plus a share bonus of US$ 7 million) for less than three years at the helm.

Meanwhile, Australia has also seen a travel company hit the buffers this week, with Tempo Holidays and Bentours being placed into voluntary administration. Only a few days earlier, its head company, India-based travel giant Cox & Kings, announced that it had shut down its Australian and New Zealand operations. One poor traveller, who had spent over US$ 30k on a worldwide tour, was dismayed to find that although he had taken out insurance, page 60 of the PDF document, explaining his coverage, stated there was no cover for insolvencies! God bless insurance companies!

A study by the Australian National University suggests directors are illegally using insider trading to make personal profits on ASX trading. It is almost inevitable that this practice is not only restricted to Australia, with directors using information that is not available to the general public. The university looked at 50k directors’ trades, covering a decade to 2015, and concluded that insider trading is “rife” and “that there is significant buying pressure by directors following bad news, and a lot of selling pressure following good news.”

The UK offshore wind power is proving to be a major success story, with new upcoming projects capable of powering more than seven million homes. Apart from being environmentally friendlier than electricity (which powers just 15% of household energy, some way behind petrol, diesel and gas), it is more economical. For example, the cheapest operator will provide power for as low as US$ 48 per megawatt hour, less than half of the US$ 115 expected from Hinkley Point C, when it opens in 2025. It is estimated that over the past two years, the cost of offshore wind has plummeted some 30%.

There is no doubt that there is heavy state involvement (and high public sector debt) by GCC governments in boosting their individual country’s economies. Fitch has raised concerns that there is a significant and growing contingent liability facing some GCC government-related entities, with non-bank GRE debt ranging from 12% of GDP in Kuwait to 32% of GDP in Oman. Debt of government-related banks – wholesale or interbank funding, excluding customer deposits – ranged from Bahrain’s 9% of GDP to Qatar’s 39% last year. More worryingly is the potential scope of contingent liabilities from the banking sector with assets ranging from 74% of GDP in Saudi Arabia to 209% in Bahrain.

Indian Finance Minister Nirmala Sitharaman surprised the market by slashing corporate tax rates from 30% to 22% in a move to try and boost investment and growth in the country’s faltering economy, currently standing at a six-year low. The 8% reduction will apply to companies that do not seek exemptions, whereas those that do so will see the tax rate drop from 35% to 25%; new companies will have to pay 15%, down from the existing 25% rate. Already, the Central Bank has introduced four rate cuts, with little success, and has seen domestic spending slow markedly, despite the falling rates which are at a decade low.

Latest figures confirm that South Africa is entering its 70th straight month of a weakening cycle in September. All the indicators continue to head south, including economic growth and business confidence (at a three-decade low). The country’s economy has been in a quagmire, as growth has never been above 2.0% since 2013, with 2019 probably recording levels of less than 0.6%. The many cries for government action, to lift business confidence and boost growth, appear to have fallen on deaf ears. Meanwhile, Africa’s most industrialised country will continue to stutter on the back of rising debt, concern about the impact of Eskom Holdings SOC Ltd on the nation’s finances and a 29% unemployment rate.

Just like the UK, US retailers are facing difficult times as can be seen from latest data showing that, in H1, 7k stores have already closed their doors – a major increase on the 6k posted for the whole of 2018. There are so many reasons, apart from the usual suspects of trade tariffs and increased online competition, including tax reforms, poor weather and the historic government shutdown earlier in the year. The majority of shop shutdowns were seen in apparel specialty stores, footwear and general merchandise stores; clothing stores accounted for 36% of H1 closures (compared to 18% the previous year), followed by footwear – 26% compared to 8% in 2018 – and general merchandise (14% cf 2% in 2018). It is estimated that the higher tariffs will cost the average US household US$ 831 a year, money that would have previously been spent on retail sales.

As the Fed continues to cut rates, the impact is being felt in the US realty sector, with August home sales rising to a seventeen-month high, as mortgage repayments become cheaper. The 30-year fixed mortgage rate has dropped to around 3.5%, from a more than seven-year peak of over 4.9% late last year. Monthly sales increased 1.3%, equivalent to an annual rate of 5.5 million units. Buying activity has also been boosted by an economy with low unemployment, rising wages and slower house price inflation. By August, there were 1.86 million homes on the market, (down 2.6% on the year), with the median price of a house 2.6% higher at US$ 278k.

25 September will go down as a milestone date in the country’s history, with 35-year old Hazza Al Mansouri becoming the first Emirati astronaut – and the first Arab – on the orbiting laboratory. The astronaut joined Russia’s Oleg Skripochka and NASA astronaut Jessica Meir onboard a Soyuz rocket from Baikonur in Kazakhstan for an eight-day working space odyssey. The country rightly revels in this mega achievement as A Spaceman Came Travelling.

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Suspicious Minds

Suspicious Minds                                                      19 September 2019

A new law has seen the Real Estate Regulatory Agency take over responsibility for regulating and overseeing all Dubai developers’ escrow accounts, with management being carried out by accredited financial institutions. Rera will also govern the development, brokerage and management of real estate, with the aim of the exercise to provide “a secure environment to protect the rights of developers and investors”. More importantly, it will also have exclusive rights for policies designed to balance supply and demand. At the same time, the Dubai Land Department will carry out work, formerly done by Rera, for registering real estate rental contracts. These regulatory changes can only be for the good in such a soft market as the rights of both developer and investor become better defined.

Property Finder estimates that 21.0k residential units were completed in H1, with a further 38.4k more than 85% completed and expected to be ready for delivery before the end of the year. That being the case, it would mean a total of 59.4k units being handed over in 2019 –  a far cry from the average 23k per annum seen over the past four years.

For the five months to May 2019, US$ 28.9 billion worth of real estate transactions were recorded in Dubai, compared to 53k real estate deals, valued at US$ 60.8 billion, for the whole of 2018. Encouragingly, 66% of buyers (and 57% of transactions) involved were new investors. Business Bay was the busiest location in 2018 accounting for 4k transactions amounting to US$ 3.0 billion. The data indicates that new launch activity is actually declining – a trend that, if continued, would help balance the supply/demand conundrum. From 2013-2016, as new lease contracts decreased steadily, there was an increase in renewed lease contracts; over the next two years, both registered increases, with new lease contracts rising at a higher rate. This may point to an increasing number of new properties finding tenants.

In 2018, Dubai’s GDP jumped 1.9% to reach US$ 108.4 billion, with the real estate sector accounting for 13.6% of the total (6.9% in 2017) and construction contributing 6.4% to the total (6.2%, a year earlier).

Dubai Maritime City announced that construction has started on phase one of a US$ 30 million commercial precinct project that will include retail, residential, office towers and a promenade. Located in the Mina Rashid area, it is expected to be completed within eighteen months.

Brothers Ehab and Hani Sulaiman Elyoussef unveiled their iconic “Dubai Brand Logo” real estate project, designed to mirror the Dubai Brand Logo. The US$ 136 million residential and commercial project, stretching over 1.5 million sq ft, will result in the world’s largest logo and was inspired from the vision and directives of HH Sheikh Mohammed bin Rashid Al Maktoum.

So much for talk of an economic slowdown in the emirate when Symmetry Gym announces a 28-day intensive fitness package costing US$ 10k. Dubai’s most expensive gym, established eight years ago, boasts about 100 members, with monthly rates ranging from US$ 1.2k to US$ 2.4k for the Extreme Fitness Recharge plan. Amir Siddiqui, the centre’s founder, seems to have the right approach and has only targeted the top end of the market which at that level he considers to be almost recession-proof.

HH Sheikh Mohammed bin Rashid Al Maktoum has completed the comprehensive evaluation report of services in 600 government centres; this will become an annual transparent exercise. He has delivered on his promise of last month and has named the top five and shamed the bottom five government centres. Management at the worse performing offices were summarily dismissed, whilst at the other end of the ladder, bonuses, equivalent to two months’ salaries, were handed out to the team members. He directed immediate management replacement, in the worst centres, with highly capable leaders, and warned that he would visit again within a month to see if improvements had been made. The Dubai Ruler added “we have the courage to evaluate ourselves and our teams because the cost of hiding mistakes is much higher”.

Maybe Dubai entrepreneurs could take a leaf out of several small tourism towns in Western Australia that have gone into aquaculture that has provided a working option to traditional seasonal work. The WA government, which has laid the foundations for the industry’s growth, estimates that it will create an additional 30k jobs over the next four years. The abalone industry is now the biggest single employer in SW coastal towns such as Augusta and Bremer Bay. 95% of the abalone from Augusta is exported to Asian markets. The influx of permanent employment – rather than seasonal work – has provided an economic lifeline to coastal communities.

There is no doubt that the emirate has a sustainable, high quality infrastructure and for further enhancements, Dubai’s Department of Finance is to establish a dedicated unit to focus on public-private partnerships. Over the coming years, it is expected that the government and private sector will combine on a number of projects, valued in the billions of US$, so Dubai can achieve its ambitious targets set out by the Dubai Plan 2021 and the Dubai Industrial Strategy 2030.

More disappointing news for Dubai hoteliers in August as STR preliminary figures show declines in occupancy levels, average daily rate and revenue per available room down 0.2% to 68.5%, 12.5% to US$ 106 and 12.6% to US$ 73 respectively. However, both supply and demand were higher in the month rising 7.6% and 7.4%.

Two-year old Noon hopes to attract 25 million unique shoppers as part of its next ‘Yellow Friday’ sales push, which will this year run from 24 to 30 November. The portal, backed by Mohamed Alabbar and Saudi Arabia’s sovereign wealth fund Public Investment Fund, will be offering deals with up to 80% discounts. Last year, it saw an eightfold increase in revenue and the number of items purchased per basket 50% higher. There are reports that the US$ 1 billion e-commerce player could go public within five years.

Khaldoun Tabari, the former chief executive officer of Drake & Scull International, has claimed that accusations of financial violations against him are an attempt to find a “scapegoat” for rising losses; last year, fifteen separate complaints against their former CEO were filed with the public prosecutor by the firm. Since then, he has had his local bank accounts frozen and a travel ban issued while he was overseas. The case is still under review, as the authorities await a report from an expert committee, with Bloomberg indicating that the sum involved is over US$ 272 million (one billion dirhams).

Emaar Properties has signed the final terms relating to the issuance of a US$ 500 million sukuk – a ten-year Islamic bond with a 3.875% return; the developer is looking at issuing a further US$ 1.5 billion in the coming years.

The bourse opened on Sunday 15 September and, having dipped 3 points (0.1%) the previous week, lost 68 points (2.4%) to 2820 by 19 September 2019. Emaar Properties fell US$ 0.04 to US$ 1.32, with Arabtec US$.0.03 lower at US$ 0.44. Thursday 19 September witnessed improved trading conditions of 310 million shares, worth US$ 142 million, (compared to 98 million shares, at a value of US$ 51 million on 12 September).

By Thursday, 19 September, Brent, having gained US$ 0.06 (0.1%) the previous week, jumped US$ 4.02 (6.7%) higher to US$ 64.40. Gold, having shed US$ 30 (2.0%) the previous week, ended on Thursday 19 September flat at US$ 1,507. 

Two Saudi oilfields have been targeted, leading to half of Saudi’s oil production (and 5% of global production, equivalent to 5.7 million bpd) being affected. It is still early days since the weekend attack but there is every likelihood that it could lead to a delay in the massive Aramco planned IPO to debut in November on a local stock market before being listed internationally next year. JP Morgan had already been appointed to lead the initial listing, with the whole company being valued at US$ 1 trillion. Amazingly, 50% of the “lost” capacity was restored by Tuesday.

Airbus forecasts that air traffic will grow by 4.3% every year until 2039 which will lead to the number of planes doubling over that period to 48k; this will comprise 39.2k new jets, with the balance from the current fleet. Additionally, this will result in the need for 550k new pilots and 640k additional technicians.

Now that Cobham shareholders have agreed to a US$ 4.8 billion takeover bid by US private equity firm, Advent International, the UK government has “issued an intervention notice on the grounds of national security”. The Competition and Markets Authority will have to report by the end of next month; since 2002, the government body has investigated nine takeovers, on the grounds of national security concerns, and none have been blocked to date. The Dorset-based company, that employs 10k, pioneered technology enabling the mid-air refuelling of planes and is also involved in electronic warfare systems and communications for military vehicles. The fact that it is a world leader in mid-air refuelling may not be enough to stop the deal, although strings will be attached.

Thomas Cook is hoping that 75% of its bondholders back the takeover by Chinese firm Fosun Tourism, despite some lenders likely to vote against the terms of the agreement. The troubled travel firm posted a US$ 1.8 billion H1 loss and issued three profit warnings over the previous twelve months, as it struggles to reduce its debt pile. It has been hit by a double whammy of on-line travel agents and low-cost airlines, as well as last summer’s heatwave, potential customers undecided about travel plans due to Brexit worries and geo-political unrest in several places including Turkey.

It seems that the eleven-year old Airbnb is considering an IPO as early as next year. Having disrupted the hotel and travel industry, the “unicorn” would hope that its share value would not fall like the ride-hailing services Uber and Lyft did straight after their companies went public. No concrete details were readily available.

Another disrupter, Aldi is planning a US$ 1.2 billion investment splurge in the UK over the next two years, as plans unfold to raise the number of stores from 840 to 1.2k before 2024. The German discount supermarket group, which saw profits drop 26% last year, is in expansion mode and is not afraid to sacrifice short-term gains for sales growth, store openings and new customers; in 2018, its customer base increased by 800k to 16.6 million and sales by 8.1% to US$ 11.6 billion, whilst its share of the UK market jumped to 8.1%, becoming the country’s fifth biggest supermarket – still behind but fast catching Tesco, Sainsbury’s, Asda and Morrisons.

Faced with over 2.6k lawsuits, accusing it of fuelling the US opioid crisis, US drug-maker Purdue Pharma has filed for bankruptcy protection, with the board approving the Chapter 11 filing on Sunday. The company, owned by the billionaire Sackler family, had already reached a deal with 24 US states but still faced opposition from the remaining states who were against the proposed settlement. The family has agreed that the money raised by the dissolution (thought to be in the region of US$ 12 billion), plus a further US$ 4.5 billion from their personal wealth, will go towards settling the lawsuits.

In a bid to boost the flagging Indian economy, by helping exporters and easing overseas borrowing norms for some housing projects, finance minister Nirmala Sitharaman has introduced a raft of measures, totalling US$ 7.0 billion. The reimbursement of taxes and levies on export promotion will result in the “loss” of US$ 7.0 billion in revenue. Exports continue to head south, and returns would be even worse if it were not for the weak rupee. Whether these measures will help to improve the unemployment rate, (currently at its highest level in 45 years), car sales at its worst on record, and to boost economic growth, which at 5.0% in Q2 was at its slowest pace in over six years, remains to be seen.

Because carmakers continue to refuse to share technical information with independent mechanics, as is the norm in the US and Europe, Australian car owners are paying an extra US$ 1 billion every year. Figures from the AAA point to the fact that a standard service could cost 30% more at a dealership than at an independent outlet. This is despite the fact that car-makers made a voluntary data-sharing agreement in 2014 and that the federal government agreed in May 2018 that reform of the sector was a priority.

Australia’s economy is indeed slowing, as indicated by latest unemployment figures again nudging higher, hitting 5.3% last month, compared to 4.9% in February; the number of unemployed stands at 717k. NSW posted the lowest return at 4.3%, whereas South Australia recorded the highest at 7.3%. In August,15.5k full-time jobs were lost as 50.2k part-time jobs were added. Indicators are that any employment growth is being driven more by part-time roles, with a growing divergence between employment growth and growth in hours worked. Partly because of the employment figures, the Aussie dollar fell below the US$ 0.68 level and it is certain that the RBA will cut rates again to 0.75%, a record low, as early as 01 October.

As expected, the Fed cut interest rates for the second time in three months, with the 0.25% reduction leaving them at between 1.75% – 2.0%. Chairman, Jay Powell said that the move was to shore up the US economy, amid “uncertainties” about future growth, with President Trump commenting “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”.

Also this week, the Fed continued to pump in up to US$ 75 billion a day to preserve the Federal Reserve’s control over short-term interest rates. The repurchase agreement operation injects more liquidity to the system, as banks have been struggling to find the cash needed to meet reserve requirements; this, in turn, has seen a hike in short-term borrowing rates.

YTD, UK house prices rose at their slowest rate in July since September 2012, indicating that there had been general slowdown in UK property price growth. Although the market slowed in London and the SE, the biggest falls were recorded in the NE, with annualised declines of 2.9%, with Wales at the other end of the spectrum with an increase of 4.2%. The average price of a UK house has risen to US$ 285k.

UK inflation growth dropped to its slowest rate in almost three years as it dipped to 1.7% in August from 2.1% a month earlier; the two main drivers cited were falling costs of computer games (down 5%) and clothing prices rising “less than last year after the end of the summer sales” – 1.8% compared to 3.1% in 2018. These figures will widen the gap between inflation and wage growth (at 3.8% in July) and will lead to increased household spending which in turn will boost GDP figures. Even the BoE has at last intimated that the country will not go into recession this year – a great stride forward from their previous prediction that the economy would fall off a cliff following the Brexit referendum. They did however think that a no-deal Brexit would lead to weaker growth, higher inflation and a further drop in the value of sterling.

However, by the end of the week, there seemed to be movement on the Brexit front with Jean Claude Junker announcing that there still could be a deal with the UK. This is not the first time that the EU has changed its mind, on an important issue, at the last minute and this softening of its position points to the fact that a no deal exit would also harm member countries. Indeed, it would be hard to find any other organisation that is so adept at 11th-hour trade and political agreements. All that has gone on before represents basic 101 negotiation skills positioning in order to obtain the best deal for them, even at the other party’s cost.

It is almost a shoo-in that an agreement will be reached over the controversial Irish backstop and that Boris Johnson will deliver an acceptable alternative. Then, with further tweaks to other aspects of the agreement, it will be long forgotten that in summer the EU had stated categorically the withdrawal agreement was not up for renegotiation. Finally, the UK can sing we can’t go on together with Suspicious Minds.

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Hope Springs Eternal

Hope Springs Eternal                                                12 September 2019

Despite all the gloom around the realty sector, there have been recent glimpses that the worse may be over. Property Finder reported that over the summer quarter, (June – August), residential sales at 8.8k were the highest in four years and 33.5% up on the 6.6k figure in 2018. The secondary market recorded a 20.4% rise to 8.8k, with total sales at US$ 3.9 billion, up 14.9% year on year. However, the off-plan market still leads the way, with the quarter’s 5.0k, 43.5% higher than the corresponding figure last year; sales came in at US$ 2.0 billion – up 49.6%.

For the first eight months of the year, the fact that only 179 residential units, worth over US$ 1.4 million (Dhs five million), compared to 12.4k under that value, sold in off-plan sales, points to a significant switch in consumer behaviour; in the secondary market, the numbers were 527 and 8.8k. In 2018, off plan sales showed 241 units being sold over US$ 1.4 million and 17.2k below that amount, with the secondary market seeing sales of 1k and 14.6k respectively. These figures indicate a marked shift in a move from what was considered luxury to more affordable units.

MAG Property Development is planning to invest US$ 2.2 billion into the local realty sector, with three major projects – Mag City in Meydan, Al Furjan Villas and MPL Tower in JLT. To further encourage potential buyers into the market, the developer is to introduce a US$ 33 per day payment option to own a property – and this without any additional terms or fees, including registration, service and any other administrative costs.  MAG believes that a move to more affordable housing is the direction the market is taking and that developers should take note or lose out.

September sees Damac launch a month of offers, covering projects in Business Bay, Damac Hills and Akoya. Among the offers are a 50% discount off select homes in Celestia in Dubai South and 10% discounts on luxury villas, along with a three-year flexible payment plan. The payment plan is also open to buyers in Damac Hills (as well as a 15% discounts) and 20% on golf course-facing apartments in Kiara. Buyers for its recently opened Paramount Tower Hotel & Residences will receive guaranteed three-year rental revenue of up to 30%, with the same offer available for Radisson Dubai Damac Hills. Damac is going back in time by also offering a new Mercedes Benz to customers buying homes at three of the four Damac Towers by Paramount, Royal Golf Boutique Villas and those buying 2-3 B/R apartments at Golf Town in Damac Hills.

Businessman, Abdul Razeq Abdul Ahad has signed an agreement with Ellington Properties to build a new residential tower in a central location in the emirate. The US$ 41 million deal will go some way towards the builder’s target to build 1k residential units every year; to date, its developments have included Belgravia, Belgravia Heights, Belgravia Square, Wilton Terraces and Wilton Park Residences in MBR City.

Monday saw the tenth anniversary of Dubai Metro over which time it has carried 1.5 billion people, riding on the world’s longest driverless metro project. In its first year of operations, it had 39 million users, but this has more than quintupled to 204 million recorded last year. It is hard to believe that HH Sheikh Mohmmed bin Rashid Al Maktoum faced some opposition to his plan from some members of the Dubai Executive Council, worried of its non-acceptance by the population.

Emirates reported that its UK market has been growing at a healthy 6% per annum and accounts for 56% of its total European profit, along with 26% of capacity. Data firm OAG estimates that the Dubai-London route is valued at US$ 800 million, with the Heathrow-Dubai leg, (utilising six A380s a day), being the fourth busiest in the world, carrying 3.4 million passengers. The airline uses eight UK destinations, with its president, Tim Clark, believing that there would not be a “collapse in UK demand” if and when the country leaves the EU.

The Minister of Health has ordered that the price of some 410 drugs should be reduced, by between 2% – 77%, as from 15 September; 183 of these are produced locally. HE Abdul Rahman bin Mohammed Al Owais is implementing the government’s directive that medicine should be provided at competitive prices and in line with the lowest prices to be found in the Gulf.

It seems that some UK employees in various sectors would be better off financially by moving to this country. A study by 1st Move International estimates that pilots, doctors and lawyers would earn, on average, more by 126% to US$ 168k, 86% at US$ 108k and 70% to US$ 138k respectively. The UAE was also ranked the tenth best paying country, with an average overall salary of US$ 55k.

Shuaa Capital is to sell its local Shuaa Securities brokerage and market-making businesses to IHC RSC Ltd, an Abu Dhabi investing holding company. This is part of the strategy of the new entity, following Shuaa’s recent merger with Abu Dhabi Financial Group, that sees the divestment of non-core business units.

On Tuesday, Arabtec shares finished 11.3% higher at US$ 0.482 (but still at almost record lows), as the builder confirmed it was in merger talks with Trojan Holding. In the first two quarters of 2019, the troubled company posted year on year profit falls of 50.0% and 62.0% respectively.

The bourse opened on Sunday 08 September and, having gained 122 points (4.4%) the previous week, dipped 3 points lower (0.1%) to 2888 by 12 September 2019. Emaar Properties, having lost US$ 0.07 the previous four weeks, was flat at US$ 1.36, with Arabtec US$.0.03 higher to US$ 0.47. Thursday 12 September witnessed even lower trading conditions again of 98 million shares, worth US$ 51 million, (compared to 143 million shares, at a value of US$ 95 million on 05 September).

By Thursday, 12 September Brent, having shed US$ 0.76 (1.1%) the previous week, nudged US$ 0.06 (0.1%) higher at US$ 60.38. Gold, having gained US$ 19 the previous fortnight, ended on Thursday 12 September US$ 30 (2.0%) lower at US$ 1,507. 

Following problems with so-called “final load” tests, Boeing has suspended testing on its new long-haul 777X aircraft, of which Emirates is the biggest launch customer. There are reports that a door of the plane blew out during the test – a very rare occurrence at this stage of testing.  The new model was supposed to have its first flight this summer – now it seems it will be a toss-up between the 777X and 737 which will fly first. At the same time, the US manufacturer is in the process of completing changes required by regulators to lift a flight ban on the 737 MAX.

Google has agreed to pay French tax authorities US$ 1.0 billion to settle a tax dispute. The US company expects that this will put to bed the many fiscal differences that it had with France for numerous years. However, there seems to be little common ground on how to control the taxation of digital giants, even though this was discussed at the recent G7 meeting.

Earlier in the year, Goldman Sachs was lauding the fact that WeWork could be valued at US$ 65 billion, despite the fact that the office-sharing company was losing billions of dollars and had never posted a profit in its nine-year history. In H1, WeWork lost a further US$ 609 million bringing its total losses over the past three years to US$ 3.0 billion. Now there are questions whether the company will ever go public and if it did, pundits are valuing it as low as US$ 20 billion. There is every chance that it may go to its number one investor, SoftBank, for more financing.

A late flurry in the number of complainants, claiming for the mis-selling of Payment Protection Insurance (PPI), has left Lloyds and Barclays facing billions of dollars in new costs. The former will provide between US$ 1.5 billion–US$ 2.2 billion, whilst Barclays will put aside slightly less. Popular with “financial advisers” in the 1980s, and wholly unsuitable for its supposed purpose, PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs.

It seems highly likely that the London Stock Exchange will reject a surprise US$ 39.4 billion takeover offer from Hong Kong Exchanges and Clearing which would have combined “the largest and most significant financial centres in Asia and Europe”. However, having called the bid “unsolicited, preliminary and highly conditional”, the board said it would “consider” the proposal and “make a further announcement in due course”.

The IMF seem to be advising Saudi Arabia to double its VAT rate to 10%, as one way to reduce its far too high budget deficit (at US$ 320 billion) which is expected to widen by a further 0.6% this year to 6.5% of GDP on the back of OPEC production cuts. In its first year of operation, 2018, VAT generated returns of US$ 12.5 billion, equating to 1.6% of the country’s GDP. Although some progress has been made to reduce the deficit, the government still needs to look at other reforms, such as raising energy prices and fees levied on expatriates.

Australia – with a mere 25 million population – holds the world’s third-largest pool of pension assets, worth a massive $1.9 trillion, almost double that of the world’s tenth largest bourse – the Sydney-based national stock market ASX. This nearly 2:1 ratio is the highest among major developed economies where the ratios for UK, Canada and US are around 1.4, 1.2 and 1.0 respectively.

Fund managers are increasingly looking for overseas returns on some of that total which could be in the region of US$ 250 billion. Because of this cash imbalance, many of the Australian funds have been forced to look offshore to find suitable infrastructure, property, private equity and listed companies that could grow to US$ 1.0 trillion. Reports indicate that 41% of the biggest funds’ assets are currently invested overseas, with 75% of those funds expected to grow these offshore investments over the next two years.

The ECB has announced the return of quantitative easing (initially purchasing US$ 18 billion a month), and further cutting the deposit facility rate by 0.1% to minus 0.5%; the main interest rate remained unchanged at zero. Despite these measures, aimed at pushing the inflation rate to its 2.0% target, the economy remains sluggish at best and the hope is that by making more money available, it will encourage financial institutions to lend more to businesses and individuals.

With all the negative news emanating from the UK media, it is perhaps a surprise to some that the economy is faring comparatively well, when compared to some of its European neighbours. Wages continue to head north with July quarter growth readings of 4.0%, on an annualised basis, and at the same time the unemployment rate dipping to 3.8%; the estimated employment rate remained at a record 76.1% (32.8 million), its highest level in forty-five years. These figures point to a high probability that the economy should avoid a technical recession in Q3. On top of that, sterling started its climb back on Monday standing at 1.2357 to the greenback after falling below the 1.20 threshold the previous week.

Mainly as a result of the bi-lateral trade war with the US, China posted disappointing August exports – down 1.0%, compared to the same month in 2018. Exports to its nemesis fell 16.0%, year on year, whilst the flip side saw US imports slump 22.4%. The country is almost certain to introduce new measures to avoid the obvious danger of a further economic deterioration. This has already included the central bank cutting banks’ reserve requirements for a seventh time in twenty months to free up more funds for lending; there is the possibility of a rate cut which would be the first in four years. The on-off talks are back on with both countries agreeing to renew trade talks next month.

Good news and bad news on the trade tariff war. This week, China has decided to exempt sixteen US imports from their tariff quota. The bad news is that there are still 5k products still subject to levies of between 5% and 25%. In July, the US had exempted 110 Chinese-made products from their tariff list and some observers consider the Chinese move a very small gesture of goodwill ahead of talks in Washington next month. Currently the tariff table stands at US imposing US$ 360 billion worth of “charges”, with China retaliating with US$ 110 billion. By the end of the week, a presidential tweet saw Donald Trump delaying the planned tariff hike on US$ 250 billions of Chinese goods as a “gesture of goodwill”. Hope Speaks Eternal.

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