No Turning Back!

                                                                                     No Turning Back! 09 April 2020.

The Dubai week started with the much-expected announcement that the curfew would be extended for a further two weeks and that any individual would only be permitted to leave their home for stipulated purposes, including one person allowed out for essential shopping.  Any person, having to leave their residence, will need to wear a mask and gloves and keep the social distance of two metres. Dubai’s Supreme Committee of Crisis and Disaster Management confirmed the extension of the sterilisation programme to 24 hours a day, across all areas and communities in the emirate, to protect the health and safety of the residents. During this period, the Metro will remain closed, whilst reduced public bus services will be free of charge and taxis will offer a 50% discount. Furthermore, extensive medical tests will be conducted across densely populated areas of Dubai to ensure members of the community are free from Covid-19 infection.

The UAE has had to bow to the inevitable by officially requesting a one-year postponement of Expo 2020 Dubai until 01 October 2021, due to the coronavirus pandemic. It is highly likely that the required two-thirds majority of the Paris-based Bureau International des Expositions will rubber stamp this request at a virtual meeting on 21 April  to discuss “options for a change of dates” and to approve the continuance of the official name – ‘Expo 2020 Dubai’.

The seasonally-adjusted IHS Markit UAE Purchasing Managers’ Index – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – dropped, month on month, by 3.9 to 45.2 in March; this was the third successive month of declines, driven by marked falls in output  and new orders, with notable delays to supplier deliveries. Covid-19’s negative impact on the tourism sector, consumer demand and exports has exacerbated the problem. A reading above neutral 50 level indicates economic expansion and below points to a contraction.

Tabreed has agreed to pay US$ 675 million for an 80% stake in Emaar’s Downtown Dubai district cooling services; Emaar will keep hold of the 20% remaining shareholding. Part of the deal will see the utility company “exclusively” provide up to 235k RT (refrigerated tonnes) of cooling to the Emaar master-development, including the Burj Khalifa, and sees Tabreed become a major player in the world’s largest district cooling operations. The utility company, that now moves up two places to become the second leading player in the Dubai market, confirmed that the deal had been fully financed. Following this majority acquisition, its Dubai capacity has jumped to 279k RT and, through its operations in six countries, total capacity is now 126% higher at 1.3 million RT from 83 plants.

Many local banks are now ruing the day they extended credit to BR Shetty’s NMC Group, as their total exposure to the troubled healthcare provider nears US$ 2.2 billion. The seven most exposed banks comprise ADCB (owed US$ 981 million), DIB (US$ 425 million), Emirates NBD (US$ 291 million plus the equivalent of US$ 31 million sukuk exposure), ADIB (US$ 291 million), EIB (US$ 181 million) along with Noor Bank and CBI (both for US$ 116 million). Furthermore, insurer Dar Al Takaful is reportedly owed US$ 300 million, in medical insurance, and Aramex US$ 91 million in logistic fee payments.

Earlier in the week, the UAE Central Bank cut the reserve requirements for bank demand deposits and increased its economic stimulus package to US$ 70 billion to mitigate the Covid-19 impact. In addition, reserve requirements for demand deposits for all banks were halved to 7%. The rationale behind this move was to inject US$ 16.6 billion into the banking system to free up more liquidity in the market and further support lenders. The country’s banks were permitted to defer the principal amount of loans and interest for affected retail and corporate customers, as the Targeted Economic Support Scheme was extended to the end of 2020.

Embattled Arabtec announced that it had won two contracts, valued at US$ 57 million, in Abu Dhabi. One is, for its Target Engineering subsidiary, relating to work on an Adnoc offshore facility to be completed by the end of 2021 and the other is for the construction of a 19-floor commercial building, Sunset Square, worth US$ 34 million; handover is expected by Q4 2022.

The bourse opened on Sunday 05 April and, 1,144 points (39.9%) lower over the previous six weeks, posted a welcome weekly rise of 103 points (6.2%) to close on 1,830 by 09 April. Emaar Properties, having lost US$ 0.04 the previous week, was US$ 0.06 higher at US$ 0.65, whilst Arabtec, US$ 0.10 down over the past three weeks, was up US$ 0.03 to US$ 0.15. Thursday 09 April saw the market trading at 230 million shares, worth US$ 57 million, (compared to 150 million shares, at a value of US$ 54 million, on 02 April). 

By Thursday, 09 April, Brent, up US$ 2.47 (9.4%) the previous week, regained even more of its recent losses, US$ 2.67 (9.3%) higher, to close at US$ 31.48. Gold, down the previous week by US$ 25 (1.5%) was up US$ 118 (7.2%) on the week to close on Thursday 09 April, at US$ 1,753 – a seven-year high – as many investors baulk about the future of the global economy. By Thursday, Opec+, (Opec members and other non-Opec producers), had agreed to cut May and June production by ten million bpd (around 10% of current global supplies), with another five million bpd reduced by other nations. Prices have started to recover from the eighteen-year lows witnessed last month.

It is ironic that, with the recent low energy prices, two of the fuel (ab)users, airlines and cars, have experienced historically low usages. This week, global flights are down 59%, compared to the same week last year, with total capacity falling to 39 million from 109 million. All over the world, the number of flights is much lower – in a range of between 47% (North America) and 83% (Europe) – year on year. In the US, Rigzone reported that US gasoline demand has collapsed, as stay-at-home orders have kept drivers off the road; sales at retail stations were down 46.6% – seemingly bad but not compared to say Italy and Spain were gasoline demand was down about 85%, (with the UK 66% lower). The US Energy Department forecasts Q2 gasoline demand will decline by 2.3 million bpd, compared to a year earlier.

The latest – but not the last – UK retailer to hit the buffers is New Look, as it announced that it has indefinitely suspended payments to suppliers for stock which they can collect; it has also cancelled orders for its Spring and Summer clothing lines. One leading supplier, having no business links with New Look, said this behaviour was “totally out of order” and that events like this would “devastate smaller companies down the supply chain, at a time when they need help the most”.

The Aussie bourses started the week confidently on Monday, with the ASX200  trading 4.3% (219 points) to the good at 5,287 despite oil prices heading south on news that the OPEC+ meeting had been delayed and the fact that global coronavirus cases continued to climb; the market clawed back most of the previous week’s losses. Other Asian bourses were in positive territory, with Japan, South Korea and Hong Kong all up – by 4.5%, 3.4% and 2.3% respectively. However, it must be remembered that the Australian market is ensconced in bear territory and still 27% lower than its late February high.

Following a good Wednesday on Wall Street, (partly attributable to Bernie Sanders leaving the US presidential race), Australian shares moved higher on Thursday, with both the ASX200, 3.5% higher on Thursday’s session to close on 5,387 and the All Ordinaries index up 3.4% to 5,439. The Ozzie dollar was boosted by the enactment of the Federal Government’s US$ 80 billion wage subsidy package and closed Thursday on US$ 0.623. The Nikkei 225 had a flat day, closing on 19,346, whilst the Hang Seng moved up 1.4% to 24,300. Meanwhile, the Kospi gained 1.6% on the day to close on 1,826 and has now advanced 26% since its March low.

European markets followed the upward Asian trend on Monday with most bourses in the green – the FTSE 100 3.1% higher at 5,582, the FTSE 250, 5.1% to 14,812, Cac 40, 4.6% to 4,346 and the DAX leading the pack up 5.8% to 10,075. The US markets performed even better on the day with all three bourses posting gains of more than 7% – the Dow Jones by 7.7% to 22,680, Nasdaq 7.3% at 7,913 and S&P 500 by 7.0% to 2,664. By Thursday, the S&P 500 was 12% higher on the first four days of trading and had recorded their biggest weekly gain since 1974 despite the bleak economic outlook.

In line with other major hotel chains, Accor has not only cancelled its planned 2019 US$ 300 million dividend but also announced the closure of 67% of their worldwide properties in the coming weeks. This move will see 200k employees (equating to 75% of the workforce) put into furlough, or temporary unemployment. Accor confirmed that it had a US$ 2.7 billion cash balance and a US$ 1.3 billion revolving credit facility that has yet to be utilised.

As the aviation industry has been one of bigger casualties of the pandemic, it is not surprising to see Boeing close its South Carolina plant and suspend its 787 Dreamliner production from Wednesday until further notice; earlier, it had closed its plants in Washington state, including one at Pugit Sound,  where it produces its 777 wide-body aircraft. With global airlines facing a mega cash shortage, as air travel has been almost grounded, they are seeking ways to save cash flow by deferring orders and down payments.

For similar reasons, Airbus has advised employees that there will not be a return to full operations, in the short term, because of parts shortages and the inability (or unwillingness) of struggling airlines to take delivery of new aircraft. It has asked its European employees to take ten-day vacation breaks, up to mid-May, so it can meet demand if business resumes. IATA’s latest Q2 estimate indicates that airlines’ revenue will slump by 68%, during which time, they will burn up cash reserves of US$ 61 billion. One of its main suppliers, Rolls Royce has reported that it would cut back on all but essential activities, at its UK civil aerospace facilities, whilst one of its main customers, EasyJet, is considering a cancellation of a US$ 5.5 billion order for its narrow-body jets.

Despite slower sales in its consumer business, Samsung Electronics posted a 2.7% hike in Q1 operating profit to US$ 5.2 billion, driven by a slight recovery in the chip market; however, the quarter on quarter figure was 10.6% lower. The world’s biggest smartphone and memory chip maker’s revenue was US$ 44.7 billion – up 4.9% on the Q1 2019 return but down 10.6% compared to Q4 2019. The arrival of Covid-19 had one minor benefit for Samsung – the increased demand for laptops, because of the need for many more to work from home, drove to a stronger chip sales revenue stream. It did suffer from a downturn in its smartphone business in Q1, as many potential customers delayed new phone purchases. Indeed, in February, overall smartphone shipments saw their biggest ever plunge due to the coronavirus pandemic, as global shipments fell by 38% to 61.8 million, compared to nearly 100 million in February 2019.

Having closed its Fremont factory three weeks ago, Tesla has now shut down all its operations and have reduced staff pay, (mostly a 10% cut), to the end of June, and put non-essential workers on furlough; “barring any significant changes”, it hopes to resume operations early in May. Government money will temporarily pay workers – who have no work to do at this time – so the company can utilise them once operations recommence. Prior to the pandemic’s outset, Tesla was looking at “comfortably exceeding” production of 500k vehicles.

Prime Minister Shinzo Abe has announced not only a state of emergency, for Tokyo and five other prefectures, but also a record US$ 994 billion, (equivalent to 20% of Japan’s GDP), stimulus package in an attempt to shield the economy from the damaging impact of Covid-19. There is every chance that the economy will contract by 20% in Q1, badly hit by its export business flatlining and the postponing of the summer Olympics. The measures will see large subsidies for companies to retain workers and to cut corporates costs, so as to keep businesses from closing down for good, by deferring income and regional tax payments for a year. When the worse of the pandemic is over, the Prime Minister will bring in another stimulus package to increase consumer spending and speed up the recovery process.

The US Federal Reserve has instigated a US$ 2.3 billion package to boost local governments and SMEs to keep the economy on track in the middle of the coronavirus. Part of the strategy is for the Fed to allow four-year bank loans, (ranging from US$ 1 million to US$ 150 million), to companies of up to 10k employees and also, through its Main Street Lending Facility, to purchase the bonds, totalling US$ 600 billion, of states and more populous counties. The agency’s immediate highest priority is “to provide as much relief and stability as we can during this period of constrained economic activity”. The Fed’s action is probably best summed up by an Axicorp analyst’s comment that “it looks like the Fed are on a mission to blow holes in every dam that stops the flow of credit. And it sure sounds like they have plenty more dynamite if needed.” This week saw a further 6.6 million first-time claims for jobless benefits, bringing the total to almost 17 million over the past three weeks since the pandemic gained traction.

Another major problem for emerging markets is the fact that foreign capital flows could be reduced by more than 50% this year, driven by the double whammy of Covid-19 and lower commodity prices. The Institute of International Finance (IIF) projects that this year’s figure will be lucky to reach US$ 444 billion, as US$ 20 trillion has been wiped off the global bourses, with the travel sector almost closed down, allied with major disruptions to worldwide trade and supply chains. Last month, it has been estimated that emerging markets saw outflows of US$ 83 billion, whilst YTD there have been recorded portfolio equity outflows of US$ 72 billion and debt outflows of US$ 25 billion.

Fissures are forming within the EU as European leaders are considering a number of conflicting initiatives to help bailout the devastated economies of several member nations. The two countries, most badly hit by Covid-19, Italy and Spain, are urging the bloc to commit to “recovery bonds”, better known as Corona Bonds, to replace state-by-state borrowing which, it is argued, would reduce the cost of debt and avert a failure to find financing. However, it seems that Germany would prefer direct loans to those countries that need them, indicating that Italy and Spain could benefit by US$ 42.1 billion and US$ 30.2 billion respectively. However, the counter argument is that this mechanism will not be enough to overcome the impact of the shutdown of already debt-laden European economies, as the new EC president, Ursula Von der Leyen, takes a different approach, pushing for an expansion of the bloc’s budget to lead the recovery. Any hope would have to see a change of heart – and policy – from the “Frugal Four”, Germany, Netherlands, Austria and Finland, who are against the specific issue of “corona bonds”. Italy’s prime minister has said that the EU risks failing as a project because of the coronavirus crisis and must act in an adequate and co-ordinated way to help countries worst hit by the pandemic. Giuseppe Conte is leading the fight to push frugal members of the bloc to issue so-called “corona bonds” – sharing debt that all EU nations would help to pay off. As usual, last minute discussions saw an unsatisfactory conclusion on Thursday, with EU finance ministers agreeing to a mishmash US$ 550 billion rescue package which was smaller than what the ECB wanted and did not accede to Franco-Italian demands to share out the cost of the crisis by issuing corona bonds.

The WTO is the latest global body to come out with forecasts predicting a severe decline in international commerce this year, with a possible contraction of up to 32%, depending how long the pandemic lasts. Whatever happens, it is a comfortable guess to say that the impact will be greater than that felt following the GFC more than a decade ago. Very little can be done until the health crisis abates and that must take priority over any economic issues which will see marked declines in trade and output; it could take years for a complete and lasting recovery. It must be remembered that global trade, driven by the US-Sino trade tariff war, was in slowmo, even before Covid-19.

There was an interesting study out of Australia that probably would come up with similar results in most other countries of the developed world. The report by AlphaBeta noted that, in the last week of March, households had boosted their spending on groceries and other “essential” supplies, as money spent on on-line retail and food delivery was almost 67% higher; spending on pets jumped 28%. These marked boosts were offset by falls of 95%, 78% and 42% for gym usage, public transport and cafes. The report also noted a 67% hike in online gambling, with the alcohol/tobacco spend 33% higher.

Some experts are looking at 2022 before the world recovers to it pre-Covid-19 levels and that assumes the present downturn is short-lived; early estimates – probably on the conservative side – are  that the world will shed US$ 5.5 trillion in “lost” growth; this equates to almost 8% of GDP through the end of 2021, and this despite the unprecedented levels of monetary and fiscal stimulus ploughed into the economic system by governments. Gross domestic product is unlikely to return to its pre-crisis trend until at least 2022. Policymakers are treading a thin line and timing is of the essence – they need to ensure that there is just enough stimulus to keep their economies afloat before the decision is made to reopen their economies. If this is too early, there is always the likely risk of the pandemic returning and, if too late, missing the boat and giving their competitors a head start, as well as knocking domestic consumer confidence. Whatever anyone says, there is no chance of a coordinated global approach to this huge problem – just look at the disunity shown at this week’s EU finance ministers’ meeting – and that leads to a possibility of a W-shaped recovery, which would result in even more trouble for the world’s population.

What is happening to the UK economy is a reflection of what most advanced economies are facing, with a global slump bigger than the Great Depression almost ninety years ago. Bearing in mind that any reading below 50 indicates contraction, latest UK figures, reported by IHS Markit and the Chartered Institute of Procurement and Supply, are a cause for concern, with a March reading of 36.0, compared to 53.0 a month earlier. This could be a portend for a 15% decline in Q2 economic output. The composite figure for the manufacturing and services sectors in the eurozone was even worse, down from 51.6 in February to 29.7, whilst the US fell from 49.6 to 40.9, which points to the economy contracting 5.5% in an election year – not good news for the incumbent President. There is no doubt that Covid-19 is turning economics on its head, as countries hunker down and are being forced through a deep and speedy slowdown in the global economy. Whether they have the tools to turn the financial taps on, at the same speed they were turned off, remains to be seen but there’s No Turning Back!

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Exercise Caution In Your Business Affairs, For The World Is Full Of Trickery – Desiderata

Exercise Caution In Your Business Affairs, For The World Is Full Of Trickery – Desiderata 02 April 2020

Damac Properties posted a US$ 10 million loss last year – a major slump from preceding years’ profits of US$ 314 million and US$ 752 million in 2018 and 2017; this fall, and a 28.3% drop in revenue to US$ 1.2 billion, was down to softer market conditions throughout the industry, both in the emirate and globally. The developer also took impairment hits on development properties and trade receivables of US$ 34 million and US$ 11 million respectively. By the end of the year, it had delivered 14.6% more units, year on year, at 4.7k, although booked sales dipped 17.4% to US$ 845 million.

Following Emaar’s decision to close three more of its hotels, the Meydan Hotel and Bab Al Shams Desert Resort and Spa have also closed their doors until 15 April, as a result of the coronavirus restrictions.

Another casualty of the pandemic was the inaugural Emirates Loto draw having to be rescheduled to 18 April from its original first draw on 28 March. The draw will have a US$ 9.5 million weekly jackpot and to enter contestants need to buy a collectable for US$ 10 – either from a retail outlet or online – and then register six numbers from 1 to 49. If four numbers “come up”, the winner will receive US$ 82 and five numbers up to US$ 2.7 million.

There is no doubt that Emirates will receive Dubai government support to help the world’s largest long-haul airline deal with the fall-out from the ongoing Covid-19. This week,  Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, confirmed, “As a shareholder of Emirates airlines, the Government of Dubai will inject equity into the company, considering its strategic importance to the Dubai and UAE economy and the airline’s key role in positioning Dubai as a major international aviation hub.” The airline had already suspended all passenger flights and temporarily reduced employee wages by 25 to 50% as part of efforts to preserve cash. On Thursday, the airline confirmed that it had received approval from the Civil Aviation Authority to resume ‘special’ flights to selected destinations.

Every cloud has a silver lining and it is estimated that air cargo has witnessed a 20% surge, driven by the increased demand for essential goods, such as food and medical supplies, as a direct consequence of Covid-19. For example, Emirates SkyCargo, in the first eleven weeks of 2020, transported more than 225k tonnes, of which 55k tonnes were food items and more than 13k tonnes were pharmaceutical cargo. The airline has decided to operate all of its cargo operations from Dubai International Airport after temporarily suspending operations at Al Maktoum airport from Wednesday.

The Ministry of Energy and Industry announced month on month falling fuel prices for the month of April. Having seen March fuel prices fall – and with oil prices tanking due to the coronavirus – it was no surprise that April will see Special 95 retailing 11.8% lower at US$ 0.490 per litre, with diesel down 8.4% to US$ 0.561.

This week, Abdulhamid Saeed has replaced Mubarak Rashid Al Mansouri, who had been in charge since 2014, as the new UAE Central Bank governor. The move comes at a time when Covid-19 is gaining local traction and a week after the bank had announced a US$ 27 billion stimulus package to boost the local economy.

Earlier in the week, Dubai Free Zones Council launched an economic stimulus package, in tandem with the emirate’s government, to overcome the current Covid-19, in addition to the previous week’s package of reducing business costs and fees. The new measures cover a raft of initiatives, including the cancelling of fines for both companies and individuals, postponing rent payments for six months, refunding security deposits/guarantees and facilitating instalments for payments. Furthermore, free movement of labour between companies operating within the free zones will be allowed. The many Dubai Free Zones contribute about a third of the emirate’s GDP, with their 45k companies providing 389k jobs.

There are reports that Abu Dhabi Commercial Bank could be one of the most exposed financial institutions, with more than US$ 1 billion of exposure, relating to troubled hospital operator NMC Health, with other banks – including HSBC, JPMorgan Chase and Standard Chartered -also having  large outstanding loans. The latest known debt is estimated to be US$ 6.6 billion, more than triple its June 2019 balance of US$ 2.1 billion, but even this may not be the final figure as investigations have already found evidence of suspected fraud. This week, the group is planning a potential US$ 300 million sale of its NMC Trading unit which distributes products for Nestle, Pfizer and Unilever, as well as marketing foreign brands of medical equipment and office supplies in the country.

In a move to improve its current liquidity problem, exacerbated by the closure of its theme parks, DXB Entertainments has agreed to defer a “significant proportion” of the interest on a US$ 1.14 billion syndicated loan over the next fifteen months. The operator of Dubai Parks and Resorts will obviously be materially impacted by Covid-19, as its operations at Legoland, Motiongate and Bollywood Parks remain closed. Its latest contingency plans, which will result in further cost savings this year, comes on top of a 2019 cost efficiency and optimisation plan which delivered a 24% cut in expenses of US$ 47 million.

It is reported that Limitless World LLC is in the throes of its third debt restructure, as it is “unable to pay accrued profit at the end of March.” The troubled developer has written to its creditors as a “first step toward finding a solution for all stakeholders,” as it still tries to get out of a decade-long financial mire emanating from the 209 GFC. Its earlier deal in 2016 was to repay a US$ 1.2 billion Islamic loan and the current one involves rescheduling loans of US$ 600 million and obtaining further bank facilities of US$ 129 million.

The bourse opened on Sunday 29 March, and 1058 points (37.1%) lower over the previous five weeks, posted yet another weekly loss, down 86 points (4.8 points) to close on 1723 by 02 April. Emaar Properties, having regained US$ 0.02 the previous week, was US$ 0.04 lower at US$ 0.59, whilst Arabtec, US$ 0.10 down over the past fortnight was flat at US$ 0.13. Thursday 02 April saw the market trading lower at 150 million shares, worth US$ 54 million, (compared to 265 million shares, at a value of US$ 95 million, on 26 March).  Over the month of March, the bourse shed 819 points (31.6%) to close on 1,771 from its month opening of 2,590. Emaar started the month at US$ 0.95 and shed US$ 0.36 to close at the end of March on US$ 0.59, with Arabtec losing US$ 0.07 to close on 31 March at US$ 0.13.

By Thursday, 26 March, Brent, having slumped by US$ 22.54 (44.2%) the previous fortnight, regained some ground, US$ 2.47 (9.4%) higher, to close at US$ 28.81. Gold, down US$ 211 (12.5%) the previous week, shed a further US$ 25 (1.5%) on the week to close on Thursday 02 April, at US$ 1,635. For the month of March, Brent had retreated from its month opening of US$ 50.50 to close 47.8% lower on the month to US$ 26.35, whilst gold nudged slightly higher (0.6%) from its 01 March opening of US$ 1,586 to close on US$ 1,596.

There is every chance that oil prices will belatedly head north, with US President Donald Trump expecting Russia and Saudi Arabia to announce supply cuts “as high as” 15 million barrels after speaking “to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia”.

In April, the UK Treasury plans to raise US$ 55 billion in gilts – a record issuance of UK government bonds – almost triple the anticipated figure when compared with the forecast US$ 20 billion at the time of the Budget earlier in March. The biggest portion of the funds will head for the Coronavirus Job Retention Scheme, at a time when the government would have been collecting various taxes that have now been delayed. The government’s borrowing is currently on the same level as it was following the GFC.  At the levels of current spend, UK budget deficit could be as high as US$ 245 billion which equates to 10% of the country’s GDP.

Kuwait-based Alshaya has seen its revenue stream almost dry up by 95% over the past two months with its previously total of 4.5k stores, cafes and restaurants, now operating with only about 200 outlets open. With 75% of its 60k workforce based in the region, the company has had to make drastic changes to its normal opus operandi and has prepared a “detailed action plan” which comprises eliminating unnecessary expenditures, renegotiating all contracts, stopping recruitment and working with brands to reduce orders in the short-term; this will also include reducing “people costs”.

Huawei posted a 19.1% surge in 2019 revenue to US$ 123.0 billion, resulting in a 5.6% rise in profit to US$ 9.0 billion but is expecting a tough 2020 on the back of the coronavirus outbreak and the continuing restrictions preventing US companies from trading with it. Almost 55% of revenue came from its consumer business (US$ 66.9 billion), with a further US$ 42.5 billion and US$ 12.8 billion from its carrier and enterprise businesses respectively. Last year, it invested 15.3% of its revenue on R&D. The company confirmed that its production in China had generally been restored and there will be no problem in their short-term supply. Another problem facing Huawei is that, based on security concerns, the US has been pushing its allies – including UK, Australia, Canada and Norway – to exclude the Chinese company from 5G network deals; despite this, the company had managed to secure 77 5G contacts globally by the end of last year.

On Friday, India cut its lending rate by 75 bp to 4.4% – its lowest lending rate in a decade – as banks try to boost a flagging economy by pushing liquidity into the hands of businesses and individuals. It comes at a time when the Indian rupee continues to hover around its lowest ever level at between US$ .0.75 to 0.76. The country has now fired its two major salvos in the war against Covid-19, with the RBI cutting the interest rate on the monetary side whilst the Modi government has introduced a US$ 22 billion stimulus package. The markets spoke with a thumbs down by dropping on Friday by 549 points.

Reflecting the devastating impact that Covid-19 has already had on the US economy is the stark reality that the number of Americans applying for unemployment benefits surged for a second week to ten million, as 6.7 million joined the 3.3 million who filed in the previous week. There is every likelihood that the country’s unemployment rate, (now at 2.1% from 1.2%), could soon top 20%, with this figure equating to the total of the first six and half months of the 2007-2009 post GFC recession. Jobs lost in the past fortnight negates all the job additions made by the economy over the past five years. The data also shows that the crisis has gone far beyond the initial hit, borne mainly by the hospitality and travel sectors, and is fast spreading into other areas such as health, factories, retail and construction.

As many of the Global Wealth Funds are “cashing in” some of their invested funds to pay for their respective country’s fights against Coronavirus, asset managers will undoubtedly suffer by losing out on substantial former pieces of business. The industry’s global association, the Institute of International Finance, estimates that the returning funds will top US$ 300 billion this year – and this could only be the start. This latest setback comes on the back of lower energy prices and a slowdown in global trade which were making such a negative impact even before the onset of the current pandemic. It is thought that the ME GWFs could be worth more than US$ 2 trillion, some of which have been invested in global stock markets and other investment platforms such as both government and corporate bonds.

With global air travel demand set to shrink by 38% this year, and to lose US$ 250 billion in revenue, IATA has pressed governments to support the aviation sector, otherwise the industry will face irrecoverable damage. (Last week, the US Senate passed a US$ 58 billion aid package for its airline industry, which included cash for paying pilot, crew and staff salaries). The global body emphasised its integral position that the industry will play in facilitating the recovery of the global economy. Most airlines are currently paying out more in refunds than in new booking revenues which has resulted in a rapid cash flow deterioration for many of the global players. If no action is forthcoming, it is thought that most carriers will fold by the end of May, even those thirty or so, with a current relatively strong balance sheet.

A technique, established by Edward Altman sixty years ago, known as the Z-score, looks at five variables – liquidity, solvency, profitability, leverage and recent performance – and has an accuracy rate of almost 90% when looking at potentially future bankruptcies; this does not take into account any government assistance or other sources of finance. Scores of 1.8 or below indicate a risk of bankruptcy and scores over 3 suggest sound footing. In the former camp are mainly Asian carriers but also the likes of Norwegian Air Shuttle, Air France-KLM, American Airlines. and SkyWest Inc. Aircraft manufacturers are not immune, with Boeing Co. requesting billions of dollars in state support and Airbus extending credit lines and cancelling its dividend.

As a direct consequence of the slump in air travel, John Menzies has announced that it has had to shed 17.5k jobs, (more than half of its workforce), from its payroll. Over the previous two weeks, the Edinburgh-based company, which provides ground handling and cargo handling services at 200 airports, has seen flights fall by more than 60% and cargo volumes by about 20%.

Coronavirus is threatening to close the Italian restaurant chain Carluccio’s that could see 2.2k joining the ever-growing dole queues. Administrator FRP said it was working with Carluccio’s to “consider all options” for the restaurant’s future. (It appears that its ME operations will continue as the restaurant chain was bought by Dubai’s Landmark Group in 2010). With a backdrop of government restrictions closing all cafes, pubs, clubs and restaurants, the hospitality industry is facing thousands of closures.

Blaming Coronavirus for its inability to raise further funding, another high-tech company has hit the ropes – this time OneWeb has filed for bankruptcy protection in the US. The three-year old high-profile UK satellite start-up had raised US$ 3.2 billion to implement its project to build a global network to deliver broadband and had recently launched its 74th satellite in a constellation planned to have at least 648 spacecraft.

Friday was a bad day for many of the global markets, despite a day earlier G20 leaders agreeing to throw in US$ 8.2 trillion to boost the global economy, and a day after the US injected a US$ 2 trillion economic rescue plan, still to be approved by Congress. In line with other markets that had seen gains the previous three days, Australia got the ball rolling, with the ASX 200 dropping 5.1% to 4,874. With consumer confidence slumping and more than three million Americans filing for unemployment benefits, the Dow Jones slid 4.0% lower, the S&P 500 fell more than 3.3% and the Nasdaq dropped 3.8%. Across the water, London’s FTSE 100 tumbled more than 5%, while main indices in France and Germany also fell.

The IMF has confirmed that Europe has gone into deep recession as major economic sectors close for business. The world agency noted that the nonessential services, already closed by governments, account for some 33% of the continent’s output and that for each month the closure continues equates to a 3.0% fall in annual GDP. It concluded that “a deep European recession this year is a foregone conclusion”. A week ago, the ECB introduced a US$ 870 billion stimulus package, including a temporary asset purchase to address the downturn across the eurozone. However, the EC bureaucrats realise that this is not nearly enough to be of any use and it will have to put a lot more money in the kitty in its fight to help the bloc recover from this mega economic catastrophe.

The OECD has endorsed the Australian government’s proposal that the global economy should go into “economic hibernation” during the Coronavirus pandemic but disagreed with Prime Minister Scott Morrison’s opinion that economies will “re-emerge very, very quickly” once the virus dissipates. The world body not only criticised the lack of coordination between countries but also amended its early March forecast that annual global growth would halve to just over 1% – now it expects growth to fall by over 5%. It is obvious that, in the absence of rigid international coordination, the demise of the pandemic will be delayed (and the longer this nightmare goes on the more people die) and that the economic recovery will take longer; the state of the global economy will also be in worse condition. It is thought that for every month Covid-19 has not been contained, there will be a 2% reduction in GDP growth and that 33% of households would fall into poverty if they were to lose only three months of income. On top of that, there is always the real potential of widespread social unrest and the breakdown of civil order on a global scale.

By the end of the week, global bourses and economies, including that of Australia, were still reeling. On Thursday, the ASX was 2.3% lower at 5,135, with the All Ordinaries index 1.9% lower, as bank stocks took much of the heat, including NAB 5.3% off and CBA and Westpac both shedding over 4%. Ratings agency Moody’s, recognising that rising loan losses and slow interest rates will translate to lower profits, has downgraded the country’s banking system to negative from stable. Airline stocks fared even worse, with Qantas and Virgin down 5.2% and 8.9% respectively.  The Ozzie dollar recovered somewhat to close at US$ 60.85.

Most global stock markets  would have been more than happy to see the end of Q1, as they drowned in a sea of red, which saw the likes of  the Dow Jones Industrial Average (23% lower) and London’s FTSE 100 (down 25%) suffering historic losses, (amid a massive sell-off tied to the coronavirus and a steep decline in energy prices), last seen in 1987. Most observers reckon that the damage caused by this pandemic, (an estimated 2.8% contraction), will be worse than the 1.7% drop that followed the 2009 GFC. The actual impact will vary from country to country, with the worst hit being emerging markets, less developed countries, as well as Italy and Spain, with the UK facing a possible 4.5% growth downturn whilst China may escape with actual growth of around 2.0%. The US faces the real possibility that up to 47 million may lose their jobs which would see its unemployment rate climb from recent historic lows to over 32%.

There is no surprise that UK banks seem not to have come to the party despite, that just two weeks ago, Chancellor Rishi Sunak saying that businesses would be able to walk into bank branches and discuss Coronavirus Business Interruption Loans (CBILs) of up to US$ 6 million to help them survive the shutdown. Many firms are on record stating that banks have refused them emergency loans, indicating they were following the rules set out by the government. What has happened is that so many businesses either cannot get through by phone or, when they do, told they were not eligible. A recent survey found that 20% of UK’s SMEs were unlikely to get the cash they need to survive the next four weeks, resulting in the closure of up to one million businesses. This situation will be replicated globally, initially impacting on the poorest before climbing up the social scale to affect the more affluent members of society. It is essential that governments try and get a handle on the situation and ensure that those who do not have the cash or resources to buy food do not go hungry.

In these troubled times, it is an unfortunate fact of life that the number of scams will rise, with all sorts of offers that are always too good to believe. It is still a surprise that so many people appear to be taken in but in desperate times some resort to desperate measures. The people you want to avoid are the email and phone scammers usually offering huge sums of money for basically doing nothing; for these wheeler dealers, Christmas has come nine months early. Then there are the perennial financial advisers who historically have had a reputation of feathering their own nests before those of their clients. That is not to say that there are some good and honest advisers to be found but remember, in these troublesome times, to Exercise Caution In Your Business Affairs, For The World Is Full Of Trickery – Desiderata.

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It’s The End Of The World As We Know It!

It’s The End of The World As We Know It!                                              26 March 2020

Savills hope that the current disruption to the local real estate sector will be short-lived and reckons that the Coronavirus threat does not point to a long-term fundamental downturn, but more of a kneejerk reaction. The global real estate consultancy concedes that several sectors – such as hospitality, retail, tourism and travel – will take major hits that will inevitably take time to return to pre-virus normality. The first two months of the year had seen a marked increase in sales transactions, at a time when mortgage interest rates were heading south, and developers were offering attractive deals – and even bank mortgage charges were being lowered.

Despite these turbulent times, Damac has launched its A La Carte Villas initiative that allows buyers to select their own villa type, layout, landscaping, interiors and furnishings. The developer reckons that this is the first time that Dubai consumers have been able to design their new homes to their personal requirements. Located at its 42 million sq ft Damac Hills development, starting prices for the 3-4 B/R villas start at US$ 409k. Latest figures show that Damac has already delivered 27.4k units to the market with a further 35k in the pipeline.

Following the closure of three of its properties last month, Emaar Hospitality has decided to shut the doors on three others, as the Coronavirus gains increasing traction not only here but also on an almost global scale.  This time, The Address Skyview, Address Dubai Mall and Palace Downtown will be closed until 31 May, with Emaar stating that “we can confirm that we are consolidating our business to specific hotels and locations based on dates and demands, in order to maximise guest experience.” Meanwhile, its parent company has announced that all staff were being instructed to work from home.

Dubai’s Crown Prince, Sheikh Hamdan, has issued a direct and personal plea to UAE residents, stressing that current social distancing orders are “not a matter of choice”, but a “critical demand”. He also recorded his “thanks to the tireless and incredible efforts of our emergency response team, we have managed to protect ourselves and our communities till date”. However, he did warn “We (Dubai) are not immune.” By Thursday, the number of confirmed COVID-19 cases had hit 333, with two reported deaths.

With the exceptions of buying essential supplies or performing vital jobs, the UAE government has urged residents to stay at home wherever possible; the obvious dual aims are to limit social contact between people and to avoid crowded places at a critical time in the Coronavirus cycle. The public is also being urged to avoid visiting hospitals, except for critical or emergency cases. The government announced that it will temporarily suspend all passenger and transit flights for two weeks as from Tuesday 24 March. (Earlier, Emirates had announced it would suspend all flights as from Wednesday but then indicated that having “received requests from governments and customers to support the repatriation of travellers”, it would continue to operate passenger flights to thirteen destinations). Another government decision saw the Wednesday closure of all commercial centres, and shopping malls, along with fish, meat and vegetables markets for a period of at least two weeks. Authorities have allowed food retail outlets, including cooperative societies, grocery stores, supermarkets and pharmacies, to remain open 24 hours a day but must limit their capacity to 30%..Today, it was announced that public transport and metro services would be suspended from 8pm Thursday to 6am Sunday to sanitise all public facilities.

Local banks have now come to the party by introducing a number of relief measures for those customers impacted by the Coronavirus. There will be repayment holidays of three months, with zero interest and fees, for retail loan customers who have been placed on unpaid leave and one month for those with personal loans, auto loans or mortgages. First-time homebuyers will have their processing fees waived and will see a 5.0% increase in their Loan-to-Value ratio. There will be no charges for debit card cash withdrawals from ATMs. In addition, credit card holders can utilise an interest-free instalment plan for all school fee payments and grocery purchases, with no processing fees for six months. Furthermore, SME customers, who have taken out business loans, can apply for a three-month payment holiday, with zero interest and fees, whilst the minimum balance charges will be waived for the same period. Wholesale banking clients, including healthcare, aviation, hospitality, retail, event management, consumer goods and education, will be offered refinancing, repayment deferrals or lower repayments where required. Banks will also be offering clients enhanced credit and trade lines to manage ongoing operational costs. With so much volatility on the UAE bourses, banks will offer suitable instalment payment plans against additional collateral to help those customers that need to regularise their margin trading positions.

In these troubled times, Carrefour has seen year on year online orders jumping 300%, as many shoppers keep themselves well-stocked at home. Although the number of in-store shoppers has fallen, there has been a 55% hike in purchases revenue seen mainly in basic commodities and hygienic products, along with a “huge” rise in the sale of freezers, printers and routers.

Nakheel will offer a US$ 63 million package of relief measures to its commercial and individual tenants to help with the financial fall-out of Coronavirus. The package will include free rental periods for retail and hospitality customers, operating within its malls, and small business owners within master communities. Other assistance will comprise cooling charges being cut by 10% and administration charges waived for three months.

Network International is offering US$ 1.4 million in cash and other support to help its smaller customers, including US$ 1k to 1k of its “most severely impacted” merchant clients across all industries. To further help customers, suffering from the pandemic, the payments processor also waived minimum transaction fees for the next three months. This comes after the UAE cabinet approved a further US$ 7 billion to add to the US$ 27 billion package to support banks, introduced last week. This is in addition to a raft of measures introduced by both Dubai and Abu Dhabi governments to shield parts of the local economy from the impact of Coronavirus.

The Central Bank of the UAE revealed a 6.4% year on year record hike in the country’s gross banking assets to US$ 810 billion, last month. At the same time, the value of deposits was 3.4% higher at US$ 498.1 billion, compared to February 2019, with an 14.3% jump recorded in total investments by the country’s banks to US$ 111.6 billion. Meanwhile, on the credit side, gross credit was 4.4% higher at US$ 475.5 billion and domestic credit 3.1% up at US$ 428.1 billion. Government and private sector credit had February balances of US$ 63.1 billion and US$ 310.6 billion respectively.

Embattled NMC Health confirmed that the Group now has to pay off US$ 6.6 billion in loans – a lot more than the US$ 5.1 billion, just recently estimated, and includes a US$ 360 million convertible fund and a US$ 400 million sukuk.  These debts are with 80 financial institutions, covering 75 debt facilities, including US$ 800 million of Board unapproved “newly identified facilities”, that were undisclosed as of June 2019 and US$ 400 million of facilities entered into post June 2019 and that were unidentified as of 10 March. After being on extended leave for “ill-health”, Prasanth Shenoy has resigned as CFO with immediate effect.

The Ducab Group, owned by the Dubai and Abu Dhabi governments, posted a 5.0% hike in 2019 profits, with no other financial data made available. The company operates four sites, (and six manufacturing facilities), in the country with a total annual capacity of 115k metal tonnes of high, medium, and low-voltage cable solutions, 175k tonnes of copper rod and wire and 50k tonnes of aluminium rod and overhead conductors. 60% of production is exported to more than thirty countries whilst supplying 90% of the cable requirements for the upcoming Expo 2020. Recently, the copper and aluminium businesses were consolidated into a single unit – Ducab Metals Business – which generated US$ 545 million revenue last year, of which 75% was exported.

The bourse opened on Sunday 22 March, and 1048 points lower (37.6%) over the previous four weeks, had an up and down week but ended almost flat, shedding only 10 points to close on 1809 by 26 March 2020. Emaar Properties, having lost US$ 0.45 the previous four weeks, was US$ 0.02 higher at US$ 0.63, whilst Arabtec, US$ 0.10 down over the same period, was flat at US$ 0.13. Thursday 26 March saw the market trading lower at 265 million shares, worth US$ 95 million, (compared to 529 million shares, at a value of US$ 105 million, on 19 March). 

By Thursday, 26 March, Brent, having slumped by US$ 22.54 (44.2%) the previous fortnight, continued its downward trend losing a further US$ 2.13 (7.5%) to close at US$ 26.34. Gold, down US$ 211 (12.5%) the previous week, regained that deficit to close US$ 219 (12.2%) higher, on Thursday 26 March, at US$ 1,660.

So as not to harm the economy when it does eventually rise again after the abatement of Covid-19, the UK Conservative government decided it would be better to pay employees, forced out of work temporarily, 80% of their pay (up to US$3k per month) until normality returns. Then the economy will be able to start running from the word go instead of having all the problems usually associated with enforced start-ups. With all the infrastructure – manpower, systems and logistics – already in place, production can then quickly return to pre-Coronavirus levels – and ahead of international competition where employees had to be laid off. Courageous moves like this, (usually unheard of by a Tory government), cost billions of dollars but the pay-off should be worth a lot more both economically and socially.

On Thursday, the Chancellor of the Exchequer Rishi Sunak also announced an economic relief package for freelancers, not in PAYE employment. They can now claim 80% of their average income over three years up to US$ 3k, with businesses having profits US$ 61k able to claim 80% of their average profits of the last three years. The one drawback is that the money the government has borrowed will have to be repaid but it would have stopped up to an extra one million joining British dole queues.

As a direct result of the virus – and the increase in demand for food and other supplies – supermarkets have begun to hire, with the likes of Aldi, Asda, Lidl, Morrisons and Tesco recruiting 5k, 5k, 2.5k, 3.5k and “thousands of new colleagues” respectively. Unfortunately, for some of these new employees, the recruitment took place before the government announcement that it would pay 80% of wages for those affected by the pandemic.

Sir Philip Green’s Arcadia retail group is but one retailer who has decided to close all its stores which includes Topshop, Topman, Dorothy Perkins, and Miss Selfridge; it will focus on its digital and social platforms for sales. As High Street footfall has dropped by 40%, other closures include McDonald’s shutting down all of its 1.3k restaurants, Nando’s 400 outlets with Pizza Express, Costa Coffee, Itsu, Eat and Subway all their branches. Primark has closed all its 189 stores “until further notice”, John Lewis its total of fifty shops and Timpson all its 2.2k outlets. Other retailers locking up until the sun shines again include Debenhams, Next and Waterstones,

Having earlier suspended all its international flights, Virgin Australia is now slashing its domestic capacity by 90%, whilst temporarily standing down 8k of its 10k staff; the remaining 10% capacity will be utilised for essential services, freight and logistics.

In a bid to boost its liquidity, the board of Airbus approved a new US$ 16.1 billion credit facility to deal with the economic fallout from the coronavirus outbreak; this would be in addition to an existing US$ 3.2 billion revolving credit facility. It also decided to drop the 2019 proposed dividend of US$ 1.90 per share, totalling US$ 1.5 billion.

IATA estimates that the world’s airlines could lose US$ 252 billion in revenue and post a 40% slump in traffic this year that could also see the end of some major players; this estimate is almost double the amount indicated just two weeks ago. The whole industry is facing a cash crisis and the need for government support to help with some rescue plan is of paramount importance. The global agency, which represents 290 airlines, estimates that only thirty of them have reasonably healthy debt and earnings but even those would have to close by Q3 if no action is taken.

Australia is one country that could be a big loser, when the first round of Coronavirus finally comes to some sort of end, as even before its onset, the country was reeling from a double whammy of the devastating bushfires and a slowing Chinese market for its commodities. There are some who believe that in a worst-case scenario, Australia, already laden with one of the biggest global household debts, could see a deep recession, unemployment rates in excess of 10% and property prices slumping by up to 20%.

By Monday, two of the BRIC economies saw their currencies spiral downwards – the Indian rupee slid down to its record low of 76.446 to the greenback, (having fallen 6.4%  in the past four weeks), whilst the South African rand fared even worse, sinking 15.0% to 17.75 by the end of Monday trading; the bad news is that investors seem unable to get enough of the dollar and that both currencies will continue heading down. Thursday was a good day for the Indian markets as both the Sensex and the Nifty 50 rose on the day, (and also for the third consecutive day), closing on Thursday 5.0% higher at 29947 and 4.0% to 8641 respectively. The rupee improved to close at 74.86 at the end of Thursday, as did the rand to 17.36. By the end of the week, the Modi government had introduced a US$ 22.6 billion stimulus package, including cash transfers as well as steps on food security. Asia’s third largest economy will also have an insurance cover of US$ 67k for medical workers.

Meanwhile, amid the backdrop of a global recession and the rampant pandemic, sterling is getting hung out to dry as panic and fear grip the economic world. Investors are ditching traditional” safe bets”, including US treasury and municipal bonds, to satisfy their cash requirement at a time when in one session last week, US benchmark 10-year and 30-year bond yields posted their biggest jumps since 1982. There is no doubt that the US economy is in temporary lockdown, with latest figures showing that the number of Americans filing for unemployment topped a record 3.3 million for the latest week – a whopping five times the previous record in 1982 of 695k and brings to an end of a decade of expansion; it seems that 20% of the US employment  is under lockdown. There is no doubt that the situation will become even worse over the coming weeks. It seems that the unemployment rate will nearly double to 6.5% by the end of the month – more than double the figure just four weeks ago.

Another Asian country is facing increasing economic problems – Singapore posted a 2.2% GDP contraction, year on year, and a very disappointing 10.6% decline over the previous quarter; it seems that the island state will experience its first recession in over twenty years – and this could be an early indicator how the other global economies come out of this crisis in the future. This week, the government came out with a US$ 33.7 billion package to counteract the negative impact of the current pandemic.

Cash strapped Lebanon will no longer pay all its outstanding dollar-denominated eurobonds, in a bid to preserve its dwindling forex reserves. The country, which is experiencing its worst economic crisis in thirty years, failed to pay a US$ 1.2 billion bond earlier in the month and still holds about US$ 31 billion in bond maturities, of which one for US$ 700 million is due to be repaid in April and a further US$ 600 million, two months later. The Central Bank hold 43% of this debt with a further 33.4% owed by the country’s financial institutions. Lebanon, still trying to rid itself of this economic malaise and to restore stability, has a massive 166% debt to GDP ratio, with its public debt jumping 7.6% to US$ 91.6 billion last year.

The OECD painted a dismal picture of the world’s economy saying that it will take years to recover from this pandemic, now a bigger shock than the GFC, and anyone thinking the bounce back will be almost immediate are “wishful thinking”. The world body’s recent forecast of 2020 global growth halving to 1.5% is now considered far too optimistic as many of the bigger economies will fall into certain recession in the coming months, as job losses and company failures move upwards. On Monday, Australian shares had shed US$ 60 billion as the rout continued unabated with an increasing number of factories closing their doors and states shutting their borders. This latest fall in the ASX 200 sees its level the same as it was in November 2012, whilst the dollar continued in freefall to trade at around US$ 0.57 – a seventeen-year low. At this rate, even S&P’s growth forecast of 0.4% seems to be a little pie in the sky. However, by the end of Thursday trading, the Australian stock market had posted its third straight day of gains, despite the meltdown of companies laying off staff and hunkering down; on the day, the ASX was 2.3% higher at 5,113 and the All Ordinaries index up 2.6% to 5,135, a sign that there has been a trickle-down effect from recent government stimulus measures. Thursday proved a positive day for most global markets with rises across the board including the FTSE 100 2.24% higher at 5815, the Dow Jones up 6.38% at 22552, Nasdaq 5.60% to 7797 and the S&P 500 6.24% to 2630. Sterling came off its earlier week lows trading at 1.23 to the dollar and 1.11 to the euro.

Latest data from Japan and Australia epitomises what is happening in the whole world – they are both in lockdown, have empty supermarket shelves and have released activity surveys, showing the dire straits of their economies.  Japan’s Purchasing Managers’ Index confirmed that both its service and manufacturing sectors slumped 14.1, month on month, to 32.7 and 3.0 to 44.8. (Any figure below 50 indicates contraction). These figures would probably see a 4.0% contraction in the economy this year – and probably more now that the Tokyo Olympics have been postponed. In Australia, the PMI figures saw the services sector fall to a record 39.8 record low in March. These figures were replicated on the other side of the world, with the euro zone composite PMI down to 38.8 and the UK manufacturing down 3.7 to 48.0, with the US manufacturing and services PMIs at multi-year lows of 42.8 and 42.0, respectively from 51.7 to 48.

With these disastrous figures continuing to flood in, and global stock markets tanking, central banks think they have no alternative but to throw money at the problem. On Monday, the US Fed topped the lot by promising bottomless dollar funding and expanding its asset purchases by “as much as needed”, that includes backing the purchase of corporate bonds for the first time, as well as backstopping direct loans to companies. Later in the week, the US Senate agreed to an unprecedented US$ 2 trillion stimulus package to soften the impact of the coronavirus and shore up the economy. There are two problems that may arise – this type of flagrant monetary policy alone may not be enough to solve the problem and eventually someone has to pay for this surge in printing of money. There are many people that are now “comfortably well off” who, when this crisis is over, will struggle with hyperinflation and a depletion in the value of their assets. As usual, the banks and super rich will be the main beneficiaries of global central banks’ largesse. We will emerge quicker from the current pandemic than we will from the economic blowout. There will be drastic changes to the way we go about our lives and how we lived in the past, (only three months ago!) – some good, some not so – but make no mistake It’s The End of The World As We Know It!

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Paperback Writer

Paperback Writer                                                                              19 March 2020

Coronavirus came too early for the Dubai real estate sector which had been showing a marked improvement for the first two months of the year, with both January and February having significant increases of 12% and 33% respectively. Property Finder noted that last month, there was a 76% jump in off-plan transactions – 504 for villas and 2.25k relating to apartments., with DLD reporting 4.4k monthly transactions, valued at US$ 2.6 billion. Whether the pandemic dents this recent uptick remains to be seen. Two of the more popular off-plan apartment developments have been Creek Beach, Dubai Creek Harbour, and Burj Crown, Downtown – with sales of 140 and 139 units in February. Arabian Ranches 3 and Dubai South topped the popularity charts for off-plan villa projects.

ValuStrat estimated February saw a continuing slowdown in Dubai real estate prices, dipping 0.8%, although twelve-month prices had fallen 10.1%, with an average weighted average capital value of US$ 256 per sq ft. All locations witnessed declines that ranged from 0.6% in JLT to 1.5% in Discovery Gardens. The transacted sales price is US$ 254 per sq ft – almost the same as in 2012, when the then market started its record bullish phase. During February, month on month home sales, comprising 32% of all residential cash sales, were 7.0% higher, with off plan sales almost doubling!

According to Knight Frank’s Wealth Report 2020, Dubai, whose prime property prices only dipped 0.7% in 2019, rated 18th in the world of the most expensive locations for prime real estate. In Dubai, it is estimated that for US$ 1 million, investors can purchase 154 sq mt of prime real estate – a long way short of the likes of Monaco, Hong Kong and London where the same outlay will bag only 16.4 sq mt, (more than nine times less when compared to Dubai),, 21.3 sq mt and 30.4 sq mt respectively. Only two countries in the 20-location survey came in lower – Cape Town and Sao Paulo with 174.3 sq mt and 202 sq mt.

The ambitious US$ 5 billion Heart of Europe megaproject on The World Islands will see the first phase of three islands – Germany, Sweden and Honeymoon Islands – handed over by October; this will comprise the 489-suite Portafino Hotel and 78 floating Seahorses. The first nine of these three-level floating homes are already in place and are being anchored into position, whilst 78 villas on Honeymoon Island will be handed over by the end of the year. Phase 1 also includes 17 lagoon villas and 15 beachfront villas on Germany Island as well as ten beachfront palaces on Sweden Island.  The company also hopes to hand over the Monaco and Nice boutique hotels at Côte D’Azur beach on the main Europe Island by December. To date, 80 of the 131 units have been sold.

The first week of March saw hotel occupancy levels plummet almost 30%, compared to the same period in 2019, with average daily rates and revenue per room both down 20.4% to US$ 136 and 42.9% to US$ 82 – the rates had decreased for 37 consecutive days. The disappointing Coronavirus data came on the back of much improved January figures, with ADR and RevPar at 86% (16.9% higher) and ADR nudging 0.8% up to US$ 192. Because of the recent accelerated decline, hotels have had to hunker down; for example, Emaar has closed three of its properties – Address Fountain Views, Vida Creek Harbour and Vida Emirates Hills – until 01 September, as it temporarily “refocuses” on certain assets. The QE2 will  also close, with immediate effect, until 01 September

In a bid to support its existing business partners and customers, Dubai Holding, with Meraas, have introduced a US$ 272 million relief package. The two Dubai-owned entities will consider each case from impacted customers whether they are companies or individuals. Among the companies that could benefit from this largesse are Jumeriah Group, Dubai Properties, Tecom (including Internet City and Media City) and the Arab Media Group, which includes Global Village and Arabian Radio Network.

As from today, with a few exceptions, all valid holders of UAE residency visas will not be allowed to enter the country until 31 March, as the government clampdown gains momentum in its bid to halt the spread of Covid-19. For those currently out of the country, on business or vacation, the Ministry of Foreign Affairs and International Cooperation has advised that they contact  the UAE embassy/consulate for all necessary help to return to the UAE.

As of Thursday, the country had registered 113 cases of Covid-19 which also continues to ravage the local economy. Many companies, particularly SMEs, are already beginning to feel the pinch, as difficult decisions have to be taken which will impact many of Dubai residents. With schools and nurseries already closed, many sectors are in a no-win situation; little or no revenue, allied with continuing costs, will inevitably lead to a massive cash flow problem and a worrying increase in the number of liquidities.   Today saw the postponement until next year of the annual Gulf Education and Training Exhibition. However, there are “winners”, as an increasing number of shoppers are going on-line, including Carrefour posting a 59% jump in new customers onto its online platform, with a 32% increase in that sector; this has led the hypermarket to open six new fulfilment centres across the region.

In an opening salvo in the war against Coronavirus, Dubai Crown Prince Sheikh Hamdan bin Mohammed Al Maktoum has launched a US$ 410 million economic stimulus package in a bid to ameliorate the impact of a slowing economy, caused mainly by the onset of Coronavirus.  The strategy is to reduce the cost of doing business and to further simplify business procedures, particularly in those sectors hardest hit including tourism, retail, external trade and logistics services. The initial package covers the next three months, with a review dependent on the state of the economy then and whether the virus is still causing concern. There will be a freeze on the 2.5% market fees levied on all facilities operating in Dubai, as well as a 20% refund on the custom fees imposed on imported products sold locally in Dubai markets, the cancellation of the US$ 14k bank guarantee required to undertake customs clearance activity and a 90% reduction in fees imposed on submitting customs documents.

The tourism sector will receive some relief as municipality fees imposed on sales at hotels have been halved from 7.0% to 3.5%, along with an exemption from fees charged for postponement and cancellation of tourism and sports events scheduled for 2020; fees for the ratings of hotels will be frozen, as will be those charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events. For the man (or woman) in the street, DEWA (and Empower) bills will be reduced by 10%, and deposits cut by half.

The Telecommunications Regulatory Authority announced that Etisalat and Du have agreed to provide free internet data packages via mobile phones to ensure that those with no internet can continue with virtual training, with the rest of the country’s students as the schools remain closed.

The Central Bank introduced a US$ 27.2 billion stimulus package that includes a number of measures in “an effort to support the economy and protect consumers.” The Targeted Economic Support Scheme includes US$ 13.6 billion from central bank funds through collateralised loans at zero cost to all UAE banks in the country and the rest of the funds freed up from banks’ capital buffers. The authority confirmed that with over US$ 10 billion in foreign currency reserves there are enough funds to “safeguard the stability of the national currency and achieve the CBUAE’s objective to ensure monetary and financial stability in the state”. The regulator ordered banks to use the funding “to grant temporary relief” to private sector corporate customers and retail clients for a period of up to six months, as “many retail and corporate customers have become exposed to the risk of temporary shortfall of their cash flows due the outbreak of Covid-19 pandemic, and the scheme is addressing the current situation by providing both a relief to customers and a zero cost funding to banks.” The banks were ordered to “treat all their customers fairly” and grant “temporary relief” on retail clients’ loan payments for up to six months from 15 March. The government will extend measures to stimulate the economy if so required in the future.

The central bank also cut interest rates on Monday following the 0.25bp reduction announced by the US Federal Reserve late on Sunday. The UAE Central Bank trimmed its interest rate on one-week certificates of deposit by 75bp and decided to maintain the repo rate, applicable to borrowing short-term liquidity from CBUAE against CDs, at 50 bp above the one-week CD rate.

The central bank has also issued the “Dormant Accounts Regulation” which stipulates new rules for dormant bank accounts. These require banks to transfer funds to the regulator after three years (not the previous six) of no activity and allow customers to access balances at any time.

Billionaire BR Shetty’s problems go from bad to worse, with news that the payments and foreign exchange company he founded has been suspended from trading on the London Stock Exchange. Finalbr warned that there is “material uncertainty about the group’s ability to continue” at a time when its chief executive, Promoth Manghat, has stood down and that the board was unable to assess its financial position. The company, founded in 2018 to consolidate Shetty’s finance brands including Travelex and UAE Exchange, was then worth US$ 1.5 billion; now it is valued at just US$ 81 million, having slumped 94% since its London debut.

To add to his troubles, the UAE Central Bank is to oversee the operations of his currency exchange firm, UAE Exchange, after parent company Finablr appointed an accountancy firm to undertake “rapid contingency planning” for an insolvency process; the company has discovered, inter alia, cheques to the value of US$ 100 million “which may have been used as security for financing arrangements for the benefit of third parties”. The central bank is to verify whether all laws and regulations have been carried out by the exchange which has halted all transactions, with the exception of payments though the country’s Wage Protection System.

The central bank has had a busy week and is currently in discussions with its Pakistani counterpart, with a warning that it would sanction a UAE branch of a Pakistani bank if it were found that it had breached anti-money laundering laws. There had been reports that the UAE branch of one of Pakistan’s largest banks had displayed “significant irregularities” in dealings with politically exposed clients, (including opening accounts account for Duduzane Zuma, the son of former South African President Jacob Zuma, and for relatives of Gabonese President Ali Bongo),  and screening some transactions.

Shuaa Capital saw total 2019 operating income more than doubling to US$ 76 million, as its net profit to owners dipped 18.0% to US$ 13 million, having made US$ 6 million worth of impairment provisions against the value of some assets.  This was its first full year results since last August’s reverse takeover by Abu Dhabi Financial Group which created an entity with US$ 12.8 billion of assets under management, more than 12.5k clients and 380 employees. Despite Coronavirus and sinking oil prices, the company is setting “the foundation for significant and sustainable growth.” By the end of 2019, the company had divested itself of both its brokerage arm, Shuaa Securities, as well as its equities market-making unit for US$ 27 million; both were considered as non-core assets.

The Dubai Financial Market (along with the Abu Dhabi Securities Exchange) has decided to halve the limit to 5% that causes trading to cease, once losses hit that level on the day. Both markets will retain the 15% stop limit on any gains in one trading period. The move was made following huge market fluctuations in recent days caused by the Coronavirus.

The bourse opened on Sunday 15 March, and 406 points lower (14.2%) the previous three weeks, had another torrid week slumping 642 points (26.1%) to close on 1819 by 19 March 2020. Emaar Properties, having lost US$ 0.36 the previous three weeks, was US$ 0.09 lower at US$ 0.61, whilst Arabtec, US$ 0.08 down over the same period, was US$ 0.02 lower at US$ 0.13. Thursday 19 March saw the market trading 529 million shares, worth US$ 105 million, (compared to 428 million shares, at a value of US$ 280 million, on 12 March). 

By Thursday, 19 March, Brent, having slumped by US$ 17.79 (34.9%) the previous week, continued its downward trend losing a further US$ 4.75 (14.3%) to close at US$ 28.47. Gold, US$ 127 (8.1%) higher the previous five weeks, finally gave it and more away sinking by US$ 211 (12.5%), closing, on Thursday 19 March, at US$ 1,479. There is no doubt that the Saudi-Russian oil spat will be resolved sooner than Coronavirus and that in itself will be a small step to global recovery.

On Wednesday afternoon, oil prices slumped to their lowest level in eighteen years, to US$ 27.10, driven by three factors – Coronavirus, the Saudi/Russian oil spat and the slump in air travel demand. Despite oil prices sinking, Saudi will push up its output by 23% to 12.3 million bpd next month and the UAE will lift production higher to four million bpd.  This will have a drag impact on prices which will inevitably head south and remain within the US$ 20 – US$ 30 bpd level until the two countries come to an agreement. One obvious casualty from this fall-out will be the high cost producers, especially those in the US shale gas sector. If that happens watch out for trouble with US banks who will take a major hit in bad debts.

In its first annual results since Aramco’s December’s listing on the Saudi Tadawul, the oil giant posted a 20.6% decline in profits to US$ 88.2 billion, driven by low oil prices and production levels: it also made $1.6 billion of impairment provisions for losses associated with Sadara Chemical Company. As an indicator that the company is going through a rough patch, not helped by the Coronavirus and its spat with Russia, it has cut its 2020 capex to between US$ 25 –US$ 30 billion down on last year’s US$ 33 billion and also lower than the US$ 40 billion announced in its IPO prospectus. By last Sunday, its market value had fallen by around 25% to US$ 1.5 trillion from its December peak of US$ 2.0 trillion but it still remains the world’s richest company.

PSA Group, the parent company of Vauxhall, is to close all fifteen of  its European manufacturing plants, including two in the UK – Luton and Ellesmere Port – until 27 March attributable to a “significant” drop in demand and disruption to supply chains; Fiat Chrysler will do likewise for the majority of its European factories. In addition, Ford and Nissan has closed down in Spain and Italy.

There will be 2.9k redundancies when Carphone Warehouse closes all its 531 standalone stores on 3 April, driven not by the Coronavirus but by a shift in the mobile market; its other 305 big PC World and Curry’s stores, will remain open. However, a further 1.8k will take up new positions in the business. The move comes with data showing that customers are shying away from the smaller standalones, preferring to utilise online and big stores; the “small” business unit represent 8% of Dixons Carphone’s total UK selling space and is expected to lose US$ 110 million this year.

With Coronavirus gaining traction in the US – and with it an increased surge for online orders – will hire an additional 100k warehouse and delivery workers to meet the rising demand. Furthermore, US supermarket chains Albertsons, Kroger and Raley’s are in the market for additional labour for the same reason and have a ready-made source because of the huge number of redundancies in the restaurant, travel and entertainment businesses. 

So as to reduce the spread of Coronavirus, Apple has closed all its retail stores outside “Greater China” until 27 March 27 and has also introduced global flexible work arrangements, where practicable. At the same time, it will continue deep cleaning at all its 460 sites and introducing new health screenings and temperature checks. In February, all Chinese Apple outlets were closed but reopened last Friday. Meanwhile, this week, it was confirmed that the French regulator had fined Apple a record US$ 1.2 billion over anti-competitive practices.

It seems that the Trump administration is determined to keep Boeing flying despite all its recent setbacks, including the continued grounding of the Max 737 that started twelve months ago. Now the cash-ridden plane maker is seeking at least US$ 60 billion in US government aid for itself and suppliers. With its latest problem – Coronavirus, which is wreaking havoc, as the demand for air travel slumps – Boeing has seen further serious falls in its share value that have tanked 62% since the start of 2020. The US travel industry has been technically knocked out and the Trump administration is looking at a US$ 1.2 trillion bailout fund to help reduce the negative impact of the current crisis. It is reported that the trade group, Airlines for America is fighting for a US$ 50 billion package of loan guarantees and grants for its members, whilst a hotel association is lobbying for US$ 150 billion in backstop measures.

In Australia, Flight Centre confirmed that it will close 100 stores across the country, with the number of redundancies as yet unknown, as “increased travel restrictions mean demand is softening significantly and [the] timeframe for recovery is unclear”.

On Monday, the Australian Stock Exchange experienced its worst ever trading day as the All Ordinaries Exchange lost 9.5% to 5,058 points; since 20 February, the index has lost over 30% (US$ 110 billion) in value. All four big bank stocks lost over 10% on the day and only three of the 200 stocks showed a gain; major losses of over 15% were seen in energy stocks (Oil Search and Santos) and travel-related companies – Webjet, Corporate Travel and Flight Centre. The RBA “stands ready to purchase Australian government bonds” to keep the financial system functioning. The Australian dollar fell to its lowest level since the GFC, trading at US$ 0.61 by Monday close; the situation deteriorated over the week, closing on Thursday on US$ 0.57 – more than 12% down so far in March and 20% YTD. By the end of Tuesday, the market reclaimed most of the previous day’s losses, with the ASX 200 5.8% higher. Despite this spike, the bourse, at 5,293, was still 26% lower than its 20 February peak and dipped even lower by the close of Thursday trading to 4,783 – 28.5% lower from its 01 January opening of 6,691.

On Thursday, the RBA cut rates to a record low of 0.25%, as well as launching quantitative easing totalling US$ 15 billion to help smaller lenders to support consumers and SMEs. This is the first time that QE has been seen in Australia, with a three-year US$ 50 billion facility aiming to provide cheap money, at 0.25%, for Australian banks.  With the distinct possibility of huge job losses, the Reserve Bank governor, Philip Lowe. said that this historically low rate could be at this level for some years. He noted that before the Coronavirus hit, we were expecting to make progress towards full employment and the inflation target . . . . . recent events have obviously changed the situation.”

The Bank of England has gone all in with the big guns at the end of the week by cutting rates again – this time by 15bp to just 10bp as well as buying up US$ 240 billion of UK government and corporate bonds; the latest QE program, which creates digital money to purchase debt, will bring the BoE’s total asset purchases to over US$ 750 billion. The move came as surprise to the City on two counts – its timing and its amount. Only in January, the then governor, Mark Carney, said he thought there was the capacity for the markets to absorb a further US$ 144 billion of QE which would equate to a 1% cut in interest rates. The size of this package is equal to 9.0% of the UK GDP, compared to the ECB’s and the Fed’s earlier moves which equated to 7.0% and 3.3% of their respective GDPs.

The Philippine stock market tanked on Thursday, with the broader index dropping 24% – and this after a two-day closure following the introduction of Coronavirus quarantine measures. Despite all the money being pumped into global markets by central banks, panic is still driving market sentiment. With US$ 10 billion being expatriated out of the country so far this month, there is no surprise to see both the Indian markets and currency head south; the rupee skated past the key 75 mark, its lowest ever level, while  the S&P BSE Sensex index shed 7.5% on the day. With fragile market sentiment unlikely to go away in the coming days, investors are heading for safe havens, such as the greenback, as risk assets come under increased downward pressure.

Following an unscheduled Wednesday meeting, the ECB surprised the market by launching a mega US$ 820 billion emergency bond purchase scheme in the hope of stymying a spiralling economic and financial crisis. The world is looking at a global financial crisis bigger and more harmful than the one in 2008, as the world leaders and central banks look at ways to steady the markets and pull them out of an inevitable recession. As is normal procedure, the ECB’s purchases will be carried out pro rata to each country’s capital key, their actual stake in the bank. The bank warned that it will not tolerate a surge in yield spreads between euro zone members, as has been the case in the past. Surprisingly this move, just like the UK’s measures two days earlier, disappointed investors. At the same time, its minus 0.5% deposit rate remained unchanged, probably indicating that a future reduction is unlikely in the short-term. It seems the EU have a long way to go to get their economic house in order.

A week after a surprise 50bp cut, the US Fed knocked a further 25 points off interest rates to a target rate of 0% to 0.25%. as part of a coordinated action with the UK, Japan, Eurozone, Canada and Switzerland. Noting that the pandemic was having a “profound” impact on the economy, Fed chairman, Jerome Powell, launched a US$ 700 billion stimulus package – pumping money directly into the economy. The two recent rate cuts were the first outside of a regularly scheduled policy meeting since the 2008 GFC. It seems that the markets were not impressed – shedding 4% the following day and the Dow Jones index closing 12.9% down, after President Donald Trump said the economy “may be” heading for recession.

On Wednesday, the US President signed into law a relief package to marshal critical medical supplies against the coronavirus pandemic and an aid package that will guarantee sick leave to workers who fall ill. The next day the Fed announced that it would purchase another US$ 10 billion of mortgage-backed securities, part of a larger package of US$ 200 billion in mortgage bonds. The administration proceeded with its broad economic rescue plan to “helicopter drop” US$ 500 billion in individual cheques to all Americans. There was another roller coaster ride on US markets but by the end of Thursday’s trading, all three markets had posted gains – Nasdaq Composite up 2.3%, the S&P 500 0.5% and the Dow 1.0% or 188 points – the first time since 06 March that the index had closed within 1,000 points from its day opening price,

The start of the week saw global stock markets tanking again and this, despite a co-ordinated effort to ease the Coronavirus impact, including the US Fed cutting rates to almost zero and introducing a US$ 700 billion stimulus package. The Dow Jones lost 12.9% and London’s FTSE was 4.0% lower. With rates hovering around the zero mark, it leaves global central banks with little ammunition to introduce more fiscal measures to combat this pandemic. However, the new BoE governor, Andrew Bailey, has pledged to take “prompt action”, when necessary, to continue to stop the economic damage being caused by coronavirus.

Having fallen 10.7% in eight days, sterling was trading on Wednesday afternoon at US$ 1.179 to the greenback – its lowest level since 1985, driven by the herd instinct of investors fleeing to safe haven currencies such as the US dollar; by Thursday it had declined further to US$ 1.16.  Whilst Covid-19 continues to spook the world, along with a limp market sentiment, the greenback will remain strong.

Probably the biggest global sector to be impacted by Coronavirus is tourism with the World Travel and Tourism Council touting that up to 50 million jobs could be lost; the global trade body also warned that the travel sector could shrink by 25% this year. Not surprisingly, it has made several requests to governments including removing and simplifying visas where possible (plus reducing costs), reducing travellers’ taxes and increasing budgets for promoting travel destinations. More and more countries are introducing travel restrictions, with a devastating impact on carriers. Chinese airline passenger numbers slumped 84.5% in February, (losing US$ 2.4 billion in revenue), and most leading airlines including BA, Emirates, Etihad and Norwegian have all cut flights in response to the outbreak. Qantas and Jetstar will cut international capacity by about 90% and domestic capacity by 60%, grounding 150 aircraft until 31 May. The three largest airlines in the US — Delta, American Air Lines and United – are in talks with the government about potential assistance amid a dramatic drop-off in air travel demand. IATA has expressed concern that carriers could fold over the next few months unless massive aid packages are made available.

The loss of Chinese tourists will be a major blow to places like the UK and Dubai. In the twelve months to September 2019, 415k Chinese visited the UK, with each one spending US$ 2.2k (three times that of the average visitor). The questions are how many will visit this year and how much will each spend; the answers are fewer and a lot less.

Overall, the cost of this pandemic is so far immeasurable. All that governments can do is to throw money at the “problem” without much planning going into the process. For instance, the IMF is ready to mobilise US$ 1 trillion in lending capacity to help nations combat the deadly Coronavirus outbreak, whilst indicating that the need for a co-ordinated global fiscal stimulus is becoming urgent “by the hour”. The EU is to put a US$ 43 billion investment initiative in place which will include a US$ 9.0 billion loan guarantee for some 100k firms; it is also supposed to give member states flexibility on budget deficits and state aid. The new EC President Ursula von der Leyen said, “I am convinced that the European Union can withstand this shock, but each member state needs to live up to its full responsibility and the European Union as a whole need to be determined, coordinated and united.” Little hope of a united front when one sees the disunity as individual European countries take unilateral action to close their borders!

In 2007, Dean Kuuntz came out with a book, “The Eyes of Darkness”, in which on page 312 he wrote “In around 2020 a severe pneumonia-like illness will spread throughout the globe, attacking the lungs and the bronchial tubes and resisting all known treatments. Almost more baffling than the illness itself will be that it will suddenly vanish as quickly as it arrived, attack again ten years later and then disappear completely.”  It continued on the next page “that a Chinese scientist named Li Chen defected to the US .  .  .  .  . They call the stuff ‘Wuhan-400’ because it was developed at their RDNA labs outside of the city of Wuhan, and it was the four-hundredth viable strain of man-made microorganisms created at that research center”. Although this is a piece of fiction, it is about time that the world wakes up and if governments want to spend billions of their people’s money, it should be spent on germ warfare and not nuclear and other warfare. It is spooky that this pandemic was prophesised thirteen years ago by a Paperback Writer.

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Don’t Give Up On Us Now!

Don’t Give Up On Us Now!                                                                            12 March 2020

Property Finder estimates that 179 projects are nearing completion and that 48.5k units could come on to the market by the end of September; this is just slightly less than the total amount handed over in the three years between 2016-2018. If this proves correct, then it will continue to be a buyer’s market, with prices and rentals still hovering around their bottom. The number quoted appears to be on the high side but only time will tell. Of the major players, Emaar will add 4k more apartments before December, Wasl Asset Management’s 2.5k at Ras Al Khor, Millennium Place, Mirdif Hills, with 1.6kapartments, the three Al Habtoor City Residential Towers – 1.4k, Damac a further 1.1k, via its three Carson Towers in Damac Hills and Wasl Assets 0.7k in Arabian Gate at Dubai Silicon Oasis.

JLL estimates that 35k residential units were handed over last year and expects this figure to top 80k in 2020; the 2019 figure was the highest annual number of villas and apartments delivered in Dubai’s history. This year, the consultancy expects the realisation rate to be half that total at 40k. The Higher Committee of Real Estate, set up last September, will inevitably monitor all new developments to ensure there will be no duplication of projects in the sector that has been the case in the past; this will, in turn, regulate market oversupply. Another feature that could help with the current supply/demand imbalance will be intentional delays in handovers, with phased deliveries. Most of the new supply will be in relatively new areas of Dubai, with the older locations still in demand with buyers.

According to Core, 32k units were handed over last year bringing the number of residential units to 550. The Dubai-based realtor commented that this annual figure was the highest yearly number handed over since 2009 and that this  will increase by a further 49k by the end of 2020 to bring the total to almost 600k; MBR City, Dubailand and Dubai South will see most of these additions. That being the case, the number of units in the two-year period will have increased by 81k, equivalent to an annual rate of 6.9%; over the past twelve months, Dubai’s population grew by 4.5% to 3.38 million. This shows a slowing in the population growth as for the two years to 31 December 2019 the increase had been 12.6% to 3.38 million.

Danube became the first developer this year to introduce a formal off-plan launch (‘Olivz) in Dubai, as most developers are keeping their distance, preferring to focus on selling off properties in their portfolio in a soft market. The 741-apartment, US$ 110 million project, comprising studio, 1-2 B/R, with prices from US$ 79k to US$ 190k, will be ready for handover within two years. The developer noted that “construction costs have not come down – only property values have”. Last year, it launched two projects – the “Elz” and “Wavez” – and delivered two, “Starz” and “Resortz”; to date, it has delivered a total of 2.1k units. Once the latest Olivz project has sold more than 90%, the company will probably release another launch.

It is thought that local banks may be impacted .by the virus, resulting in reduced lending and borrowing and that the deteriorating economic environment will lead to poorer credit quality and limited funding being made available; this in turn may be a drag factor on bank’s liquidity, as there will be increased pressure for banks to provide loans and fund development. Moody’s have forecast that there will be “broad-based shock” to the UAE economy as there will be marked slowdowns in key sectors – including tourism, transportation, trade and real estate – that are integral to the emirate’s progress.

As the coronavirus worsens, Emaar Hospitality has decided to close three of its Dubai hotels – Address Fountain Views, Vida Creek Harbour and Vida Emirates Hills – for five months so that it can `’ temporarily refocus on a selected number of assets”. The hotels will reopen on 01 September but, in the intervening period, the properties’ restaurants, gyms and pools will remain open.

The latest convention coronavirus casualty is the Arabian Travel Market which has been postponed to the end of June as a precautionary measure. The annual B2B, one of the biggest in the region and a massive boost for the Dubai hospitality and retail sectors, brings nearly 40k global travel professionals, government officials and journalists. Both horse racing and football matches will have to be played in empty stadia, with the Emirates Racing Authority announcing on Friday, that meetings will take place, but without spectators; and this will be inevitably the same for the upcoming World Cup meeting on 29 March. The Central Bank requested that banks implement measures to counteract the effects of Covid-19, including rescheduling loans, offering temporary deferrals on monthly loan payments and reducing fees and commissions.

Last year, the Dubai International Financial Centre welcomed 493 new companies bringing the number of entities operating there to 2.4k, which comprise 17 of the top 20 global banks, 8 of the top legal firms and six of the top worldwide asset managers. By the end of 2019, total banking assets booked in the DIFC were 13% higher over the year at US$ 178 billion. The centre’s Wealth and Asset Management (WAM) industry is worth US$ 424 billion, whilst. Gross Written Premiums for the insurance sector nearly touched US$ 2 billion.

In February, the RTA signed an agreement with UK-based BeemCar Ltd to develop a rapid transit system which will operate on suspended rails. The first model of Dubai Sky Pod project was the Unibike, capable of holding five passengers, whilst travelling at a maximum speed of 150 kph; it could carry about 20k people per hour. The latest model will operate on suspended rails and will have a number of loops across the city, covering Downtown locations such as Burj Khalifa, DIFC, Bay Avenue, and Marasi Drive, before crossing SZR to take in Al Wasl district, City Walk, and Coca-Cola Arena.

Not helped by coronavirus, the Dubai non-oil private sector economy slowed again in February to a four-year low, from 50.6 to 50.1, although output growth in the emirate remained unchanged. The disappointing figures were not helped by lower inventories and weaker sales which witnessed the construction sector posting a moderate decline in business conditions with retail/ wholesale faring a little better. Furthermore, there were more declines including new orders falling for the first time in four years and total new businesses declining for the first time in sixteen months. Tougher times are ahead, and it is certain that many of the emirate’s businesses may go out to business if the situation drags on into the summer. The main problem facing not only SMEs will be the lack of liquidity as some firms will have problems paying staff, as their revenue stream dries up.  However, Dubai is in a better place than many other global locations where the economic repercussions could be even more horrendous.

As part of the government’s strategy of enhancing the the ease of doing business and boost trade, DP World has slashed its business-related fees by up to 70%. This will come as a welcome boost to some 7.5k businesses operating in Dubai’s oldest free zone as registration, licensing and related administrative fees are all being reduced. This comes on the back of Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, calling for a reduction in the cost of doing business. A third of Dubai’s GDP emanates from the free zone’s operations, as well as accounting for 23.9% of total foreign direct investment flowing ‎into the emirate.

Although annual revenue was 37.1% higher at US$ 7.7 billion, DP World turned in an 8.3% decline in profits to US$ 1.2 billion in what was described as an “uncertain” trade environment, with the ongoing coronavirus epidemic causing the company concern in the near-term. This week, DP World has signed an agreement to become the global logistics partner and title partner for the Renault F1 team.

WeChat Pay, having signed an agreement with Network International, will soon have a UAE presence and be able to utilise the facilities of the local payments giant and those of its merchant partners. WeChat Pay, a mobile payment service embedded in WeChat, has more than one million registered global users. This will enable the rising number of Chinese visitors to use their local payment platform, as well as giving a welcome boost to the local retail and hospitality sectors.

Troubled Abu Dhabi-based NMC Health indicated that the February staff wages will be paid by next Monday, during a turbulent time in the company’s history which has seen its share value in freefall from December, when short seller US Carson Block warned that he thought that the Abu Dhabi company had overpaid for assets, inflated cash balances and understated debt. It also announced that its debt levels, having almost doubled in H2 last year, currently stands at over US$ 5 billion. as a further US$ 2.7 billion in facilities, that had not been previously disclosed, had been discovered. If that is the case, it would seem that someone has been caught napping (or worse). The UK’s Financial Conduct Authority is currently investigating the largest private healthcare network in the UAE, employing 2k doctors and 20k ancillary staff, which has seen five of 11 board members leave their positions over the past month.

Amanat Holdings has pulled out of negotiations to buy a share in VPS Healthcare Group – no reasons were given. The education and healthcare investment specialist had been interested in the company, established in 2007 by Dr Shamsheer Vayalil, so as to tap into a booming GCC healthcare industry, which is expected to grow to US$ 30.5 billion by the end of 2021; VPS operates more than 20 hospitals and 125 medical centres in the ME and India. Coincidentally, Dr Vayalil is also the vice chairman and managing director at Amanat. At the end of the year, Amanat had US$ 146 million in cash – and had the wherewithal to raise a further US$ 163 million in loans. It also indicated that it would be looking to invest up to US$ 245 million in the GCC and Egypt over the coming years.

Network International posted sterling 2019 results with profits jumping 26.3% to US$ 59 million driven by business growth and no new impairment charges during the year. Revenue was 12.4% higher at US$ 335 million, with the ME and the African regions recording growth levels of 9.2% and 22.2%. The region’s leading payment provider also carried an underlying free cashflow of US$ 103 million and net cashflow from operating activities of US$ 131 million.

Sunday witnessed a stock market carnage  as US$ 211 billion were wiped off local bourses with the Kuwait  Premier Market index being suspended for the second time in six days after hitting a daily decline limit of 10%, with the Saudi Tadawul shedding US$ 180 billion and Dubai down 7.9%; on the day, big hitters, Emaar Properties and Emirates NBD, lost 9.7% and 9.6%. Gulf markets have been hit by the double whammy of the coronavirus and the slump in oil prices, slated to drop even further in the coming days. The GCC bourses did not want to be left behind the global stock markets at the start of the week and they did not disappoint. Gulf markets racked up losses of about US$ 400 billion in the first two days of the trading week – losing US$ 211 billion on Sunday and a further US$ 187 billion the following day. On Monday, the Dubai bourse index ended 8.3% lower, at 2,078, with the likes of market heavyweights, such as Emaar, Emirates NBD and Dubai Islamic Bank, losing over 9% on the day.  

The bourse opened on Sunday 08 March, and 277 points lower (10.1%) the previous fortnight, had another torrid week slumping 129 points (5.0%) to close on 2461 by 12 March 2020. Emaar Properties, having lost US$ 0.16 the previous two weeks was US$ 0.20 lower at US$ 0.70, whilst Arabtec, US$ 0.04 down over the previous fortnight was US$ 0.04 lower at US$ 0.15. Thursday 12 March saw the market trading 428 million shares, worth US$ 280 million, (compared to 169 million shares, at a value of US$ 60 million, on 05 March).  It seems that investors, with an unequal split of ignorance, wishful thinking and business acumen, have jumped in, with the hope that they have bought a bargain. Time will tell but timing is everything.

By Thursday, 12 March, Brent, having gained US$ 0.45 (13.6%) the previous week, tanked US$ 17.79 (34.9%) to close at US$ 33.22. Gold, US$ 104 (6.6%) higher the previous four weeks, gained a further US$ 23 (1.3%) closing on Thursday 05 March at US$ 1,690. (ADNOC also followed Saudi Aramco’s supply increase, by announcing it would bring 4m bpd to the markets in April). Last Friday, Brent prices collapsed – slumping 11.3% to just US$ 45.27 – on the back of the major oil producers failing to agree to a production cut of 1.5 million bpd (equivalent to 3.6% of the global supply); this would have included a 500k bpd by non-OPEC countries but Russia declined to participate.  By the end of Thursday, the market had imploded, not helped by the increasing concern over coronavirus.

From once being the champion of production restrictions, Saudi Arabia has announced that it will ramp up oil production to 12.3 million bpd in a bid to flood the market, as it offers discounts on already low prices which had dropped to just US$ 32 during turbulent Monday trading. The Russians, with an eye on decimating the US shale industry, did not agree with Saudi requesting such a large cut which would inevitably be beneficial for the “new” US producers. Now it is anybody’s guess who blinks first – and it may not be the obvious choice.

If this were to go ahead, there will be winners and losers. The many losers would include the likes of Iran, Venezuela and other smaller oil producing countries with high costs, the US shale producers (and if they were to go under many banks left with bad loans, valued in the billions), major energy companies such as BP and Shell, and  Donald Trump’s re-election chances if the US economy slumped. The winners if prices sank further would include China, the world’s biggest oil importer and, in one way, airlines with lower fuel expenses but not enough passengers to fill their planes.

The oil crisis has just added to the woes already facing global markets that had been in freefall a week earlier, when the coronavirus started gaining traction. The combination of both created “the perfect storm” and led to a critical oil imbalance – demand falling because of factory closures, logistic problems etc and supply increasing, (So much for Economics 101 teaching that when demand falls, supply falls and vice versa).

On Black Monday alone, it was estimated that the world’s 500 richest people saw a total of US$ 238.5 billion disappear in front of their eyes, as the markets went into meltdown.

Having been hauled over the coals by US and UK regulators – who issued fines of US$ 5.0 billion and US$ 500k respectively – Facebook is being taken to court by the Office of the Australian Information Commissioner. The US tech company has been accused of seriously infringing the privacy of more than 300k Australians who used a GSR personality quiz called “This Is Your Digital Life” to obtain the personal information of those who used it. At the time, it was then possible to also access the information of a user’s friends, even if those people had never authorised the app. From the garnered information, Facebook was able to recover data of 87 million people being used for advertising which was utilised by Cambridge Analytica during the UK and US elections. If it were proved that “Facebook failed to take reasonable steps to protect those individuals’ personal information from unauthorised disclosure”, the court can impose a fine of over US$ 1.1 million for every serious or repeated interference with privacy.

India’s financial crime detectives have arrested the chief of the private Yes Bank, with US$ 28 billion in deposits, over allegations of money laundering, just days after the it was taken over by the central bank; it is alleged that the sum involved is US$ 581 million. The banker has denied all charges and the regulators indicate that he is refusing to cooperate with their enquiries.  India’s fifth biggest private bank’s dire position has been put down to `’inability of the bank to raise capital to address potential loan losses and resultant downgrades”. The RBI has asked State Bank of India, the country’s largest state-owned bank, to help with a revival plan.

Wednesday saw two major stories in the UK – the Bank of England cutting rates by 50bp to a historic low of 0.25% and Rishi Sunak’s first Budget. It seems that both the government, using fiscal policy, and the central bank, driving the monetary engine, are working in tandem to stimulate the flagging UK economy. The regulator said it would also be freeing up an additional US$ 250 billion for banks to lend as part of a package of measures to “help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19”.

In reality there were two Budgets – one to deal with the worsening coronavirus conditions, that by Wednesday had been declared a pandemic, with 456 cases being confirmed in the country. The budget included an extra US$ 39 billion in healthcare funding to fight the coronavirus, which has wiped about US$ 10 trillion from equity markets and killed more than 4.2k people around the world. For the first time, the government will fund sick pay for SMEs – with costs running into billions of dollars; it will also grant some cash handouts and suspend certain business rates for one year. As expected, the NHS will receive a US$ 6.5 billion spending boost.

Unusually for a Conservative government, it pumped in US$ 230 billion extra in a mix of capital and current spending that will require increased borrowing of almost US$ 90 billion to fund. Most of the extra spending is on day-to-day departmental expenditure – including on tens of thousands of nurses, policemen, etc. A further US$ 780 billion will be spent by 2025 on a massive infrastructure programme, alongside measures to help businesses and the National Health Service weather the disruption from the disease.

Bitcoin has fared badly losing over 50% over the past two days to close Thursday on US$ 3,915. Meanwhile, the Indian rupee sank to a record low at US$ 74.50 which has seen its benchmark stocks entering bear territory as already this month, overseas buyers have pulled out US$ 2.7 billion this month. Whilst not going down the rate cut route, the ECB has introduced “a temporary envelope of additional net asset purchases of US$ 137 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes.” The central bank also confirmed that it would give businesses more ultra-cheap loans, raise asset purchases and provide banks with capital relief to cope with the downturn.

On the global markets, Thursday proved to be a bloodbath, with the three US bourses and the FTSE witnessing their biggest ever daily falls since 1987; there were 12%+ declines seen on the French and German bourses. Markets were indeed spooked, exacerbated by the US decision to restrict travel from Europe and the ECB not cutting rates which most countries had already done. Belatedly, the Federal Reserve decided to pump in US$ 1.5 trillion to ease strains in the debt markets as well as to expand the kinds of assets it will buy to keep firms lending. The coming weeks and months promise to be a tumultuous time for the world’s economy but when the current crisis ends (and end it will), questions will be asked about what went so drastically wrong. Don’t Give Up On Us Now.

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Everybody Hurts 05 March 2020

Everybody Hurts                                                                                           05 February 2020

JLL expects the real estate sector to continue at almost historic lows but will soon undergo a “period of stabilisation”, with the rate of decline  of sale and rent prices slowing; Q4 sales prices fell by 3% (villas) and 1% (apartments), quarter on quarter – and, for the year, 10% and 5% respectively. Meanwhile, rents were 8% lower for both villas and apartments in 2019. The data also indicated declines continuing in primary areas – including Downtown Dubai and Dubai Marina – but noted steeper falls in secondary areas such as Motor City, JVT and JVC.

According to Knight Frank, the September introduction of powers for Dubai’s Real Estate and Regulation Authority, that were given the authority to oversee all future prospects, along with the upcoming Expo, have assisted in slowing the decline in Dubai’s luxury residential prices to 0.7% – compared to a global 2.0%, including London’s negative2.6%. At the other end of the scale, Frankfurt, Lisbon and Athens came in with increases of 10.3%, 9.6% and 8.9%.

In a bid to reach the underserved Dubai neighbourhoods and communities, Carrefour has introduced its Mobimart – the region’s first grocery bus. It will operate six days a week and will stock an extensive range of groceries and fresh food. Locally built by Bespoke Trailers, a start-up based in Al Quoz, it will follow a set route, stopping at several areas in Dubai, with the majority being residential (including JVT, JI, JVC, and Sports City as well as Kite Beach, and Rahaba labour accommodation).

With increased business emanating from the free zones, (11% higher at US$ 161 billion), Dubai witnessed a 6.2% expansion in non-oil foreign trade last year to US$ 372 billion, comprising imports of US$ 216 billion, reexports (US$ 114 billion) and imports (US$ 42 billion); all three sectors posted annual increases by 3%, 4% and 22% respectively. The figures are more impressive when they were achieved in very trying conditions of weaker global trade, (rising by only 0.9%), and a marked slowdown in the global economy. Volume-wise, total trade volumes were 19% higher at 109 million tonnes driven by a record 48% surge in reexports to 17 million tonnes; imports (up 9%) and exports (45% higher) contributed 71 million tonnes and 19 million tonnes respectively. Dubai’s five largest trading partners continue to be China, India, US, Switzerland and Saudi Arabia with respective totals of US$ 40.9 billion, US$ 36.8 billion, US$ 21.2 billion, US$ 16.3 billion and US$ 15.3 billion. Yet again, the highest traded commodity was gold, jewellery and diamonds – 7% higher and contributing US$ 100.8 billion.

Because of a coronavirus-led decline in global air traffic demand, it is reported that Emirates is requesting its 100k workforce to consider taking paid and unpaid leave. The world’s biggest airline by international traffic has written to staff about the impact of Covid-19 commenting that “We’ve seen a measurable slow-down in business across our brands and a need for flexibility in the way we work.” Only last week, Emirates halted all fights to China, except Beijing, and Iran because of the spread of coronavirus in those countries. IATA estimates that the damage to global airlines could be as high as US$ 30 billion in lost revenue due to an estimated 4.7 per cent decline in travel demand.

Flydubai posted a 2019 profit of US$ 54 million – a major improvement from a US$ 44 loss the previous year – as annual revenue dipped 3.2% to US$ 1.63 billion. Two of the main reasons for the uptick were the compensation from Boeing (associated with the grounding of the plane maker’s 737 Max) and a 17.8% drop in operating costs. Discussions are on-going between both parties  with the airline’s chief executive, Ghaith al Ghaith, commenting that the interim settlement agreement `’ no way can compensate for the loss of business opportunity or market share experienced by the airline” and continued  “whilst 2019 has seen a return to profitability it does not reflect the loss of market position and the unfilled opportunities Flydubai could have exploited.” Passenger numbers were 12.7% lower at 9.6 million, as its capacity fell by 15.8%, 19% of its flight schedule has been cancelled and its fleet has been reduced by 25% to forty-five 737s, (as fourteen 737 Max have been grounded since last March).

Coronavirus has claimed some local victims, including the Dubai International Boat Show, due to be held next week, at its new venue of Dubai Harbour. The decision to postpone the annual event was taken after “much deliberation in consultation with the event’s main participants and industry stakeholders”. Although the country is safe for travel, there were many significant participants unable to travel due to restrictions in their home country. The loss of the boat show this year will be a major blow to local hoteliers and retailers as it is MENA’s largest leisure boating event and one of the world’s most influential gatherings for the global yachting community. Taste of Dubai, Dubai Chess Open 2020, Dubai Lynx, K-POP Music Bank Concert and Art Dubai have already postponed their March events. However, this week’s Middle East Energy went ahead and currently the upcoming Arabian Travel Mart is still on. With kindergartens already shut down, the government announced that all the country’s schools will close for four weeks from Sunday. In another local coronavirus story, JA Lake View Hotel has confirmed that reports of the property being in lockdown was “a guest prank gone horribly wrong”. Dubai Police are still investigating.

On Thursday, 05 March, the government issued a circular indicating that international travellers from ten COVID-19-afflicted countries – China, Hong Kong, Italy, Iran, Japan, Germany, Singapore, France, Kuwait and Bahrain – will be admitted and isolated in hospital until further tests, with or without fever, if they display even a few of the parameters of sickness form the list of Covid 19 symptoms.

Meanwhile in “Operation 60 Minutes”, the police have confiscated 29k counterfeit watches, with a street value of US$ 330 million. Two men, who ran the business in Naif, have been apprehended, with Brigadier Jamal Salem Al Jalaf, director of the General Department of Criminal Investigation at Dubai Police, praising the coordination between government entities and private companies that attributed to the success of the operation.

There is no doubt that HH Sheikh Mohammed bin Rashid Al Maktoum means business when he states that he “wants our government services to be the best of its kind in the world.” To help make this a reality, the Dubai Ruler has launched an eight-language Mystery Shopper application to help measure the performance of government entities. He hopes that this will “encourage all members of the community to become mystery shoppers providing the government with instant evaluations of their experiences”.

Although advised by the IMF to double the VAT rate to 10%, the UAE government has ruled out any increase, indicating that it is still too early to assess the impact of a tax that is barely two years old. The main aims of VAT were to pay for public services and to continue the shift away from the UAE’s historic dependence on oil as a source of revenue. In its first year, VAT revenues brought in US$ 7.4 billion, well ahead of initial estimates of US$ 3.3 billion; no figures are yet available for 2019.

The Central Bank is urging local financial institutions to review their business continuity plans such as “re-scheduling of loans contracts, granting temporary deferrals on monthly loan payments, as well as reducing fees and commissions”. This comes at a time when there are global fears that the current coronavirus may turn into a pandemic and, at the beginning of the week, the country had announced 21 cases of the virus. The regulator indicated that the country’s banks remain well-capitalised and are in a good position to support customers affected by the virus, without “jeopardising their own safety and soundness”. In line with the Federal Reserve’s decision on Tuesday, the central bank also cut rates by 0.5%.

According to Knight Frank’s latest Wealth Report, the number of GCC ultra-high net-worth individuals is expected to jump to over 9.1k (26%) in the next five years, whilst the number of high net-worth individuals will be 12% higher. 23% of the regional UHNWIs (considered to have a net wealth in excess of US$ 30 million) are to be found in the UAE – and 57% in Saudi Arabia. On a global scale, the number of HNWIs (those who possess a net wealth in excess of US$ 1 million) is set to grow by 27% to 650k by 2025.

As it plans to expand its regional presence, Siemens signed a ten-year lease agreement to set up its Dubai operations at District 2020 (the main site of Dubai Expo) from next year. It is expected that the German company will employ 1k in its new 11k sq mt office which will be used as a base and also by its soon to be spun-off Siemens Energy operation. Three years ago, Siemens made a commitment to establish a global headquarters for its airports, cargo, and port logistics business in District 2020.

It is reported that, having raised US$ 10 million in pre-Series A funding, iMile plans to open a new research and development centre, as well as expand to Egypt, Kuwait and Morocco; it currently operates in UAE and Saudi Arabia. The Dubai-based last mile delivery firm, already with two R&D centres in China, will use some of the money in “improving iMile’s tech prowess, customer experience and hiring new talent”. Established three years ago, it has companies such as Amazon, Mumzworld and Noon as its clients. It is estimated that the last mile delivery market will almost double over the next five years to top US$ 62 billion.

Manrre Logistics Fund, managed by Dalma Capital, has placed its shares with Nasdaq’s CSD (Central Securities Depository) which looks after them on behalf of shareholders and facilitates share transfers between investors. The Dubai-based investment company, which focuses on institutional-grade logistics and industrial properties across JAFZA, Dubai Investments Park and Dubai South, has a US$ 72 million portfolio of properties with an annualised 12.5% return. It is estimated that the UAE has the highest e-commerce penetration in the region, at 4.2%, which is set to double to US$ 21 billion in the next three years – and with it the demand for logistics real estate, industrial warehouses and fulfilment centres.

Embattled NMC Health is looking for an informal standstill on its US$ 2 billion loan facility, appointing three firms, Moelis & Company, PwC and Allen & Overy as independent financial adviser, operational adviser and legal adviser to move the process forward. It is to ask its unnamed creditors “for continued support in relation to existing facilities from its lenders to achieve an immediate stabilisation of the group’s financing.”  NMC will also request that lenders refrain from exercising any rights and remedies that may arise from current or default breaches in loan covenants. Ever since December, when Muddy Waters Research claimed accounting manipulation, including asset price inflation with lender asset price inflation, its share market value has slumped by 67%. NMC also confirmed that all its principal shareholders, including Khaleefa Al Muhairi, Saeed Mohamed Al Qebaisi and BR Shetty together now hold, directly or indirectly, less than 30% of the company’s issued share capital.

Aramex has proposed a 16.5% dividend after posting increases in both revenue and profit – by 3% and by 1% to US$ 136 million respectively. By the end of 2019, the courier firm’s total cash stood at US$ 272 million, with a free cash flow of US$ 80 million. Aramex will also focus on “accelerating its business transformation roadmap across different areas in the company to realise synergies and lower cost of doing business on the ground.” It expects further growth in 2020 but that there will be continued pricing pressure on e-commerce business, as it spends more on in its last mile operations.

The bourse opened on Sunday 01 March, and 148 points lower (5.4%) the previous week, had another torrid week slumping 129 points (5.0%) to close on 2461 by 05 March 2020. Emaar Properties, having lost US$ 0.11 the previous week, was US$ 0.05 lower at US$ 0.90, whilst Arabtec, US$ 0.03 down over the previous week, was US$ 0.01 lower at US$ 0.19. Thursday 05 March saw the market trading 169 million shares, worth US$ 60 million, (compared to 132 million shares, at a value of US$ 72 million, on 27 February).

By Thursday, 05 March, Brent, having slumped US$ 8.03 (13.6%) the previous week, gained US$ 0.45 (0.8%) to close at US$ 51.01. Gold, US$ 81 (5.2%) higher the previous three weeks, gained a further US$ 23 (1.4%), closing on Thursday 05 March at US$ 1,669. For the month of February, Brent had retreated by US$ 6.12 (10.8%) to US$ 50.50, whilst gold shed US$ 3 (0.2%) to US$ 1,586.

Citing “extreme market conditions”, with investors deterred from investing, Intu has abandoned plans to raise US$ 2.0 billion to pay down a massive US$ 6.5 billion debt pile and secure its future. The owner of Manchester’s Trafford Centre and Lakeside, in Essex, saw its share value plummet 43% on Tuesday morning to recover to be 20% off by the end of the day. In line with the marked decline seen in UK’s High Street, landlords have been struggling filling in all the empty retail space left void by an ever-increasing number in departing shopkeepers. Like for like net rental income fell 9.1% in 2019.

Despite the global retail sector continuing to be battered by e-commerce, and the slowing wider toy market, 3.0% lower in 2019, Danish toy retailer Lego is still placing its faith in physical stores. This year, it plans to open 150 branded shops worldwide, (to add to their existing 570 stores), as the company still believes “people want to get their hands on bricks and be a part of the brand”. The Danish company had traditionally used third party retailers to sell their products.

John Lewis, which also owns Waitrose, has had to cut staff bonuses, set at 2%, to their lowest level in seventy years, with the main reason being plunging profits that fell 23% to US$ 170 million. It is now in the process of reviewing its business – for both brands – that will inevitably result in store closures and space reduction in some of their remaining outlets. Already three Waitrose shops are to close this year.

After a bid for fresh financial support failed, Flybe has finally called in the administrators and ceased flying, putting 2,000 jobs at risk. The struggling airline narrowly avoided going under in January but now, not helped by the advent of coronavirus and the decline in demand for air travel, has been forced to close. The company had hoped for a US$ 130 million government lifeline and changes to Air Passenger Duty taxes, but neither were forthcoming. Some analysts considered that the Flybe had over-ambitious expansion plans in the past and became too big for a relatively small UK regional market.

Lebanese authorities have frozen the assets of so far twenty unnamed banks, along with those of the heads and members of boards of directors of these banks; they also approved a draft law to lift banking secrecy. The country is undergoing its worst economic crisis since the end of civil war in 1990, with one of the highest global debt to GDP ratios at 166%, as its year on year public debt jumped 7.6% to US$ 92 billion. Its currency has lost over 33% in value, with the country having to repay a maturing US$ 1.2 billion Eurobond loan next week and both its current and fiscal accounts exceeding the country’s GDP by 21% and 9%.

Global markets suffered their worst week, ending 28 February, since the 2008 GFC, as all three US indices lost over 10%, with the London FTSE 100 shedding 3.2% on Friday 28 February – and almost 13% (equating to US$ 340 billion) over the last week in February. The last trading day of the month saw Germany’s Dax losing 4.2%, France’s CAC 40 sinking 3.9% along with Japan’s Nikkei 225 and China’s Composite both dropping 3.7%. The Dow and S&P 500 are now at August 2019 levels, while the Nasdaq has returned to December prices.

With investors’ worries growing, the Federal Reserve Chair, Jerome Powell, has confirmed that it was “closely monitoring” developments and that “the coronavirus poses evolving risks to economic activity” and that “we will use our tools and act as appropriate to support the economy.” Although the Fed has little wiggle room, as rates are already at historical lows, the chances of another rate cut is probable in a desperate move to counter the fall-out from coronavirus. It is also likely that governments will have to introduce further fiscal stimulus to boost economies that were already flagging before the onset of coronavirus. This week, the IMF announced US$ 50 billion in funding to help member-countries cope with the health and economic impact of the deadly coronavirus, with the World Bank Group chipping in with an initial fund of US$ 12 billion.

There is no doubt that markets have finally realised that the virus will continue to have a negative impact on the global economies – at a time when so many firms are experiencing disruptions to their supply chains and a decline in consumer demand. Goldman Sachs has warned that it could wipe out any profit growth this year whilst the likes of Apple and Microsoft have confirmed that their companies have already been affected, with worse to come. All global airlines are feeling the pinch, with IAG – owner of BA and Iberia – saying that its earnings had been affected by “weaker demand”, as travel bans are imposed and companies (and individuals) cutting back on travel plans. It is reported that 130 listed UK firms had warned about the effects of the coronavirus on their businesses. When there is uncertainty, mixed with panic, traders tend to ditch the equity markets and move from risky assets into less risky investments such as government bonds.

The annual Mipim global property convention, that takes place in Cannes each year, has been postponed from next week to June due to the outbreak of the coronavirus. The event, held in Cannes every year, usually attracts well over 20k attendees; until Friday, the event was still going ahead only for a number of high-profile attendees, including consultancies Knight Frank and Cushman and Wakefield, having decided to withdraw.

Italy was the first European country to report a major surge in cases of the coronavirus, and after China and Iran, is the nation to have the highest number of patients with travel restrictions being imposed and several towns in and around Lombardy under lockdown. There has been an economic impact because northern Italy is the country’s powerhouse (accounting for 40% of industrial output), with Milan being a major financial centre where a number of major tourist and cultural sites such as the cathedral (the Duomo) and the opera house La Scala have been closed.

Even before this crisis, the Italian economy was in bad shape including the fact that the country’s total production of goods and services are about at the same level they were in 2004 and 4% lower than in 2007 – a year before the GFC. The country has the third highest unemployment rate among under-25s at 28.9%, with only Spain and Greece having higher figures in the EU. It has seen its Q4 GDP fall by 0.3% so even before the onset of coronavirus, the economy was struggling because of weaker global growth and a slowdown in international trade. There is no doubt that the country will fall into technical recession in Q1 (its economy having contracted over the past two quarters) which will continue for the rest of 2020. It is not helped by the fact that its government debt equates to 133% of GDP – a lot higher than the 60% EU target.

The latest from the OECD points to global growth being at its slowest rate since 2009, having cut their previous November 2.9% forecast to 2.4%, mainly attributable to the ongoing coronavirus; the body even warned that a longer “more intensive” outbreak could see a further fall to 1.5%. it did indicate that it would recover in 2021 to 3.3% – if the epidemic peaked by the end of March. It would now seem logical that global central banks unite and support the financial markets which went into a tailspin last week losing US$ 3 trillion in the process.

There was some temporary good news for the Australian economy with Q4 growth higher than expected, at 0.5%, and for the twelve months at 2.2%, driven mainly by real estate transactions and rising inventories. However, even though it is still summer, Australia’s economy will cool and be hit by the double whammy of the bushfires (that could take 0.2% off the GDP figure) and coronavirus a further 0.5%; these estimates are on the conservative side.

Because the coronavirus “poses evolving risks to economic activity”, the Federal Reserve slashed interest rates by 0.5% on Tuesday in its first emergency rate cut since the Great Recession in 1929.As soon as the news hit the wires, the Dow Jones index bounced 700 points higher but retreated by the end of the day. In a teleconference, the G7 finance ministers pledged to use “all appropriate tools” to deal with the spreading coronavirus. Australia was just as quick to cut rates by 0.25% to just 0.50% and warned that COVID-19 was also having a “significant effect” domestically. This leaves the RBA in a conundrum because if they were to cut rates again it means that would handball the responsibility for economic growth to the government, as traditional monetary policy will go out the window – and fiscal policy will have to take up the mantle. At times like these, Everybody Hurts.

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If! 27 February 2020

As it extends an offer of a 50% finance facility, Samana Developments has launched its US$ 27 million Saman Golf Avenue project. Located in Dubai Studio City, the development, covering 80k sq mt, features 233 luxury studio, 1 and 2 B/R apartments. The developer also guarantees 24% return over three years and offers a payment scheme, comprising a deposit, followed by 80 months at 1% of the unit’s cost.

A report by Property Finder concludes that the best yield for investors is to be found for apartments in Dubai International City, with 10.6% returns, ahead of the likes of Discovery Gardens, Al Barsha, Barsha Heights/Tecom and Dubai Sports City, with returns of 8.6%, 8.0%, 7.9% and 7.8% respectively. When looking at established locations and villa/townhouse communities, Motor City, Barsha and Arabian Ranches posted smaller returns – 5.2%, 5.0% and 4.9% – whilst newer developments, such as Town Square, Mudon, Reem and JVC, with higher gross returns of 7.6%, 7.3%, 6.4% and 6.3%. All these look a lot more attractive than say Toronto, Singapore, London, Sydney and Hong Kong where average gross rental yields are between 2.8% – 3.9%.

Yet another acquisition for DP World was the purchase of Canadian terminal Fraser Surrey Docks (FSD) from Macquarie Infrastructure Partners. The terminal operates more than 1.2k mt of berth and 189 acres of yard, whilst handling over a million tonnes of grain, (and 250k twenty-foot equivalent shipping containers).

Careem and Uber will face new opposition as Wow Electronic Transport Services started operations last Saturday, after final RTA approval. The ride hailing firm already has a presence in Pakistan, France and four US cities, with massive global expansion plans. Like others, Wow will allow users to order a ride to pick them up and take them to a particular destination and will offer different options such as  Wow stretch limo, Wow ladies and Wow VIP.

Meanwhile, Careem has diversified and, in tandem with the RTA, has launched a bike rental service in the region, with 780 bicycles initially available across 78 solar-powered stations, that will eventually reach 3.5k bikes and 350 stations over the next five years. Dubai currently boasts 425 km of bike tracks, expected to expand a further 50% by 2023.

It is reported that NMC’s BR Shetty has requested Houlihan Lokey to look at a potential debt restructuring, or the sale of some of his group’s assets, which includes NMC, (currently mired in a potential accounting scandal), and financial services firm Finablr Plc. It seems that the holding company had a US$ 1 billion loan used to acquire Travelex Holdings Ltd (now owned by Finalbr); the money travel service owned by Shetty was offline for six weeks, until the end of January, because of a cyberattack, during which time it had to use pen and paper to manually complete transactions. Only last week, this blog noted that Shetty had resigned from the board of NMC, amid investor concerns he faced a margin call and misrepresented his stake in the hospital operator; furthermore, Carson Block’s Muddy Waters also alleged that NMC’s financial statements could have a potential over payment for assets, inflated cash balances and understated debt.

On Thursday, NMC Health suspended trading of its shares on the London Stock Exchange, after a request by the much-depleted board to ensure “the smooth operation of the market”. A day earlier, the UAE healthcare firm had removed its CEO Prasanth Manghat and also granted CFO, Prashanth Shenoy, extended sick leave.

According to the central bank, UAE’s overall real GDP grew by 2.9% last year, driven by  growth in both the non-hydrocarbon and hydrocarbon sectors; this is much higher than the figure of 1.6% bandied about by the IMF. The agency noted that employment in the private sector increased by 2%, year on year, whilst total credit expanded by 6.2%. Because of the 6.5% Q4 decline in oil prices, and continuing falls in rents, the consumer price index declined by 1.6%.

Figures released by the Central Bank showed that 2019 expat remittances, out of the UAE, slowed 2.5% to US$ 45.0 billion – an indicator of how difficult the year had been. Like many other countries, the UAE has had to battle geopolitical tensions, a slowdown in global trade, an oversupplied property sector and now the impact of coronavirus. However, with hiring in the private sector 2.0% higher in Q4, year on year, remittances were up 1.8% – a hopeful sign of what may happen in 2020. There was no change in the countries benefitting from UAE remittances, with the top five being India, Pakistan, Philippines, Egypt and the UK.

Having seen fuel prices remain flat for the first two months of the year – and with oil prices tanking due to the coronavirus – it was no surprise that March prices have fallen; Special 95 will retail 3.8% lower at US$ 0.556 per litre, with diesel down 6.3% to US$ 0.613.

The federal Ministry of Health and Prevention has slashed the prices of 573 medicines by between 47%-68%. These include medicines for diabetes, hypertension, cardiovascular, nervous/respiratory issues and some paediatric problems. This follows discussions between the ministry and 97 major local and international pharmaceutical manufacturers.

A mix of bank sector consolidation, tighter operating margins and digital transformation has resulted in a reduction in the number of branches (by 6.9% to 664) and employees (by 2.6% to 35.5k) as at the end of Q3. Because of the FAB bank merger, the number of licensed commercial banks dropped by one to 59 – thirty-eight of which are foreign banks (including eleven wholesale banks) and the balance “local”. The central bank also noted that the banks remain well capitalised and are sound overall, with a Capital Adequacy Ratio of 17.7% and Tier 1 Capital at 16.5%; the eligible liquid assets at 17.6% remained well above the central bank’s 10% regulatory minimum buffer.

Etisalat has completed the acquisition of cyber security outfit Help AG, which will give the telco enhanced presence in relation to cyber security, as well as strengthening its cloud, internet of things, artificial intelligence, big data and analytics lines of business. The 25-year old German company has had a regional presence since 2004, over which time it has served a plethora of sectors and has become a trusted regional security adviser.

The Majid Al Futtaim Group posted 1.0% growth in both its 2019 revenue, at US$ 9.6 billion, and profit of nearly US$ 1.3 billion, driven by “our diversification efforts by entering new countries and expanding out footprint in priority markets, while maintaining strong financial discipline across our portfolio.” By the end of the year, its asset portfolio topped US$ 17.2 billion, as its operational cash flow amounted to 122% of its EBITDA (earnings before interest, taxes, depreciation and amortisation). Its two major revenue streams had almost flat results with Properties accounting for US$ 1.3 billion of revenue (down 1.0% on the year), as EBITDA remained at US$ 817 million, and the Retail revenue nudging 1.0% higher to US$ 7.7 billion, as EBITDA came in 2.0% up, to US$ 381 million.

Damac Properties is looking to expand operations into Saudi Arabia, whilst continuing to invest in the UK, as its local market remains flat. The Dubai-based investor is also involved in projects in Lebanon, the Maldives and Oman and has entered the North American market for the first time with a JV in Toronto. Although it posted its first annual loss in a decade last year, the developer remains bullish noting that “we’re at the bottom now in Dubai and we’ll see some slight improvement with Expo 2020”.

Probably wishing that it had not, the bourse opened on Sunday 23 February and four points higher (0.1%) the previous week, slumped 148 points (5.4%) to 2590 by 27 February 2020. Emaar Properties, having gained US$ 0.01 the previous week, was US$ 0.11 lower at US$ 0.95, whilst Arabtec, US$ 0.02 higher over the previous week, was US$ 0.03 lower at US$ 0.20. Thursday 27 February saw the market trading 132 million shares, worth US$ 72 million, (compared to 95 million shares, at a value of US$ 49 million, on 20 February). Almost five years ago, Arabtec was trading at US$ 3.13 (AED 11.59 v AED 0.75), and over February shed 25.7% from its month opening of US$ 0.28. Thirty months ago, an Emaar share was at US$ 2.40 – in February it lost 13.3%. in market value to close on US$ 0.95.

By Thursday, 27 February, Brent, having gained US$ 3.61 (6.5%) the previous fortnight fell victim to coronavirus, losing US$ 8.03 (13.6%) to close at US$ 51.01. Gold, US$ 56 (3.6%) to the good the previous two weeks, gained a further US$ 25 (1.5%), closing on Thursday 27 February at US$ 1,646.

Like most other western economies, the Australian retail sector is feeling the stress, attributable to high rents, e-commerce, many business models not changing with the times

and the recent tendency of consumers to pay down debt rather than spend. The combination of these factors has seen the name of Colette join the likes of Jeanswest, McWilliams, Ishka, Bardot and Harris Scarfe to become the latest to call in administrators. Deloittes Restructuring has indicated that 25% of its 140 stores will have to close, over the next three weeks, whilst the firm will try and on-sell the remaining business.

The NSW gaming authority has begun an enquiry into allegations that Australian casino firm Crown Resorts has links to organised crime. The casino, 37% owned by Australian tycoon James Packer, and son of the infamous Kerry Packer, is reportedly defending claims over the use of junkets to encourage mainly overseas big spenders. The gaming authority is looking at two facets – “the vulnerability of junkets to the infiltration of organised crime” and “vulnerabilities of casinos to money laundering both generally and in connection with the use of junkets”. The case follows recent media reports, relating to the conduct of Crown Resorts and its alleged associates. Other allegations include that “Crown Resorts casinos were used to launder money, anti-money laundering controls were not rigorously enforced, gambling laws were breached and Crown Resorts or its subsidiaries were associated with junket operators that had links to drug traffickers, money launderers, human traffickers and organised crime groups.”

A September 2015 howesdubai  blog concluded that “there are reports that FIFA’s Secretary General, Jerome Valcke, has been put on leave by the scandal-ridden world football body. The 54-year old denies any wrongdoing but it is alleged that he was involved in a scheme to sell World Cup tickets for up to five times face value. Sepp Blatter’s right-hand man also reportedly tried to secure a pay-off of several million dollars before this suspension; so it is not difficult to see what the hierarchy are being paid for bringing the game into disrepute and ridicule. Now even his self-deluded boss must realise that The Party Is Over”!

This week, the disgraced so-called French football administrator, along with the chairman of Qatar-based media group BeIN Sports, Nasser Al Khelaifi, have been charged by Swiss prosecutors in relation to the awarding of television rights for the World Cup. Already banned by FIFA’s ethics committee for ten years, Valcke is being investigated for accepting bribes, aggravated criminal mismanagement and falsification of documents, The BeIN Sports chairman, (who is also president of Paris St Germain, and a member of UEFA’s executive committee), – and a third unnamed person – have been charged with inciting Valcke to commit aggravated criminal mismanagement; he no longer faces allegations of bribery after FIFA reached an “amicable agreement” with him to drop a criminal complaint connected to the awarding of rights for the 2026 and 2030 World Cups! No surprise there!

The damage that Valcke (one of many of the then corrupt FIFA hierarchy) has done to football’s reputation will never be fully known. During his eight-year reign, ending in ignominy in 2015, he oversaw organisation of two World Cup tournaments in South Africa and Brazil. Between 2013 and 2015, he exploited his FIFA role “to influence the award of media rights” for various World Cup and Confederations Cup tournaments “to favour media partners that he preferred”. In December 2010, in an unprecedented move, two World Cups were announced at the same time – Russia (2018) and Qatar (2022). Prior to this, world cup hosts were announced around six years before the event – not eight or twelve years and definitely not two at one ceremony. It seems that Valcke was but one in the FIFA “meritocracy” that may now face the full force of the law. How have the others escaped justice??

US investment firm Sycamore Partners has acquired a 55% controlling stake in the ailing retailer, Victoria Secrets, from L Brands, valuing the lingerie brand at US$ 1.1 billion. The main reason for the sale was that it now wanted to focus on its core brand, Bath & Body Works which sells soaps and home fragrances. L Brands, with a market cap of US$ 7.0 billion, had seen sales from Victoria Secrets, which accounted for about 50% of its total US$ 13.2 billion revenue, dwindle as it failed to keep up with both traditional and on-line competitors. Its 83-year-old chief executive, Les Wexner, who owns 13.2% of L Brands, has been in charge since 1963, making him the longest-serving chief executive of a S&P 500 company.

Having finally admitted to opening millions of fake customer accounts and wrongly collecting millions of dollars of fees over a fourteen year period to 2016,, Wells Fargo has agreed to pay US$ 3.0 billion to settle with US government regulators; US$ 500 million of the settlement will be repaid to investors, who were misled by bank disclosures. In January, former chief executive John Stumpf agreed to pay US$ 18 million to settle charges of failing to stop misconduct within the bank, which since 2018 has been under an order from the US Federal Reserve that limits its growth.

Restaurant Group confirmed that it would close up to 90 of its Frankie & Benny’s and Chiquito outlets by the end of next year, (rather than the six-year period indicated last year), as well as suspending its dividend. Whilst the revenue stream has been declining in many of its operations – with like for like sales in its leisure business, which includes Frankie & Benny’s and Chiquito, dipping 2.8% – it appears that its Wagamama and pubs units have been performing better, with sales 8.5% higher. The Group, currently with 360 restaurants, saw its shares falling more than 6% in Tuesday trading, not helped by the ongoing coronavirus crisis, which has been wreaking havoc on the global bourses.

Blaming the move “on a big shift in customer tastes and preferences”, Tesco is set to retrench 1.8k staff, in 58 locations, as the supermarket will make less fresh baking products in-store and bring in fully pre-prepared products, to be then baked on site. It would appear that consumer taste is moving away from traditional loaves, as UK sales of bagels, flatbreads and wraps gain traction.

Lebanon joins the likes of Argentine, DRC and Mozambique,  as its long term foreign currency rating has been cut deeper to junk status by S&P, down two notches to CC and Moody’s to Ca; there is no doubt that the country’s bondholders face a potential default in March. The cuts came on the back of the World Bank warning of an economic “implosion`, as well the country’s Eurobonds seeing yield levels in excess of 1000%. A debt restructuring is almost certain to occur that would result in Lebanese bondholders losing at least 67% of their original investment.

As the UK had been a net contributor, its leaving the EU has resulted in a massive US$ 81 billion gap in the EU’s seven year budget; there was no surprise then to see the bloc ending their recent summit meeting in disarray. It was reported that the “frugal four” – Austria, Denmark, Netherlands and Sweden – were unwilling to accept a budget of more than I% of the total EU GDP. German Chancellor Angela Merkel admitted that the “differences are too big” but warned that “we are going to have to return to the subject.” It appears that the seventeen beneficiary countries – dubbed the “friends of cohesion”, and including Greece, Hungary, Poland, Portugal and Spain – rejected a compromise proposal which would have had the cap at 1.069% of joint GDP and wanted a bigger budget percentage. On top of this squabble, there is further disagreement over how the budget should be spent, with some countries wanting more to cover the migrant crisis, climate change, security and digitisation. Maybe the UK got out of the mess just in time.

Apart from the human cost of coronavirus, 2.8k fatalities and 82k infected at the end of the week, its impact on both the Chinese and global economies is taking its toll. Chinese February car sales have slumped by 96%, to just 811 vehicles a day, as major dealerships remain closed; last year, 21 million cars were sold in the country – the world’s biggest car market. Meanwhile, production has also been disrupted with many of the global carmakers cutting back because of lack of parts made in China. It will take time for such companies to return to full capacity. Fiat has indicated that there was one “critical” supplier of parts that was putting its European production at risk, with three more Chinese suppliers causing concern. Toyota continues to monitor the situation but to date there has been no impact on its operations. Volvo has been forced to switch battery suppliers, whilst Hyundai has temporarily stopped production lines, at its factories in the country closed because of shortages of Chinese parts. Jaguar Land Rover has indicated that it could start to run out of Chinese parts for its UK factories and have been flying in supplies in suitcases. It is estimated that the Chinese economy will grow less than 4% in Q1, a lot less than the 6% level forecast before the onset of the virus; the global economy is expected to grow slightly less, by 0.2%, than it would have done otherwise.

This is but one of many industries suffering from the coronavirus risk and the resultant disruptions from “the world’s factory”. JCB has cut production because of a shortage of components from China. Within China, international companies have been facing the pinch with the likes of Ikea, Starbucks and other global retailers closing all their “local” outlets. Several overseas airlines have stopped all China flights and international hotel chains have been offering refunds – with an inevitable fall in their global revenue and profit. IATA estimate that the virus will result in a 4.7% downward estimate, (from 4.1% growth to 0.6% contraction), compared to what was expected prior to the coronavirus outbreak and that 2020 will now witness the first annual decline in global passenger since the GFC.  This is equivalent to a US$ 30 billion fall-out in revenue.

Other global manufacturers are also facing production delays, with concerns about a breakdown in international supply chains of which China is the main cog. Apple have come out warning that there will be supply shortages that will impact on global iPhones. On the commodity front, prices will fall as the Chinese economy slows; for example, copper prices have dipped 13% as demand slows. It is still too early to quantify the impact of such price reductions, but it will be felt by many emerging and developing economies, where such exports are their main source of income.

By the end of Wednesday, in Australia, the ASX 200 had lost about US$ 90 billion (6.0%) in value on the three days of trading this week, closing at 6,708 and the dollar was hovering around the US$ 0.66 level – near an eleven-year low. Tech and biotech companies suffered the worst of the damage, but many had already been trading probably at too a high price relative to their earnings. Firms such as biotech start-up tanked 20%, whilst tech firms Appen and WiseTech were 10.3% and 8.3% lower. Although 186 of the two hundred listed companies have lost ground, some of the remaining entities posted impressive gains, including healthcare provider, Healius and funeral operator Invocare, up 15.2% and 13.6%.

This week saw the global markets in turmoil, as traders dumped shares on fears that the spreading coronavirus could lead to a worldwide recession. On Thursday, all markets were painted red with Nasdaq, down 4.6%, followed by the Dow Jones and the S&P 500, both 4.4% off; the Dow Jones posted its biggest ever daily loss. Elsewhere the FTSE 100 shed 3.5% and the Nikkei more than 2%. It is estimated that so far this week, the global stock markets are now well into “correction” territory, having lost over 10% (more than US$ 3.5 trillion) by the end of Thursday trading, and potentially heading for a bear market, as global shares sink rapidly from recent record highs.

There is no doubt that the companies (as well as countries and individuals) that will suffer most are those who thought they had taken advantage of cheap debt when it seemed that the global economy could only go one way – and that was north. This blog has often indicated that the biggest economic problem was that of debt which has exploded since the GFC. For example, Australia has the highest household debt in the world, Japan a government debt equivalent to 260% of its GDP, the US Fed holding US$ 4 trillion in debt securities and China with its massive problem of shadow banking. The person who could suffer most is Donald Trump who has espoused the strength of the US economy (and this is where the conspiracy theorists will have a field day). If the US – and global economies – were to go into a tailspin and the world into recession, there is every possibility of a new resident in the White House at the end of the year. It is a big word and a little word – If!

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