You Get What You Give!

Posted on September 18, 2020 by howesdubai

You Get What You Give!                                                                     17 September 2020

A report by ValuStrat reported a 1.6% monthly price decline, along with strong activity levels, much in line with Property Monitor’s latest findings that the average August property price in Dubai reached its lowest level in eleven years dipping to just US$ 220 per sq ft, with rentals declining at comparative levels. Annually, residential capital values fell 13.8%. These figures see gross rental yields remaining “relatively stable” at 6.49%, still at a healthy return level. August is a traditionally quiet month for this sector, but this year – with monthly sales of 2.5k 1.3% down on the month, (compared to August 2019 sales volumes which were 48.5% lower than July 2019) – this is not the case. Interestingly, 52.8% of last month’s home sales were for properties valued at less than US$ 272k (one million dirhams), with 23.9% of the total for properties under US$ 136k (AED 500k). With developers delaying new launches, it is no surprise to see more completed homes being sold than off plan ones. The report indicated that the two most popular areas for secondary market sales were Town Square and Dubai Marina, while Jumeirah Village Circle, Arjan and International City remained the three more popular for off plan deals.

Colliers International note that the most of Dubai’s new developments are aimed at buyers looking for affordability so that a large proportion of units are townhouse style properties. Accordingly, many of the villas are built on reduced plot sizes and more rooms of a smaller size.The global property management and consultancy pointed out that developers “also cut back on lakes, large parks and have reduced the sizes of communal swimming pools and play areas.”

Investment in a leasehold staff blue-collar worker development, Sakany, located in Dubai South, has now topped US$ 136 million. The project, with ten buildings all equipped with dedicated medical and fit-for-purpose quarantine rooms, is already 80% full, with 7k occupants; the recently launched phase 2 will have nine hundred rooms in six buildings. The development will also house a Grand Supermarket, four restaurants, a cafeteria, barbershop, pharmacy, clinic, retail outlets and a money-exchange. There is no doubt that Sakany, with a 2k seating dining hall and extensive sports facilities, will not only be an ideal location for Expo 2020 site workers but also be a regional benchmark for safe and secure housing. It will also have a female-only building with its own grocery store.

Despite the pandemic, Danube Properties have posted a record H1 18.0% growth in sales of over 300 units, worth US$ 68 million, whilst delivering units, valued at US$ 78 million. In contrast to its peers, who have cut staff numbers and payrolls across the board, the developer appointed sixty more people, bringing its total workforce to 250. The company plans to intensify work over the next two years so as to deliver more than 6k units to the market. Danube has a development portfolio of 6.2k units, valued at over US$ 1.2 billion and expects two of its projects – Miraclz and Bayz – to be handed over by the end of this year, whilst the other three, Jewelz, Elz and Lawnz will be ready by the end of 2022.

The first ever virtual matchmaking event between DMCC and China’s Innoway took place this week. The Beijing and Haidian Government established the platform that, to date, has incubated 3.8k start-ups and raised US$ 11.4 billion in funding; Innoway will soon set up a presence in DMCC’s Jumeriah Lakes Towers. The event, following both parties signing an MoU in May, was joined by UAE companies and Chinese innovators; five “unicorn” companies – Beijing NOBOOK Education Technology, MEGVII, Terminus Group, Guangzhou Hongyu Science & Technology Co. Ltd and Neolix Technologies Co. Ltd – were among the virtual attendees.

On Tuesday, at the White House, the UAE and Israel signed the Abraham Accord to formally normalise relations between the two countries and encourage bilateral trade and investment opportunities in a wide range of sectors. Two days later, an agreement, to develop closer ties, was signed by the diamond exchanges of Dubai and Israel, with the twin aims of promoting bilateral trading opportunities and partnering on initiatives to grow regional trade. Both parties will open representative offices in each other’s country. It is hoped that this new relationship will not only attract new businesses to Dubai but also boost the regional and international trade in diamonds. Last September, the Dubai Diamond Exchange opened the biggest global diamond trading floor at its headquarters in Almas Tower. In 2019, the total value of rough and polished diamonds handled through the emirate stood at US$ 22.9 billion. Another early venture sees Emirates NBD, Dubai’s largest bank, signing an MoU with Israel’s Bank Hapoalim, that country’s largest lender.

Earlier in the month, Etisalat started phase one of rolling out 5G services on fixed-line networks, with the second phase starting in Q3 next year. The Telecommunications Regulatory Authority has allocated a new frequency band (24.25 – 27.5 gigahertz) for the 5G application to be expanded, which will see the country able to deploy applications such as self-driving cars, robots, smart industry, big data and the Internet of Things. This will see the internet speed move from its current 1.2 gigabits per second to an eventual 10Gbps – more than 100 times faster than 4G – and enhance data volume on wireless broadband services.

The recently released 2020 Smart City Index by The Institute for Management Development sees Abu Dhabi and Dubai ranked at 42nd and 43rd in a list of smart cities. Over the year, Dubai has nudged two places higher in the index which ranks 109 cities on a number of factors, including economic and technological data, as well as by their citizens’ perceptions of how “smart” their cities are. It also considers the technological provisions of each city across five key areas – health/safety, mobility, activities, opportunities and governance. Dubai is ahead of Beijing and Tokyo in a list which places Singapore, Helsinki, Zurich, Auckland and Oslo in the top five, with Rabat, Cairo, Abuja, Nairobi and Lagos being at the other end of the scale.

The Central Bank has confirmed the country’s commitment to the Financial Action Task Force standards to combat all types of financial crimes; the FATF is the global watchdog, monitoring and controlling money laundering and terrorism financing. The bank’s new governor, Abdulhamid Alahmadi, reiterated that “we shall continue to adhere to FATF standards in order to ensure the UAE’s financial system is sound and inclusive.” The country has strict laws to deal with money laundering and the financing of terrorism and has recently introduced a smart tool named ‘Fawri Tick’ to monitor and curb terrorism financing. Another recently introduced rule makes it compulsory for all hawala providers – informal funds transfer agents that typically do not use banks – to register with the regulator to “enhance transparency in financial transactions.

Du is expected is expected to make a US$ 142 million profit, as it sells its 26% stake in Khazna Data Centre to Abu Dhabi’s Technology Holding Company, for US$ 218 million. Du’s share in Khazna was held as an “indirect stake”, which includes du’s exposure to shareholder loans, as part of the telco’s “strategy of pursuing data centre development through either full ownership or commercial partnerships”. This profit will boost the company’s Q3 results to be released next month.

The bourse opened on Sunday 13 September and, 12 points (0.5%) lower the previous week, gained 38 points (1.7%) to close on 2,321 by 17 September. Emaar Properties, US$ 0.02 lower the previous week, regained the US$ 0.02 to close at US$ 0.81, whilst Arabtec, having shed US$ 0.03 the previous week, remained flat at US$ 0.16. Thursday 17 September saw the market trading at a much improved 555 million shares, worth US$ 397 million, (compared to 284 million shares, at a value of US$ 111 million, on 10 September).

By Thursday, 17 September, Brent, US$ 6.69 (3.0%) lower the previous fortnight was US$ 3.46 (8.6%) higher at US$ 43.49. Gold, up US$ 20 (1.0%) the previous fortnight, nudged US$ 9 higher (0.4%) to close on US$ 1,960, by Thursday 17 September.

In a December 2015 blog – Move On – wrote

“It was only three months ago that Seb Coe was elected president of the International Association of Athletics Federations, taking over from the 16-year reign of the disgraced and allegedly corrupt 82-year old Lamine Diack. At the time, the former Olympic gold medallist made light of his own six-figure ambassadorial role with Nike and chairmanship of CSM – a leading sport and entertainment agency. There are reports accusing him of lobbying for the Oregon city of Eugene (with close ties with Nike) to host the 2021 World Championships that was granted earlier in the year, without a bidding process taking place.

It has to be remembered that he was also vice president to the Senegalese for the previous eight years and referred to him as the IAAF’s “spiritual leader”. This is the same person who is now charged with taking millions of dollars to cover up positive doping tests and was reprimanded by the IOC 4 years ago for his role in a FIFA scandal”.

This week, the octogenarian has been found guilty of corruption, having accepted bribes from athletes suspected of doping to cover up test results and letting them continue competing, including in the 2012 London Olympics. Lamine Diack’s lawyers will be appealing against the four-year prison sentence, and a US$ 600k fine, indicating it was “unfair and inhumane”. His son, Papa Massata, was sentenced to five years, along with a US$ 1.2 million fine. In November 2015, the current head of the sport, Seb Coe, labelled as “abhorrent” allegations of doping bribery within athletics after his predecessor was arrested by French police.

Another (hopefully former) corrupt sports body FIFA is also in the news, with reports that Zurich-based group, Julius Baer is in “advanced talks” with US regulators to resolve allegations in a corruption and money-laundering case involving the world football body. In 2017, a former employee of the private bank pleaded guilty to facilitating payments from a sports marketing company to FIFA officials. The 2015 investigations by the Department of Justice led to the eventual demise of the disgraced Sepp Blatter – despite more than a decade of rumblings into the shenanigans of the disgraced official and his cronies.

Finally some good news for Lionel Messi, after his clubBarcelona refused to allow him a free transfer, insisting that any team that took him on would have to honour an US$ 850 million release clause; he threatened to take his boyhood club to court but later changed his mind, saying he did not want to face “the club I love” in court. This week his luck changed, with the EU’s top court confirming that he could can register his name as a trademark after a nine-year legal battle against Spanish cycling company Massi and the EU’s intellectual property office, EUIPO. He can now finally trademark his surname as a sportswear brand. The decision could see his annual earnings increase quite significantly from their current US$ 126 million level.

A  damming US report into the two fatal 737 Max crashes has come out with criticism for two of the major stakeholders concluding that “Boeing failed in its design and development of the Max, and the FAA failed in its oversight of Boeing and its certification of the aircraft.” Indeed, it found a series of failures in the plane’s design, combined with “regulatory capture”, an overly close relationship between Boeing and the federal regulator, which compromised the process of gaining safety certification. The 250-page report also pointed to the fact that the regulator was, in effect, in Boeing’s pocket and that the FAA’s management “overruled” its own technical and safety experts “at the behest of Boeing”. It will take years for Boeing to recover its once vaunted position in the aviation sector, whilst fliers will take little comfort from some of the grim reading which narrates how Boeing could well be accused of putting cost saving at the expense of safety and human life – and paid the ultimate penalty. The much-modified plane will probably return to the skies by March 2021 – two years after being universally grounded.

A major faux-pas by mining giant, Rio Tinto, that resulted in the unwarranted destruction of Aboriginal cultural heritage sites earlier in the year, has seen its chief executive Jean-Sebastien Jacques – and two other senior staff members – being forced to leave.  Even chairman Simon Thompson should be a worried man about his Rio future, as yet another conglomerate shows little concern about the microenvironment. It seems that shareholder disquiet played a significant role in the eventual decision to part ways with the three executives who were seen as directly accountable for the Juukan Gorge blasting. In previous times, such actions would have gone largely unnoticed and many would argue that most major mining companies have probably done a lot worse to the environment and local populations in global areas where they have mined. It is exactly fifty ago that Milton Freidman hypothesised that the main purpose of a company is to maximise profits for its shareholders – these days executives have to be very careful and consider all their stakeholders.

SoftBank is set to receive over US$ 40 billion for selling UK chip designer Arm to US-based Nvidia in a cash and stock deal, that will create a mega player in the chip industry; the Japanese company bought Arm in 2016 for US$ 32 billion, as part of its then strategy to expand into the Internet of Things technology. The core business of Nvidia is graphics chips that power video games, but it has recently moved into other sectors including AI, self-driving cars and data centres. It does not make chips itself but licenses out the underlying technology so others can make chips with it.

It is reported that ByteDance, the Chinese owner of video-sharing app TikTok, is planning to make Singapore its Asian headquarters in a move that will see it spend several billion dollars in the city state; it will also boost local employment by hundreds of jobs, in addition to the four hundred already working there. The Beijing-based company has already considered the US, (where it was forced to sell TikTok operations, following pressure by the Trump administration), UK, (where TikTok faces a likely ban from moving local user data out of the country), and India, (where TikTok is banned by the government on security concerns), as  regional hubs, outside of its home base of China.  Last year, ByteDance generated US$ 17.0 billion of revenue and a US$ 3.0 billion profit, driven by the likes of news aggregation app Toutiao, and TikTok’s Chinese twin Douyin, which have more than 1.5 billion monthly active users.

After almost a decade – and sales of over 76 million units – Nintendo has discontinued its 3DS handheld which had the ability to trick the human eye into seeing 3D images like those in some cinema screenings – but without special glasses. The announcement has been long expected, as in 2019, the Japanese company announced it no longer planned to make any new first-party games for the system. Nintendo will now focus their attention on Nintendo Switch – a hybrid handheld-and-home machine.

With November launch dates, it seems that the Sony will match the price of its flagship PlayStation 5 with that of Microsoft’s Xbox Series X. At the last launches, Sony’s PS4 came in with a price lower than the Xbox One and to date they have outsold their US rival by a factor of almost two to one. But this time the tables may be turned when both consoles are launched in the UK on 19 November, a week later than in most other locations. Some analysts point to the fact that Microsoft’s combination of a US$ 340 price for the XBox Series S, allied with the value offered by the Xbox Game Pass subscription service, could give the US firm an advantage.

For the first time in sixty years, the Asian Development Bank has confirmed that the region of forty-five countries has gone into recession. It expects the region to post a 0.7% contraction this year but expects a 6.8% rebound in 2021. South Asia is expected to be worst hit, with big variances between different countries. For example, China will buck the trend, forecast to post a 1.8% hike, whilst India will head in the other direction, with an expected 9.0% contraction, although both economies are expected to rebound next year with expansions of 7.7% and 8.0% respectively. Major economic damage will be felt in tourism-dependent island economies, with the Maldives and Fiji expecting their 2020 economies to shrink by 20.5% and 19.5%.

Questions have to be asked about the state of the German economy as one of its leading companies, MAN, announces 25% job cuts of 9.5k in a bid to save US$ 2.14 billion in costs. The loss-making truck and bus manufacturer, one of the main brands of VW’s truck maker subsidiary Traton, posted a H1 34% slump in revenue, whilst recording a US$ 500 million deficit, compared to a US$ 300 million profit over the same period last year. Eurozone industrial production is slowing, with German expansion faltering, as the bloc’s July growth of 4.1% was more than a half down on the preceding month’s 9.5%, which in turn was 7.7% lower compared to the 2019 return.

If the state of the global countries’ employment sector is anything similar to that of the UK, then we are in for a turbulent twelve months. Latest August figures see the number of people claiming jobless benefits since March rising a massive 121% to 2.7 million. In Q2, the number of young people in employment dipped 156k to 3.6 million. The furlough scheme, which has assisted companies retain about ten million during the pandemic, is expected to close by the end of October and this presents the Chancellor a quandary; for if no further action is taken by Rishi  Sunak then there will be an inevitable sharp rise in the unemployment rate. With the rising unemployment rate, allied with the ever-growing number of payrolls lost, it is clear that the negative labour market impacts of the coronavirus crisis are here to stay for a while longer. The Q4 unemployment figure should be just south of 9.0% before dropping back again during 2021.

In forty-four days, the government’s Job Retention Scheme comes to an end and yesterday was the deadline for employers to give notice of redundancy. There is no doubt that over the next few days there will be a rise in the unemployment ranks. Even in June, a Freedom of Information request showed that 1.8k firms were intending to cut more than 139k jobs. The worrying fact is that since March, nine million people have been furloughed for at least one three-week period whilst over the past five months, only 695k have gone from the payrolls of UK companies. It is unlikely that the government will continue with furlough scheme into November.

In contrast, Germany is extending its Kurzarbeit job subsidy measures until the end of 2021, whilst the French may extend their equivalent scheme by two years. The German scheme is different to that of the UK’s in as much that it is about short-time working. This allows employers to cut the hours worked and the government will pay workers a percentage of the money they would have got for working those lost hours. (The UK scheme was based on paying workers to stay at home and get paid 80% of their normal pay). It is estimated that at the height of the pandemic, half of all German firms had at least some of their staff on the scheme.

In June, the Organisation for Economic Cooperation and Development forecast the global economy was expected to decline 6.0% and this week revised the figure down to 4.5%; although the UK economy is still forecast to contract by 10.1%, down from June’s 11.5%, it is no longer the worst hit in the developed world as the latest forecast sees Italy, India and South Africa posting larger contractions. The OECD is now forecasting a weaker global rebound in 2021, including UK’s expected 7.6% expansion; however, by the end of 2021, the economy will still be smaller than it was in 2019. The US forecast has been upgraded from a 7.3% level in April to the current 3.8%.

Oxford Economics’ latest forecast sees ME GDPs shrinking by 7.6% this year – much higher than their April forecast of a 3.9% contraction. However, it is relatively bullish about the future with annual 4.0% growths predicted for the next two years, assuming that lockdowns are fully eased, global travel picks up and Brent oil prices move closer to US$ 50 per barrel. The report noted that the outlook for the non-oil economy in the GCC countries remains challenging, whilst exports levels in oil-producing countries were experiencing severe damage, caused by the price slump in March and April, and are expected to decline by between 6.0% – 12% this year.

New Zealand is now suffering from being one of the few global nations to have kept a lid on the spread of Covid-19 as is chose lockdown and border closures, and the population’s health, ahead of any economic benefit. Q2 figures show that the country’s GDP shrank 12.2% which has pushed the country into its first recession since 1987. The measures have had a massive impact on many of the country’s industries including retail, accommodation, restaurants, and transport – sectors that were more directly affected by the international travel ban and strict nationwide lockdown. The economy is likely to be a key issue in next month’s election, which was delayed after an unexpected spike in Covid-19 cases in August. Pre-Covid polls had Jacinda Arden’s Labour Party running closely behind the National Party in second place but this has all changed since then with the Labour Party now well ahead in the polls.

The South African economy was struggling even before the onset of Covid-19 which has only exacerbated the problem; in March, the country was in technical recession, with Moody’s downgrading the country’s sovereign credit rating to junk status. The days of up to 5% growth numbers have long gone and current GDP levels are at Q2 2007 GDP levels – with all post-2008 financial crisis growth having been wiped out. Q2 figures were 51% lower, compared to the same period in 2019, and it is expected that South Africa’s GDP will reach US$ 295 billion – a level last seen over a decade ago. Some of the economic damage can be laid at the door of the former president, Jacob Zuma, who will go on trial next month for allowing associates to gain access to state-owned entities and redirecting spending for personal profit. His successor, Cyril Ramaphosa, has estimated that Zuma may have squandered US$ 30 billion in corruption during his tenure. Whether the new administration can rein in corruption remains to be seen. The short-term outlook is not good – tax revenues have fallen to catastrophic levels, the construction industry has just entered its eighth straight quarter of decline and the debt-ridden (of over US$ 40 billion) state-run electricity utility Eskom, overseeing an aged, unreliable and inefficient portfolio of mostly coal-fired stations, has witnessed numerous blackouts and hours of ‘load shedding’.

In the first eleven months of this financial year, the US administration has already spent US$ 6.0 trillion, including US$ 2 trillion on coronavirus relief, whilst tax receipts have totalled  US$ 3 trillion, resulting in  a US$ 3 trillion YTD deficit; the shortfall is more than double the previous full-year record, set in 2009 – and triple the expected figure of US$ 1 trillion forecast pre the onset of the pandemic. With a full-year US$ 3.3 billion shortfall now expected, it will bring the country’s total debt to well over US$ 26 trillion.

By the end of Thursday’s trading, most global markets traded downwards including the three major US bourses – Nasdaq (-1.3% at 10,910), S&P 500 (-0.8% to 3,357) and Dow Jones (-0.5% to 27,902) – along with  Europe – FTSE and DAX, 0.5% lower at 6,050 and 0.4% to 13,208. One of the drags was the fact that the Bank of England indicated there was a chance at cutting interest rates into negative territory, with the UK facing a triple whammy of rising COVID-19 cases, and an increased possibility of a national lockdown, a possible no-deal Brexit and higher unemployment, as the furlough scheme nears to its conclusion.

Meanwhile, the number of Americans filing new claims for unemployment fell 33k to 860k on the week which the Labor Department considers an extremely high level. By the end of last month, it is estimated that almost thirty million Americans were receiving ongoing jobless benefits indicating the devastation Covid-19 has imparted on the US economy. It is fairly obvious that much of the damage may have been averted if the politicians, (on both sides of the House), could have agreed on implementing much-needed fiscal stimulus measures; the knock-on effect will be a slower recovery time period with an economy more scarred that it needed to be. Fed chair Jerome Powell once again confirmed his intention to keep interest rates near zero, for at least the next three years, in an on-going attempt to lift the world’s biggest economy out of a pandemic-induced recession but admitted that central bank’s tools to achieve that were limited.

With the help of a US$ 200 million funding from China, the Maldives built a 2.1 km four lane bridge which linked its capital Male and the airport on the island of Hulumale. Not only did it help with reducing traffic congestion, it also led to a boom in new property and commercial developments on Hulumale. The structure, known as China-Maldives Friendship Bridge, was one of several major projects built under the presidency of Abdullah Yameen. Elected in 2013, he was pro-China and wanted to kickstart the economy, with the help hundreds of millions of dollars from Chinese President Xi Jinping who was embarking on his grand “Belt and Road Initiative” to build road, rail and sea links between China and the rest of the world, excluding the Americas. However, the nation voted in a new president in 2018 and the new government discovered that it was indebted to China for US$ 3.1 billion which included government-to-government loans, money given to state enterprises and private sector loans guaranteed by the Maldivian government. Now it appears that none of the projects had any back-up business plans and there are worries that the cost of projects was inflated and the debt on paper is far greater than the money actually received. Some estimates put the figure at US$ 1.4 billion and even this is far too much for an economy that relies so much on tourism which has been in lockdown since March.

It looks as if the Maldives is following in the footsteps of its neighbour Sri Lanka. That island state owes billions of dollars to China and has defaulted on one loan – US$ 1.5 billion to build a port in Hambantota – which proved to be economically unviable. The end result is that China now has a 70% stake in the port on a 99-year lease and has been given 15k acres around the port for China to build an economic zone. This has given the country an entrée to one of the busiest shipping lanes in the Indian Ocean and a base some hundreds of miles from its rival India. In 2019, US Secretary of State accused China of “corrupt infrastructure deals in exchange for political influence” and using “bribe-fuelled debt-trap diplomacy”.

These are not the only Asian countries involved in acquiring Chinese funding, which also appears rampant in parts of Africa. In 2019, a change of government in Malaysia saw a Chinese-funded railway project, being cut by a third to US$ 11 billion and a year earlier, Myanmar reviewed a Chinese-funded multi-billion-dollar deep-sea port project and scaled it down to 75% of the original cost. Economic history is just repeating itself as this could have been the modus operandi for another superpower in the 1970s in two South American countries and Indonesia. Some governments are now realising that they were wrong to think that You Get What You Give!

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Get The Fire Brigade!

Posted on September 11, 2020 by howesdubai

Get The Fire Brigade!                                                                        10 September 2020

Airolink has been appointed by Seven Tides as the main building contractor to complete its US$ 272 million Seven City JLT development. Due for completion in 2023, the 2.7k unit project covers an area of 3.5 million sq ft. Launched in 2004, Seven Tides is a privately-owned luxury property developer and holding company whose CEO is Abdulla Bin Sulayem, who has overall responsibility for the company’s portfolio of luxury five-star properties.

This week saw the lifting of the 192 mt long first section of the Link, now connecting the two towers of the One Za’abeel development. It took twelve days to raise the 8.5k tonne structure, one hundred metres above ground. Ithra Dubai, wholly owned by the Investment Corporation of Dubai, expects the Link to be completed next month, when the final 34 mt is added and, on completion, it will become the longest cantilevered building in the world. Encompassing a built-up area of 471k sq mt, the development will include the world’s first One & Only urban resort, with 497 ultra-luxury hotel rooms and serviced apartments, premium office space, 263 high-end residential units and three floors of retail space. One Za’abeel, due for completion by the end of next year, is the gate to the financial district of the DIFC, with an overhead link to the Dubai World Trade Centre.

Since the March onset of Covid-90 to the end of June, Emirates processed 1.4 million customer refunds, totalling almost US$ 1.4 billion, representing 90% of its backlog. It is also reported that Emirates will return their staff to full salaries as from next month. Earlier in the week, the airline announced that it had added another two routes, Lagos and Abuja, to its Covid-19 truncated schedule bringing its total destinations to eighty-four – more than a half of its pre-pandemic level of 160. The Dubai carrier will continue to restore revenues (and also target new avenues) and be as cost efficient as possible, as it tries to resume flights to all “network destinations” within ten months.

This week, HH Sheikh Mohammed bin Rashid Al Maktoum announced the formation of a Board of Directors of the Dubai Economic Security Centre. His Decision, effective from its date of issuance and will be published in the Official Gazette, will see Talal Humaid Belhoul, serving as the Chairman of the Board, and Awadh Hadher Al Muhairi as the Vice Chairman.

In line with the government’s smart transformation strategy, including the aims of the Dubai Paperless Strategy, the Dubai Land Department has started utilising AI in their smart valuation process for real estate units. The DLD’s Registration and Real Estate Services Sector has completed the project that will contribute to improving the quality, efficiency and readiness of smart government services. The target is for the DLD to raise its global ranking on performance indices in terms of providing DLD users the best valuation services quickly and with complete transparency. Customers can now download the app, Dubai REST, from the App Store or Google Play. The government body expects that this will reduce both current costs, by 20%, and implementation time to fifteen seconds.

DEWA has signed an agreement with Group 42, a leading Artificial Intelligence and cloud computing company, which will enable the three digital DEWA companies – Moro Hub, InfraX and DigitalX – to introduce and implement digital and data transformation initiatives, as well as fostering new services around AI. DEWA becomes the world’s first digital utility utilising autonomous systems for renewable energy, storage, expansion in AI adoption, and digital services. The authority, a Dubai 10X enabler, (a government tech initiative to ensure that the emirate is always ten years ahead of other global cities), will adopt digital technologies with its four pillars; Solar Energy, Energy Storage, Artificial Intelligence, and Digital Services.

At last Friday’s Global Manufacturing and Industrialisation Summit online, the Minister of Industry and Advanced Technology, Dr Sultan Al Jaber, reiterated that the UAE is looking to bolster its position in new high-value growth sectors such as biotechnology, health care and pharmaceuticals. Part of the strategy is also to enhance certain sectors, including water, health, agriculture, energy, petrochemicals and metals, so as to strengthen the country’s self-sufficiency. Technology will play an important role in the country’s move away from being hydrocarbon reliant and the government is keen to cooperate closer with any country that is ready and able to work with the UAE. The country is a pathfinder in certain areas of technology and was the first in the world to appoint a Minister of AI. The Minister stressed that “we can only hope to shape an inclusive and sustainable Fourth Industrial Revolution through building strong multi-stakeholder partnerships with representatives of national governments, multilateral organisations, the private sector, the research community and civil society.”

According to August’s Purchasing Managers’ Index, Dubai’s non-oil private economy is showing further signs of improvement. Business conditions continued to recover from the extreme effects of the pandemic, as output levels headed north, but the index did fall 0.8 to 50.9, indicating only a marginal improvement.  This would seem to indicate that the hopeful swift uptick may not result, as market conditions are still showing signs of depressed market conditions. The PMI covers three sectors – two of which, construction and wholesale/retail showed softer growth, whilst travel/tourism registered a downturn in business. Job cuts speeded up, as companies slashed costs, including the reduction in payroll numbers, to reduce capacity and employee costs. For the tenth consecutive month, margins continued to be pinched with companies chasing business by lowering selling prices.

The federal government posted a US$ 2.7 billion H2 budget surplus, including almost US$ 2.2 billion in Q2. In the first six months of the year, the government spent US$ 6.8 billion and collected revenue of US$ 9.5 billion. Last year, the cabinet had approved a three year zero-deficit US$ 16.7 billion budget. Q2 revenue topped US$ 9.5 billion, including federal revenue at US$ 4.5 billion and Ministry of Human Resources and Emiratisation chipping in over US$ 0.5 million. Expenses for the quarter came in at US$ 7.3 billion with the big four spenders being federal expenses, the Ministry of Education, the Ministry of Health and Ministry of Community Development at US$ 2.3 billion, US$ 0.6 million, US$ 0.4 million and US$ 0.1 million respectively.

DFM-listed Gulf Navigation has appointed a new board, headed by Theyab bin Tahnoon bin Mohammad Al Nahyan and a new group chief financial officer, Rudrik Flikweert. Shareholders are hoping that the new set-up will be able to turn the troubled business around, following tough trading conditions. Even before the advent of Covid-19, the company, with eight vessels, turned in an annual 2019 loss of US$ 82 million, driven by climbing operating costs and the carrying value of some of its vessels being written down by US$ 88 million. The pandemic has also exacerbated the Dubai company’s problems, as global trade contracts 27% in Q2.

The bourse opened on Sunday 06 September and, 199 points (9.5%) higher the previous four weeks, shed 12 points (0.5%) to close on 2,283 by 10 September. Emaar Properties, US$ 0.11 higher the previous five weeks, lost US$ 0.02 to US$ 0.79, whilst Arabtec, having gained US$ 0.02 the previous week, lost US$ 0.03 to US$ 0.16. Thursday 10 September saw the market trading at 284 million shares, worth US$ 111 million, (compared to 373 million shares, at a value of US$ 97 million, on 03 September).

By Thursday, 03 September, Brent, US$ 1.37 (3.0%) lower the previous week lost US$ 3.69 (8.4%) to US$ 40.03. Gold, having nudged US$ 9 (0.4%) the previous week, was US$ 11 higher (0.6%) to close on US$ 1,953, by Thursday 10 September.

After a disastrous Q2, when UK vehicle sales plunged to record lows, July recorded the first gain in sales for 2020, but then August vehicle sales dipped 5.8% to 87k, denting hopes of a recovery in the industry this year; for the first eight months of the year, registrations were down almost 40%. The UK is not alone with similar negative returns recorded across the EU, including France, Germany and Spain. The market is hoping that the market may be boosted by so-called revenge buying – when financially secure people buy luxury cars after saving money during the pandemic but were unable to go on an overseas holiday – along with pent up demand.

As it managed to avoid any further cancellations, Airbus delivered thirty-nine jets, comprising thirty-five A-320 narrow-bodied planes and four twin-aisle planes – ten lower than a month earlier. In contrast, Boeing posted disappointing news of only nine deliveries in the month, made worse with news that handovers of its 787 Dreamliners were slowed because of faults in the plane’s horizontal stabiliser that are wider than specified.  

After successfully completing a US$ 1.6 billion rescue plan, Virgin Atlantic announced a further 1.15k job cuts, in addition to the 3.5k jobs lost earlier in the year, which will see a 46.5% reduction in job numbers to 5.35k. The airline, 49% owned by Delta Airlines, commented that “until travel returns in greater numbers, survival is predicated on reducing costs further and continuing to preserve cash,” and that the outlook for transatlantic flights remains uncertain. Both US and UK courts approved Virgin’s US$ 1.6 billion rescue plan, involving U$S 525 million in new cash, half of which was generated from its main shareholder, Sir Richard Branson’s Virgin Group.

Last Friday, the largest group of Virgin Australia’s 10k creditors agreed to US private equity firm Bain Capital becoming the new owner of Virgin Australia; Bain have agreed to pay out all worker entitlements and honour travel credits, althoughbondholders lose out, probably seeing a meagre 13% return, as well as the “numerous suppliers and investors who will not receive all of the monies owed to them”. Furthermore, there will be no return to Virgin’s major shareholders, which include Singapore Airlines, Etihad Airways, China’s Nanshan Group and HNA and Sir Richard Branson’s Virgin Group. The airline, with a 9k workforce, having seen a third already made redundant, was placed into voluntary administration in April with debts of US$ 4.9 billion, following which its biggest shareholders, as well as the Australian government, refused to add further capital to save the airline. The airline will no longer be a full-service carrier, operating with a far smaller fleet, with up to sixty 737s airborne by the end of H1 2021, dependent on demand, and more limited routes The new airline will keep hold of its key international routes but will no longer operate as a full-service carrier like Qantas.

Singapore Airlines is the latest airline to announce massive staff cuts – by 4.3k, as it looks to restructure in line with the new norm for the industry including a weak travel outlook for the near future. The carrier expects the actual number will be 2.4k, once a recruitment freeze, natural attrition and voluntary departure schemes have been taken into account. Positions will be lost in all three of its flying units – Singapore Airlines, SilkAir and its low-cost carrier Scoot – which posted July passenger numbers down by 98.6%, year on year. Q2 losses amounted to US$ 820 million, compared to a US$ 80 million profit the previous July, with revenue falling 79.0% to US$ 620 million. SQ expects to operate only 50% of its capacity by year-end, with a reduced network to cope with the crisis.

BA has announced that it will be cutting more flights for the rest of the year as it comes to terms with the continuing collapse of air travel demand. IAG, which also operates Aer Lingus and Iberia, expects that autumn capacity will be 60% lower compared to 2019 figures. More worryingly, the company does not expect business to return to pre-pandemic levels until at least 2023. By the end of August, the airline had shed 8.2k of the 13k proposed job losses, “mostly as a result of voluntary redundancy”. IAG also confirmed that, in line with its July announcement, it would tap its shareholders for US$ 3.4 billion to help with its financing, debt reduction and withstanding a prolonged downturn in travel. Existing shareholders, including Qatar Airways, (with a 25.1% stake), will buy new shares at 36% lower than yesterday’s closing price.

LVMH is blaming the proposed US tariffs on French goods the raison d’être of pulling out of a proposed US$ 16 billion deal to acquire Tiffany, who have countered that the French conglomerate “is in breach of its obligations relating to obtaining antitrust clearance.” The French conglomerate indicated that a letter from France’s European and Foreign Affairs minister suggested “in reaction to the threat of taxes on French products by the US, directed the group to defer the acquisition of Tiffany until after 06January 2021”. The New York-based luxury jewellery retailer said there was no contractual basis for LVMH to honour the French government’s request and that LVMH just wanted to avoid its obligation to complete the transaction on the agreed terms because of the downturn in business resulting from the Covid-19 pandemic and  a sharp global downturn in the luxury goods industry.

Campbell is but one of several companies that can thank the onset of the pandemic for stirring up its business as once again its age-old canned soup brands become best-selling items in the supermarket. Q2 US soup sales came in 52% higher, contributing to the company’s 18% surge in revenue and a swing into profit. Initially, panic buying was the main revenue driver but now it seems that with families eating most of their meals at home, Campbell’s products – such as chicken soup, SpaghettiOs and Prego pasta sauce – are making somewhat of a resurgence. It seems that the company should now consider other products that could be eaten outside of the home – if not the soup will quickly turn cold and cans will start collecting dust on supermarket shelves.

Three of the biggest banks in the US have made impairment provisions of US$ 28 billion in relation to the prospect of Covid-19 related defaults on customer loans. The end result sees Citigroup’s Q2 profit plunging 78%, JP Morgan Chase down 50% and Wells Fargo posting its first quarterly loss since the 2009 GFC. Citigroup has set aside a 3.9% provision on its loan book (from 1.9% last year), as it posted a US$ 1.3 billion profit figure on a 5% increase in revenue to US$ 19.8 billion. JP Morgan, which has set aside US$ 10.0 billion for losses, including nearly US$ 9 billion to build its reserves, reported profits of US$ 4.7 billion on the back of a 15% increase in quarterly revenue to US$ 33.0 billion. Having set aside US$ 9.5 billion to cover potential coronavirus-related losses, including US$ 8.4 billion in reserves, Wells Fargo posted a US$ 2.4 billion loss, (compared to a US$ 2.4 billion profit in Q2 2019).

Latest estimates from Lloyds point to a current US$ 5.0 billion pay-out in claims relating to the pandemic, noting that H1 had been “exceptionally challenging for our people, our customers, and for economies around the world”.  Lloyd’s of London, whose results are an aggregate of some ninety syndicate members, expects to settle claims in the region of US$ 2.4 billion in H1. With on-going court cases, their H1 loss of US$ 525 million, (compared to a US$ 3.1 billion profit in the corresponding 2019 period), may well be replicated in H2, with pandemic-related losses stretching well into the future.

A study of the companies trading on the ASX 300 noted that twenty-five companies managed to pay a total of US$ 18 million in executive bonuses, whilst still claiming JobKeeper subsidies. The Business Council of Australia criticised their actions saying companies should not be paying bonuses if they are receiving JobKeeper. It included Star Entertainment Group, which operates Star Casino, which actually received the most in JobKeeper subsidies – US$ 46 million – whilst paying its chief executive, Matt Bekier, a US$ 600k bonus. Footwear company Accent Group — which distributes brands Dr Martens, Athlete’s Foot, Vans, Saucony and Skechers — paid its chief executive Daniel Agostinelli a US$ 860 million bonus, having received over US$ 15 million in wage subsidies, as well as nearly US$ 6 million in rent waivers.

It seems that Amazon has taken time out to work out that it paid US$ 400 million in UK taxes in 2019, (including business rates, corporation tax, stamp duty and other contributions) and has again stressed that it pays “all taxes required in the UK”. The tech giant, which employs 33k, posted a 26% hike in revenue to US$ 376 billion, resulting in a US$ 15.5 billion profit. Little wonder then that Amazon, and its fellow cohorts, are being chased by governments worldwide concerned with the relatively low amounts of money they add to different countries’ exchequers. The UK Chancellor has said that the massive US tech firms need “to pay their fair share of tax” and launched a 2% tax on digital sales to make up for losses incurred when conglomerates re-route their profits through low tax jurisdictions; Rishi Sunak also added that the coronavirus crisis had made tech giants even “more powerful and more profitable”.

Apple has refuted claims, made by Epic Games, that the 30% commission it charges all its users was anti-competitive and monopolistic, pointing the finger at the maker of the Fortnite game being “self-righteous” and “self-interested”. It also accused the game maker of violating its contract – and asked for damages in a lawsuit initiated by Epic last month – following its offering a discount on its virtual currency for purchases made outside of the app, from which Apple receives a 30% cut. This led to the tech giant banning updates that are required to continue progress with the game. Epic has refused to accept Apple’s offer to allow it to use the app on condition it deleted the direct payment feature, (so as comply with its terms and conditions of use) because it would be “to collude with Apple to maintain their monopoly over in-app payments on iOS.” There is no doubt that Epic is not the only problem facing Apple as global scrutiny on the modus operandi of its App Store is gaining traction; legislators in Washington and Brussels are becoming increasingly concerned that competition rules are being stretched and violated.

UK regulators are closely looking at whether fraud, or payment in error, has taken place in relation to the government’s furlough scheme that has cost US$ 48 billion to date, with estimates that up to 10% of that total could have been paid by mistake. The scheme paid laid-off workers a maximum US$ 3.4k a month from government funds.  HMRC is now looking into 27k “high risk” cases where they believe a serious error has been made in the amount employers have claimed. The losses attributable to the furlough scheme are just a portion of the almost US$ 40 billion lost in 2019 due to taxpayer error and fraud.

After weeks of negotiations, the EPL has walked away from a US$ 700 million contract with Chinese digital broadcaster PPTV, who wanted to pay less following the football blackout during lockdown. The UK “suits” refused to back down, despite agreeing to U$ 440 million worth of rebates with other broadcasters over the three-month enforced break. It seems quite understandable that the Chinese company should not continue to pay the full value of the broadcast deal at the “same price and conditions as pre-Covid”. The EPL lost over US$ 1.1 billion last season, attributable to lost match day income with games being played in empty stadia. Pre-Covid, the EPL was forecasting a net US$ 5.7 billion from the sale of international rights for the next three seasons but that now seems a distant hope.

As an indicator that the US economy is on the move, the August unemployment rate fell again for the fourth straight month from its April 14.7% high to under 10% last month, with firms adding 1.4 million new jobs. There are fears that this recovery is unsustainable, with the pace of job growth slowing, so that it would take a further nine months for the twelve million displaced since February 2020 to return to work. The other factor is that the ‘under-employment’ rate is still over 14%, and this may be even slower to fall; the 2008 GFC showed that rapid job losses did not equate to sharp recoveries.

President Emmanuel Macron has unveiled a US$ 120 billion stimulus package – dubbed “France Relaunch” – as the country tries to get to grips with the impact of Covid-19. The aim of the package is to reverse rising unemployment, (by creating 160k new jobs), and counter the massive 13.8% contraction in the Q2 economy and will include major spending on green energy, long-term investments in employment and transport. The plan, equivalent to 4% of the country’s GDP, will be four times more than the 2008 package following the GFC. Not surprisingly, about US$ 47 billion will come from the new European Union Recovery Fund. Whether this boost will be enough to help the French economy escape one of Europe’s worst recessions, with an 11% drop in economic output forecast for 2020, remains to be seen.

The knives were already out and sharpened prior to the announcement that London-born and Rhode scholar, Tony Abbott, former Australian prime minister, had taken up an unpaid position as an adviser to Britain’s Board of Trade. The role involves promoting UK trade interests to other countries and help with setting up trade treaties with various countries, when the UK finally exit the EU without a deal at the end of the year. He has had experience with the likes of China, Japan and South Korea, overseeing free trade agreements with such countries when he was Australia’s prime minister. His current remit involves providing “a range of views to help in its advisory function, promoting free and fair trade and advising on UK trade policy to the International Trade Secretary”. There are many, including Nicola Sturgeon and Keir Starmer, who are against the appointment on the grounds that he is a misogynist, a sexist and a climate change denier.

The week ended with the eighth round of Brexit talks in London having made little or no progress. In typical Johnsonesque brinkmanship, the UK prime minister has rattled EU negotiators, headed by the urbane Michel Barnier. The UK announced that it would be prepared to override the Brexit treaty by using parliament to set aside parts of the protocol on N Ireland enshrined in the withdrawal agreement; this had solved the problem of a hard trade border on the whole of Ireland by ensuring the Six Counties being both close to EU customs union and at the same time being  in the UK’s customs territory. Ironically, the EU, expressing deep concerns about this protocol violation, threatened legal action and said that the move had “seriously damaged trust between the EU and UK”. It is very difficult to put the ‘EU’ and ‘trust’ in the same sentence.

The ECB is becoming increasingly concerned about the implications of a strong euro which has risen to US$ 1.20 due to a myriad of reasons including the knock-on effect of last month’s massive EU pandemic recovery fund and last week’s US Fed’s discretionary inflation-targeting stance. According to its president, Christine Lagarde, the situation is being closely monitored because of the negative pressure on prices; she also confirmed the bank will use its stimulus package in full to help pull the bloc out of recession. There is every possibility that rates may have to be cut further into negative territory as the ECB seems “determined to use all policy tools it has available”. The bank also expects that inflation, which turned negative in August, will continue below zero until later in the year but the average 2020 rate will be 0.3%; however, it has forecast that 2021’s rate will be a highly unlikely 1.0%. The ECB will have to introduce more stimulus measures mainly because of the record Q2 12% output contraction.

These are tough times for the EU having to fight fires on three fronts – an upcoming currency war with the US, finally realising that their previous bullying tactics no longer work in Brexit negotiations and the bloc’s post-pandemic economy is not bouncing back as quickly as first forecast. Time to Get The Fire Brigade!

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All The Young Dudes!

Posted on September 4, 2020 by howesdubai

All The Young Dudes!                                                                       03 September 2020

There was a significant and historic move this week when the country’s President Sheikh Khalifa bin Zayed Al Nahyan issued a federal decree “abolishing the Federal Law No. 15 of 1972 regarding boycotting Israel and the penalties thereof”. This will undoubtedly lead the way to expanding diplomatic and commercial cooperation with Israel and from the date of the announcement “it will be permissible to enter, exchange or possess Israeli goods and products of all kinds in the UAE and trade in them.” It is inevitable that the decree will benefit many sectors, including trade, travel, tourism, e-commerce and energy and could act as a catalyst to a quicker economic recovery post Covid-19. There is every chance that the new relationship could see a marked improvement in the Dubai housing market, as Israelis may well see Dubai as an attractive investment prospect.

Latest data indicates that Dubai’s property sector contributes over US$ 4.2 billion to the emirate’s economy, equating to 7.4% of its GDP. There is no doubt that the latest peace deal with Israel – an untapped market – will benefit the sector which just before the onset of Covid-19 had shown signs of growth. There is every chance that Israel will be the source of an influx of new money which will push prices northwards, resulting in the disconnect between supply and demand diminishing. This will not only be via direct purchases of local real estate but Israeli investment in many sectors of the economy – including the four ‘Ts”, tourism, trade, travel and telecommunications – will prove a fillip for the emirate’s prosperity. This in turn will see an indirect benefit for the Dubai property market, as new businesses take root and more professional people and entrepreneurs move to Dubai which will absorb surplus inventory and create more demand for residential units.

The new report from the portal Property Finder shows that August, traditionally a slow month for Dubai real estate, posted 2.5k sales transactions, valued at US$ 1.3 billion – increases of 2.2% and 11.3% on a monthly and annual basis. The improvement in business has been put down to a combination of pent up demand, attractive pricing and the fact that many residents are eschewing their normal summer overseas holidays. A breakdown of the figures shows that 68.4% were in the secondary market, whilst 31.6% were off-plan, and that there were 1.2k mortgages, valued at over US$ 2.8 billion. As it seems that there are fewer new projects being launched, as the market tries to find equilibrium between the current over supply and demand, (estimated at 70k units), this has led to a 22.4% annual increase in the secondary market.

The Property Finder data found that there had been increased demand for larger units, as a direct result of the Covid-driven lockdown, whilst the volume of sales transaction for both studios and 1 B/R apartments declined by 34% and 10%, the volume of transactions for 3, 4 and 5-B/R apartments increased by 9%, 20% and 15%, respectively. The leading five off-plan transactions were found in Jumeirah Village Circle, Business Bay, Palm Jumeirah, Arjan and International City, whilst the main secondary market properties were sold in Town Square, Dubai Marina, Dubailand, Downtown Dubai and Dubai Sports City.

One of the few launches this year is Azizi Developments’ US$ 95 million, 587-unit Creek Views II on the shores of the Creek in Dubai Healthcare City. Prices for the 116 studios, 436 1 B/R and 35 2 B/R start at US$ 108k, US$ 152k and US$ 206k. The latest project will also feature two swimming pools, a sauna, a steam room, a fully equipped gym, and a children’s play area.

The recent Eid break proved a boon for Dubai hotels that had been witnessing very poor occupancy rates, some as low as 20%, for most of the summer. The last two weeks of August saw many properties reaching the 60% – and some up to 90% occupancy levels – during the Eid Al Adha. It is expected that average room rates will hover around the US$ 100 level into September, then moving higher, if – and when – the overseas holiday traffic gains traction from October.

In a major restructure, with the aim to increase efficiency and flexibility through strategic consolidation, the emirate has become Swiss-Belhotel International’s regional hub, as the group merges its Europe, Middle East, Africa (EMEA) and India regions. The Dubai-based executive team will now also be responsible for the group’s operations in Europe, whilst the flagship Swiss-Belhotel du Parc, Baden Switzerland will be the operational base for Europe.

There are reports that Emirates is to receive a US$ 2.0 billion government handout, as it tries to get to grips with the impact that the aviation sector has suffered from Covid-19. Not only have long haul carriers received the brunt of the fallout, that has seen the Dubai airline having to ground its 255-fleet of jets, comprising Airbus A-380s and Boeing 777s, but also this sector will almost certainly be the slowest to recover.

Earlier in the week, it was reported that Dubai could be returning to the debt market that would result in a potential sale of US$ 6 billion worth of ten-year sukuk and US$ 5 billion thirty-year conventional bonds. Money raised could be used to boost those sectors of the economy that have been badly impacted by Covid-90, including trade, finance and tourism. On Wednesday. the Dubai Government announced it has raised US$ 2 billion in an issuance process, comprising two US$ 1 billion tranches -a ten-year Islamic Sukuk, at a profit rate of 2.763%, and a thirty-year government bond, at an interest of 3.90%. The order book was more than five times oversubscribed than the target value which is an indicator of Dubai’s stature in the international community and the resilience of its economy; global investors made up 84% of the total investors in the government bond. (This week, neighbouring Abu Dhabi raised US$ 5 billion via a 50-year loan issue).

After moving into positive territory in July, the UAE economy slipped back from 50.8 to 49.4, (50.0 is the threshold between expansion and contraction). The PMI figures indicate that demand is still soft, whilst payrolls have been cut to reduce costs to a bare minimum just to keep afloat. Covid-19 and the lockdown have hit businesses on two counts – demand, in many cases, has fallen off the proverbial cliff, whilst those businesses still operating are facing fierce competition from their like-minded peers. For some sectors, it looks like a race to the bottom that sees no winners at the end. Business sentiment is low and expectations of an improvement over the next twelve months “dropped to the lowest since April 2012”. Reality maybe another matter – notwithstanding a second wave, some consider that Dubai will be one of the first global hubs to return to the new form of “business normalcy”.

Latest figures from the Federal Competitiveness and Statistics Authority seem to indicate that a post Covid-19 bounce has already started, as August consumer spending rose for the third straight month, coming in 63% higher compared to the March return. The better performing sectors were restaurants and apparel, 75% and 78% higher over the period respectively, whilst hotel spending was up 29%. Meanwhile, expenditure on food supplies and medications, both online and conventional purchases, slowed by 32%.

The emirate’s government has launched ‘Retire in Dubai’, a global retirement programme for those aged over 55. Initially, this will only be applicable for those who are already living and working in Dubai and offers an easy and hassle-free retirement option. Eligible applicants will be able to apply for a five-year renewable visa as long as one of the following three options are met – monthly income over US$ 5.5k, owning a property worth more than US$ 545k or having savings of over US$ 272k.

In a landmark move, July 2019 saw the federal cabinet approve 100% foreign ownership across thirteen sectors in 122 economic activities. Under this new foreign direct investment legislation, steelmaker Conares becomes the second company in Dubai to be granted 100% ownership in the mainland, following Aster DM Healthcare being allowed 100% ownership in its Dubai subsidiaries last February. The new facility, with an annual capacity of 100k metric tonnes, will cater mainly for regional infrastructure development projects. It is hoped that Dubai will slowly move to a value-added economy from its traditional trading/re-exports base and that the ‘Made in UAE’ logo becomes an everyday sign.

The agricultural sector has received bank financing, totalling US$ 209 million in H1, bringing the cumulative total to US$ 496 million. There is every reason why the country is investing heavily in the agricultural sector as intimated by Sultan Alwan, Acting Under-Secretary of the Ministry of Climate Change and Environment, saying “achieving food security and sustainability and ensuring flawless and flexible food supply chains for local markets are priorities of the UAE”. The country, which imports over 80% of its food requirements, is considered food secure, with the federal government having one of the most comprehensive plans in the world.

One sector that has been battered by the pandemic is flexible office space, as users have deserted “short-term desks” and coworking spaces to work from home. However, according to a recent JLL study, demand is beginning to pick up again now there are signs that the worst may be over (at least for the time being). The global study concluded that 67% of the respondents are still “increasing workplace mobility programmes and incorporating flexible space as a central element of their agile work strategies.” A further reason for the bullishness is that large companies are still concerned whether to commit capex budgets in the post Covid-19 environment and are moving towards pre-built space and lease flexibility. There is no doubt that Dubai’s economic future will owe a lot to the expected inflow of entrepreneurs, freelancers and start-ups, many of whom will be traditional users of flexible office space to save on commercial rent. Over the past six years, Dubai’s flexible office space has more than tripled to 160k sq mt, serviced by more than forty different operators, some of whom will not have survived over the past five months.

Compared to June 2019, UAE-operating banks this year has seen a 12.1% jump in debt securities to US$ 71.9 billion and a 3.4% rise, month on month; this move was a bid to counteract the decline in energy prices. However, the banks’ investments in stocks fell by 15.4% to US$ 2.4 billion, over the twelve months, whilst their portfolio of held-to-maturity bonds dipped 0.7% to US$ 27.4 billion on the month.

The Dubai Executive Council has issued a resolution with the aim of curtailing future competition between the government and private sector, to try and protect the latter’s interests. The new ruling details a legislative framework under which the private sector is protected from government entities and operates on a “level playing field”. In future, it looks as if government bodies will have to pay all relevant taxes and fees for which they are liable under federal and local laws, as well as being unable to receive any advantage or financial support from the government. Sheikh Hamdan bin Mohammed has stressed that government-owned companies should not “be a competitor to the private sector, but rather seek to complement it”, and that “we are keen that the private sector plays a major role in shaping the future of the national economy and achieving sustainable development”.

It was good news for global diamond hubs in Antwerp, Belgium, and Mumbai that after a moribund six months, when the business was at a standstill, it is reported that De Beers likely sold about US$ 300 million in rough diamonds last week. Although still less than a traditional sale, it is the biggest offering since February and equates to almost six times its total Q2 sales. With the likes of De Beers and Alrosa refusing to budge on prices since the onset of the pandemic, last week some diamond prices were slashed by up to 10%, leading to diamond buyers snapping up about half a billion dollars in uncut gems. The knock-on effect will be felt here in Dubai, which will benefit from any uptick in global trade. It has only taken fifteen years for the DMCC to become the third largest global diamond trading centre, with the government-backed Dubai Diamond Exchange managing to build on strong connections with producers in Africa, cutting centres in Asia and worldwide consumers.

DP World and Canada’s Caisse de dépôt et placement du Québec have agreed to invest a further US$ 4.5 billion in their global portfolio of ports and terminals, bringing their combined spending to US$ 8.2 billion. Established in 2016, the ports and terminals investment platform, between one of the world’s largest operators and the Canadian asset management firm, is keen to “working together on new investments that will connect key international trade locations worldwide.” The Dubai ports operator has been recently involved in acquiring numerous global logistics operations, including a 60% stake in South Korea’s Unico Logistics.

Over last week’s four days of trading on the DFM and the Abu Dhabi Securities Exchange, it is estimated that foreign inflows into the UAE’s twin bourses amounted to US$ 668 million, accounting for 48.3% of the total liquidity recorded. Of that total, the Dubai bourse claimed US$ 327 million, with the banking sector the main target on account of their normal lucrative annual dividends.

Dubai logistics firm Fetchr has raised US$ 15 million in its third funding round that will assist its expansion plans for China, Europe and the US and its aim to attain its break-even EBITDA point this year; it expects to attract a further US$ 10 million before the end of the year. Among this round of investors were Beco Capital, Tamer Group (who also invested in the first round of funding in 2018) and CMA CGM, along with its logistics arm CEVA Logistics, (who joined in early 2019). The pandemic resulted in a marked slowdown in funding for start-ups but now it is picking up momentum; H1 saw MENA funding top US$ 659 million – 35% higher, year on year. The courier company is also considering strategic partnerships with global service providers and large retailers and implementing an asset-light business model for accelerated growth. Fetchr will also benefit from a major boost in the on-demand delivery sector due to Covid-19, with figures indicating that 90% of consumers in Saudi Arabia and the UAE – two of Fetchr’s core markets – now purchase online.

Every week sees another episode in the on-going NMC Health saga, as it faces yet another legal battle – this time Pine Investments are seeking the restitution of a 49% stake sold to NMC Health in 2018,  the founders of an IVF business, which was sold to the company, say it failed to honour an agreement with them. Dr Michael Fakih, his wife and co-founder Dr Amal Al-Shunnar, the founders of an IVF business, sold their company to NMC – via a 2015 sale of a 51% stake, followed three years later by the remaining 49%, which was sold for US$ 205 million, valuing the company at US$ 409 million. The payment for the second stake was a mix of cash and shares and the sellers only agreed to accept a bigger proportion of shares on its then chief executive, Prasanth Manghat’s guarantee that the company would make good any shortfall if NMC’s share value dipped below US$ 38.50.  Earlier in the year, the claimants sold a small portion of shares at below the guarantee and in February wrote to the company to seek US$ 7 million – the difference between the lower sale price and the guarantee – and also to offload their remaining shares at the guarantee price.

The bourse opened on Sunday 30 August and, 185 points (10.6%) higher the previous three weeks moved up a further 14 points (0.6%) on the week, closing on 2,283 by 03 September. Emaar Properties, US$ 0.10 higher the previous four weeks, was up a further US$ 0.01 to US$ 0.81, whilst Arabtec, dumping US$ 0.13 the previous three weeks, gained US$ 0.02 to US$ 0.19. Thursday 03 September saw the market trading at 373 million shares, worth US$ 97 million, (compared to 339 million shares, at a value of US$ 102 million, on 27 August).  For the month of August and YTD, the bourse had opened on 2,051 and 2,765 and, having closed the month on 2,245, was 194 points (9.5%) higher but well down by 18.8% YTD. Emaar and Arabtec both traded lower from their 01 January starting positions of US$ 1.10 and US$ 0.35 – down by US$ 0.32 (29.1%) and US$ 0.17 (48.6%) YTD. However, in the month of August, Emaar was up US$ 0.08 at US$ 0.78, whilst Arabtec headed in the opposite direction, down US$ 0.07 to US$ 0.18. Trading on the last day of August was markedly higher with 450 million shares, valued at US$ 376 million.

By Thursday, 27 August, Brent, US$ 6.81 (17.8%) higher the previous seven weeks lost US$ 1.37 (3.0%) to US$ 43.72. Gold, having lost US$ 136 (6.6%) the previous fortnight, nudged US$ 9 higher (0.4%) to close on US$ 1,942, by Thursday 03 September. Brent started the year on US$ 66.67 and has lost US$ 21.39 (32.1%) YTD but gained US$ 1.96 (4.5%) during the month of August to close on US$ 45.28. Meanwhile the yellow metal gained US$ 461 (30.3%) YTD, having started the year on US$ 1,517 to close at the end of August on US$ 1,978 from a year start of US$ 1,517, with August prices nudging US$ 2 higher.

It has been confirmed that Goldman Sachs has made the US$ 2.5 billion payment to the Malaysian government to settle allegations of fraud and misconduct relating to the 1MDB scandal. The money will be used to repay some debts of the disgraced fund which includes bonds totalling US$ 3.5 billion due over the next three years.

IATA has reported that July global air cargo demand was stable but remained 13.5% lower than the same month in July 2019, due to capacity constraints, as passenger aircraft remained grounded. With a year on year 31.2% fall in global capacity – slightly better than the 33.4% June drop – these figures do not reflect what is happening on the global stage, where indicators point to an improvement in the global manufacturing sector, with upticks in new export orders and output. However, until national borders are opened, travel returns to some form of normalcy and more planes return to the skies, air cargo will continue to suffer. ME carriers reported a 14.9% annual decline in international cargo volumes in July, an improvement from the 19% fall in June, as seasonally-adjusted demand grew 7.2% month-on-month in July – the strongest growth of all global regions.

EU aviation regulators confirmed  that scheduled flight tests on Boeing’s troubled 737 Max (now known as 737-8) will start next week but have noted that US  Federal Aviation Administration clearance will not automatically transfer to clearance to fly in Europe; US testing restarted two months ago but the scheduling the test flights by European regulators has been hindered by Covid-19 travel restrictions between Europe and the US. However, the EASA indicated that it had been “working steadily, in close co-operation with the FAA and Boeing, to return the Boeing 737 Max aircraft to service as soon as possible”, and wanted to ensure that the overall maturity of the re-design process was sufficient to proceed to flight tests. This is not the only model to be causing Boeing problems – it has found “two distinct manufacturing issues” affecting the fuselage of eight 787 Dreamliners that need urgent investigation.

Last week, the blog pointed out some of the UK politicians who were making extra money outside their normal constitutional labours. This week, it is reported that the UK government have paid large consulting firms over US$ 145 million for advice on its response to the pandemic! A total of 106 contracts have been handed out since March. It appears that government contract award notices must be published within thirty days, but some have remained secret for up to three months. A US$ 750k McKinsey contract was for advice on “the vision, purpose and narrative” of England’s testing programme, whilst Deloitte was appointed to manage PPE procurement but was criticised for delays in providing kit and other administrative errors. PwC did well obtaining eleven separate contracts, worth US$ 28 million, including advice to the British Business Bank on its business interruption loan scheme; PA Consulting received four contracts, totalling US$ 24 million, mainly for advising on the Ventilator Challenge project, whilst MullenLowe was the recipient of a US$ 21 million advertising campaign. Leaving the best to last was Public First which “has been awarded (three) contracts (worth over US$ 1.3 million) because of its wealth of experience”, one of which was to help ministers “lock in the lessons of the Covid-19 crisis”. Two of its directors had previously worked for Michael Grove, a current minister in the Johnson cabinet.

Going against the trend in the retail sector, Lego is set to open 120 shops this year, eighty of which will be in China. The iconic company, with 612 global stores, believes that there is a future for bricks-and-mortar stores, despite the statistics pointing otherwise. The Danish toy store announced a 7% hike in H1 revenue to US$ 2.4 billion that led to an 11% hike in operating profit; over that period, visits to its website doubled to 100 million, including one million adult fans signing up. The company has noted that more adults are getting involved in building Lego kits, whilst sales of the more complicated – and more expensive – big Lego sets grew 250%, as families looked for big projects to make together during lockdown.

Another UK High Street casualty could be Moss Bros who have hired KPMG to prepare the suit-maker for a company voluntary arrangement (CVA). With the likes of major events such as Royal Ascot and large weddings – the crux of their revenue stream – having to be cancelled because of Covid-19; business at their 125 stores has been almost non-existent.  The chain, with 1k employees, was acquired by Menoshi Shina, who also owns Crew Clothing, for US$ 30 million in early March, who two weeks later tried unsuccessfully to cancel the sale after all non-essential retailers were ordered to close.

In a bid to reduce its cost base and amidst “high levels of uncertainty”, as to when trade will regain pre-pandemic volumes, Costa has said that 1.65k jobs are in danger and that the role of assistant store manager may be removed in its UK branches. Most of its outlets have reopened after the lockdown, but even with the government support, including VAT reductions, its August “eat out to help out” scheme and furlough, the coffee chain, which employs 16k in its wholly owned coffee shops, and 10.5k working in its franchise network, is struggling.

It is reported that Capita, is set to permanently close over a third of its UK offices and plans to end its leases on almost one hundred workplaces. The latest announcement could be considered another nail in the coffin of city centre economies, as the traditional office set ups have been turned on its head by Covid-19. It is ironic that Capita, a major government contractor, including the management of London congestion charges, chose the same day to announce these plans when the government prepares to launch an advertising campaign encouraging more people to return to workplaces. With a 45k workforce across the country, the company has noted that there will be “increased working from home, but they will still spend a significant amount of their time working from offices that are based in the heart of our local communities.” A recent BBC study found fifty major UK employers, including Lloyds, NatWest, Facebook, Fujitsu, HSBC and Twitter, had no plans to return all staff to the office full time and there are worries that city centres could easily become “ghost towns”.

Having already added 3k jobs to the UK economy, Amazon is planning to make it 10k by the end of the year, which will see the tech giant’s payroll numbers rise to 40k; the jobs will be full-time, paying at least US$ 12.50. During the upcoming festive season, the tech giant will hire 20k seasonal posts. Even before Covid-19, there was a clear trend indicating the rise in online-shopping and the slow demise of retail; the pandemic only highlighted the change, as the lockdown saw many High Street shops temporarily closed and massive expansion in online shopping. Indeed, July on-line sales were 50% higher than the February pre-pandemic levels. Tesco is creating even more positions than the US interloper, with 16k new permanent positions – it is estimated that it took the supermarket twenty years for online sales accounting for 9% of total turnover, and just twenty weeks to nearly double that to 16%. This is not all good news – notwithstanding the pandemic, retail jobs have dwindled by 106k over the past five years, during the time Amazon added 5k.

There were many analysts surprised to see that UK house prices rose to record highs last month, driven by the cut in stamp duty and pent up demand following the lifting of lockdown which saw the market effectively closed for April and May. Prices have bounced back 3.6% since June with August average prices reaching US$ 298k. This may be as good as the market gets because next month the government’s furlough scheme comes to a halt (and unemployment rates will head north), mortgage holidays are abating quickly and stamp duty will return to normal rates next April.

No surprise to see videoconferencing app Zoom’s Q2, to 31 July, revenue leapfrogging 355% to US$ 664 million, (beating market expectations of US$ 500 million), as profits more than doubled to US$ 186 million. Year on year customer growth expanded 458%. Shares hit US$ 325 – a record high – with the company revising its annual forecast to US$ 2.4 billion, up from US$ 1.8 billion. It managed to continue with its free services for many clients but more than doubled – to 1k – the number of high budget corporate clients that generated more than US$ 100k in revenue. However, the success has not come without its problems including some outages last week in many US schools, cases of hackers managing to hijack meetings and increased political scrutiny because it has 700 staff members, including most of its product development team, working out of China.

In 2017, Samsung heir Lee Jae-yong was convicted and sentenced to five years in prison for his role in using stock and accounting fraud to try to gain control of the Samsung Group, South Korea’s largest conglomerate. Although found guilty of separate charges over the deal including bribery, the prison sentence was later suspended. Now, the son of Lee Kun-hee, chairman of Samsung Group, (and the grandson of Samsung founder Lee Byung-chul), is facing fresh charges  over his role in the 2015 merger deal between Samsung C&T and Cheil Industries. The 2017 conviction involved him being accused of using Samsung to pay US$ 36 million to two non-profit foundations, operated by Choi Soon-sil, a friend of Ms Park, in exchange for political support; the fall-out from this resulted in a political and business scandal that led to the resignation and conviction of former President Park Geun-hye.

Warren Buffett has bought himself an early 90th birthday present by acquiring almost 5% stakes in five Japanese trading companies – in Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Company and Sumitomo Corporation- over the past twelve months. On Monday, these investments rose about 5% in Tokyo trading to equate to US$ 6.0 billion. His company, Berkshire Hathaway, valued at US$ 521 billion, seems to be currently focussing on the commodities sector, as seen by a July US$ 4 billion agreement to purchase most of Dominion Energy’s natural gas pipeline and storage assets in July. On most global markets, including Japan’s benchmark Topix index, falling commodity prices have seen valuations in the sector lower than the broader market, whilst offering relatively higher dividends. The nonagenarian seems to be betting against the market trend as, so far this year, foreign investors have withdrawn a net US$ 43 billion from the Tokyo bourse.

Because of ailing health, Shinzo Abe is to step down as Japan’s PM, a position he has held since 2012 that has made him the country’s longest-serving leader; ill health also caused the 65-year old to resign as prime minister in 2007. His decision to leave, with one year still remaining, was taken to avoid a political vacuum as Japan copes with the impact of Covid-19 and its economic fall-out. The prime minister was born into a Japanese political dynasty – his grandfather, Nobusuke Kishi, was a former leader, as was his great uncle, Eisaku Sato, (who was the country’s longest serving prime minister before his record of 2,798 days from 1964 to 1972 was broken), whilst his father, Shintaro Abe, was a former foreign minister. The front runner to take over as the country’s new prime minister is Yoshilide Suga.

Even before the advent of Covid-19, the Indian economy was showing signs of distress, including growth dipping to a six-year low of 4.7%, shrinking demand, debt-ridden banks and unemployment at a forty-five year high. Now its economy has witnessed its worst slump, since the country started releasing quarterly data in 1996, with Q2 figures contracting 23.9%, driven by a severe lockdown which brought economic activity to an almost standstill; it is inevitable that the economy will fall into recession by the end of the month – for the first time in forty years. (Two successive quarters of contraction lead to a technical recession). Despite posting 78.8k new cases on Sunday – and 3.6 million in total – it seems that the country has had to reopen for business; if not, the economic consequences would be a lot more damaging than the horrendous Q2 figures. Every segment of the economy – apart from agriculture which posted 3.4% growth – showed sharp contractions and it seems that the bad news will continue into Q3 because consumer demand, which contributes 60% of India’s GDP, will remain moribund, as much of the country will try and stay indoors whenever possible. The Modi government already has its own liquidity problems as public expenditure is heading north, whilst tax revenues are drying up so any further stimulus packages will have to be limited.

After four days of cyber-attacks, resulting in the Friday closure of its stock exchange, due to so-called “distributed denial of service” (DDoS) attacks, the New Zealand cyber-security organisation CertNZ has been called in to investigate. The bourse, with a near record high market of US$ 135 billion, confirmed its networks had crashed due to the cyber-attacks, which originated overseas; the modus operandi of such attacks is to flood the website with huge amounts of requests until it crashes.

Driven by a desperate July VAT rate cut by the Merkel administration, as it tried to stimulate its Covid 19 – ravaged economy, Germany’ annual consumer price index fell for the first time since May 2016; it fell 0.1%, year on year, having stagnated a month earlier in July. This figure is well short of the ECB’s target of keeping inflation close to but below 2% in the euro zone.

A report from Australia’s Banking Code Compliance Committee, created by the banking industry in the wake of a scathing royal commission into the sector, has concluded nearly 21k breaches of the new code had occurred within the six-month period to December 2019. The authority, which is not legally binding, also noted that 4.4 million customers were affected by bad behaviour or poor standards by the financial sector and that there had been 219 breaches involving deceased people being knowingly charged fees by banks. 72% of the reported cases involved just two (unnamed) banks and the toothless watchdog did not apply any of the limited powers it holds to sanction banks – enforced staff training, referring issues to the Australian Securities and Investments Commission or insisting on client repayment. The committee concluded that it was obvious that some of the banks were not taking reporting seriously, adding there was “substantial room for improvement”. Until they do it would appear that many banks will continue to take some of their customers for a ride and fail to engage with customers in a “fair, reasonable and ethical manner”.

Just as overseas investors seem to favour UAE banks, when investing in the local bourses, so do Australians who have more money invested in bank stocks than any other sector, either directly or indirectly, in the local market. The share price for NAB, ANZ and Westpac are all still around 40% below their February highs, whilst CBA has clawed back more ground and is down around 20%; although heading in the right direction, these increases are not as much as the rest of the market. Current conditions of record low interest rates and central bank stimulus both locally and globally have been supporting a rally on equity markets.

However, next month, the Morrison government will start withdrawing the JobKeeper payment and other measures that will see the federal government turning down the money tap so that instead of US$ 10.1 billion being pumped into households and businesses every month, the figure will now be US$ 2.2 billion. On top of that, the moratoria’ winding back of loan repayments, rent and evictions, as well as a marked increase in unemployment, will result in more trouble for the Australian economy – and with it the country’s banks’ turnover and profits. With borrowers’ confidence battered, despite the low rates and attractive offers, credit growth will slow and banks’ revenue streams will further dry because of net interest margins falling – as they are all vying for the same business in a competitive market – and many ditching credit cards to debit cards is further bad news for the banks.

Last week’s Federal Reserve’s decision to allow inflation to run above 2% in the future will have repercussions for Australians, starting with the currency. The dollar has risen by more than a third since its March nadir of US$ 0.55 and is likely to move higher (but at a slower rate) in the coming weeks from its current US$ 0.73 mark to settle by the end of the year, just shy of US$ 0.80. A strong greenback makes Australian exports more expensive and imports cheaper. The fact that it makes overseas holidays cheaper or makes inbound tourism more expensive, and less attractive to an overseas visitor, is currently irrelevant because the country is as good as isolated. The Fed decision on future inflation policy future is another reason for US equity prices to move higher and, the knock-on effect will be felt globally, including Australia. Furthermore, low rates will see many investors preferring to put money into the stock markets rather than historically low returns from US bond and money markets. Higher US market valuations will also be directly beneficial for Australian pension funds with exposure to US shares. The fact that the Fed is to keep interest rates lower for longer to encourage inflation to lift above 2% also has implications for Australia’s Reserve Bank which will have another reason to keep local rates at nearly zero. This will make borrowing costs low for probably at least three years – another positive indicator for the housing market.

Even without the onset of Covid-19, there was every likelihood that Australia would fall into recession this year, having already contracted 0.3% in the first quarter of the calendar year. At the start of 2020, an extreme bush fire season ravaged more than twelve million hectares –  bringing tourism to its knees and thousands of small businesses losing months of essential seasonal revenue – and trade problems with China saw the economy beginning to struggle. Now with a 7.0% decline in the June quarter – the biggest fall since records began back in 1959 – Australia has plunged into its first recession since 1990, as it suffers the economic fallout from the coronavirus. However, the lucky country is doing better than most other advanced economies, including the UK, France, US and Japan, that have experienced bigger quarterly downturns of 20.4%, 13.8%, 9.5% and 7.6% respectively.

Late last week, the Federal Reserve indicated a roll out of an aggressive new strategy that aims to boost employment and let inflation rise higher for longer than in the past. Jerome Powell confirmed that the aim is to see inflation still average 2.0% – so if there is a period of inflation lower than 2%, the Fed would then make efforts to lift inflation “moderately above 2.0% for some time”, before considering a rise in interest rates.  The Fed is set to use the central bank’s “full range of tools” to achieve its goals of stable prices and a strong labour market. This policy change suggests that the Fed will continue with rates hovering around the zero level for the foreseeable future, with some forecasting little change until early 2024. That being the case, it could be time for some investors to consider debt financing, with the cost of borrowing at such low rates.

With its share value climbing 4% in Tuesday’s trading, Apple’s valuation of US$ 2.3 trillion surpassed the total valuation (just over US$ 2.0 trillion) of the one hundred companies listed on the FTSE 100. Only two weeks ago, the tech giant became the first US company to be valued at over US$ 2.0 trillion and its value has more than doubled since March. Like other tech stocks, demand for their goods/services during the pandemic has surged, with an increasing number of people relying on technology during the lockdown to work and shop from home. In contrast, the London bourse is full of banks, oil companies and various old-world stocks, most of which have been battered by the impact of Covid-19, and has only one real tech stock, Ocado, in the index. No wonder then that it is 22% lower since January, whereas the Nasdaq hit record highs on Tuesday, having jumped over 100% since its March lows.

There are many who feel that the time is fast approaching for the global bourses to take a dose of realism. This happened on Thursday with shares in the big five US tech firms shedding between 4% – 8% om the day’s trading, with the tech-heavy Nasdaq down 5%. Despite this, the values of many companies and assets have been magnified because of stimulus measures, including QE (quantitative easing), and historic low interest rates, from the majority of the global central banks. Over the past six months the Nasdaq-100 has risen 38.2% to 11,879 and YTD returns 36.69% higher. Last month, the tech gauge continued to climb, and its Price Earnings Ratio reached what some consider a dangerously high level – 36 – for the first time since 2004 and well above the ten-year average of 22. Just maybe, this represents a permanent change that the global markets are inexorably changing from the old to the new digital and on-line era. Time for All The Young Dudes!

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A Change Will Do You Good!

Posted on August 28, 2020 by howesdubai

A Change Will Do You Good!                                                            27 August 2020

A new CBRE report is relatively bullish on the Dubai property sector, indicating a rise in demand for villas and town houses, as many end-users are looking for more space, as well as enhanced amenities. Much of the demand is a result of Covid-19 when many had to work from – and stay at – home and have now recognised the benefits of more space and their own garden. The trend has also been helped by a greater supply of affordable priced housing, historically low mortgage rates and attractive packages. The report also pointed to a potential expansion in green housing developments, with end-users “increasingly motivated to reduce utility costs as they spend more time at home”.

Meanwhile, the emirate’s office market will continue to struggle, despite landlords offering incentives, such as rental deferrals, rent-free periods, lower headline rents, partial rent waivers and increased number of cheques. Rents vary according to location, whilst prices have remained stable in Q2, having fallen by around 4% in Q1, with occupancy at 84%. For example, according to Allsopp & Allsopp, the range of rents in JLT currently stands between US$11 – US$ 60; in Business Bay, the range is between US$ 16 – US$ 27 and in DIFC, US$ 41 – US$ 95. The only exception is Downtown where prices have dropped by up to 30% to an average US$ 35. The short-term future will continue to favour occupiers, with supply continuing to outstrip demand, not helped by the fact that working at home still continues to be favoured by many employees and the growing use of co-working space.

After a slow start to the decade, it seems that the number of new Dubai hotels will show a marked increase in the near future, ahead of the pandemic-delayed Dubai Expo. Analysts estimate that growth will return quicker to city hotels – as opposed to beachfront properties – as business visitors will ensure that the Mice (meetings, incentives, conferences and exhibitions) lead the growth in returning international travellers. A recent Messe Frankfurt study rated the emirate as the safest global location to host international events, with 77% of respondents viewing Dubai as the safest destination to attend exhibitions post-Covid. Colliers expects that, although 8k keys have been delayed this year, 26k rooms will be added to the country’s portfolio before the end of 2022, of which 8k will be added to Dubai’s hotel room tally before the end of next year. However, the days of 80% occupancy, witnessed in recent years, will take at least two years to recover and in the meantime, hotels will have to maintain occupancy rates hovering around 40% just to break even.

The first of forty-seven passenger pods have been installed at the world’s tallest observation wheel, ‘Ain Dubai’. The 250 mt Ferris wheel, located on Bluewaters island, dwarfs its international competition such as the 167 mt High Roller in Las Vegas and the soon to be built 190 mt New York Wheel, planned for Staten Island. Loosely translated as Dubai Eye, the attraction has been in development for several years and before the onset of Covid-10 – and the postponement of Expo 2020 – it was scheduled to open in Q4.

For the sixth month in a row, September UAE fuel prices have again been left unaltered since April. Special 95 petrol will still retail at US$ 0.490 per litre and diesel at US$ 0.561.  (Brent prices on 31 March and 27 August were US$ 26.35 and US$ 45.09 respectively, whilst at the beginning of the year, Special 95 was at US$0.578 with Brent trading at US$ 66.67).

An agreement between Emarat, whose chairman is the country’s energy minister Suhail Al Mazrouei, and Emirates District Cooling sees the state-owned petroleum distributor supplying liquefied petroleum gas to the firm’s entire residential, commercial and industrial portfolio. Dubai customers will be able to utilise an integrated, automated online portal and use contactless payments for delivery of their gas cylinders. It is estimated that Emarat, formed in 1999, has a 50% share of the emirate’s LPG distribution market.

In a move that will surely have a wider impact on the local economy, Nasdaq Dubai has signed an agreement with Hong Kong-based investment bank Zhongtai Financial International and a Beijing-based law firm Tian Tai. The three parties will encourage and support Chinese companies that wish to list on the Dubai bourse, as well as to assist them when it comes to other securities, such as bonds and real estate investment trusts. With the US tightening regulations for Chinese listed companies, and the spin-offs from the Belt and Road initiatives, this could see more Chinese money being invested not only in Dubai’s stock markets and property sector but also on a regional basis. Nasdaq already holds US$ 82.0 billion of US-dollar denominated debt listings, including nineteen debt issuances valued at US$ 11.3 billion from Chinese companies since 2014.

 The latest initiative from the Dubai Multi Commodities Centre, in association with India’s CropData Technology, sees an agricultural trading platform, connecting Indian farmers with UAE food companies. The agri-commodity trading and sourcing platform, known as Agriota, cuts out the middlemen and aims to boost food imports from the sub-continent. It will aid Indian farmers to deal directly with UAE companies and also boost UAE’s food security. The country imports 90% of its food and is targeting to increase local food production by 40%.

Last year, Jebel Ali Free Zone posted a 24% growth in food and agriculture trade and a 7% increase in its customer base which includes famous brands such as Alokozay, Bayara, Heinz, Hunter Foods, Nestle and Unilever. Jafza has a 1.57 million sq ft dedicated food and agriculture cluster, with 550 companies employing over 6k; it has also introduced a Halal Incubation Centre to encourage traders to launch their halal business in the emirate and the region. H1 saw Dubai’s external food trade volumes top nine million tonnes, representing US$ 8.7 billion in total, whereas Dubai’s food imports touched US$ 6.0 billion.

There was no surprise to see that the Manghat brothers, Prasanth and Promoth, have categorically denied any involvement in siphoning off millions of dirhams, from NMC Health and Finablr, as a report, commissioned by founder BR Shetty, seems to have concluded. The Manghats were both senior managers in the two entities; it is claimed that Prasanth, who was chief executive of NMC, “made payment transactions on the personal account of Mr Shetty at the Bank of Baroda, without having any authority or delegation on the account and sent transfer orders attributed to Mr Shetty”. A further claim made is that the then chief executive of Finablr, Promoth Manghat, and another employee, opened an account with a UAE bank using “a forged account opening form” in Mr Shetty’s name that gave them the authority to run the account. The biggest creditor, ADCB, has begun legal proceedings against Mr Shetty, who is apparently ensconced in India, whilst the Credit Europe Bank has filed a claim that has seen the DIFC issuing a global freezing order on Mr Shetty’s assets. It is estimated that the restructuring of NMC – covering the consultancy and legal costs of more than ten advisory firms – could reach US$ 140 million.

According to the latest Alvarez & Marsal report, the top ten UAE banks posted a 21.2% hike in Q2 net profits, driven by enhanced cost efficiency and a reduction in impairments. The professional services firm sees the banks focussing more on improving their efficacy in H1 and reducing their costs – hopefully not at the expense of their service levels. Because of a myriad of factors, including sound liquidity, strong capitalisation, low levels of non-performing loans and a bigger ratio of non-interest-bearing deposits, the banks are among the most profitable in the world.

Depa, has secured a US$ 55 million order, via its German unit Vedder, to fit out a superyacht. The Dubai-based company, listed on Nasdaq Dubai, has shown recent signs of improvement but still carries retained losses of US$ 148 million; its H1 loss of US$ 46 million was 18.8% lower than its deficit over the same period in 2019. Its assets as at 30 June were 7.9% lower at US$ 349 million.

The bourse opened on Monday 24 August and, 185 points (9.0%) higher the previous three weeks moved up a further 33 points (1.5%) on the week, closing on 2,269 by 27 August. Emaar Properties, US$ 0.09 higher the previous three weeks, closed up a further US$ 0.01 to US$ 0.80, whilst Arabtec, dumping US$ 0.10 the previous fortnight, lost a further US$ 0.03 to US$ 0.17. Thursday 27 August saw the market trading at 339 million shares, worth US$ 102 million, (compared to 336 million shares, at a value of US$ 85 million, on 20 August). 

By Thursday, 27 August, Brent, US$ 6.73 (17.6%) higher the previous six weeks nudged US$ 0.08 higher to US$ 45.09. Gold, having lost US$ 109 (5.3%) the previous week, shed a further US$ 27 (1.4%) to close on US$ 1,933, by Thursday 27 August.

Along with voluntary staff departures, American Airlines has announced a further 19k redundancies for October, when a government wage support scheme, worth US$ 5.8 billion to the airline, comes to an end. (Conditions of the government bailout barred airlines from making significant job cuts before 30 September). This would lead to the world’s largest airline with a 100k workforce, 30% lower than it was pre Covid-19.  It expects that in Q4 it will be flying at 50% capacity, whilst international flights will be 25% of last year’s returns. Global carriers are all in the same boat with the likes of United, Lufthansa and BA warning of cuts of up to 36k, 22k and 12k respectively. IATA has recently estimated that the pandemic will result in global airline losses of US$ 84 billion in 2020.

Following an 80% reduction in passenger numbers, Gatwick Airport will cut 25% (600) of its workforce; currently, 75% of staff are on the government’s furlough scheme. Running at about 20% of its normal August capacity – and with only the North Terminal open – the airport was already struggling before Covid-19 and had already announced the loss of 200 jobs in March and had taken out a US$ 390 million bank loan.

STA Travel has become the latest UK travel firm to fall victim to the Covid-19 pandemic and has stopped trading, with the loss of 500 jobs and closure of fifty outlets. Its Swiss-based parent company noted that the pandemic had “brought the travel industry to a standstill”. The Association of British Travel Agents (ABTA) indicated that the majority of flights and holidays sold by STA would be protected by the Atol scheme. Founded in 1971 as Student Travel Australia, and later Student Travel Association, STA Travel specialised in long-haul, adventure and gap year travel – a sector that has been battered by complete lockdowns in Australia and New Zealand. 

In the UK, with job losses already nearing 40k, the travel industry has called for further government support to stem job losses, which will worsen significantly when the furlough scheme is lifted in October. The travel industry trade body ABTA estimates that about 65% of travel firms have had to make redundancies and noted that many of them had not yet restarted after the lockdown, with cruise firms and school travel operators still closed for business. At the macro level, UN Secretary-General Antonio Guterres has warned that as many as 100 million direct tourism jobs are at risk, and that global GDP could fall by 2.8%, as export revenues from tourism fall.

Rolls-Royce has announced a record H1 pre-tax loss of US$ 7.3 billion, caused by a marked slump in demand for air travel. Although it has an operating loss of US$ 2.2 billion it lost a further US$ 3.3 billion on its currency hedging programme and US$ 1.8 billion on other restructuring costs. Furthermore, the engineering giant confirmed the closure of both its Lancashire and Nottinghamshire factories, with the possible loss of 2k jobs, as it consolidates UK production at its Derby factory. Its latest restructuring program, that started before the onset of the pandemic, sees RR reducing the number of its global sites from eleven to six. This year, the company expected to deliver 500 engines but now that number has been halved, so it has had no alternative but sell assets to maintain its liquidity. Consequently, it plans to raise about US$ 2.6 billion by divesting its Spanish unit ITP Aero and other assets. However, this amount is not enough to satisfy its cash needs so it is highly likely that a share issue is on the cards and maybe some government support. More worryingly, was the forecast that it did not expect demand to return to pre-Covid levels until 2025! Rolls Royce has still got to come to terms with the impact of Covid-19 has had on its business as well as solving technical problems, with design glitches on the Trent 1000 engine and cracks in compressor blades in a “small number” of its XWB-84 engines.

Mike Ashley’s Frasers Group has paid US$ 49 million to his long-term nemesis Dave Whelan to acquire 46 leisure clubs and 31 retail outlets from DW Sports Fitness. The deal will see 54% of the 1.7k payroll numbers saved, as DW had owned 75 retail stores and 73 gyms before going bust earlier in the month. Fraser’s also owns Lillywhites, Evans Cycles and House of Fraser and will add its new acquisition to complement its own gym and fitness club portfolio, under its Everlast brand. DW also owns the Fitness First gym chain which is unaffected by this administration.

Aimed at saving part of its struggling business, Pret A Manger is to slash 3k jobs, equivalent to over a third of its workforce; most of the jobs will go across its outlets, with ninety being retrenched from its support centre. Earlier in the year, the sandwich chain announced that it would close thirty of its 367 stores. With many of its customer base working from home during the lockdown, demand plummeted and even now, trade is 60% lower than it was in 2019, with its boss Pano Christou saying “the pandemic has taken away almost a decade of growth at Pret”. Its weekly August sales, at almost US$ 7 million, have been less than they were in 2010, when the chain was considerably smaller. (About 80% of hospitality firms stopped trading in April and 1.4 million workers were furloughed).

A little good employment news for a change from the UK, with Tesco creating an additional 16k new jobs after lockdown led to “exceptional growth” in its online business; these will include 10k to pick customer orders from shelves and 3k delivery drivers. The supermarket chain estimates that online numbers have jumped 67% to 1.5 million from the start of the pandemic at which time only 9% of sales were online – now it stands at 16% – and growing rapidly with such sales expected to contribute US$ 7.2 billion to Tesco’s top line by the end of 2020.

Scotland’s leading producer of farmed salmon has not only had to deal with the ramifications of Covid-19 but also fish disease, higher costs and the escape of 50k fish when the farm’s pens broke free from their moorings in the recent Storm Ellen. Now its Norwegian parent company, Mowi, has warned of a 10% reduction in its 14.5k global headcount, of which 800 work in Scotland. Management is particularly concerned with its Scottish operations, (which accounted for 40% of the country’s output of 166k tonnes), about disease and sea lice and has reported that it expects production to be 12% lower than originally forecast, due to “biological challenges”. Q2 earnings per kilo of harvested Scottish salmon have declined by over 65%, compared to the same period in 2019, whilst the spot price of benchmark Norwegian salmon has more than halved to under US$ 11 per kg since the start of the year.

US Secretary of State Mike Pompeo has taken a swipe at HSBC for apparently not allowing executives at Next Media, a pro-democracy media group, to access their bank accounts and accusing it of abetting China’s “political repression” in Hong Kong. Part owner of the media firm, Jimmy Lai, was arrested the other week under the territory’s controversial new security law. The last time the US administrator criticised China was in July when he was not happy when the bank gave its backing to the security law and accused China of “browberating” the bank and using “coercive bully tactics”. This time, he said the bank was “maintaining accounts for individuals who have been sanctioned for denying freedom for Hong Kongers, while shutting accounts for those seeking freedom”.

Ant, 33% owned by Alibaba, is planning to have a dual share listing on both the Hong Kong and Shanghai bourses that could raise a record US$ 30 billion, (higher than the US$ 29 billion raised at Aramco’s IPO last year) which would value the company at around US$ 300 billion; this would see its value higher than many of the US banks. Largely unheard of in the rest of the world, it owns Alipay, China’s dominant mobile payments business.  To put this in perspective it is estimated that Ant, along with TenCent, processes US$ 28.8 trillion of payments and transfers annually – this represents more than that of MasterCard and Visa combined.

With banning threats by the US President due to come into effect mid-September, TikTok’s chief executive, Kevin Mayer, has quit his job having only joined the Chinese tech firm in June from his Disney role as head of streaming services. Having been accused of being a national security threat, TikTok was given ninety days to be sold to an American firm or face a national ban. His surprise appointment seemed to indicate that the Chinese company wanted an American front who would probably be able to discuss matters with the Trump administration, better than a Chinese chief executive, and further help TikTok’s entry into the US market. That strategy soon fell off the rails when it was realised that the intense pressure from the administration meant that Donald Trump wanted the Chinese out one way or the other.  The two front runners to acquire TikTok, maybe with a value of US$ 30 billion, are Oracle and a Microsoft/Walmart venture.

The omnipotent tech giants continue to take governments for a ride, with Facebook the latest, making a mockery of French tax legislation, having agreed to pay the French government a paltry US$ 120 million in back taxes, going back to 2009. Just to add salt to the Gallic wounds, Facebook agreed to pay 2020 taxes of US$ 10 million – 50% higher than a year earlier – adding  that “we pay the taxes we owe in every market we operate.” The other three tech conglomerates – Amazon, Apple and Google – have previously reached similar agreements with the French tax authorities. Ironically, Mark Zuckerberg saidhe recognised the public’s frustration over the amount of tax paid by tech giants. Last year, France announced a new digital services tax  – being 3% of their French revenues – on multinational technology firms, but in January, the country said it would delay the tax until the end of 2020. This move upset the Trump administration which retaliated with US$ 2.4 billion worth of tariffs on French goods, including champagne and cheese, that were later withdrawn when the French tax was delayed.

Facebook royally pushed the UK’s face in the dirt by managing to pay only US$ 38 million in 2018 on record sales of US$ 2.2 billion. The Johnson administration has taken some belated action by levying a 2% Digital Services Tax in April. This involves any digital services operating in the UK having to pay the tax in connection to social media services, internet search engines and online marketplaces. This will remain in place until the OECD come up with a global agreement on how these behemoths are taxed on the global stage.

Victoria is bearing the brunt of the pandemic as the number of payroll jobs fell 2.8%, whilst July Australian payroll jobs only dipped 1%. The state entered stage 3 coronavirus restrictions earlier in the month whilst the state capital moved one notch higher to stage 4. Many are of the opinion that the situation will deteriorate as research indicated that by mid-April job losses had hit their peak but bounced back by the end of June, as 39% of jobs lost then had bounced back in line with restrictions starting in March and largely out of them in May. The trouble started again in July before a hard lockdown was introduced in early August, by which time the 39% mark in June had fallen to 12% in August. The extent of scarring to the economy can be gleaned from the 8% fall in Victoria’s payroll (and 5% for the whole country) and that payroll jobs worked by people aged under 20 increased 1.5% nationally but decreased 5.6% in Victoria, driven by restrictions on sectors like retail and hospitality that employ a lot of young people.

NAB’s latest forecast has forecast a 5.7% decline in the national economy this year and although a 3% rise is expected in 2021, it will be less than 1% in year-average terms; it will be early 2023 before the economy returns to its pre-Covid-19 levels. Unemployment will remain a problem for some time, expected to peak at 9.6% early next year and will still be around 7.6% by the end of 2022. The triple whammy of rising supply, slowing population growth and reduced consumer spending could result in house prices falling as much as 15%. Not surprisingly, commercial property especially retail and office space in the Sydney and Melbourne CBDs, will be hit hardest.

It is estimated that over the past three months, about 25% of Australian entities have reduced or cancelled their investment plans, mainly because of concerns relating to potential business uncertainty and future demand. Capex fell by 5.9% in the June quarter, after a 2.1% decline in the previous quarter, with annual contractions of 20% and 18% recorded in New South Wales and Victoria, respectively. The Bureau of Statistics Business Impacts of COVID-19 survey also found that small businesses (35%) were almost twice as likely as large businesses (18%) to be in severe financial strife and that a third of companies are expecting to struggle to meet future financial commitments.

It seems that the Chinese government is to investigate claims by its local wine makers that Australia is dumping its produce on the cheap in China and that the industry is being subsidised by the Australian government. These claims have been refuted by both Australian wine exporters and Chinese importers. Over the past four years, it is notedthat sales of Chinese wine in its home market have dipped from 75% to 50%; over the same period, exports of Australian wine grew more than six-fold from US$ 194 million to US$ 1.27 billion.

Lebanon is still reeling from the horrific 04 August explosion in Beirut, which killed at least 180 people and injured more than 6k. Before this disaster, it had seen its currency lose more than 80%, against the greenback, on the local black market, its issuer rating downgraded by Moody’s to C, its lowest grade, which is on par with Venezuela, and had defaulted on a March US$ 31 billion eurobond repayment. Now analysts, initially expecting a 15% contraction in the country’s GDP this year, has revised this to 24%. It has also released its July inflation rate, topping 112% (up from 89% the previous month), as prices for furnishings/household equipment/routine household maintenance items, clothing/footwear and non-alcoholic beverages skyrocketed by 517%, 409% and 336% respectively on an annualised basis. August figures will be even higher as the impact of the explosion will be felt in the market with prices set to rise even higher. It is hoped that things do not get much worse for Lebanon and that it works on rooting out endemic corruption, as well as introducing much needed political and financial reforms. Only then, will donors have the confidence to invest again in the country, with stability and confidence returning to put the past political and economic upheavals into the pages of history.

In a bid to shore up government funds, Prime Minister Narendra Modi has released plans to initiate an IPO for the sale of up to 15% of defence contractor Hindustan Aeronautics that could bring in US$ 680 million; retail investors will receive a 5% discount on the US$ 13.54 floor price; Wednesday’s closing price was US$ 15.93, a 17.6% premium. India is the world’s largest defence importer and now wants to boost local manufacturing including the Indian-made Tejas, a light combat aircraft, the Su-30MKI under licence from Russia’s Sukhoi, as well a medium lift helicopter and an unmanned aerial vehicle for the navy. Although India is the world’s third-biggest military spender, its defence forces are using largely obsolete equipment and weapons, whilst its air force of thirty-one squadrons of mainly Rafale fighters manufactured by Dassault Aviation is eleven squadrons down on actual requirements.

Following news that its economy contracted by a revised 9.7% in Q2,  and that the number of Covid-19 cases rose to 1.5k on Wednesday to a total of 238k cases, the Merkel administration has extended, by a year, ‘Kurzarbeit’, the scheme that tops up pay for workers, affected by the pandemic, as well as continuing short-term work subsidies (until 31 December 2021) and financial help for SMEs until the end of this year. It is estimated that the additional cost will be over US$ 11 billion. Other countries are still considering the way forward, but the UK has already indicated there will be no extension to its Coronavirus Job Retention Scheme, which allows firms to put workers on furlough without making them redundant, when it is finally closed in October.

UK government debt jumped to US$ 2.62 trillion (GBP 2 trillion) trillion for the first time as the Johnson administration ramped up spending to support the economy battered by the pandemic. The July figure was 11.3% higher – or US$ 298 billion – than a year earlier and the first time in sixty years that public debt has been above 100% of GDP. The past four months have witnessed the four highest borrowing months ever recorded, as YTD borrowing (for the four months from April) has topped US$ 197 billion and is close to the US$ 207 billion deficit recorded for the 12-month financial year to March 2010, the previous largest cash deficit in history. The simple explanation for this spending explosion is that government revenue (via tax) is well down, as people and businesses earn and spend less, at the same time as government spending has necessarily exploded with programmes such as the furlough scheme. The only good pointer for the government is that interest rates are at historic record lows, so that borrowing costs are low so that it is spending less on servicing its debts than had been forecast before the coronavirus crisis.

There is every likelihood that negotiators will not iron out a post-Brexit trade deal between the UK and the EU, with David Frost speaking of little progress being made, whilst his EU counterpart, Michel Barnier, not a friend of the UK,  indicating that he was “disappointed” and “concerned” about the lack of progress. The UK has made it clear that it will not extend talks if an agreement cannot be reached by the December deadline and if that were to happen then bi-lateral trade will be on WTO (World Trade Organisation) terms; this would result in UK goods being subject to tariffs until a free trade deal was introduced.

One of the major stumbling blocks is that the intransigent EU negotiators have been insisting that differences over state aid and fisheries have to be resolved before “substantive work can be done in any other area of the negotiation, including on legal texts”. It seems that the EU side find it difficult to believe that the UK wants to “ensure we regain sovereign control of our own laws, borders, and waters”. The Europeans are frustrated by what they see as the UK wanting the benefits of the single market, without paying the membership fee or signing up to its rules. The ex-French politician, who has been the EU’s chief negotiator with the UK since 2016, has also been adamant for a level-playing field approach – “a non-negotiable pre-condition to grant access to our market of 450 million citizens”; this should include sectors such as workers’ rights, environmental protection, taxation and state aid.

Although global stock markets are rocketing dangerously high, it seems that dividend pay-outs are heading in the other direction with more than US$ 108.1 billion (22.0%) being wiped off in Q2, to a total of US$ 382.2 billion. Every region in the world posted falls, with the exception of North America, with the worst affected being the UK and Europe. For example, the UK and France saw dividend payments slump 54.1% to US$ 15.6 billion and 65.4% to US$ 13.3 billion respectively. Many global conglomerates – including UK’s Royal Dutch Shell, Boeing and Australia’s Westpac – have either suspended, axed or cut dividends to ramp up their balance sheets.

The dividend blows for UK investors and retirement savers have been increasing in recent times and will continue to worsen for the foreseeable future. BP – for so long the darling of the pension funds by traditionally generating the largest dividend payment of all FTSE 100 companies – has halved this year’s payment, whilst Shell cut theirs for the first time since WW2; on top of that, UK banks have suspended their pay-outs for this year.  Historically, these two sectors, oil and banking, make up 38% of the market yield and if they are taken out of the equation, then the historic average yield of 6% dips to below 4%. Some analysts predict a 40% decline in the total amount of pay-outs by UK firms this year. Those investors that have relied on dividends for most of their income (and want to continue with that sort of investment) would be better advised to start looking and investing in companies with strong balance sheets and low valuations. For some investors, especially pensioners who have relied on ‘traditional’ dividends for their annual income, A Change Will Do You Good!

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That’s What Friends Are For!

Posted on August 21, 2020 by howesdubai

That’s What Friends Are For                                                                        20 August 2020

Not seen for more than a decade, rent to own schemes have returned to the Dubai property sector, as Dubai South Properties announce such a plan for new tenants of The Pulse in its Residential District. The scheme has easy exit terms and there is no need to actually buy, but renters are allowed to make quarterly payments towards their unit, while living in it, which will contribute towards full ownership after a period of ten years. There is no doubt that there will be many potential first-time buyers in Dubai keen on owning their own property, without the need of any major up-front investments which can be as high as 30% of the value of the property.

Having reviewed ‘the fifty economic plan’, outlining the country’s fiscal policy for the next ten years, HH Sheikh Mohammed bin Rashid Al Maktoum is optimistic about the country’s future and confident that the UAE is striving  to have the fastest-recovering economy in the world, as well as being the most stable and diversified in the long term. The Dubai Ruler was chairing a meeting with a Ministry of Economy’s task force to review their post Covid-19 plans for the next decade, and key outcomes for the national economy by 2030. HH Sheikh Mohammed indicated that the federal government is promoting a drive towards an economy post-Covid-19 which is based on knowledge, smart technology and advanced sciences, adding that the cornerstone of this new economy is passionate talent. The strategy, launched last December, is focussed on several pillars – integrated economy, SMEs and entrepreneurship, tourism, foreign direct investment (FDI), doubling exports and attracting talents.

A week after the world was shocked to see a peace accord signed between the UAE and Israel, UAE’s Apex National Investment and TeraGroup have announced a commercial agreement to develop research and studies on Covid-19. This is apparently the first of hopefully a raft of trade, economy and effective partnerships between the Emirati and Israeli business sectors which will inevitably boost the economies of both countries, including energy, tourism, technology and precious metals.

With the cruise season fast approaching, Dubai is taking steps to ensure that it is ready to meet the challenge, arising from Covid-19, by assuring cruise tourists of the highest global safety standards at every stage of their travel journey from the time they disembark at Port Rashid to the point they depart from the cruise terminals; a draft safety protocol for the cruise industry is currently being drawn up by Dubai Tourism.

Global ports operator DP World saw H1 profit plummet 58.5%, on a reported basis, or by 34.5%, excluding a 2019 land sale to Emaar Properties, although revenue was 17.7% higher at US$ 4.1 billion, with the main driver being acquisitions made over the previous twelve months.  Cash from operating activities nudged marginally higher to US$ 1.1 billion. At the beginning of the year, DP World issued a US$ 1.0 billion capex guidance for 2020 – with investments planned in the UAE, London Gateway, Berbera in Somaliland, Sokhna in Egypt and Caucedo in the Dominican Republic. To date, it has it invested US$ 552 million across the existing portfolio.

Majid Al Futtaim Group posted a 27% decline in its H1 Ebitda (earnings before interest, tax, depreciation and amortisation) figure at US$ 436 million, as revenue slipped 3% to US$ 4.7 billion. The multi-faceted Dubai-based conglomerate, with major interests in shopping malls, real estate, retail and leisure sectors, tried to lessen the negative economic impact by reducing its cost base and focusing on digital transformation. Despite the economic environment, MAF is continuing with its expansion plans, including the openings, later in the year, of Mall of Oman in Muscat and City Centre Al Zahia in Sharjah as well as fifty-five new VOX Cinemas screens. Management have noted that ‘the recovery is a bit faster than expected,” but do not see a full economic recovery until the end of Q2 2021, dependent on the availability of an effective vaccine.

Of its five divisions, four – Properties, Malls, Hotels, (a 41% fall in occupancy rates) and Ventures (with a revenue drop of 46% to US$ 188 million) – posted declines, whilst retail revenue came in 4.0% higher at US$ 3.7 billion, with Ebitda growing 18% to US$ 193 million. Its Carrefour franchises posted a 263% jump in on-line sales, as it opened five physical stores and three new fulfilment centres in H1.

Driven by a 12% decline in H1 revenue to US$ 134 million, payments processor Network International swung to a first-half loss of US$ 150k, compared to a US$ 16 million profit over the same period in 2019. Its revenue streams in the ME and Africa fell 15.3% and 10.5%, year on year, caused by the usual Covid-19 suspects of movement restrictions along with reductions in domestic and tourism-related consumer spending. As a direct consequence of the pandemic, capital expenditure of US$ 40 million, including its entry into the Saudi Arabian market, was put on hold in April in a “prudent measure to protect” its cash flows; it has also introduced a hiring freeze and will cut discretionary spending. However, it did sign a US$ 288 million agreement last month to take over DPO Group, an African online commerce platform. Network International posted a 61% hike in e-commerce volumes in July, whilst Q2 volumes were 45% higher.

A JV between Emaar Entertainment and Abu Dhabi-based developer Eagle Hills is to develop an aquarium and underwater zoo at its 200k sq mt Marassi Galleria shopping mall, with 560 outlets, in Bahrain; no financial details were readily available. It will feature a 20 ft long “digital tunnel”, with interactive digital exhibits, and also house four different ecological zones – the ‘Rainforest’, the ‘Ocean Trench’, the ‘Jellyfish’ and the ‘Reef Zone’. Marassi Galleria mall forms part of 875,000 square metre Marassi Al Bahrain development, a joint venture project between Eagle Hills and Bahrain’s Diyar Al Muharraq that was launched in 2016. The waterfront site includes 6k residential apartments, 245k sq mt of retail space and two hotels. Emaar Entertainment manages facilities including Reel cinemas, Dubai Ice Rink, Dubai Aquarium and underwater zoo and KidZania. Mohammed Alabbar of Emaar is also chairman of Eagle Hills, whose chief executive is Low Ping.

Bahrain-based., but DFM-listed, GFH financial group posted a massive 69.4% slump in H1 profit to just US$ 15 million, with revenue slipping 10.4% to US$ 147 million; total expenses moved 10.0% high at US$ 126 million, mainly attributable to a US$ 500 million Sukuk issue to shore up the investment bank’s balance sheet. In H1, total assets expanded 3.1% to US$ 6.1 billion, whilst earnings per share dropped 69.0% to US$ 0.45 because the Covid-19 pandemic resulted in “modification losses, commercial banking restructuring activities, recognition of fair value losses and foreign currency translation differences”.

There is not too much to say when a company loses 94.4% of its revenue stream and this is what has happened to DXB Entertainments in Q2, after the theme park was closed as from 15 March.  The company, 52% owned by Meraas Leisure and Entertainment, posted revenue and loss figures of US$ 1.7 million (down from Q2 2019’s US$ 30 million) and by 11.0% to US$ 70 million. H1 visitor numbers dropped 57% to 596k, as revenue dipped 58% to US$ 29 million, and losses widened by 69% to US$ 236 million, which included a one-off, non-cash US$ 107 million impairment charge related to the pandemic. The theme park will reopen on 23 September and, with major upgrades during the six-month closure, guests will see a revitalised facility, including twelve new rides.

Embattled Union Properties posted a 20.4% decline in Q2 revenue to US$ 23 million, as it narrowed its net loss by 54.0% to US$ 11 million, driven by “a drastic cost cutting effort, including a reduction of the group’s administrative and operational expenses”. However, its H1 loss almost doubled to US$ 44 million, as revenue dipped 5.7% to US$ 53 million, although administrative and operational costs fell by about 24.2% to US$ 16 million. In H1, the developer was hit by a US$ 20 million loss on the value of investments held and a US$ 5 million loss on the disposal of investment properties.

As part of its strategy to erase accumulated losses of US$ 627 million, Union Properties is planning to list three of its subsidiaries – ServeU, (a facilities management business), The FitOut  (specialising in interior fit-out to offices, hotels and restaurant), and Dubai Autodrome – on the Dubai Financial Market. Dubai Autodrome is the first multi-purpose motorsports and entertainment facility located in Motor City. To date, the developer has built 60k units in Dubai and is planning a new project – Motor City Hills – with 195 villas, 490 town houses and six commercial land plots. (Who knew that Dubai had so many hills?).

Arabtec posted a net loss of US$ 215 million in H1, (compared to a US$ 16 million profit over the same period in 2019), with revenue 28% lower at US$ 823 million, attributing the loss mainly to “limited liquidity in the real estate and construction sector”. Cash flow was impacted by delays in the settlement of outstanding claims, increased costs and progress on projects being slowed down by the impact of Covid-19. The contractor’s other core businesses – Target Engineering, Arabtec Engineering Services and Efeco – remained profitable. The company is hoping for a quick solution to its on-going problems that sees its liabilities of US$ 2.76 billion greater than its assets of US$ 2.67 billion, with it owing the banks US$ 490 million and creditors US$ 1.444 billion. Only three years ago, Arabtec recapitalised that saw a reduction in the number of shares to clear US$ 1.25 billion of losses and a US$ 409 million fresh equity boost, via a rights issue. The developer will continue with its restructuring plans that aim to boost liquidity, cut costs, clear legacy projects, pursue legal claims to “secure and recover the group’s contractual rights” and to divest its non-core assets.

The bourse opened on Sunday 16 August and, 104 points (5.1%) higher the previous fortnight moved up a further 81 points (3.8%) on the week, closing on 2,236 by 20 August. Emaar Properties, US$ 0.06 higher the previous fortnight, closed up a further US$ 0.03 to US$ 0.79, whilst Arabtec, shedding US$ 0.04 the previous week, lost a further US$ 0.06 to US$ 0.20. Thursday 20 August saw the market trading at 336 million shares, worth US$ 85 million, (compared to 330 million shares, at a value of US$ 123 million, on 13 August). 

By Thursday, 20 August, Brent, US$ 5.47 (17.6%) higher the previous five weeks nudged up US$ 0.05 to US$ 45.07. Gold, having lost US$ 109 (5.3%) the previous week, shed US$ 10 (0.5%) on the week to close on US$ 1,940 by Thursday 20 August.  

Both Jaguar Land Rover and Tata Steel Bailout will have to seek private funding now that negotiations with the Johnson administration have broken down. The government decided that both companies – owned by the Indian conglomerate Tata Group – did not qualify for taxpayer support through its bailout plan, titled “Project Birch” which was introduced, by Chancellor Rishi Sunak, to rescue companies that are seen as strategically important. There are reports that the main stumbling block to any progress was the imposition of strict conditions on any lending.

Marks & Spencer is cutting a further 7k  jobs (about 9% of its payroll) over the next three months, noting there had been a “material shift in trade”, since the onset of Covid-19; in-store sales of clothing and home goods were “well below” 2019 levels, down 29.9% in the eight weeks since shops reopened.  Online and home deliveries headed in the other direction, with online surging 39.2%, compared to store sales tanking 47.9%. It seems that working practices during the pandemic showed that staff could work “more flexibly and productively”, multi-tasking and moving between food, clothing and home departments.

Supermarket chain Morrisons and Amazon are trialling a same day delivery scheme in Leeds, allowing its customers to get their shopping requirements from the tech giant for the first time; people have to an Amazon Prime subscription to benefit from the service and will have an option to book two-hour slots for same-day delivery. Currently, Morrisons operates a grocery delivery business through its own website, using Deliveroo and Ocado, but an Amazon deal would put its online platform on a different level. For Amazon, it is another step towards the tech giant’s target to serve millions of UK shoppers by the end of the year in a sector that has more than doubled during the pandemic, with many grocery chains struggling to keep up with demand.

Pizza Express is to close 16% of its UK restaurants to bring its total outlets to 381. The chain has taken this step, that could see the loss of 1.1k jobs, (almost 11% of the current workforce), to reduce its massive rental costs and “to safeguard the chain for the long term”. Pizza Express, majority owned by Chinese firm Hony Capital, noted that most of its restaurants had been profitable over the past three years, although the revenue stream had been slowing.

Since it came out of administration in 2018, House of Fraser has shut ten of its fifty-nine stores and is now expecting more closures. The number of shops to close will be dependent on current rental negotiations between the new administrators and landlords. The chain, part of Mike Ashley’s Frasers Group that owns Sport Direct, expects more job losses all over the High Street. Its annual pre-tax profits were 20% lower at US$ 186 million, despite a 6.9% hike in revenue to US$ 5.2 billion, driven by acquisitions.

After going into administration and closing its remaining 79 UK outlets, baby goods firm Mothercare has completed a ten-year franchise deal with Boots to sell its branded clothing and home and travel products at branches and online. Mothercare still has eight hundred global stores, operated by franchise partners, and has just signed a twenty-year deal with Kuwait’s Alshaya Group, which operates stores in Russia and ten ME countries.

According to Takeaway.com’s founder, Jitse Groen, Just Eat Takeaway, plans to end gig working across Europe that will see staff getting benefits and more workplace protection. This year, the company became the biggest food delivery, company outside China, when it completed a US$ 7.6 billion deal for UK based Just Eat in January and a US$ 9.6 billion acquisition of its US rival Grubhub. In its three leading European markets – the UK, Germany and the Netherlands – H1 orders jumped 34% to 149 million, compared with the same period in 2019.

Having been appointed the new Walt Disney chief executive earlier in the year, Bob Chapek has wasted no time to make his mark to transform the world’s largest entertainment company. He has already scrapped twenty foreign TV channels, closed down a musical version of the animated film Frozen, abandoned a chain of Chinese language schools and scaled back a US$ 1 billion resort-technology project; 100k workers have been furloughed. A consequence of the pandemic is the need to cut costs, as lockdown conditions have seen Disney theme parks cruise ships generating no turnover and a marked slowdown in their TV (inc ESPN and ABC)/movie businesses, resulting in a 42% slump in revenue; it also took a US$ 4.9 billion impairment charge. In a bold move, the new CE is planning to remove the Disney Channel TV networks from pay-tv systems, operated by Virgin Media and Sky in the UK, and to put the programming on the new Disney+ streaming service instead, using the Star brand internationally.

Apple has become the first US company to have a market value in excess of US$ 2 trillion in mid-morning trading yesterday, Wednesday 19 August, as its share price hit US$ 467.77. It took the tech giant just two years to double its value, after it became the world’s first trillion-dollar company in 2018. It was not the first global company to hit the US$ 2 trillion mark – this was the Saudi oil giant, Aramco, which reached this figure when it listed its shares last December; since then, its value has eased to US$ 1.8 trillion.

Following Fortnite by-passing Apple, (who take a standard 30% cut of sales from its compulsory payment system), by letting players buy in-game currency at a lower rate if they bought direct from maker Epic Games – Apple removed the platform from its App Store. Epic retaliated by filing a legal complaint, with Apple arguing that Epic had taken the “unfortunate step of violating the App Store guidelines”. It is alleged that Apple effectively runs a monopoly in both deciding what apps can appear on iPhones and demanding that its own payment system is used. Epic confirmed that it is not seeking financial compensation but would pass on any savings to its millions of consumers and is more concerned “in seeking injunctive relief to allow fair competition in these two key markets”.

In his latest effort to pressurise China, the US President, using his security trump card, has given ByteDance ninety days to divest its US operations of its video-sharing app TikTok. The US company is in advanced talks with Bytedance to buy its North America, Australia and New Zealand operations. (Two other suiters appear to be Twitter and Oracle, with the California-based company working with a group of American investors, including General Atlantic and Sequoia Capital). Donald Trump has indicated that he would support this deal if the US government got a “substantial portion” of the proceeds. He has also authorised government agencies to crackdown on the Chinese-owned social media app and to allow them to inspect TikTok and ByteDance’s books and information systems to ensure the safety of personal data while the sale talks are ongoing.

Earlier in the year, Softbank’s Vision Fund posted record losses, partly attributable to writing down WeWork’s valuation by more than 90% to US$ 2.9 billion, from its US$ 47 billion peak in which it had invested more than US$ 10 billion. This week, the Japanese company has added further financing of US$ 1.1 billion, in the form of senior secured notes, to WeWork at a time when the co-working company is witnessing declining membership, (12% lower at 612k), amid the coronavirus pandemic; the New York-based company has available cash and unfunded cash commitments totalling  US$ 4.1 billion. Quarter on quarter, revenue was 19.8% down at US$ 882 million, but 9% higher than in Q2 2019, with 843 locations in 38 countries.

IATA’s latest forecast, amended by a further year, is that passenger traffic will not return to pre-Covid levels until 2024, as the recovery so far has been slower than originally expected, with falls in 2020 passenger numbers now at 55%, rather than the 46% figure forecast in April. The reasons behind the revised forecast include slower lifting of restrictions, with increased cases in several countries, weak consumer confidence and uncertainty over possible future retrenchments, along with a marked decline in business trips as companies cut costs. On top of these three problem reasons, the position has been made worse by an increasing number of countries imposing travel restrictions to curb the virus spread. Figures speak for themselves – on a yearly basis, passenger traffic in May and June tanked 91.0% and 85.5%, as June load factors of 57.6% were an all-time low for the month. IATA anticipates that the airline industry will lose US$ 84.3 billion this year, with revenue declining 50%.

Australia is probably typical of many advanced countries as it experiences a ‘buy now, pay later’ boom, at a time that sees credit cards on the decline, (with 400k personal credit card accounts closed since March); furthermore, RBA data points to US$ 43.0 billion having been wiped off national credit card debt over that time period. The problem is that compared to other financial services, the industry is seen as being under-regulated, with warnings that this modern-day lay-by service leaves the vulnerable at risk of spiralling into debt. The Covid-19 pandemic has acted as a catalyst for companies like Afterpay and Zip Co. Between them, they have about 5.4 million customers in the country, both have had immense growth since the onset of Covid-19 and both have seen share values increase eightfold since March. Australia’s watchdog, ASIC, is reviewing the sector where most models allow customers to pay off purchases in instalments and avoid fees if they pay on time. Afterpay has estimated that 85% of its revenue is generated from charging fees to its 55.4k merchants which range from 3% – 6%.

The Indian Prime Minister announced a US$ 1.46 trillion package in infrastructure projects to boost the sagging economy, battered by Covid-19. It seems that Narendra Modi is aiming to make India self-sufficient in manufacturing and to develop the country as a leading global supply chain location. At an event celebrating the country’s 73rd independence anniversary, the Indian leader also confirmed that three vaccines are in different phases of testing in the country and mass production will begin as soon as scientists give the green light.

The world’s third largest economy witnessed its Q2 GDP shrink by an unprecedented 27.8%, quarter on quarter. Japan had been struggling well before the onset pf Covid-19 – and had already fallen into a technical recession – but the pandemic has only exacerbated the problem. Although exports have fallen sharply, the main driver continues to be a severe decrease in domestic consumption, made worse by two events last October – a 10% sales tax hike and typhoon Hagibis. As with all other countries scarred by Covid-19 – consumers buy less, companies earn less, and governments are hit by the double whammy of less tax receipts and the need to spend more. There is a feeling that Japan should bounce back, as Prime Minister Shinzo Abe has already injected massive stimulus packages and restrictions started to be eased in late May – a little earlier than other G20 economies. One country that lifted restrictions earlier was China, the world’s second biggest economy, and now it is bearing the fruit of their action, posting a 3.2% Q2 growth.

If there is one lesson that Covid-19 has taught economists is that the world has been too dependent on China for its supplies. The country was the first to go into lockdown and, almost immediately, supply chains were cut off and access to raw materials and products non-existent. Very few companies had a plan ‘B’ – and were without an alternative supply chain – and Just in Time inventory finally met its match, with so many companies regretting the fact that there was not any surplus stock lying around in the stores. A recent US survey concluded that 95% of companies would diversify suppliers both in and out of China, whilst 87% of the companies surveyed still maintained that China is still one of their top three sourcing destinations.

Last week, the number of Americans claiming unemployment benefits had dropped to 971k and has now unexpectedly climbed back to 1.1 million, at the same time Donald Trump is facing mounting pressure over his handling of the health crisis. It seems that, as the recent jobs’ improvement has stalled, this could be as a consequence of the impact of virus-related rolling shutdowns that are beginning to spread around the country, as consumers limit their activity and spending. As the recovery stalls, Congress is split in bipartisan groups on the detail and value of the next relief package and no agreement has been reached after more than two weeks of bickering. Democrats are pushing for a further US$ 3 trillion in further spending, with the Republicans looking for a smaller stimulus package.

In the first fortnight of the UK’s ‘Eat Out to Help Out’, the scheme, which runs every Monday, Tuesday and Wednesday has been used more than 35 million times. In a bid to further support the battered hospitality sector, the government has set aside US$ 650 million to fund the scheme that offers customers, in a total of 85k registered restaurants, pubs and cafes, 50% off the price of their meal, up to a maximum of US$ 13. It has been estimated that these facilities are actually 27% fuller now than compared to the same periods in 2019.

There is a tendency in the global financial press to use the UK economy as a whipping boy but there is every chance that it could be a major error, as it will probably recover a lot quicker than most of its peers. Only last week, the headlines screamed that the UK had entered into a technical recession and the economy had contracted 20.4% in Q2 (April – June). Not many reports added that the economy had actually grown in May and June by 1.8% and 8.7% respectively. Latest data according to a July IHS Markit/CIPS survey indicate that businesses in the services and manufacturing sectors grew at the fastest rate in more than five years. At the same time, retail spending levels have already recovered to pre-pandemic levels, driven by online shopping and sales rising over 70%. It is estimated that the country has already reclaimed half of its Covid-19 related losses and that by the end of the year, it will have expanded by a further 20%, but even at this rate, it will take another twelve months to fully recover. One problem area could be in relation to employment, but the fear of massive job losses has receded somewhat, with spending and business confidence picking up.

There is a thin line when it comes to a conflict of interest and the old boys’ network that sometimes sees a too cosy relationship between government and big business. The latest is the case of Sajid Javid who left as the UK Chancellor of Exchequer in February and has now accepted a position, as senior adviser for Europe, the Middle East and Africa, with JP Morgan, a bank he first worked with in the 1990s. He is barred from sharing sensitive information he received as chancellor, whilst the bank has not disclosed his pay or hours but noted that the work would not interfere with his duties as an MP. That must be a relief to his Bromsgrove constituents! However, the bank is “looking forward to drawing upon his in-depth understanding of the business and economic environment to help shape our client strategy across Europe.”  The job has been approved by the UK’s Advisory Committee on Business Appointments (ACOBA), which oversees jobs for former ministers and top civil servants. (Over the past two years it has approved ten applications by former ministers to take on outside work). He joins an illustrious list of former politicians on the same advisory council gravy train including former Italian economy and finance minister Vittorio Grilli and former prime minister of Finland Esko Aho. Even Tony Blair took a post at the bank after leaving office and was reportedly paid US$ 2.6 million as a “senior global adviser”. In 2017, it was reported that the then ex-Chancellor George Osborne managed to secure six jobs, including US$ 850k a year plus shares for a job with BlackRock that required him to work four days a month. Life in the fast lane can be a little more rewarding than the US$ 110k MP’s basic salary but although it can provide a path to financial riches, there are questions as to the value of the extent of government lobbying, policy knowhow and insider knowledge. That’s What Friends Are For!

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It’s Not Over Yet!

Posted on August 14, 2020 by howesdubai

It’s Not Over Yet!                                                                              13 August 2020

The big news of the week sees the UAE and Israel signing a historic peace agreement – a deal that will normalise diplomatic relations between the two countries. A joint statement between the two countries – and the US – indicated that the “breakthrough will advance peace in the Middle East region”. The agreement will also see Israel stop further annexation of Palestinian territories and the two countries “agreed to cooperation and settling a roadmap towards establishing a bilateral relationship”. There is no doubt that collaboration between the two countries will also result in closer economic and security ties but there will be the inevitable problems along the way.

Q2’s Mo’asher report pointed to a strong July, with returns similar to pre-Covid levels of late February/early March, amid signs of a V-shaped recovery. The figures, released by the Dubai Land Department and Property Finder, noted June and Q2 transactions and values of 2.4k at US$ 1.3 billion and 5.6k, valued at US$ 3.0 billion, respectively – and this despite the fact that the sector was as good as closed for the whole of April and a good part of May. In Q2, 60% of transactions involved off plan sales, with the balance from the secondary market. There is market confidence that H2 will see growth in the sector. The index uses 2012 as the base year and in June, the quarter showed a marginal monthly decline to 1.113 but increases of 0.79%, quarter on quarter and a 15.3% jump since 2012; in June, the index value was US$ 289k, down 0.09% since January 2020. YTD, the index for villas/townhouses was 1.79% lower at US$ 444k and apartments up 0.58% to US$ 280k.

Further good news for some with mortgages was that the six-month and one-year EIBOR rates dipped this week to 0.699% and 0.941% from 01 January openings of 2.2% and 2.8% respectively. Three-monthly, monthly and weekly rates also fell to 0.46%, 0.26% and 0.15%.

According to Savills’ latest global report, Dubai’s H1 prime property market declined 3% which on a worldwide scale edged 0.5% lower and 0.8% for the year – the first time that this index has posted negative returns since 2008. With values averaging US$ 560 per sq ft, Dubai’s prime market continues its six-year plus downward trend, albeit at a reduced pace, and presents a buying opportunity, with comparatively high yields for investment grade properties on the international stage. With rates at historically record lows, recently relaxed loan-to-value norms and a slowdown in new project pipelines, there are indicators that the sector could well improve in H2. The Savills’ report noted that Seoul, (5.5%), Moscow and Berlin were the three cities with the biggest value increases, whilst Mumbai recorded the steepest H1 decline, with a 5.8% drop followed by Los Angeles, 4.7% lower, and the world’s most expensive city, Hong Kong, down 4.2%.

Amazon has expanded its 2019 Project Zero programme, which is focused on tackling counterfeiting, to seven new countries, including the UAE, bringing its total locations to seventeen countries. Its main aim is to ensure that all goods traded through Amazon are authentic and not fake products. The tech company, having spent US$ 500 million last year to attain its target, confirmed that “as a result of our efforts, 99.9% of all products, viewed by customers on Amazon, have not received a valid counterfeit complaint.” It is estimated that the amount of global counterfeiting worldwide will top a staggering US$ 1.82 trillion by the end of the 2020. Earlier in the year, US House of Representatives passed a bill that will make online marketplaces responsible if customers buy fake goods on their platforms.

In Dubai, July’s IHS Markit Purchasing Managers’ Index returned to positivity with a 1.7 rise to 51.7, driven by a solid increase in new work, as restrictions are being lifted and green shoots of a recovery appearing. This was the first expansion in the emirate’s non-oil private sector in five months. Consumer demand improved and additional sales resulted from the resumption of international flights, the reopening of tourist destinations and enhanced government support; in July, it introduced a further US$ 409 million economic stimulus package, bringing the total support given to businesses to US$ 1.7 billion. Although travel and tourism understandably lagged behind, there was a marked uptick in construction and wholesale/retail. However, July witnessed a fifth successive fall in employment, with reports that current workforce numbers remained weak because of tight corporate cash flows.

In a bid to further underpin the troubled pandemic-hit economy, by enhancing its support to the banks, the Central Bank has introduced further measures to boost its Targeted Economic Support Scheme, launched in March. The agency has decided to relax banks’ structural liquidity positions by easing both the Net Stable Funding Ratio and the Advances to Stable Resources Ratio, both by 10%, and effective until December 2021. NSFR, which is mandatory for the country’s five largest banks, allows those institutions to go below the 100% threshold, but no lower than 90%, whereas ASRR applies to all other banks which will be allowed to go above the 100% threshold, but not higher than 110%. These measures are aimed at encouraging banks to strengthen the implementation of the TESS and support their impacted customers, through the Covid-19 crisis, and to ensure the smooth flow of funds from banks into the economy.

One company has actually posted a profit increase in H1 – Oman Insurance made a 4.0% hike in net profit to US$ 30 million, whilst increasing its solvency above 250%. Over the period, the net investment income increased 5.0% to US$ 16 million, as total Gross Premiums Written, GPW, were 3.0% higher at US$ 572 million. The US-based credit rating agency AM Best has updated the company’s outlook to stable from negative, with an ‘A’ rating, whilst both Moody’s and S&P maintain ratings of ‘A2’ and ‘A-’ respectively.

With earnings badly impacted by lower receipts from its healthcare investments, and a one-off US$ 4.0 million provision related to “aged receivables”, attributed to Sukoon International, Amanat Holdings posted a Q2 loss of over US$ 1 million, compared to a profit of US$ 4 million in the same period last year; over H1, the healthcare and education business just about broke even, with a US$ 158k net income, from almost US$ 10 million in H1 2019, on the back of a 5% hike in revenue to US$ 25 million.

Shuaa Capital posted H1 operating income of US$ 73 million and a US$ 2 million profit, with no comparable 2019 figures because the Dubai asset manager merged with Abu Dhabi Financial Group last year. Q2 operating income was at US$ 23 million, with assets under management nudging 1.6% higher to US$ 13.0 billion, quarter on quarter. Over the past twelve months, the firm has realised a 38% downsizing in its non-core asset unit, “releasing in excess of US$ 35 million of cash through exits”.

Amlak posted a H1 US$ 21 million loss, compared to a US$ 1 million profit for the same period in 2019; however, its Q2 results pointed to a US$ 16 million profit. According to the mortgage provider, it still has accumulated losses of US$ 499 million, most of which relate to impairment costs taken on price declines on investment properties, then valued in 2014 at US$ 801 million. In January 2019, Amlak entered renegotiations with its financiers on the restructuring terms agreed in 2014 and subsequently revised in 2016.

Emaar Properties posted a 35% fall in H1 profit to US$ 545 million on the back of a 22% revenue dip to US$ 2.45 billion, whilst selling, marketing, general and administration expenses declined 5% to US$ 545 million. In the first six months of 2020, the emirate’s largest listed developer, by market capitalisation, made property sales of US$ 1.4 billion. At 30 June, the company had delivered a cumulative total of 64.7k residential units and is currently involved in developing 40k residences, of which 11k are overseas; its UAE sales backlog was valued at US$ 8.0 billion, with US$ 3.3 billion of international projects in the pipeline.

Its two main subsidiaries posted H1 declines with Emaar Development’s revenue and profit down 59% to US$ 1.3 billion and 76% lower at US$ 272 million respectively. With slumping revenues, arising from lockdown measures, it was no surprise to see Emaar Malls, posting a 69% fall in H1 profit to US$ 94 million, as revenue dipped 26% to US$ 436 million, with sales and general administrative costs coming in 16% higher at US$ 83 million. However, because of the “higher rate of online shopping, coupled with exponential growth in the Saudi market”, its regional e-commerce platform, Namshi, acquired last year, posted a 57% hike in revenue to US$ 181 million. Despite the pandemic, the operator continued its redevelopment plans, including the 95k sq ft Meadows Village mall set to complete later this year.

Damac Properties posted quarterly and H1 losses of US$ 76 million and US$ 105 million, compared to profits of US$ 14 million and US$ 22 million, over the same periods last year. Although revenue climbed 27% to US$ 654 million, with booked sales of US$ 286 million, impairment on development properties stood at US$ 119 million. At the end of June, Damac had a gross debt of US$ 954 million, with a US$ 1.2 billion cash balance, and during the period handed over its 30,000th property. Damac’s chairman, Hussain Sajwani, commented that his company’s “focus remains on selling completed and near completion inventory,” and that he is “optimistic that the lead up to the Dubai Expo at the end of 2021 will allow some of the excess real estate supply be absorbed”.

Deyaar released disappointing H1 results indicating a 77% slump in profit to just over US$ 2 million, not helped by a 66.4% hike in impairment costs to US$ 327k; revenue declined 48% to US$ 48 million. Q2 profit also slid – by 68% – to under US$ 2 million, driven by a 53% revenue decline to US$ 21 million and finance costs 64% higher at under US$ 3 million. The developer, with Dubai Islamic Bank its major shareholder, is currently working on its 75% completed Bella Rose project in Al Barsha South and expects to start work soon on the third phase of its Midtown residential project, comprising seven buildings. In April, the company restructured its capital base, reducing its equity by 21.3% to US$ 1.2 billion.

Embattled Union Properties received a boost this week with an agreement to restructure a US$ 257 million debt with Emirates NBD, its principal creditor, which includes payment of an initial amount. The improved terms will enable the developer to reduce its debt instalment payments, improve its already tight liquidity and focus on the development of its activities and projects. These include the recently announced new project, Motor City Hills – a development next to the Dubai Autodrome, including 195 villas, 490 townhouses and six commercial land plots – and a US$ 54 million expansion of the Dubai Autodrome. It is also transforming three units – ServU, The Fitout, and the Dubai Autodrome – into private joint stock companies, as it reorganises its business to cut costs.

The bourse opened on Sunday 09 August and, 57 points (2.8%) higher the previous week moved up a further 47 points (2.2%) on the week, closing on 2,155 by 13 August. Emaar Properties, US$ 0.03 higher the previous week, closed up a further US$ 0.03 to US$ 0.76, whilst Arabtec, up US$ 0.14 the previous five weeks, shed US$ 0.04 to US$ 0.26. Thursday 13 August saw the market trading at 330 million shares, worth US$ 123 million, (compared to 297 million shares, at a value of US$ 80 million, on 06 August). 

By Thursday, 13 August, Brent, US$ 5.47 (14.3%) higher the previous four weeks closed up US$ 1.26 (2.9%) at US$ 45.01. Gold, having climbed US$ 269 (14.9%) the previous three weeks, gave back the US$ 109 (5.3%) gain of the previous week to close on US$ 1,960, by Thursday 13 August.  The International Energy Agency has cut its 2020 oil consumption forecast again – this time by 140k bpd – to 91.9 million bpd and expects it to move higher to 97.1 million bpd next year. The agency attributes the decline in demand to the continuing spread of the virus and does not expect that to return to its pre-Covid-19 level of 100 million bpd for some time or prices returning to anywhere near US$ 70, posted before the onset of Covid-19.

Having retrenched 4k staff in May – and now cutting a further 2.5k from its payroll – Debenhams has lost a third of its total payroll as it struggles, like many of its peers, with the ravaging impact of Covid-19. This time, the jobs lost will be mainly across its UK stores and distribution centre but there will be no further shop closures of the 124 stores that have reopened post lockdown, apart from the twenty that were slated to shut following the onset of the pandemic. In April, the retailer entered administration for the second time in 2020.

In a case of déjà vu, for the second consecutive time, Mike Ashley’s Frasers Group – formerly Sports Direct – has held up its annual results which should have been released today, 13 August, for at least another week. Last year, the company’s 2019 results were delayed by a week and then subject to continuous deferrals thereafter before releasing annual results that included the shock news of a US$ 760 million tax bill from Belgian authorities. The company has been keen to reassure investors the delay was not because of any problems and that it was due to “final IFRS 16 disclosures still being completed and reviewed”. (IFRS 16 is an International Financial Reporting Standard relating to the accounting of leases, which specifies how they must be recognised, measured, presented and disclosed).

There was some good news and bad news for Tui this week. The German travel posted a US$ 1.3 billion Q2 loss, as the lockdown brought the travel industry to a halt and, after announcing late last month, that it would shut 166 High Street outlets in the UK and Ireland as summer bookings were 81% lower (made worse by new travel  restrictions for Spain – and possibly soon France and the Netherlands), and 40% down for a scaled-back winter programme.. But the good news was the firm announcing there had been a marked increase in 2021 bookings – up by a “very promising” 145% – and the fact that it had cut a compensation deal with Boeing over the prolonged grounding of 737 Max planes, including a deferral of 61 aircraft deliveries.

It seems that Japan’s 7-Eleven has taken a massive gamble by paying US$ 21.0 billion for Speedway, the US petrol chain owned by Marathon Petroleum. The bid was more than US$ 4 billion than those of their two main competitors – UK’s EG Group and Canada’s Alimentation Couche-Tard – with similar offers in the region of US$ 17.0 billion. It appears that these convenience chains are more interested in selling coffee, grocery and fast food items which have over the years gained revenue traction as fuel sales, as a percentage of total turnover, have declined. The Japanese interloper has been involved in over forty deals since 2006 to become the US’s top operator of convenience stores with over 9k outlets.

Uber Technologies Inc posted a net US$ 1.8 billion Q2 loss, which included costs associated with laying off 23% of its payroll. Revenue fell 29% to US$ 2.3 billion, as the number of active platform users nearly halved to 55 million, year on year. Although there was more than a doubling in demand for its food-delivery service, to US$ 1.2 billion, demand for ride-hailing trips, which accounted for 66% of its turnover, has only marginally recovered, up by 5%, from its rock-bottom April figures. However, Uber is still confident of becoming profitable by the end of 2021.

There was much surprise when it was reported that Eastman Kodak was granted a US$ 765 million loan from the Defence Production Act, in collaboration with the US Department of Defence, late last month. Then it was explained that it was intended not only to speed up production of drugs in short supply, and those considered critical to treat Covid-19, but also to  restore the troubled camera company that had lost focus, after once been the leading player in the photography industry. Now that loan is on hold pending investigations into allegations of wrongdoing, probably on two fronts. The first obvious one is whether Kodak could handle large scale pharmaceutical manufacturing, whilst the other will centre on whether some of the board used information to buy shares before the announcement was made as Kodak stock values jumped 2,760%.

At the beginning of the week, the US economy received good news on two fronts. With a 10bp fall to 2.88%, US mortgage rates have dropped, (for the eighth time since the onset of the virus), to their lowest ever level, in a move that could well boost the housing market, battered by Covid-19, by “giving potential buyers more purchasing power and strengthening demand.” Part of the fall can be attributed to two acts by the Federal Reserve – maintaining its near to zero benchmark rate and buying mortgage bonds, as part of its plan to stimulate the economy.

July unemployment rates fell again from 14.7% in April and 11.1% last month to 10.2%, as payrolls rose higher than expected by 1.75 million, better than the market’s expectations of 1.48 million. However, it must be noted that employment remains about thirteen million lower than the pre-Covid-19 level and the country being the worst affected major global economy, with over five million infections (26% of total global cases), and 163k deaths. Further bad news saw stimulus negotiations between the Republicans and Democrats on the brink of collapse.

June industrial production in the eurozone increased by more than expected with Spain, France and Germany posting monthly gains of 14.0%, 12.7 and 8.9%, although year on year figures are still well down by 14.0%, 11.7% and 11.7% respectively. Chances of a quick recovery have been reduced, with several countries posting a resurgence in Covid-19 cases that may have a negative knock-on impact on short-term growth prospects. Not surprisingly, Germany seems to have had the strongest recovery of all eurozone nations, but the volume of trade remains 10% lower than this time last year. However, a lot of German exports are reliant on their eurozone partners’ economic health and these figures indicate there is some way to go for the country to return to some form of trade normalcy. For example, Spain has seen its GDP decline 18.5% in Q2, resulting in one million Spaniards losing their jobs.

The EC President has confirmed that restrictions on national budgets, already suspended in March because of the onset of Covid-19, will continue until 2022, mainly because of the on-going economic uncertainty, made worse by a recent resurgence in cases that may lead to an unwanted second wave. At the time, Ursula von der Leyen said that the step was necessary to cope with “the human as well as socio economic dimension” of the pandemic. The budget rules, often “bent” in times of various crises to meet the bloc’s then requirements, are that any budget deficit to be less than 3% of GDP and public debt to be lower than 60% of GDP.

Last year, remittances overtook foreign direct investment as the biggest source of external financing for many nations, with a reported US$ 545 billion involved; it is estimated that because of Covid-19, the 2020 figure will be 18.3% lower to the tune of around US$ 100 billion. For example, it is estimated that nine million Filipinos work overseas but their remittances fell by 20% in the year to May, at a time when Covid-19 will see up to 750k repatriated because of overseas retrenchments, whilst many others overseas have seen pay rates cut. The end result is that domestic consumption will decline in the country with a negative knock-on effect for the Filipino economy,  as less is spent on the likes of construction, food and education.

Another leading political figure in Malaysia is in legal trouble and has been charged with corruption, involving a US$ 1.1 billion undersea tunnel project. Lim Guan Eng, the country’s former finance minister, has been charged with soliciting 10% of potential profits in 2011, as a bribe for the project planned in northern Penang state where he was the chief minister from 2008-2018, before his move to the federal government. This week, he has been accused of abusing his power as Penang chief minister to obtain US$ 800k, as an inducement to help a local company secure the 7.2 km tunnel project contract. He has pleaded not guilty but could face up to twenty years in jail and a fine, if found guilty.

Australian wages only grew 1.8% in the year to June 2020 – their slowest pace since records began in 1997 – with the private sector wages bearing the brunt of the slowdown, driven principally by a number of large wage reductions across higher paid jobs. Although public sector wage growth was stronger, which helped to keep inflation positive, it still declined to 2.1%. Industry-wise, the largest wage declines were seen in “other services” (-0.9%), construction (-0.5%) and professional, scientific and technical services (-0.5%) and on the flip side, the “winners” were in utilities (0.6%), education (0.5%) and mining (0.5%). The pace of the wages slowdown surprised analysts but what is certain is that worse is to come, given the depressed economic environment. Another surprise was that consumer confidence in NSW, down 15.5% to 77.8 was worse than Victoria, (down 8.3 to 78.0), which has just imposed stage 4 restrictions in Melbourne; these levels are only slightly better than those recorded in April when the country entered the early stages  of a national lockdown. A level of over 100 means the level of optimism is outweighing pessimism.

According to the Bureau of Statistics, there were more than one million Australians unemployed in July – a marginal monthly increase of 16k – with an unemployment rate of 7.5%, the highest level since 1998. It is estimated that if the Morrison government had not introduced JobKeeper, the unemployment rate would be at least 8.3%; if those people that have lost their job and exited the workforce since March, and the 165k counted as employed, but working zero hours, the rate rises to around 10%. However, almost 115k new positions (44k full-time and 71k part-time) were created in July. But the extent of economic scarring will become more obvious when JobKeeper is withdrawn and the true unemployment rate becomes apparent.

Since peaking at 6.9 million in late March, the number of Americans filing new claims for unemployment fell below 1 million for the first time since then, with the latest 963k figure down from the 1.3 million last week. Prior to the onset of Covid-19, the highest number of new jobless claims, at 695k, occurred in 1982. Although down from the pandemic peak of 14.7%, the 10.2% unemployment rate is still unacceptably high which may result in more stimulus money being pumped in by the Trump administration more so because of the looming November presidential election. However, 20% of US workers are still collecting benefits and that even though it seems that jobs recovery is gaining traction, the fact that twenty-eight million are still claiming some form of jobless benefits must be a worry to Donald Trump.

Q2 UK employment fell by 220k – the largest quarterly fall since 2009 at the height of the GFC. The Office for National Statistics noted that the youngest workers, oldest workers and those in manual occupations have been scarred most financially from Covid-19 and its lockdown. The figures would be even worse, but they exclude the estimated ten million that are on furlough, the one million on zero-hours gig contracts and those on temporary unpaid leave from a job. It will probably be October, when the government is scheduled to stop its US$ 52 billion furlough and self-employed income support schemes, before the full impact on the UK employment figures will be known. Furthermore, the number of people claiming universal credit – utilised by both those on low pay as well as unemployed people – rose 117% in the three months to July to 2.7 million, whilst quarterly pay levels dipped 0.2% – its first negative pay growth since records began at the turn of the century. In June alone, various sectors, including retail and F&B, announced further redundancies totalling 140k, whilst the number of self-employed fell by 238k to 4.8 million, about 14.5% of the workforce.

Although known for several weeks, the UK economy formally fell into recession, (technically two consecutive quarters of contraction), down 20.4% on the quarter – the country’s biggest slump on record. However, more positive news was that the economy actually grew in May and June, by 1.8% and 8.7% respectively – indicating somewhat of an economic bounce, although it must be noted that the economy is still a sixth lower than its February level and a fifth lower than it was in December 2019. The slump is not as bad as Spain’s 22.7% but almost twice as bad as those of Germany and the US but it must be remembered that the UK economy is more focused on services, hospitality and consumer spending – that accounts for a larger share of the economy – than most other advanced economies. Even Boris Johnson has warned “clearly there are going to be bumpy months ahead and a long, long way to go.” It’s Not Over Yet!

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Hotel California

Posted on August 7, 2020 by howesdubai

Hotel California                                                                                             06 August 2020

As noted in a blog last month, (‘Riders On The Storm’ – 16 July), property prices and rents in some of Dubai’s popular communities remained fairly stable in H1, despite a slowdown induced by the Covid-19 pandemic, according to a recent report by listings portals Bayut and Dubizzle.  It also noted that there had been 15.9k transactions, valued at US$ 8.9 billion, and prices had dipped 4% in the first six months of 2020.

Valustrat has estimated that 14k residential units were completed in H1 and reckoned that a further 45.1k (including 10.8k villas and 34.9k apartments) will come on line before the end of the year; that being the case, over 59k  will be added to the 664k figure, per the Dubai Statistics Center figures for 2019  – an annual increase of 8.8%. For the previous two years, the increases have been 6.5% and 7.4% and it is highly likely that this year’s figure will hover around 45k (6.8%) – and not 59k. According to official data, the number of Dubai apartments has increased by 145k in the four years from 2015’s total of 398k to last year’s figure of 543k; villa numbers were 36k higher to 145k over the same period.  In 2016, the number of new units was up 17k (13k apartments and 4k villas), to 500k (411k and 89k), in 2017 by 28k (21k and 7k) to 528k, in 2018 by 69k to 597k (486k and 111k) and last year by 67k (57k and 10k) to 664k. Valustrat also sees that the 90k unit imbalance of supply to demand is slowly eroding and that, by next year, the figure may have fallen to 70k and this could easily fall dramatically the sooner the economy recovers and Expo 2020 proves to be as big  a success that some analysts are forecasting.

In 2018, Dubai’s population rose by 7.2% and then a further 5.1% last year to 3.356 million; the average size of each household is 5.1 (based on 664k units). This year, Covid-19 has wrought havoc on the global (including Dubai) employment market but nobody yet knows the number, but it must be remembered that the population movement will be in both directions. It is interesting to note that the majority of the job losses have been at the lower end of the pay scale, mainly in construction, retail and hospitality, even though retrenchments have occurred throughout the different pay levels of the economy. Over the first half of 2020, the population has nudged 0.1% higher to 3.394 million and will see a small increase by the end of the year. However, the end result will see a change in the socio-economic make up, as more tech savvy professionals and entrepreneurs will enter the Dubai employment market who are more likely to be interested in buying real estate.

Azizi is planning to invest US$ 954 million, over the next three years, to construct 11k new homes across Dubai, including in locations such as MBR City, Dubai Healthcare City and Al Furjan. The Dubai-based developer is already involved in fifty-four projects, valued at US$ 1.4 billion, and expects to deliver 3k units to the market this year. To fund its expansion plans, Azizi is planning a US$ 300 million bond issue. With H1 real estate prices declining by less than 4%, the developer is confident of a recovery early next year on the back of the recent US$ 70 billion government economic stimulus package, the delayed Expo 2020, starting in October 2021, and hopefully the potential discovery of a vaccine to treat Covid-19 disease.

In an attempt to attract the smaller investor to the hotel apartment segment, it is reported that the Dubai Land Department will introduce a ‘fractional title deed’ concept. Such a scheme would allow a division of the same unit to be divided into fractional shares, each having its own title deed that, like any other property, may be sold or mortgaged. With the emirate’s position, as one of the leading global destinations, it affords the opportunity  to a sector of the population that would normally not have the funds to invest in real estate; at the same time, such investment will revive this segment of the market, coming out from Covid-19.

The Indian Premier League 2020 cricket tournament has been moved to Dubai and is set to commence on 19 September, once Indian government approval has been granted. This is a major coup for Dubai, as its hospitality sector, needs such a fillip after being battered by the impact of Covid-19. The 53-day tournament, involving eight teams, will showcase not only world class cricket but also the emirate, as matches will be televised live from Dubai, as well as Abu Dhabi and Sharjah, to a worldwide TV audience. The BCCI has also added a Women’s T20 Challenge, comprising three teams. Chinese mobile company VIVO will remain the title sponsor for the event, having a signed in 2017 five-season agreement, ending 2022, in a deal valued at US$ 310 million.

Dubai is hoping that one sector of the hospitality recovers quickly – medical tourism. As travel restrictions are gradually easing, and overseas visitor numbers moving upwards, the emirate is hoping to cash in on the fact that there are still many countries, who are in direct competition, still closed to this sector of the market. No figures are available for last year, but in 2018, there were 337k medical tourists. Last year, the Dubai Health Authority was confident that the market would top 500k by 2021 and, although Covid-19 has taken its toll, there is every chance that this target will be met.

Last Friday, history was made when the UAE started up Unit 1 at the Barakah Nuclear Power Plant and became the first Arab nation to use nuclear power. After more than a decade of planning, Unit 1 reached “first criticality,” which is when the nuclear chain reaction, within the reactor, became self-sustaining. Currently, Unit 2 is complete, whilst units 3 and 4 are 92% and 85% ready – and when all four reactors are up and running, the facility will provide 25% of the country’s electricity requirements.

From July’s IHS Markit UAE Purchasing Managers’ Index, UAE business is expanding at its fastest pace in ten months up 0.4 to 50.8, driven by the starting of new projects and an increase in marketing. It was noted that consumer spending improved, with most restrictions being lifted, and the economy further reopened. Whether the uptick continues is dependent on how quickly demand recovers and if and when it can ever return to pre-Covid levels of activity.

Some positive news coming out of the Dubai Gold and Commodities Exchange is that it has maintained its H1 momentum into July, with its G6 currencies portfolio recording year-on-year volume growth of 357%. The DGCX also launched the region’s first FX Rolling Futures Contracts (Eur, GBP and AUD) and expanded the range of Indian Rupee/USD contracts, with the launch of a weekly INR-US Dollar Futures Contract.

Dubai Aerospace Enterprise posted a 38.3% fall in H1 profit to US$ 122 million, driven by twenty-three fewer owned aircraft in its portfolio and lower asset sales; revenue dipped 8.5% to US$ 673 million. The ME’s biggest plane lessor also noted that figures were down because of fewer asset sales, resulting in lower gains on sale of assets, reduced finance income, and higher provisions for trade receivables, offset by lower interest expense. DAE, wholly owned by Investment Corporation of Dubai, had a total fleet of 351 aircraft, of which 297 aircraft were owned and the balance managed.

According to the Dubai Investment Development Agency of Dubai Economy, the emirate attracted foreign direct investment of US$ 3.3 billion in H1, across 190 projects, including technology, e-commerce and pharmaceuticals. Of the total projects, nearly 50% were greenfield projects and 36% were new forms of investment. The top five sources of incoming investment were the US, France, Belgium, UK and China contributing 25%, 18%, 9%, 8% and 8% of the total. The Financial Times’ fDi Markets ranked Dubai third in the number of greenfield FDI projects and fourth in FDI capital flows, whilst start-ups in the emirate attracted US$ 201 million.

Having sold US$ 900 million in bonds last year, it is reported that GEMS Education has raised $150 million in incremental financing, to support its working capital, and is in discussions with several banks relating to a possible share or debt issuance. The company operates more than fifty schools in the UAE, Qatar and Egypt.

Dubai Investments had posted a 40.0% increase in Q1 profit to US$ 58 million on the back of gains on valuation of investments, at US$ 14 million, and lower impairments, declining 56.0% to US$ 57 million. The company, formed in 1995 and in which the SVW, Investment Corporation of Dubai, holds an 11.54% stake, saw a 26.5% reduction in the cost of sales to US$ 837 million, as well as a 56.0% fall in net impairment losses on financial and contract assets to US$ 567 million. However, H1 revenue slid 21.0% lower to US$ 308 million, with profit sinking 41.9% to US$ 56 million, as rental income, including Dubai Investments Park, dipped 6.8% to US$ 118 million. DI, with interests in various sectors of the economy including real estate, industrial, financial, healthcare and education, saw H1 net impairment losses of US$ 2.3 million, (2019 – US$ 189k), on financial and contract assets. The value of total assets, (including, venture capital company Masharie, Al Mal Capital and the district cooling company Emicool). at 30 June, was up 2.0% in H1 to US$ 5.8 billion.

Dubai Investment Bank posted a 41.9% decline in H1 profit to US$ 56 million but noted that last year’s results included profit from a one-off transaction, which if ignored indicated that this year’s result showed “resilience”. Revenue for the period came in at US$ 308 million.

The bourse opened on Monday 03 August and, 62 points (3.1%) lower the previous five weeks regained most of those losses to move 57 points higher on the week, closing on 2,108 by 06 August. Emaar Properties, US$ 0.05 lower the previous three weeks, closed up US$ 0.03 on US$ 0.73, whilst Arabtec, up US$ 0.09 the previous four weeks, gained a further US$ 0.05 to US$ 0.30. Thursday 06 August saw the market trading at 348 million shares, worth US$ 79 million, (compared to 297 million shares, at a value of US$ 80 million, on 30 July). 

By Thursday, 06 August, Brent, US$ 4.13 (10.4%) higher the previous three weeks closed up US$ 1.34 (3.1%) at US$ 43.75. Gold, having climbed US$ 160 (8.9%) the previous fortnight, had another positive week, climbing US$ 109 (5.6%) to US$2,069, by Thursday 30 July, to US$ 1,960.  Brent, starting the month of July on US$ 41.15,  and the year on US$ 66.67, closed on 31 July on US$ 43.32 – up for the month by 5.3% and 35.0% lower YTD. The yellow metal was much higher for both periods – by 9.8% for July and 30.3% YTD – closing on US$ 1,976 from its month’s starting price of US$ 1,800 after opening the year on US$ 1,517.

It was an accident waiting to happen and now the aftermath will not be pretty. The US shale revolution had seen an almost trebling of the country’s oil production, which was topping 13 million bpd at the beginning of the year. As Covid-19 resulted in a major decline in demand and prices crashed, it was inevitable that the high-cost shale industry would be the first in the queue to cut costs. When the market was on the up, banks and oilfield services companies could not get enough of the action and well and truly cashed in. Now they are feeling the pinch, as illustrated by the fact that the big three service companies – Baker Hughes, Halliburton and Schlumberger – with a combined capital base of US$ 55 billion, have already taken write-downs of over US$ 45 billion over the past twelve months. As shale drilling dries up, there will be more bad news for the banks who have pumped in billions of dollars in this sector and. will not get all their money back.

Bitcoin is at it again, proving that it continues to be a volatile product to be treated with caution. On Thurday, it was priced at US$ 11,761, after trading at just US$ 4,857 on 12 March – at the start of Covid-19 – but that was 53.1% lower than the price of US$ 10,351 recorded on 12 February. The cryptocurrency reached its peak in December 2017 at US$ 19,650 to slump 79.7% to US$ 3,980 a year later. There are veteran crypto watchers, some of whom have made a fortune out of trading whilst others have not. Anyone who thinks that this is a good time to invest, in a “store of fear”, should exercise caution in their business affairs and, if they do, look forward to a bumpy and eventful ride.

The fallout, from Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, concluded in February 2019, continues with what could be one of the biggest court actions. Claims have been filed against AMP, CommBank and Westpac Group’s BT, contesting that they established systems to sell “unsuspecting customers” overpriced in-house life insurance and income protection policies, using their own financial advisers. This was despite the fact that they knew there were equivalent or better policies, with lower premiums, and were basically promoting their own products and interests ahead of those of hundreds of thousands of their customers who were charged “excessive insurance premiums”.

Banking giant NatWest Group – formerly known as RBS – posted a US$ 1.0 billion H1 loss, (compared to a US$ 3.5 billion profit in H1 2019), as it provided a further US$ 2.7 billion in impairment provisions, (bringing the total to US$ 3.8 billion), as potential Covid-19 loan default risks increase. Last month, it seems that chief executive, Alison Rose, was right to warn of “tough times ahead” and she may be right again saying,  “we don’t know how quickly the economy will recover and we don’t know yet what the underlying scarring is to the economy.” Last week, Lloyds and Barclays announced that their H1 impairment provisions had risen to US$ 4.9 billion and US$ 4.8 billion respectively. Santander posted a US$ 12.3 billion Q2 loss, after it wrote off US$ 6.8 billion of goodwill left over from the purchases that created Santander UK in the 2000s; the UK business has lost 90% in its value over the past twelve months. The bank has also set aside US$ 7.7 billion for impairments.

Markets were surprised at the fact that HSBC’s H1 profits fell more than expected, plunging 65.3% to US$ 4.3 billion, as it battles the coronavirus downturn. UK’s biggest bank is also battling with problems, other than Covid-19, including a major Group restructuring programme, with a 15.0% cut in staff numbers to 200k, and opposition to its support of China’s national security law in Hong Kong. The bank, with over 50% of its profit emanating from its Asian financial hub, is also considering winding down or divesting up to 30% of its US operations, comprising 224 branches. Along with Standard Chartered, also headquartered in London, HSBC is likely to continue with its commitment to the former UK colony, probably because China is its main source of revenue.

After posting a Q2 loss of US$ 6.7 billion, (compared to a US$ 2.8 billion profit in H1 2019), driven by a write down in the value of its assets, BP has decided to halve its shareholder dividend to US$ 0.0525 a share. The company is bearish about the short-term future of oil prices and demand which it expects to be nine million bpd lower when compared to 2019; the petro giant was also fearful that the pandemic could weigh on the global economy for a “sustained period”. Even before this announcement, BP had indicated 10k job cuts, including 2k in the UK.

This week saw a litany of bad news from the UK’s High Street. Hays Travel, which took on 2k Thomas Cook employees, when it bought the travel company last October, is now having to retrench 19.7% of its 4.5k employees, due to new coronavirus travel restrictions. Most of the retrenchments will be those in the foreign exchange division and others training to be travel consultants. The move is a result of the Spanish travel restrictions and changes in the UK furlough system which is being tapered by the government as from this month.

Foreign exchange firm, Travelex has not only been hit by the impact of Covid-19 but had also been reeling from a damaging cyber-attack at the beginning of the year; now it has announced 1.3k job losses in a deal to stay afloat. Weatherspoon has announced that up to 130 (a third of their staff) at their Watford headquarters are in danger of losing their jobs. LGH, which manages 55 UK properties, including some Crowne Plaza, Holiday Inn and Hallmark hotels, is set to lose 1.5k staff because of the coronavirus crisis.

WH Smith is considering retrenching 11% of its 14k workforce on the back of plummeting sales during the lockdown that could see the firm losing US$ 100 million when August year-end results are released; last year, it made a profit of US$ 225 million. The company has 575 High Street outlets and a major concern is the fact that July sales in its High Street division were still 25% shy, compared to pre-Covid levels. It has reopened all its High Street stores and 246 of its larger travel division sites, mainly located in airports, railway stations and hospitals.

Meanwhile, Willian Hill will not reopen 119 of its 1.5k betting shops after the shutdown, indicating that it did not expect business to return to former levels. Strangely, the betting shop posted an H1 profit of US$ 34 million, (compared to a US$ 85 million loss last year). DW Sports warned that 1.7k jobs were at risk, whilst Pizza Express’s latest restructuring programme could see the demise of 1.1k positions, with 15% of outlets closed. M&Co, formerly known as Mackays, has gone into administration which will see the closure of 17.9% of its 262 nationwide shops, with the loss of 400 jobs out of a 3k workforce. The family, that built up the Renfrewshire business over the past fifty years, immediately bought back its assets under a new company umbrella.

In 2019, there was an 18.0% surge in global sukuk issuances to US$ 145.7 billion, of which US$ 38.5 billion (26.4%) were international and the balance of US$ 107.2 billion domestic. This was the highest value of annual sukuk issuance ever since its 2001 launch. International issues were 16.6% higher, with an 18.9% hike for domestic, driven by three countries accounting for 84.1% of the total – Malaysia (US$ 54.0 billion), Saudi Arabia (US$ 18.9 billion) and Indonesia (US$ 17.3 billion). US$ 76.4 billion, or 81.3% of domestic issues, were long-term sukuk.

Anthony Levandowski has been sentenced to eighteen months in prison for trade secret theft. He was a lead engineer for Google’s self-driving car unit before he left, with more than 14k Google files, in January 2016 to join rival Uber, where he led its robocar project before being dismissed in 2017 over this case. The judge said it was the “biggest trade secret crime I have ever seen”, with the accused filing for bankruptcy because he owes US$ 179 million to Google’s parent company, Alphabet, for his actions.

Last year, Google’s parent company Alphabet agreed in a US$ 2.1 billion deal to acquire Fitbit. Now it seems that deal could be in jeopardy as, after a review, the EC has decided to carry out a full-scale probe, even though, in July, Google offered not to use Fitbit’s health data for ad targeting. The commission is concerned that Google’s acquisition could further entrench its market position in the online advertising world. Although a pioneer in the fitness trader market when it first launched its first device in 2009 – and now has thirty million active users and one hundred million gadgets – Fitbit lags behind Apple, Xiaomi, Samsung and Huawei in terms of global shipments.

It seems that the US President made a call last weekend to Microsoft indicating that he thought the US government should get a “substantial portion” of the purchase price from the sale of TikTok’s US company, if the tech giant were going to buy it. He had earlier warned that he would ban the app, owned by Bytedance and used by eighty million US users, if no deal had been reached by 15 September. Just as with Huawei, the Trump administration is concerned that TikTok is a security risk and supplies the Chinese government with users’ data – probably just what the US companies do.

IAG, owner of BA, Aer Lingus and Iberia, has posted a US$ 4.9 billion H1 loss, as the Covid-19 impact hits home, with BA’s boss, Willie Walsh, predicting that it would take three years for passenger levels to recover. The severity of the problem can be seen from the fact that BA’s Q2 passenger traffic fell 98% and that its US$ 925 million quarterly loss was 30% more than the combined amount of losses incurred from the 2008 GFC (US$ 423 million) and the aftermath of the 2001 9/11 attacks (US$ 243 million). IAG is planning to raise US$ 3.6 billion, via a share issue, and has support from its 25.1% stakeholder, Qatar Airways.

Meanwhile BA has signed an agreement with the pilots’ union, Balpa, that will see 270 jobs eliminated and a temporary 20% pay cut, to be reduced to 8% over two years and to zero in the long term. The deal, accepted by 87% of the pilots, prevented a “fire-and-rehire” scheme where pilots would have been handed new contracts “on worse conditions”. The airline had earlier proposed to make 12k staff redundant, including 1.3k pilots, with, unsurprisingly, Balpa being “bitterly disappointed” that “they were unable to persuade BA to avoid all compulsory redundancies”.

In April, Virgin Australia went into administration only to be later rescued by its new owner Bain Capital (which now plans to cut payroll numbers by a third, equivalent to 3k).  On Tuesday, and less than month after it had agreed a US$ 1.6 billion rescue deal, Virgin Atlantic filed for bankruptcy, under chapter 15, which allows a foreign debtor to shield assets in the US, having negotiated a deal with stakeholders “for a consensual recapitalization” that will get debt off its balance sheet and “immediately position it for sustainable long-term growth”. In May, Virgin Atlantic, which is 51% owned by Virgin Group and 49% by US airline Delta, announced that it would close it Gatwick operation and lay off 3k in the UK.

In July, Australian home prices dipped an average 0.6%, (and 0.8% in capital cities), with the biggest declines seen in Sydney (0.9%) and Melbourne (1.2%). The Victorian capital is set to see an even bigger fall this month, since a six-week night-time curfew, with a new round of lockdowns and restrictions, was introduced on Saturday as virus increases there rose; over the past three months, Melbourne prices have fallen 3.2% – but are still 8.7% higher over the previous twelve months. Market declines may have been higher if not for mortgage repayment holidays and, depending on the state of the economy, after banking returns to some form of  normalcy, the market may well witness a more marked fall in prices. For the first time since records were introduced in 1972, rents have fallen nationally, with house rents easing 0.1% in the quarter and 2.1% for units. Rental listings in some locations have more than doubled, with the lack of business caused by a dearth of students, tourists and business as borders remain closed. Hobart, for example, has seen unit rents down 4.4% since the onset of Covid-19.

Following the emergence of lurid details of his private life and allegations of corruption and money laundering, Spain was shocked to hear that its former king, Juan Carlos, had left the country, but would be available if prosecutors needed to speak to him. The 82-year old former monarch abdicated in 2014, to be replaced by his son Felipe, and since then the previously pliant Spanish press have been investigating rumours not only about his scandalous personal dealings and extravagant lifestyle but also his financial activities. In 2018, Swiss prosecutors launched an investigation into a US$ 100 million 2008 gift from the Saudi Arabian king to see if it were related to a US$ 7.5 billion contract for a Spanish consortium to build a high-speed railway from Medina to Mecca. They did find the existence of two offshore funds, (Lucum Foundation based in Panama and Foundation Zagatka, registered in Liechtenstein) connected to Swiss bank accounts. Spain’s Supreme Court has said it aims to establish Juan Carlos’s connection with the Saudi Arabia contract after his abdication. Under the Spanish constitution, Juan Carlos can only be prosecuted on wrongdoings after his 2014 abdication.

Indonesia’s economy contracted for the first time since Q1 1999, as its Q2 GDP declined 5.32%, year on year, and 4.19% compared to the previous quarter; the local economy was impacted, with the retail sector badly hit, by movement restrictions imposed on SE Asia’s largest economy, whilst manufacturing continued its downward spiral. The size of any recovery, during the rest of the year, is uncertain and is reliant on global developments and whether the virus outbreak, the worst in the region, starts to dissipate,; however, exports, dominated by commodities such as coal and palm oil, have shown some  recent improvement. There is a possibility that the government will have to expand its stimulus package which to date only amounts to 20% of the US$ 48 billion Covid budget already allocated.

Because the Duterte government introduced tougher restrictions, (shutting most businesses and suspending public transport from March to May), than most of its neighbouring countries, the Philippine economy has entered into a deeper recession, with two successive quarters of negative returns. The latest quarter saw a record 16.5% contraction on the year and 15.2%, quarter on quarter. Analysts expect that by the end of the year, the GDP will be 5.5% lower, with a healthy rebound expected in 2021. The country’s problems continue with a six-fold increase In Covid-19 cases, since restrictions were eased in June, along with high unemployment, and reduced remittances from Filipinos working overseas. Since private consumption accounts for 65% of the economy, the lack of consumer spending is the main driver behind these disappointing results, followed by a double-digit fall in exports, as the lockdown restricted production and snarled supply chains.

According to the CBI, only 6% of UK companies are still closed with the balance completely operational, although many of them are in a state of dire financial trouble on the back of the impact of Covid-19. The national agency expects that manufacturing will grow by around 15%, over the next quarter, whilst retail sales surged last month after non-essential stores reopened. Although there are hints that business is slowly improving, “it’s clear that many businesses remain in acute financial distress,” but that “more immediate direct support for firms, from grants to further business rates relief, is still urgently needed.”

The Bank of England has pared back its recent forecast of a 14% contraction in the economy this year to 9.5% but warned that the recovery would take longer than first anticipated and unemployment was likely to rise “materially”, (from 3.9% to 7.5%); there will be declines in average earnings for the first time since the 2008 GFC. Inflation will be around zero, by the end of the year, nudging towards its 2.0% target level in 2021. The Bank confirmed that consumer spending has improved, with the spend on clothing and household furnishings back to pre-Covid levels, as more is being spent on food and energy bills than before the lockdown. Their longer-term forecast sees growth of 9.0% and 3.5% in 2021 and 2022. The bank’s money-printing programme will continue, with a further US$ 130 billion QE boost over the next five months, and it has no alternative but to keep rates at the historically low 0.1% level.

US-UK relations could be further strained, with reports that London may become the headquarters for TikTok, after Donald Trump has threatened to ban the Chinese software company from the US on security concerns. Now its parent company, ByteDance, which denies any links to the Chinese government, may move to London in a shift that will no doubt help heal diplomatic relations with China over the Huawei move and Hong Kong. Meanwhile, TikTok has announced a US$ 500 million data centre in Ireland, which had previously been stored in the US, with a back-up copy held in Singapore.

Over the past few months, Tencent has been in merger discussions with two other Chinese game-streaming platforms Huya and DouYu International, of which it already holds 37% and 38% stakes respectively. If the merger eventually goes through, it would result in a new entity, valued at US$ 10 billion, with Tencent the principal partner, dominating the US$ 3.4 billion domain. The merger would help TenCent, which has been facing increasing advertising competition from ByteDance, and its rapidly growing stable of apps, and removing unnecessary competition between the three entities, as well as synergising its cost structure. It is estimated the game-streaming market will generate US$ 3.4 billion in revenue this year, which has recently dipped for Huya and DouYu, even though they are still considered the two leading platforms.

Meanwhile, the world’s second largest economy continues to recover from the impact of Covid-19, with Chinese factories expanding at the fastest pace since Janay 2011, driven by higher domestic demand. The July Caixin/Markit Manufacturing PMI rose 1.6 to 52.8 – the sector’s third consecutive month of growth; the 50-mark level is the threshold between expansion and contraction. With greater consumer demand, output expanded for the fifth month in a row, and at the fastest rate for nine-and-a-half years., although new export levels and hiring remained weak, with both indices still in negative territory for the seventh straight month. The government has introduced a series of measures to stimulate growth, such as reducing key lending rates and allowing local governments to sell far more bonds to fund infrastructure projects. The IMF expects China’s growth to decelerate to 1.0% (down 0.2%) and that the global economy will slip into its deepest recession, with a 4.9% contraction, since the Great Depression, followed by a sluggish 2021 recovery. This outlook will obviously change if the world were to face a pronounced second wave.

The Chinese recovery has also been boosted by the eurozone’s return to growth – its first manufacturing expansion in eighteen months, as the PMI rose from 47.4 to 51.8 – which has resulted in more orders for Chinese factories. Only two countries remained under the 50 level – the Netherlands and Greece – whilst Spain, Austria, France, Italy and Germany posted July returns of 53.5, 52.8, 52.4, 51.9 and 51.0 respectively. There is every confidence that growth in new orders and output will continue this month and that business confidence is slowly returning to the bloc. However, there is one major problem that will not go away – job losses remain greater than at any time since 2009 due to widespread cost-cutting at many companies hit hard by Covid-19. There is no doubt that increased unemployment and job insecurity will hold back any sustained recovery.

Whilst last week was full of doom and gloom about the US and UK economies, the beginning of this week sees that the eurozone economies faring even worse, with a contraction of 12.1% (and 11.9% in the EU). More worryingly, three of the five largest economies reported even worse figures. Spain has sunk into its deepest recession, with a Q2 contraction of 18.5% on the back of a 5.2% decline the previous quarter; it is estimated that a group of service industries, including transport, restaurants and accommodation suffered an H1 decline of more than 50%. The Spanish figures point to the fact that the Covid-19 contraction has wiped out the previous six years of growth. France and Italy performed slightly better, but have still dire results, with Q2 contractions of 13.8% and 12.4% respectively. Even powerhouse Germany has not escaped unscathed, reporting its worst ever quarterly decline, as total production of goods and services fell by 10.1%. The country has seen its exports fall, driven by severe disruption to global trade and some estimate that the plunge in output has “wiped out nearly ten years of growth”.

Although still maintaining the country’s AAA rating, Fitch revised its outlook to negative because of “the ongoing deterioration in the US public finances and the absence of a credible fiscal consolidation plan”. The US public debt topped a massive US$ 26.0 trillion in June, at a time when the Q2 economy contracted 32.9%, on an annual basis, and personal spending, which accounts for 66% of GDP, came in with a 34.5% annualised contraction – the worst on record. The ratings agency estimates the government debt to equate to 130% of the country’s GDP by the end of next year, as the US is expected to pump in at least US$ 6.0 trillion to combat the economic and health impacts of Covid-19; health and social security costs are expected to rise over the next eighteen months. To add to its problems, the US has 4.5 million of its population infected, equating to 25% of the total global figure, and has seen 153k related deaths.

There was an interesting take, on last week’s EU’s Covid-19 package, penned by Finland’s former Foreign Minister, Timo Soini, in a letter to the Financial Times. It seems that Germany and France decided that, after almost five months of living alongside Covid-19, with member countries dealing with it in their own ways, the EU should borrow US$ 850 million from the markets and deliver it across the union. More than half of the money was distributed as donations, without any apparent conditions, and the richer northern countries, less the departing UK, have been left to pick up the tab. The only real winners are Germany, happy that delivering EU money to member states will result in them buying German cars and other products and France that “gets the deeper integration and common financial responsibility it has long sought”.

Under the guise of economic revitalisation, the EU has got away with doing something that is against their own regulations – the introduction of common debt – resulting in boosting EU integration to unprecedented levels. The strategy seems to have been to stop any other country leaving the EU as they will be tied together by common debt that makes leaving the bloc practically impossible. The Merkel-Macron plot, in the guise of a Covid-19 aid package, leaves the EU looking like its members are now permanently staying at the Hotel California.

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Here We Go Again!

Posted on July 31, 2020 by howesdubai

Here We Go Again!                                                                                           30 July 2020

A report by the Dubai Statistics Centre showed that the real estate sector’s Q1 growth was 3.7% higher, year on year, contributing 8.0% to Dubai’s GDP. In 2019, it was estimated that real estate activities grew 3.3%, and contributed 7.2% of Dubai’s GDP, with an added value of US$ 8.0 billion, according 10.7% to Dubai’s overall economic growth. Q1 also witnessed a 30.4% annual growth in cash sales – the best first quarter for ready home cash sales since 2014 – and this would have been higher if not for the Covid movement restrictions introduced in mid-March. Although Q2 figures were lower, overall results point to the fact that there will be a bounce back, as business returns to the new form of normalcy, assuming no further lockdowns.

The DLD report indicated that there were 15.0k transactions, totalling US$ 13.1 billion, in Q1 and 7.8k, worth US$ 6.7 billion, in Q2. The DLD noted that the local real estate market saw 22.8k transactions totalling US$ 19.8 billion in H1– not a bad return considering the onset of Covid-19, starting mid-March. It seems that a combination of the government’s stimulus packages and initiatives, along with very low interest rates and competitive prices, may be working.

When it came to Q2 mortgage registrations, the top three locations were Hadaeq Sheikh Mohammed bin Rashid, Me’aisem First and Jabal Ali First with 205 transactions (US$ 93 million), 113 (US$ 31 million) and 107 (US$ 43 million). The top three locations, with regard  to H1 sales, were Dubai Marina, Business Bay and Al Merkadh, with 1.5k, 1.3k and 1.2k sales, valued at US$ 920 million, US$ 450 million and US$ 687 million respectively.

According to Chesterton’s Q2 report, apartment rentals declined by 3.9% in Q2, with much bigger declines noted in The Views and The Greens, both with double-digit drops. Villa rentals fell by an average 2.6% in Q2, with The Springs down 3.3%; over the past twelve months, The Springs and The Meadows recorded falls of 12.2% and 12.7%, with The Lakes recording the lowest annual decline, as the average was around 10%. The past six months have seen a noted improvement in The Meadows and The Lakes, down by 2% and 4%, although The Springs dropped 6%. There have been reports that prices in Emirates Hills may have dipped up to 20% over the past twelve months.

It is reported that GEMS schools will reopen across the UAE in September, following the recent issue of a 100-plus set of health and safety guidelines by Dubai’s school regulator, in relation to the start of the new academic year. The Knowledge and Human Development Authority (KHDA) has yet to specifically confirm that Dubai schools can reopen but it seems that GEMS, and other private school, expect a positive decision from the authority and are taking action accordingly.  In April, GEMS Education announced that it would offer 20% – 50% tuition fee cuts for families impacted by Covid-19.

After twenty-seven months, DEWA has commissioned a new US$ 91 million 400/132 kV substation in Dubai South which has a conversion capacity of 2020 megavolt-amperes (MVA) and a 2.4 km overhead lines link with the grid. With this latest addition, the agency has twenty-three 400/132 kV substations, with four more being built. It is estimated that power transmission network under construction total US$ 2.7 billion, including the final testing of 11 new 132/11 kV substations costing over US$ 400 million.

A major local social event has become the latest victim of the current pandemic, with the cancellation of the 51st Emirates Airline Dubai Rugby Sevens due to run for three days between 26-28 November. This Tuesday also saw the demise of a popular restaurant and bar located in Media City. Located on the 43rd floor of the Media One Hotel, (and hence the name Q43), it was a popular after-work hangout for office staff working in the environs. Q43, operated by Solutions Leisure Group, which also owns Asia Asia, Lock, Stock and Barrel and STK brands, is the latest such outlet to close. There is no doubt that the F&B sector has been battered, facing monthly losses of up to US$ 300 million in staff salaries, housing and benefits, excluding rents and operational costs.

The interbank lending rate has slipped to a several-year low, settling at 0.75% and 1.1% for the six-month and one-year rates respectively – down from the 2.20% and 2.28% rates earlier in the year; the three-month and one-month rates are currently at 0.62% and 0.33%. For some, this is good news as EIBOR is used for various lending rates which will normally result in lower mortgage and lower business costs.

DIFC and Jiaozi Fintech Dreamworks signed a Memorandum of Understanding that will support the UAE in facilitating the ‘Belt and Road’ economic initiative. The partnership, with one of China’s first Fintech innovation and entrepreneurship platforms, will also assist the Dubai centre, already in the world’s top ten FinTech hubs, to further strengthen and enhance relationships with the global financial community. DIFC, already home to over two hundred FinTech related companies, will also benefit from a myriad of opportunities offered by its new Chinese partner.

DIFC will be the MENA base for Startupbootcamp, one of the global industry-focused start-up accelerators and part of the corporate innovation and venture development firm Rainmaking. This is another step by the centre, which is currently involved in a three-month programme to help local start-ups, to enhance its international stature as a leading player. Startupbootcamp, a venture, launched in 2018 and involving Visa, HSBC and Mashreq, has already helped twenty payments, lending and Islamic digital banking FinTech start-ups.

Following a decision by the DIFC Courts, it seems that BR Shetty is facing a global freezing order on his assets, at the request of Credit Europe Bank (Dubai) which claims that the founder of NMC Health, has defaulted on a loan of more than US$ 8 million. The bank has indicated that two security cheques, apparently signed by Mr Shetty, have been “dishonoured upon presentation due to insufficient funds”. The claim also included New Medical Centre Trading and NMC Healthcare, saying that they “are jointly and severally liable” for the repayment of money initially secured through a 2013 credit agreement. The bank claimed Mr Shetty “has now fled the jurisdiction of the UAE to India” and that there was a risk of his “substantial” assets in the UAE being dissipated.

Always one known to empower his employees to move out of their comfort zones, Mohamed Alabbar has suspended all job titles across the Emaar Group, including his own ‘Chairman’ title, with business cards now showing only an employee’s name and their department. He wants to focus on ‘talent not titles’, as the group reassesses its business strategy going forward post Covid-19. In a staff memo he noted that “the recent pandemic has forced us to pause and reflect on every aspect of our business. The products we produce, the systems we use, the people we employ – and most importantly, the culture we create. The challenges we face now will be greater than ever.” With a proven track record, there is no doubt that the man, formerly known as the Chairman, will succeed in making Emaar a somewhat different, more efficient and better business entity.

Network International has invested US$ 288 million for a 60% stake in the DPO Group, Africa’s largest online commerce platform. This funding will be financed from a 10% equity placing of the Dubai-based enabler’s existing issued share capital, US$ 50 million vendor consideration shares issued to Apis Partners and US$ 13 million issued to DPO co-founders. DPO, which covers nineteen countries on the continent and services 47k merchants, has recorded annual growth in excess of 30% over the past two years, with 2019 revenues at US$ 16 million.

DP World posted an 8.8% decline, to 16.7 million shipping containers, in Q2 container volumes, with the outlook remaining uncertain, as infections begin to rise again in certain countries. The global port operator noted that the biggest fall was in the Asia Pacific and Indian subcontinent, with container numbers down 12.2% to 7.2 million. H2 figures were 5.3% lower at 33.8 million containers. The company has also announced that it has agreed to purchase a 60% stake in South Korea’s UNICO Logistics Co. Ltd. This is a continuum of the Dubai company’s strategy to add to its global network to enhance connections for both end-users and cargo owners, by improving efficiencies in the supply chain. The eighteen-year old South Korean company has twenty-five subsidiaries, in twenty countries, and is one of the largest independent NVOCC (Non-Vessel Operating Common Carrier) in the country, with links in the expanding transcontinental rail freight market, including the Trans-Siberian Railway and Trans China Railway.

For the fifth month in a row, UAE petrol prices will remain the same, with Special 95 and diesel retailing at US$ 0.490 per litre and US$ 0.561 in August. It is exactly five years ago that previously subsidised fuel prices were aligned with market prices; at the time, Special 95 and diesel were selling at US$ 0.586 and US$ 0.545 in August 2015.

In line with other local banks that reported last week, Commercial Bank of Dubai posted declines in both H1 revenue and net profit – down 6.5% to US$ 385 million and 24.3% to US$ 144 million. With operating expenses dipping 9.9% to US$ 105 million, operating profit came in 5.2% lower at US$ 280 million. Net impairment allowances, driven higher by the negative economic impact that Covid-19 has had on businesses and households in the emirate, were 30.1% higher, at US$ 135 million, whilst the non-performing loan ratio increased by 103 bps to 6.97% over the six months to 30 June. At H1 end, gross loans were 4.2% higher, compared to 31 December 2019, at US$ 18.2 billion.

DFM has seen its H1 net profit jump 21.0% to US$ 21 million, as revenue, driven by higher trading volumes, increased by 11.0% to US$ 49 million; H1 trading value was 25.0% higher at US$ 8.4 billion, compared to the same period in 2019. Q2 profit was 20.0% higher at US$ 12.0 million, with revenue up 8.5% to US$ 25.0 million. The bourse’s general index slumped by 36% in Q1 but had recovered somewhat by the end of Q2, improving by 16%. By the end of July YTD, the bourse was 64 points (3.2%) from its 01 January start of 1,987.

The bourse opened on Sunday 26 July and, 60 points (3.1%) lower the previous four weeks shed 2 points on the shortened week to close on 2,051 by 29 July – a day earlier than normal because of the Eid Al Hada break. Emaar Properties, US$ 0.04 lower the previous fortnight, closed down US$ 0.01 on US$ 0.70, whilst Arabtec, up US$ 0.09 the previous three weeks, remained flat at US$ 0.25. Wednesday 29 July saw the market trading at 297 million shares, worth US$ 80 million, (compared to 127 million shares, at a value of US$ 41 million, on 23 July).  For the month of July, the bourse lost 14 points (0.7%) from its opening 2,065 reading. Emaar opened the month at US$ 0.75 and shed US$ 0.05, whilst Arabtec headed in the other direction, climbing US$ 0.09 from it July opening of US$ 0.16.

By Thursday, 30 July, Brent, US$ 3.69 (9.3%) higher the previous fortnight closed up US$ 0.44 (1.0%) at US$ 43.75. Gold, having climbed US$ 98 (5.4%) the previous week, had another positive week, climbing US$ 62 (3.3%), by Thursday 30 July, to US$ 1,960.  Oil output has fallen to a nine-year low, with Opec+ agreeing to cut production levels by 9.7 million bpd. Curbs are being lowered to 7.7 million bpd from this Saturday, 01 August as demand begins to move higher, as lockdown restrictions are being lifted.

In 2019, there was an 18.0% surge in global sukuk issuances to US$ 145.7 billion, of which US$ 38.5 billion (26.4%) were international and the balance of US$ 107.2 billion domestic. This was the highest value of annual sukuk issuance ever since its 2001 launch. International issues were 16.6% higher, with an 18.9% hike for domestic, driven by three countries accounting for 84.1% of the total – Malaysia (US$ 54.0 billion), Saudi Arabia (US$ 18.9 billion) and Indonesia (US$ 17.3 billion). US$ 76.4 billion or 81.3% of domestic issues were long-term sukuk.

Rio Tinto has posted a 20.0% fall in H1 profit to US$ 3.3 billion driven by significant declines in copper and aluminium prices, even though Chinese demand nudged iron ore prices were 1.0% higher, year on year. The miner’s underlying earnings — excluding a range of one-off costs — were down just 4.0% to US$ 4.75 billion. Despite the rather large decline in profit, the company will still pay a US$ 1.55 interim dividend. The efficiency of Rio Tinto can be seen that it is estimated that its iron ore production costs are US$ 14.50, and the spot price is currently US$ 100.

L Catterton seems set to bring the Australian swimwear brand Seafolly back into its fold, after June’s appointment of KordaMentha as voluntary administrators of Seafolly and sister brand Sunburn. The Australian investment group’s portfolio also includes Jones the Grocer, RM Williams and 2XU. The liquidator decided to appoint L Catterton the preferred bidder, out of fifteen formal expressions of interest for the iconic beachwear brand, because “it provided the best return to all creditors including its suppliers”. The bid may have been enhanced by its promise to forgo any payments it might have been entitled to as the brand’s major creditor; stakeholders will vote on the arrangement on 03 August.

Huawei has become the biggest seller of global smartphones, shipping 55.8 million devices in Q2, compared to Samsung’s 53.7 million, mainly attributable to the fact that China was the first country to come out of lockdown. The Chinese telecom actually reported a 27% decrease in overseas shipments, more than offset by the fact that Huawei accounts for 70% of all smartphones sold in China. Its main competitor, Samsung was hit hard by Covid-19, with shipments dropping by up to 30% but still saw Q2 operating profit 23% higher, driven by the increasing number of the population working from home. Demand for computer chips has seen margins improve, as prices nudged higher, whilst orders for cloud applications, relating to remote working and online education, moved higher; people staying at home and utilising internet-based services, including video conferencing and movie streaming, added to Samsung’s revenue stream. Other leading memory chipmakers, such as rival Korean producer SK Hynix and US firm Micron Technology are benefitting for the same reason, with the former posting a tripling of Q2 profits. Samsung will launch its new Galaxy Note and Galaxy Z Fold handsets in Q3.

It appears that Boeing will delay the debut of its new 777X jet by up to a year, (as the coronavirus crisis has seen customers cut back on potential orders), to see what direction the industry will take post Covid-19. The current US-Sino spat has also resulted in certain Chinese orders in doubt until trade normalcy returns. It is reported that Emirates, the biggest customer for the plane, does not expect delivery until next year. The manufacturer, already behind schedule because of issues with its GE9X engines and other glitches, is continuing with the 777X test flights. As this will be the first new jet to be introduced since the grounding of the 737 Max, it is expected that it will face extra scrutiny from not only the US Federal Aviation Administration but also other global aviation regulators.

BA’s parent company, IAG, (which also owns Iberia and Air Lingus), is looking at a US$ 3.3 billion rights issue to strengthen its balance sheet, battered and bruised by the impact of Covid-19. Unlike other major carriers, such as Deutsche Lufthansa, Air-France KLM and major US carriers, BA did not receive direct state aid; however, it did benefit from government wage support programmes. IAG has extended its global commercial partnership with American Express for an air miles deal and will receive a payment of almost US$ 1.0 billion. Having posted a Q1 operating loss before exceptional items of US$ 630 million (Q1 2019 – US$ 158 million profit), and because of the impact of the pandemic, the airline has introduced a tough cost reduction strategy including staff cuts, retiring its fleet of 747s, three years earlier than planned, and deferring delivery of sixty-eight aircraft. The bad news is that BA will make an even bigger quarterly loss in Q2 and, with passenger demand not expected to return to 2019 levels until 2023, further major group-wide restructuring measures will be required.

The Johnson government introduced a surprise and sudden 14-day quarantine last Saturday on people arriving in the UK from Spain, (and is currently closely monitoring Germany and France, as cases increase there). This followed a spike in that country’s coronavirus cases, with more than nine hundred new cases reported on Friday, and officials warning a second wave could be imminent, as major cities have seen cases surge. Tui, the UK’s biggest tour operator, cancelled all flights to mainland Spain until 09 August but will continue to travel to the Balearic and Canary Islands as from Monday.  Other operators including BA, Ryanair, easyJet and Jet 2 will maintain normal scheduling, although easyJet is cancelling all its Spanish holidays. Airlines and the travel companies were unanimous in expressing disappointment at the government decision, with some suggesting that testing should be introduced at airports to avoid the need to self-isolate automatically.

Consequently, London-listed shares of airlines and tour operators fell sharply on Monday dealing a blow to an industry, already reeling from the downturn. The likes of EasyJet, IAG, On The Beach, Ryanair, Tui and Wizz Air were all down between 4% – 13% on the day.

Tui is set to close over 32% of its 500+ UK outlets but hopes that the 630 staff involved will be  with redeployed in a mix of sales and home-working roles and in remaining stores; it has already shut overseas customer services centres in Mumbai and Johannesburg. In May, the tour company announced that 8k worldwide jobs would be lost in a major restructuring programme to cut costs. There is no doubt that Covid-19 has accelerated customers’ purchasing habits with the trend moving to on-line – rather than to face – meetings.

The latest major retailer to announce staff cuts is Selfridges, with 450 retrenchments, (14% of its workforce), as annual revenue is set to be “significantly less” than last year, as a result of not only Covid-19 but also fundamental changes in shopping habits which had been evident for some time. Senior management realise the need to restructure the company so as it keeps ahead of its competitors and embraces the impact of e-commerce on the way the High Street operates in the future. The double whammy of the scarring impact Covid-19 will have on the economy – including the retail sector – and the need for rapid change and restructuring of the business at the same time, will see Selfridges, and others, experiencing their worst year ever.

The existing backers of troubled Debenhams have started plans that they hope will see new owners in place by the end of September. There could be various outcomes, including a sale to a third party, a potential JV with new investors or the current owners retaining ownership. Even before the onset of Covid-19, Debenhams had been struggling with the shift to online shopping and being taken over by lenders last year, and the pandemic has only exacerbated their problems. Potential suiters include a Chinese consortium and billionaire Mike Ashley, who owns rival House of Fraser and has failed in earlier bids to buy Debenhams. Since lockdown restrictions have been eased, the retailer has reopened 124 of its 142 shops.

Lloyds Banking Group posted a pre-tax  H1 loss of US$ 780 million, as its impairment provision for bad debts jumped to US$ 3.2 billion, pushing its total provision to nearly US$ 5 billion, as income fell 16.0% to US$ 9.6 billion; its net interest margin fell 20 basis points to 2.59% The UK’s largest bank made a US$ 3.8 billion profit last year. On the news, the bank’s shares dipped 9.0% to an eight-year low.

In a bid to sell Asda in the UK, Walmart has requested interested parties, reportedly including the likes of private equity firms Apollo Global Management, Lone Star Funds and TDR Capital, to submit second-round bids by early September. The UK grocery unit, which has been on the market for at least the past two years, could be worth as much as US$ 10.0 billion. A proposed 2018 agreement to sell to J Sainsbury for US$ 9.4 billion was scuttled by UK antitrust authorities.

With online food sales almost doubling during the pandemic, Amazon has decided it wants some of the action in the UK and its ambitious aim is to be serving millions by year-end. Amazon Fresh, (founded in 2016 and with an estimated fifteen million customer base), is to offer same or next-day grocery deliveries for customers in London and the Home Counties. To date, shoppers have had to subscribe to Amazon Prime and also to pay a monthly fee or a charge per order but from Tuesday all orders above US$ 52 have been delivered free. It has about 10k products, including fresh, chilled and frozen food, and aims to roll out the same quick and free grocery service to “multiple cities” by the end of this year. There is no doubt that the latest move by Amazon will disrupt the market, as their ambition is usually to be the biggest player in every “game” it plays; Amazon Fresh has no need to – and has not – given sales figures or customer numbers since its inception. The worrying factor for competitors, with Amazon now after a bigger slice of this fast-expanding market, is that the tech giant does not need to make a profit which will make it very difficult for grocers to compete in the online sales sector.

Having apparently agreed a US$ 450 million deal to acquire Newcastle FC from Mike Ashley, in April, a Saudi Arabian-backed consortium has ended its bid. The agreement was being discussed under the EPL’s owners’ and directors’ test and has dragged on since then. It appears that the three entities involved – Saudi’s SWF, PIF, PCP Partners (including Amanda Staveley) and Reuben Brothers – ran out of patience and pulled out the deal with “regret”. There is every chance that American entrepreneur, Henry Mauriss, may enter the race to buy the club. There had been opposition by various groups to the takeover and there is every possibility that the “suits” did not want to get embroiled in any potential political problems – and sat on the fence for too long.

It has been reported that, in H1, 381k cars were manufactured in the UK – 42% lower than the total this time last year, and the lowest in sixty-six years; during the period, it is estimated that 11.3k jobs have been lost at carmakers and companies which supply them with parts and services.  In June, car production was 48% lower at 56.6k. The sector has been hit with a triple whammy – Covid-19, the possibility of Brexit tariffs on the horizon as the UK leaves the EU starting 01 January 2021, and the fact that global sales have been heading south for some years. At the beginning of the year, the UK was looking at producing two million vehicles – now it seems that this figure could be less than half that number.

With Nissan forecasting an US$ 4.5 billion loss this year (to 31 March 2021), its shares have plunged by 10% in Tokyo, as the virus plays havoc with its turnaround plans (post Carlos Ghosn) and sales expected to be the lowest in a decade. Japan’s second largest carmaker is worried that a second wave of the pandemic would cause even further devastation for the company, as well as the global industry which is already struggling. With June quarter sales 50% lower in the US and 40% down in China, global sales were off 48%. Even with a four-year plan to cut production by 20% and slash costs, figures like these will see the carmaker continuing to post losses in the future. With its YTD share price down by a third, and its liquidity tightening, it seems that Nissan may just run out of time to introduce the changes that it needs to turn the company back on track.

McDonald’s has had a turbulent few months since the onset of Covid-19, reporting a 23.9% slump in Q2 same-store sales and its worst quarterly results since 2005. The main drag on revenue was a 41.4% plunge in its international operated markets. The situation will improve, as the fast food company confirmed that all but 4% of its international operations are now open and that its US domestic market is almost back to normal, with June sales only 2.3% lower, year on year.

Najib Raza, Malaysia’s PM for nine years to 2018, has been found guilty on all seven counts, in his first of several corruption trials, and sentenced to twelve years in jail for abuse of power and ten years for each of six counts of money laundering and breach of trust. Najib had been leader of the UNMO party, which lost power in the 2018 election after ruling the country for all sixty-one years since its independence from the UK. This case centred around the 1MDB state-owned wealth fund scandal and involved US$ 10 million transferred from the fund to Najib’ personal account. Set up in 2009, when the accused was PM, the 1 Malaysia Development Berhad was supposed to be used to boost Malaysia’s economic development but six years later, worries began that payments to banks and creditors were being missed. Since then, both Malaysian and US authorities believe that US$ 4.5 billion had been hived off into private hands and used to illicitly purchase luxury real estate, a private jet, Van Gogh and Monet artworks – and even to bankroll the film, ‘Wolf of Wall Street’. Strangely, the former PM, had been cleared of all allegations by Malaysian authorities while he was still in office.

There could be some pointers for the local economy on what is happening on the Australian employment front. It has been reported that more than 56% of the early coronavirus recession job losses (of 800k) were under-30s and that this group had seen almost zero real wage growth since the GFC. However, this ratio is swinging more to the older group who will also feel the pinch, when the recovery hits in, as employers will focus on more tech-savvy younger hires. At the start of the crisis in March, job losses were linked to businesses that were forced to close facilities such as shops, restaurants, gyms and theatres, as well as the travel and hospitality sectors witnessing revenue streams almost drying up.

Now other sectors – including accounting, legal and other professional offices, media and retail – are beginning to see jobs being shed, most of which will never be replaced. Now it is the turn of the older age group, in the higher-skill sectors, to face the brunt of the redundancies; they are losing jobs at a greater rate than the other skill levels in the same age group. It appears that the big companies and major professional offices have begun culling at the senior level and there is every chance that many of those white-collar vacancies have either been lost forever or will be replaced by younger – and cheaper – staff.

However, there is no doubt that the economic scarring will be faced across the whole economy and history shows that the young will also not miss out from the carnage. Australia’s Productivity Commission forecasts that Covid-19 will reshape the workforce, just as it has done in previous downturns. The report indicated that following the GFC, “from 2008 to 2018, young people had more difficulty getting jobs in the occupations they aspired to. And, if they started in a less attractive occupation, it was even harder than before 2008 to climb the occupation ladder.” It opined that after the GFC, although it took five years for employment for people aged under 35 to recover, it involved more casual work (with less full-time positions) and lower pay. The GFC post-decade also saw ten years of zero real wage growth for those between 20-34 and for those in the 15-24 age bracket a large decline in full-time work and an increase in part-time work.

In the US, the Republicans are planning to spend an additional US$ 1 trillion to ameliorate the economic damage from Covid-19 which will include a further US$ 100 billion for schools and extra US$ 1.2k stimulus payments to most of the country’s citizens. (It is no coincidence that presidential election day is less than one hundred days away). The plan will also include legislation to protect businesses from workers’ coronavirus health claims. To date, the Trump administration and the Fed Reserve have pumped in more than US$ 2.4 trillion into the economy but this has evidently not been enough. Indeed, the Fed has just extended its emergency lending facilities, another three months to 31 December, in a further bid to help the economy ride out this deepening crisis. Meanwhile, the US$ has slipped to a two-year low, as the Fed’s action shows  that it is in no rush to raise historically low interest rates, trading on Thursday at US$ 1.304 to sterling and US$ 1.179 to the euro, and preferring to let inflation move higher than it has previously indicated.

Over the past week, more than 1.4 million people have filed new unemployment claims, with the economy having lost over fifteen million jobs since February and 20% of its workforce collecting unemployment benefits. It has been estimated that over 50% of US adults have seen incomes cut since the onset of the pandemic. However, there is a worry that the current benefits result in an estimated 66% of recipients getting more from unemployment than they do from actually working which may encourage some to remain unemployed.

The Institute for Fiscal Studies has estimated that, to date, UK government measures to fight the impact of Covid-19 have cost the UK taxpayer almost US$ 250 billion, equivalent to 9% of the country’s GDP. New measures introduced this week by Rishi Sunak include new financial assistance for the arts sector to add to the already introduced Coronavirus Job Retention Scheme, some tax holidays and deferrals for business and additional welfare benefits. It has been estimated that the US has already pumped in US$ 2.3 trillion into Covid-19 related measures, equating to 11% of its GDP, with most of the funds going into the likes of the Coronavirus Aid, Relief, and Economic Security Act, or Cares Act as well as more than US$ 500 billion extra for individuals in the form of tax rebates and unemployment benefits.

In Germany, government spend has been estimated at around 5% of GDP to cover extra spending on healthcare and vaccine research. It has also introduced Kurzarbeit which assists businesses to retain workers by putting them on shorter hours, while covering some of the worker’s loss of income. There have also been grants to SMEs and self-employed people, along with interest-free tax deferrals, as well as a temporary reduction in value added tax. To date it has increased its overall spending by about 5% of its GDP but further increases will be seen in August. Measures taken include postponement of tax and national insurance payments, extending unemployment benefits, boosting national insurance and further financial support for SMEs and the self-employed.

What is common to all four economies is that governments have poured in billions of dollars to try to negate the impact of Covid-19. Only time will tell whether these actions, and the amount of money used, have been the right approach. What is certain is that there will be a huge debt having to be repaid by the respective governments – and it is usually the poor taxpayer left to pick up the pieces. At the same time, banks will be left with huge impairment losses – as many loans cannot be repaid. No guesses who will bail out the banks.

The German economy shrank at its fastest rate on record amid the impact of Covid-19 . Official data shows a “massive slump” in household spending, investment in equipment and machinery and in exports and imports. The country, the world’s fourth largest economy, is a leading export nation, and has been badly hit by global trade being ravaged by international trade disruptions. There are signs that the worst could be over, unless there is a second wave of the pandemic which is on the cards as Germany has recently seen a rise in its infection rate. Latest figures indicate an uptick in industrial production and retail sales, but whatever happens the German economy will be scarred and, although it will climb out of recession next quarter, it will be a long time before it returns to pre-Covid levels.

If the news from Germany was bad, what can be said of the US economy’s Q2 performance, as it shrank by a record 32.9% annual rate (9.1% on the quarter) and the three times worsethan the previous 10% record set in 1958.  Some of the fall has been blamed on reduced spending on healthcare and consumer goods. Like Germany, economists expect a bounce back in Q3 but that comes with the rider that increased virus cases do not result in further shutdowns.

Heads of the four leading US tech companies – Jeff Bezos, Mark Zuckerberg, Sundar Pichai and Tim Cook – have appeared before lawmakers in Washington. There are concerns that the four companies – Amazon, Facebook, Google and Apple – have been abusing their power to quash competition and with being involved in anti-trust behaviour. There is an increasing number of lawmakers leaning to introducing tougher regulations to curb the power of these companies that some feel are too big to fail, with some even calling for a break-up of these tech monoliths. Democratic David Cicilline said that a year-long investigation had concluded the online platforms had “wielded their power in destructive, harmful ways in order to expand”. Not surprisingly, all four insisted they had done nothing illegal and stressed the American roots and values of their firms. There are also concerns that they do not do enough to remove hateful rhetoric and false information and sometimes show political bias. One certainty from this e-meeting is that nothing will be done, and these tech companies will just carry on as before.

There are reports that Swiss prosecutors have launched legal proceedings against Fifa president Gianni Infantino, relating to an alleged secret meeting with the Swiss attorney general Michael Lauber. Subsequently, the lawyer has offered to resign for covering up the meeting and lying to supervisors about investigations into corruption surrounding the world football body which has not been immune from scandal in the past. The case is being led by special prosecutor Stefan Keller, who has now opened proceedings against both men and will review criminal complaints against them and others. Here We Go Again!

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Go Your Own Way!

Posted on July 25, 2020 by howesdubai

Go Your Own Way                                                                                         23 July 2020

Latest figures from Moody’s Investors Service just confirm a 30% fall in Dubai property prices since mid-2014 and the sector is currently still in bear territory in an economic environment rattled by Covid-19 and sluggish oil prices. Until the supply/demand returns to some form of equilibrium, which can only arise if supply falls and demand increases, then slower home sales and lower rentals will continue. The agency does not see an improvement over the next twelve-eighteen months but that seems fairly pessimistic, especially if Dubai can ramp up its tourism and retail sectors, whilst introducing measures to boost consumer confidence battered by the current crisis. Moody’s expects Dubai homebuilders’ gross margins will continue to decline, as sales prices head south in a weakening market.

Over the past four months, most of which time the emirate was in lockdown, Nakheel managed tosell almost 250 properties, valued at US$ 163 million, 205 of which were for ready-to-occupy villas. The most popular location was Nad Al Sheba, where the developer sold out phases one and two last month and just released phase three. Al Furjan was also another sought-after location, with thirty-five ready homes sold since March.

The DIFC is proceeding well to achieve its 2024 target of tripling its size, as H1 figures indicate a 25% jump in the number of firms operating rising by 310 to 2.6k, of which 820 are financial firms; over the past six months, 87 Fintech firms, including Ripple and Kofax ME, joined the free zone – a 74% increase. New arrivals included the likes of Decimal Factor Funding Souq, Gazprombank and Tata Asset Management. It was estimated that the total size of the wealth and asset management industry expanded to US$ 422 billion, with other activities rising to US$ 276 billion.  

The ravaging impact of Covid-19 has had on the aviation sector can be seen from just two statistics from Dubai International. Before the pandemic, the airport dealt with 1.1k flights every day that fell to just seventeen a day as soon as lockdown was introduced in mid-March. In the monthof May the total number of passengerswas 44k – equivalent to what the airport was used to handling in four hours of a normal day. Now Emirates is slowly trying to return to some form of normalcy and has introduced a limited network which will see the carrier flying to fifty-eight cities – almost one third of the total 157 it was operating pre-pandemic.

Probably it is a good time for the Dubai Chamber of Commerce and Industry to look into the problem of late payments to subcontractors and suppliers, and a way to solve this long-standing problem which has a negative impact on the sector and has been a drag on Dubai’s economy. One of its main aims is to create “tools and processes” so that the settlement of outstanding bills can be speeded up. A recent Chamber study noted that 72% of the total value of outstanding business-to-business invoices were overdue, taking an average 94 days to settle, compared to 52% across the rest of Asia – some way off the thirty-day target pledged by the Dubai government.

After a couple of weather delays, the first Arab mission to Mars launched on Monday, making the UAE the first Arab country to send a probe to the red planet. The Al-Amal (‘Hope” in English) probe joins similar Chinese and US expeditions, all taking advantage of the unusual closeness of the two planets – Earth and Mars – being only 55 million km apart. If all goes to plan, Hope will start orbiting the planet next February and will spend the next Martian year (687 earth days) orbiting the planet, with the aim of studying its weather dynamics.

It seems that the Dubai could be one of the first out of recession, as economic activity improves on the back of monetary and fiscal support, along with restrictions being increasingly eased due to a reduction in the number of Covid-19 infections. Countries, such as the UK and Australia, will not feel the real pinch until October, when their government furlough schemes, which have helped “shelter” their economies during the pandemic, are lifted. Dubai took the hard decision not to follow suit but did introduce major economic stimulus measures and bank support initiatives, (such as zero interest funding to banks to boost lending growth), to underpin the market and boost investor confidence. Undoubtedly, the emirate has not escaped the negative economic impact of Covid-19 and there have been inevitable retrenchments and business closures.  Now it has to get the services sectors up and running as quickly as possible and, with a government, known for quick and decisive decision-making, this will be done. On top of that, if energy prices head north, the country’s economy will receive a fillip, with oil around the US$ 60 level.

Emirates became the first global airline to allow customers to claim US$ 642k in medical expenses, plus IUS$ 428 per day for fourteen days, if they were to be diagnosed with Covid-19 during their travel while away from home, regardless of class of travel or destination. This will be effective until 31 October, with the cover remaining valid for 31 days. Emirates’ chairman, Sheikh Ahmed bin Saeed Al Maktoum, hopes this move will boost confidence for international travel with passengers “seeking flexibility and assurances should something unforeseen happen during their travel.” This innovative move will surely boost the number of tourists holidaying in the emirate.

According to the online learning platform Coursera, the UAE is a global leader in business talent and is ranked fifth worldwide in business skills like management, marketing and sales. In its 2020 Global Skills Index, the country comes to 50th in data science which emphasises mathematics and statistics and underpins automation.

The recently introduced Emirates Loto has been temporarily suspended so that a planned system upgrade can be implemented. The weekly fatwa-approved lottery draw, with potential cash prizes of up to US$ 13 million, is expected to return in Q4. The last draw, at the beginning of the month, saw two punters, selecting five of the six drawn numbers, each winning US$ 136k.

Arabtec, the country’s largest-listed contracting company, with a workforce of more than 45k, announced that its subsidiary, Target Engineering Construction Company, had been awarded a US$ 53 million contract for the replacement of storage tanks at Saudi Aramco’s Ras Tanura refinery in Saudi Arabia.

Etisalat posted a 3.0% hike in H1 profit (after royalty payment) to US$ 1.25 billion, on revenue of US$ 7.0 billion; consolidated EBITDA (earnings before interest, tax, depreciation and amortisation) came in with a 52% margin, totalling US$ 3.6 billion. The group has a subscriber base of 146 million, of which ten million access free browsing to over eight hundred websites related to education, health and safety.

There were disappointing – but expected – results from some of Dubai’s financial institutions this week. Because of the Covid-19 impact on the liquidity and profitability of their personal and business clients, as well as historic low interest rates, all banks have had to review their potential bad debts that will inevitably head north resulting in a jump in impairments -and much lower margins.

Emirates NBD reported a 45% slump in H1 profit to US$ 1.1 billion, distorted by the fact that last year’s comparative figures included a non-repeated gain on disposal of its stake in Network International; if this were excluded, the profit decline would have been 24.0%; Q2 profit was 57.8% lower at US$ 545 million. It did see a massive increase in its impairment provisions from US$ 335 million to US$ 1.14 billion.  Dubai’s largest bank saw its total income 33.0% higher at US$ 3.4 billion, driven mainly by higher fee income from the inclusion of its Turkish unit, DenizBank and its net interest margin rising to 2.84%. By 30 June, the bank’s total assets were 2.0% higher, at US$ 189.1 billion, and is loans up 1.0% to US$ 125.6 billion, but customer deposits were 2.0% down at US$ 125.6 billion.

Meanwhile, its sister bank, Emirates Islamic, posted an H1 profit of just US$ 3 million (H1 2019 – US$ 183 million), as its total income declined 15% to US$ 300 million. Its total assets dropped 1.0% to US$ 17.5 billion whilst its balance of customer accounts remained flat at US$ 12.3 billion, although, with a headline financing to deposit ratio of 90%, it remains in a healthy liquidity position.

Mashreq posted a 56.0% slump in H1 profit to US$ 146 million, with impairments more than doubling to US$ 266 million, while total operating income slid 8.0% to US$ 763 million. The bank, controlled by the Al Ghurair family, reported that there were jumps of 8.3% in customer deposits to US$ 26.9 billion, and 8.7% in total assets to US$ 47.2 billion; loans and advances remained flat at US$ 20.8 billion. Q2 profit slumped 86.0% to US$ 23 million, on a 13.0% income decline, to US$ 354 million, as impairment allowances rose 158% to US$ 155 million.

Dubai Islamic Bank reported a 23.0% fall in H1 net profit to US$ 572 million, on total income of US$ 1.9 billion. UAE’s largest Sharia-compliant lender posted a 192% jump in impairment losses to US$ 572 million, as operating expenses rose 22.0% to US$ 401 million. Over the six-month period, the bank’s net financing and sukuk investments were 29.0% higher at US$ 64.6 billion and customer deposits 26.0% higher to US$ 56.3 billion. Earlier in the year, DIB acquired rival Noor Bank to create one of the largest global Islamic banks, with more than US$ 75 billion in assets. Last month, the bank closed a US$ 1.0 billion five-year Sukuk with a profit rate of 2.95% which was 4.5 times oversubscribed.

Following recent problems with some stakeholders requesting the regulator to investigate valuation calculations by Emirates Reit and its fund manager, Equitiva, the board is discussing whether to delist from Nasdaq Dubai. Some feel that operating as a private Reit could be in the “best interests” of the fund, with “advantages of remaining publicly listed heavily outweighed by the disadvantages.” The “problems” have seen its share price on Sunday trading at US$ 0.15, whereas its net asset share value was US$ 1.41, “exacerbated by a cyclical downturn in the UAE real estate sector and a challenging operating environment.”

Dubai-listed Amanat Holdings has signed an SPA (sale and purchase agreement) with Study World Education Holding Group to divest of l its Middlesex University Dubai campus; no financial deals have been released to date but there would be an update if and when there were any material developments. The six-year old Dubai-listed company, with interests in both education and healthcare, acquired the Dubai campus, with 3.5k students, for US$ 100 million in 2018, from the liquidators of private equity firm Abraaj Group. Study World Education, founded by Indian businesswoman Vidhya Vino, operates schools in Dubai, India, Sri Lanka and Malta.

The bourse opened on Sunday 19 July and, 60 points (1.4%) lower the previous three weeks remined flat on 2,053 by 23 July. Emaar Properties, US$ 0.03 lower the previous week, closed down US$ 0.01 on US$ 0.71, whilst Arabtec, up US$ 0.05 the previous fortnight, continued its recent good run and gained US$ 0.04 to US$ 0.25. Thursday 23 July saw the market trading at 127 million shares, worth US$ 41 million, (compared to 193 million shares, at a value of US$ 45 million, on 16 July). 

By Thursday, 23 July, Brent, US$ 1.13 (2.8%) higher the previous week closed US$ 2.56 (6.3%) higher at US$ 43.31. Gold, having shed US$ 6 (0.9%) the previous week, had its best week for some time climbing US$ 98 (5.4%), by Thursday 23 July, to US$ 1,898.  The safe-haven commodity is nearing the US$ 1.9k level for the first time since 2011, mainly caused by the deterioration in US-Sino relations which has added a further dimension to fears of a global economic recovery, following the negative impact of the coronavirus pandemic.

In a US$ 5 billion share sale announced this week, Chevron has acquired Noble Energy in the energy industry’s first major deal since the onset of Covid-19 and the largest since Occidental Petroleum acquired Anadarko Petroleum in 2019. This will see Chevron’s proven reserves jump 18% and enhance its presence in the heartland of the US shale boom, (which is currently in a major downturn), in both the Denver-Julesburg Basin of Colorado and the Permian Basin.

Despite the Covid-19 impact, Rio Tinto posted a Q2 1.5% hike in iron ore shipments to 86.7 million tons, driven by Chinese efforts to ramp up infrastructure and construction spending to boost its flagging economy. Iron ore is an integral part of the world’s biggest miner and iron ore accounts for more than 80% of Rio’s underlying earnings. The miner reported a 3% decline in Q2 production of mined copper.

It is reported that, although the Tata Group stated that no decisions had been made,  two blast furnaces in Port Talbot could be closed, (to be replaced by electric arc furnaces), with the loss of “thousands and thousands” of jobs. The unions are concerned that they have not been involved in any discussions with Tata management, but the company has been in talks with the UK government. Steel production is the mainstay of the local economy, accounting for about 50% of all jobs in the Welsh town and it is easy to see the devastating effect that any closures would have on the community. It is no secret that the steel industry was struggling even before the onset of Covid-19 and since then customer demand has plummeted.

Because of the impact that Covid-19 has had on the aviation sector, BA has decided to retire all its remaining thirty-one 747s, with immediate effect. The airline, which is the largest operator of the plane known as ‘queen of the skies’, has been badly hit by a drastic downturn in travel and the new environment is pointing to fewer passengers and fewer planes. Furthermore, the 747 was far less efficient than the latest twin-engine models and more expensive to operate than the likes of the Airbus A350 and the 787 Dreamliner. IAG, the owner of BA, had originally planned to run the jumbo until 2024 but Covid-19 has brought the date forward. According to Moody’s, airline passenger demand will not recover to pre-coronavirus pandemic levels until the end of 2023 – and that is dependent on the availability of a vaccine.

In the UK, Azzurri Group has announced that it will close 25% of its 300 Zizzi and Ask Italian restaurants that could result in 1.2k retrenchments but keep 5k in work, driven by the impact of Covid-19. The group, which also owns Coco Di Mama, has been sold out of administration to Tower Brook Capital Partners. Only last month, The Restaurant Group, which owns Frankie and Benny’s, reported the closure of 125 location and the loss of up to 3k jobs.

Dyson confirmed nine hundred redundancies of which two thirds will be in the UK, as the coronavirus impact speeds up the company’s restructuring plans; it has a global work force of 14k, (in eighty countries), with 4k in the UK. Because consumer shopping habit are turning to online, most of the retrenchments will be in the retail and customer service roles. Most of Dyson products are designed in its two UK technology campuses but manufacturing takes place in Asia. Last year, the tech company pulled out of making electric cars because it was not “commercially viable”, although it had developed a “fantastic electric car”.

Covid-19 has helped boost buy now, pay later service Klarna which has seen its revenue booming, with the UK company reporting increases of 105% in running shoes, 60% in beauty product sales and “significant uplift” in purchases of bicycles and cycling accessories. However, the company has had to tighten its buying rules to try and maintain potential bad debts to a minimum (currently less than 1%) because of the financial uncertainty arising from the lockdown. In recent years, the number of such on-line companies, including ClearPay and Laybuy, has grown and are now being used by over eight million customers. The industry grew an estimated 39% last year and is expected to double in size by 2023.

In the UK, clothing companies, including Boohoo and Quiz, have been accused of using unethical suppliers in Leicester, where there are fears that factory workers have been underpaid, exploited and unprotected from Covid-19. The UK minimum wage is US$ 11.15, whilst there are reports that Quiz has suspended a supplier after it was found paying just US$ 3.84 an hour to make its clothes. It is estimated that up to 20k in Leicester alone have been “enslaved”, with employers using forced labour, debt bondage and mistreatment as normal behaviour. So many would have known what has been going on for years, but it seems, just like the “child grooming” scandals, they just turned a blind eye and let this scandal continue. The National Crime Agency has also confirmed it is investigating Leicester’s textile industry over allegations of exploitation.

Latest data shows that the UK retail sector returned to almost pre-lockdown levels in June with a 13.9% rise, month on month, following record falls in April and a partial recovery in May. However, there has been a marked change in customer shopping habits, with food and online sales up, while clothing was still “struggling”. In comparison with February, the volume of food sales was 5.3% higher, while non-store retailing grew by 53.6%; on-line sales continue to go from strength to strength, now accounting for almost 32% of the total retail business. However, non-food stores, including department stores and clothes shops were still 15% lower than in February, as reports indicate that shoppers are in for more staples and fewer impulse purchases; the knock-on effect on the High Street is that sales are down by about a third.

However, with retail only accounting for about 20% of the economy, the latest “flash” PMI rose to 57.1 in July, up  from June’s 47.7 – the first time since February the level has been above the threshold level of 50, which delineates between expansion and contraction. On the surface, it seems that the economy has recovered well but the scars will remain for some time and a total recovery will take a lot longer. Manufacturing and construction are slowly returning to some sort of normalcy but when they can reach pre-Covid levels remains to be seen and a clearer picture will emerge only after the government furlough schemes are closed down in October. Another problematic factor is “social spending” and whether services spending in restaurants, bars and hotels will ever return to their previous levels especially with social distancing still in place. Even in the unlikely event of restrictions being lifted, an expected doubling in the unemployment rate will surely have a negative effect, as discretionary spending will be reduced.

Having jumped more than 60% YTD, Netflix shares took a tumble, plunging almost 15% last Friday, on the back of disappointing Q3 subscriber forecasts of 2.5 million, with the market expecting double that number; its market value stood at US$ 232 billion after posting an increase in Q2 revenue to US$ 6.2 billion. There is no doubt that all is not well at the world’s largest paid streaming service, as H1 saw 10.1 million new subscribers bringing the total to 193 million, driven by the Covid-19 lockdowns which saw so many being forced to stay at home – and signing up. To be fair to the company, it did warn as early as April that this rapid growth could not continue but investors thought otherwise.

Goldman Sachs has finally settled with the Malaysian government over its role in that country’s 1MDB corruption scheme. It has agreed to a US$ 3.9 billion settlement after it had been accused of misleading investors when it helped raise US$ 6.5 billion for the government fund, with prosecutors claiming that billions of dollars were ultimately stolen – including by some of the bankers involved – to buy art, property, a private jet and super-yacht as well as to help finance the Wolf of Wall Street film. There is no doubt that the bank’s reputation has been sullied by the scandal, with twelve of its executives charged in Malaysia last year. The bank still faces possible charges in the US related to the deal, which prosecutors estimate earned the firm abouEU Stimulus, t US$ 600 million., with a penalty that could wipe out its Q2 profit.

It is estimated that short sellers have lost US$ 1.5 billion betting against Moderna, as it has climbed 370% to a market cap of US$ 36 billion. The high-flying vaccine developer biotech has reportedly developed a Covid-19 vaccine, with the company set to shortly start a final-stage study. By last Friday, the biotech, having surged 6.9% to a record level two days earlier, saw a 13% boost to its share value.

Ant Group, owned by Alibaba, has finally announced its long awaited IPO, with a dual listing on the Shanghai and Hong Kong bourses; its listing had been delayed until the country’s dominant mobile payments company had “secured the full support of Beijing”. Two years ago, Ant was valued at US$ 150 billion but now it seems that the valuation will be on the top side of US$ 200 billion. Although it has changed its name from Ant Financial to Ant Group – and stressing that it is primarily a tech company – it still has 600 million users depositing funds into its Yu’E Bao money market fund, as well as providing digital financial services, such as online lending and insurance.

The ATO has summarised the results of the 14.3 million Australians who completed their tax returns for the year 2017-18, and interestingly seventy-three of the country’s millionaires did not pay any tax and the richest Australians earned thirteen time more than the poorest. The study also noted that the Sydney’s Double Bay was the suburb with highest average taxable income, at US$ 170k and Queensland’s Muttaburra the lowest at US$ 10k. The report also looked at taxable income with the medical profession – including surgeons, anaesthetists and internal medicine specialists – taking the top three highest incomes, with the first at US$ 282k. The lowest-earning professions were dominated by hospitality, with fast food cooks at the bottom of the ladder with a taxable income of just over US$ 13k. 14.9k Australians posted taxable incomes of over US$ 700k (AUD 1 million) and averaged a total tax rate of 42.5% , although seventy-three “millionaires” did not have any tax to pay. However, this group did make tax-deductible gifts and donations totalling nearly US$ 1.0 billion.

The report also confirmed that negative gearing remains a popular tax break, with 59% of the country’s 2.2 million landlords declaring a net loss on their investment properties. 81.8% of landlords had mortgages from which they could claim interest paid as taxable deductions. The average landlord claimed US$ 9k, US$ 3k and US$ 7k, for interest, capital works and “other deductions”, totalling US$ 19k on income of US$ 15k. It does seem strange that overall there were rental losses of US$ 85 million claimed but only US$ 14 million profit reported.

There are concerns that at least 1k Australian businesses could be engaged in insolvent trading, as government stimulus measures may be keeping these zombie businesses afloat. Recent data has seen about 8k companies going into administration every year – latest figures show that, despite Covid-19, that number is 7.2k – 12% lower than the previous year. There are real fears that companies still trading, when technically insolvent, can rack up additional debts that may never be repaid when they finally go under. The Australian Restructuring Insolvency and Turnaround Association estimates that at least 20% of Australian businesses, trading through the pandemic, may be in the position where they would otherwise be trading insolvent without temporary legal changes, plus government and bank financial support.

Such companies have also benefitted from the JobKeeper scheme, without which the country’s unemployment level would be north of 11% from its current 7.0% level. Worryingly, latest statistics point to the fact that there are thirteen job hunters for every vacant position across the nation and one recruiting firm estimates that the average number of applicants for each job is now nearing three hundred. The pandemic has indeed knocked business confidence on the head and with it reluctance to hire until times get better – a typical chicken and egg scenario.

Following the government’s U-turn in relation to the operations of Huawei in the UK, it seems that the Johnson administration may bow to US pressure and ban TikTok’s plan to base its international HQ in the country. It is reported that Washington may only allow ByteDance, TikTok’s owner, to keep operating if it splits from China and becomes a US company. Discussions continue between the UK’s Department for International Trade and the Chinese video sharing app, but tensions between the two governments remain high and there are fears that the Huawei spat may expand a tit-for-tat economic war. Australia has had major problems with China and has suffered economically as a consequence and if that were to happen with the UK, then that would spell big trouble for the economy.

Just like some Parisian streets, the EU has managed to cobble together an agreement on a massive US$ 1.2 trillion stimulus package for their coronavirus-blighted economies, after five days of oft-bitter arguments. Any deal was held up by a group of fiscally frugal northern nations, led by the Netherlands, who were against the amount of the package that would be spent on free grants rather than loans. It was no surprise that two of the leading proponents for dishing out grants were France and Poland. Evidently, Emmanuel Macron was so upset at “sterile blockages” by the “frugals”, that he reportedly banged his fist on the table (sacre bleu) and Polish Prime Minister Mateusz Morawiecki branded them “a group of stingy, egotistic states”. It is no surprise to see his country being the top beneficiary of the recovery package, receiving tens of billions of euros in grants and cheap loans. Other ‘fudges’ to the original proposals saw the non-repayable grants being cut by US$ 180 billion to US$ 635 billion and the same amount added to the original repayable loans balance, whilst Hungary and Poland, who were going to veto the agreement if funds were made conditional on upholding democracy, got away with diplomats patching up some sort of agreement. Go Your Own Way!

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Riders On The Storm

Posted on July 17, 2020 by howesdubai

Riders On The Storm                                                                                        16 July 2020

According to reports this week, JLL estimate that 12k units were handed over in Q1, a long way short of the 83k that was forecast at the beginning of the year – and well before the onset of Covid-19. Market stabilisation was expected to be ushered in prior to – and because of – Expo 2020, (subsequently delayed for a year), with a feeling that the real estate market was well into the bottom of its cycle and finally ready to see the process start to nudge northwards. The pandemic, which will see the loss of thousands of businesses, and up to a possible 400k jobs, has resulted in the cycle getting deeper and that any recovery will now take a lot longer to gain traction, as prices continue declining. In other words, it will not be before next year until prices come off their bottom and there could be further falls before then.

A recent Bayut/Dubizzle report indicates that Dubai H1 property prices shed less than 4.0%, with some locations posting a period of stability, when compared to H2 2019. The market has been in a downward spiral for the best part of six years and any hope of a turn in fortunes in 2020 were dashed by the onset of Covid-19. Over the six-month period, the Dubai Land Department recorded 15.9k sales transactions, valued at US$ 8.9 billion. The survey noted that Dubai Marina, Downtown Dubai, Arabian Ranches and Palm Jumeirah were the more popular buying locations, with renters more interested in the likes of Jumeirah Village Circle, Dubai Marina, Mirdif and Jumeirah. The average prices per sq ft of established residences in Arabian Ranches, Palm Jumeirah and Dubai Marina were US$ 244 (up 1.6%), US$ 552 (flat) and US$ 339 (2.2% lower) respectively. For rentals, JVC remains the favoured location for apartments, as does Mirdif for villas. Despite initial estimates of a flood of new properties entering the market this year, only 5.6k were handed over in Q2, with a further 38k slated for H1; there is no chance of this happening.

Dubai’s Crown Prince and Chairman of Dubai Executive Council, Sheikh Hamdan Bin Mohammad bin Rashid Al Maktoum, approved a US$ 308 million stimulus package to further assist the ravaged-hit Dubai economy for the next three months. For the hospitality sector, measures introduced include a 50% refund on the 7% municipality fees charged on sales, for the next three months, with the ‘Tourism Dirham Fee’ halved until 31 December. Private schools will be exempted from commercial and educational licence renewal fees until the end of the year, whilst the government has taken steps to expedite payments in both the medical and construction sectors. When it comes to international trade, fines can be paid in instalments with some of them reduced by up to 80%. To date, the Dubai government has pumped in US$ 1.7 billion to try and get the economy back on track.

It seems likely that Boeing will be unable to start delivery to Dubai of the 115 777Xs next year as planned because of the impact of Covid-19, which closed down production, and the fact that there is a lengthy certification process involved; this has arisen following the shenanigans surrounding the March 2019 grounding of Boeing’s 737 Max, after two fatal crashes. Emirates is the main customer for the new jet and will have to consider options if its debut is delayed, one of which is to swap some of the model for Boeing’s 787 Dreamliners. One thing that Covid-19 has taught the aviation sector is that smaller planes are better matched to the “new” demand, and the 787 seems to fit that bill. The Dubai airline had already converted some of its initial 2013 order for the Dreamliner, after the original 777X 2020 delivery date was pushed back a year, following delays to the plane’s General Electric Co. turbines.

With Airbus terminating the A-380 program earlier than expected, with the last of the 252 planes coming of the production line in 2022, Emirates has had to rethink its stance on the super jumbo. The airline, not only the 777X leading customer but by far the biggest in the world for the A380, expects delivery of three planes this year, probably in November, and the final two next year; these new planes will have premium economy seats, as part of its configuration, whilst some of the existing fleet will also be retrofitted with “new” seating.  It aims to maintain all 115 of its A380 fleet and expects to have 70% of them operational by the end of the year. The airline, along with all major global carriers, has been ravaged by the pandemic and has had to take drastic action, including ways to streamline operations and increase efficiencies. One possibility could be combining the back-office operations with flydubai, whist maintaining two separate companies and identities.  (Interestingly, Emirates A380 returned to the skies yesterday for the first time since 25 March, with EK001 departing for London Heathrow).

It has been reported that the airline will probably end up having to cut staff numbers by 15% to 51k, as it slowly recovers from having to ground most of its fleet at the height of the Covid-19 crisis. A reported 700 of the airline’s 4.5k pilots were given redundancy notices last week, which means at least 1.2k have been told their jobs are going since the coronavirus crisis started. This comes after the airline was “heading for one of our best years ever”, before the onset of the pandemic.

NMC Healthcare has opened its 17th CosmeSurge Hospital brand in Jumeirah. Specialising in cosmetic surgeries, the US$ 18 million facility hopes to tap into increased demand from local residents, as well medical tourism once that sector recovers from the impact of Covid-19. The hospital, with eight in-patient rooms, aims to provide the best treatment available.

In one month, from 15 June, troubled developer, Union Properties has seen its share value fall by 26.0% to trade on 15 July at US$ 0. O77, not helped by financial troubles, legal disputes and a supply imbalance in the Dubai property market. UPP is in the last throes of its debt restructuring, as its financials have continued to deteriorate; last year, it posted a 15.6% revenue decline to US$ 115 million, resulting in a US$ 61 million loss compared to a US$ 17 million profit a year earlier. Its balance sheet debt stands at US$ 490 million, with cash in hand of only US$ 71 million. The developer is hoping for a favourable outcome in its US$ 409 million legal arbitration case and this, allied with a successful debt restructuring program, could change the developer’s fortunes but this will not occur until late next year, if at all.

It is reported that a group of shareholders have called on the Dubai Financial Services Authority (DFSA) to carry out an investigation into Emirates REIT and its treatment of its investment properties’ valuations, as well as its fund’s operating expenses since April 2014. The group has called for an urgent “independent valuation”, requesting that, to avoid any bias, there should be no interference from the fund’s manager, Equitativa.

The bourse opened on Sunday 12 July and, 31 points (1.4%) lower the previous fortnight, was 29 points off (1.4%), to close on 2,053 by 16 July. Emaar Properties, US$ 0.02 higher the previous week, closed US$ 0.03 lower on US$ 0.72, whilst Arabtec, up US$ 0.02 the previous week, continued its recent good run and gained US$ 0.03 to US$ 0.21. Thursday 16 July saw the market trading at 193 million shares, worth US$ 45 million, (compared to 290 million shares, at a value of US$50 million, on 09 July).  

By Thursday, 16 July, Brent, US$ 3.14 (7.3%) lower the previous week closed US$ 1.13 (2.8%) higher to US$ 40.75. Gold, having gained US$ 91 (4.4%), the previous five weeks, was US$ 6 (0.9%) lower, closing on Thursday 16 July, at US$ 1,800. 

Although oil demand will remain below pre-pandemic levels for the rest of the year, Opec expects a growth of seven million bpd, with demand up to 97.7 million bpd, by next year. The cartel expects 2020 demand to decline by 8.9 million bpd, slightly up on the previous forecast because of a marginal increase expected from the OECD region offsetting downward adjustments in other countries. This figure is 0.8 million bpd less than the 9.7 million bpd production cuts, as Opec tries to reduce oil inventories and support the energy industry, rattled by a record plunge in demand and prices. At yesterday’s joint ministerial monitoring committee, Opec+, an alliance of oil producers led by Saudi Arabia and Russia,  decided to ease previous output restrictions, starting next month, from the existing 9.7 million bpd to 7.7 million bpd, as the demand for crude returns, amid the lifting of movement restrictions in many countries.

To finalise a deal made last year, BP has paid US$ 1.0 billion to India’s Reliance BP Mobility Limited (RBML). This gives the UK oil giant a 49% share in a new fuels and mobility JV with India’s largest private sector company, Mukesh Ambani’s Reliance Industries, that will hold the majority 51% stake. The new company hopes to ramp up its current network of fuel retail sites from 1.4k to 5.5k over the next five years, that will see payroll numbers quadrupling to 80k over that period; it also expects to expand its presence in airports by 50% to forty-five.

Over the next twenty years, it is forecast that the country will see a six-fold increase in passenger cars, to become the fastest-growing fuels market in the world.

Despite the impact of Covid-19 and the downturn in energy prices, Moody’s indicate that GCC banks have adequate capital, underpinning their solvency, helped by their combined 2019 aggregate net income of US$ 34.7 billion. It forecasts that 2020 profits will decline because “the economies of all six GCC countries will contract, sapping the banks’ two main income streams – interest on loans, and fees and commissions – while provisioning charges for loan losses will rise sharply.” The local economies will feel the negative creditworthiness impact of both corporate and domestic borrowers which will overspill into a significant bounce in non- performing loans, requiring increased provisioning charges, which will come in at a much higher level than the 2019 Moody’s rated banks figure of US$ 11.7 billion. Banks’ profits could be at least 20% lower by year end.

On the aviation front, Virgin Atlantic has announced a US$ 1.2 billion private bailout rescue package, after the Johnson government had refused any direct assistance. The airline resolved an issue that had seen US$ 250 million being held back by credit card processors. A US hedge fund and Richard Branson both came up with fresh lending of US$ 250 million, with relief on some US$ 500 million owed to Delta (delaying marketing fees and other dues) and payment concessions made by some jet-leasing firms.

South African Airlines’ creditors and the unions have agreed to a US$ 1.6 billion rescue plan for the country’s flag carrier that will see the workforce depleted by almost 80% to just 1k in the future; unions only agreed when the severances packages were improved. The only remaining problem is that the over-stretched National Treasury will have to find US$ 600 million more than previously allocated to SAA; indeed, the finance minister, Tito Mboweni, has already voiced his reluctance to put any more money into a business that has not made a profit over the past decade.

To nobody’s surprise, the UK government has banned companies from buying any new 5G equipment from Huawei after 31 December 2020 and they also have to ensure that they are not carrying any of the Chinese firm’s 5G kit after 2027. It is thought that this move will delay the UK 5G roll-out by up to a year and could cost US$ 2.5 billion. The ban does not apply to Huawei’s other equipment and the firm will be able to sell its smartphones to consumers, and dictate how they will run, and will not have to remove any of its 2G, 3G and 4G equipment. The UK has followed in the steps of the US, citing that old chestnut, “national security issues” as the reason for the decision.

In what is the largest corporate acquisition this year, Analog Devices has agreed to pay US$ 20.0 billion for Maxim Integrated Products in an all-stock deal that has created a company, valued at US$ 68.0 billion. Maxim shareholders, whose market value was at US$ 17.0 billion last Friday, will hold a 31.2% stake. Both companies make analogue chips, with Maxim, specialising in chips for car, the health service and mobile phones, posting revenue of US$ 2.3 billion last year, whilst half of Analog’s US$ 6.0 billion was derived from industrial clients. This follows two high profile mergers over the past fortnight – Berkshire Hathaway’s US$ 9.3 billion purchase of Dominion Energy’s natural gas transmission business and Uber’s US$ 2.7 billion purchase of Postmates. This is a positive indicator that the M&A sector is shaking off a listless start to the year and the impact of Covid-19.

One company that has Covid-19 to thank for a welcome boost to their revenue is WeWork, now aiming to have a positive cash flow in 2021, a year earlier than expected because of strong demand for office space since the onset of the pandemic. The New York-based company has also taken strong cost cutting measures including retrenching 8k of its workforce, selling off non-core assets, renegotiating office rents and shedding other costs under its  Bolivian-born Executive Chairman, Raul Marcelo Claure; he is also  chief executive officer of SoftBank Group International and chief operating officer of SoftBank Group Corporation. He was appointed last October to oversee the company after its disastrous IPO a month earlier that forced the shareholders to push out co-founder Adam Neumann; at the time, WeWork was privately valued at US$ 47 billion – today it has a more realistic US$ 2.7 billion market cap.

The Softbank CEO admitted that the group’s biggest error was its US$ 10.0 billion investment in the office-sharing group, WeWork. However, Softbank has had a phenomenal four months that has seen shares of the Japanese tech conglomerate recover by 143% to a twenty-year high. This comes after its founder, Masayoshi Son, suggested he had been misunderstood like Jesus Christ. Since mid-March, some high-profile investments in its US$ 100 billion Vision Fund, including Uber and Slack, have doubled. Subsequently, the tech company, which promised that it would raise US$ 41.0 billion to spend on buybacks and reducing debt, has managed to merge its stake in Sprint with T-Mobile, selling part of its holding for US$ 23.2 billion, and sold down some of its stake in Alibaba; this has seen it reach 90% of its US$ 41 billion target.

One share that has gone through the roof is the one year old buy now, pay later company, Sezzle. On 23 March, the share was trading on the ASX at US$ 0.24. Earlier this week, the US company was trading at a mouth-watering US$ 5.90 – an increase in excess of 2,500% in less than four months.  Such tech stocks are performing well, not only in Australia, where the ASX tech index is 12% higher over the past five months, but also in the rest of the world including the US, where the Nasdaq has hit record levels, and is almost 15% higher YTD. Even thoughSezzle posted a 58% increase in Q2 merchant sales to US$ 272 million (and 348.6% higher over twelve months), its user base up two and a half fold, along with a 243.2% hike in its payment platform, the massive jump in its share price cannot be justified and has all the hallmarks of a tech bubble in the making. Once everyone jumps on to the bandwagon, it is past the time to leave the party. When the bubble bursts, it will not be a pretty sight.

Three major US banks – Wells Fargo, JP Morgan Chase and Citibank – have already booked US$ 28.0 billion for current and future losses in Q2. JP Morgan, setting aside US$ 10.5 billion for potential credit losses, comes on top of the US$ 8.3 billion impairment provision already made in Q1.  All three posted much lower quarterly returns. JP Morgan saw profit dive by over 50% to US$ 4.7 billion, Citigroup, 73% lower at US$ 1.3 billion and Wells Fargo a loss of US$ 2.4 billion (compared to a quarterly profit of US$ 6.5 billion last year) – and its first deficit since the 2008 GFC. This is a sure indicator that companies and households are struggling to pay their debts and the banks’ raised impairment losses point to the fact that Covid-19 has – and will continue to – put the brakes on the US economy.

Yet again Westpac appears to be heading for further trouble as a legal firm is taking a class action against the bank on behalf of thousands of Australians who took out car loans that allowed dealers and brokers to charge customers an interest rate above the base rate set by the bank and take a cut of the difference to receive a bigger commission. Known as “flex commission”, (and outlawed in November 2018), Westpac is not the only financial institution to set exorbitant interest fees, with cases of customers being charged between 6.5% and 15.5% interest over and above the base rate. Described as “rip-off loans”, banks have been criticised for lack of transparency and for breaching their fiduciary duties to act fairly and honestly when providing loans. As usual, it was the consumer who paid the cost for not knowing of these underhand arrangements that allowed the dealer to secure the highest rate possible. On being asked whether his bank’s actions could have encouraged dealers to make inappropriate loans, so as to secure a commission, the then-chief executive, Brian Hartzer, haughtily replied, “I couldn’t say. I’m not a car dealer.”

The EU had a big loss this week as the Luxembourg-based General Court confirmed that Apple does not have to pay US$ 14.4 billion that the EU Commission had claimed  the tech company owed, having had an illegal sweetheart tax deal with Irish authorities. The court said that “the Commission did not succeed in showing to the requisite legal standard that there was an advantage.”  The initial decision against Apple came in 2016 when it was ordered to repay the US$ 14.4 billion in Irish back taxes Apple posted, probably a little tongue in cheek that “this case was not about how much tax we pay, but where we are required to pay it. We’re proud to be the largest taxpayer in the world as we know the important role tax payments play in society.”

The US has introduced a 25% tariff on French goods, in response to the Macron government’s insistence on taxing the giant tech companies such as Amazon, Facebook and Google. This will be delayed for six months because the French have yet to collect its digital tax. The tariff will be levied on items such as handbags and soap, but the likes of French cheese and wine are currently not on the list. The French administration has confirmed that “if there is no international solution by the end of 2020, we will, as we have always said, apply our national tax”. The Trump government pulled out of OECD discussions last month after it failed to reach an agreement on developing a global levy.

Google is set to invest US$ 10 billion through the India Digitisation Fund over the next several years to build products and services for India, help businesses go digital and use technology “for social good”. The country is – and will continue to be – a lucrative market for tech companies like Google, with 500 million of its almost 1.4 billion population active internet users, as well as 245 million YouTubers. The Indian-born CEO of Alphabet, (of which Google is a subsidiary), Sundar Pichai, has had talks with Prime Minister Modi about overhauling the country’s digital infrastructure and “leveraging the power of technology to transform the lives of India’s farmers, youngsters and entrepreneurs”. He also said the fund would focus on four areas so as to:

enable “affordable access and information for every Indian in their own language” (it is estimated that English now accounts for only 34% in the country’s overall content consumption)     

“build new products and services that are deeply relevant to India’s unique needs”        

empower local businesses who want to go digital

“leverage technology and AI for social good”

In the UK, the Financial Reporting Council has admonished the country’s biggest auditors for an “unacceptable” decline in the quality of their work, with a third of their audits falling below the expected standard.  The Big Four firms – Deloitte, EY, KPMG and PwC – along with BDO and Grant Thornton have been told that a higher number of audits required significant improvements, indicating that the agency was “concerned that firms are still not consistently achieving the necessary level of audit quality.” Three of these firms – PwC, KPMG and Grant Thornton – were hauled over the coals, with 45% of the latter’s audits surveyed “requiring improvements”, as did 29% for EY and 24% for KPMG. The same three had come in for sharp criticism for their involvement in high-profile corporate failures at Thomas Cook, Carillion and Patisserie Valerie.

For the year 2019-2020, there was a 6.4% increase in remittances into Pakistan, totalling US$ 23.1 billion, and this despite the negative impact of Covid-19. If June statistics are anything to go by, this annual figure is set to grow by even more, as the State Bank of Pakistan announced that monthly remittances were 50.7% higher, year on year, at US$ 2.5 billion, of which 17.5% of the total (US$ 432 million) emanated from the UAE – 33.5% higher than the previous month. Such remittances provide a cushion for the economy which contracted 0.4% last financial year ending 30 June.

Driven by an extended lockdown, that ravaged the economy with businesses closing down and retail spending tanking, Singapore has plummeted into recession. Q2 saw the city state contracting by a massive record 41.2%, quarter on quarter, (and 12.2% year on year), in what will be the worst recession since independence from Malaysia in 1965. These disastrous figures could indicate that Singapore might be worse hit than its neighbouring countries, as it relies heavily on global trade and manufacturing exports. Initial figures from Japan and China point to a 20% decline and a slight growth respectively. It seems that the US$ 67 billion, equivalent to 20% of its GDP, the Singaporean government spent on stimulus measures may not have been large enough.

China continues to pump in funds to boost its economy, with H1 bank lending reaching a record US$ 1.73 trillion. Governor Yi Gang has confirmed that the central bank will keep the financial system liquidity in H2, as the economy improves, but the QE programming cannot go on forever and some analysts are discussing when the tap will be turned off. The bank has already extended loans to companies, impacted by Covid-19, and cut lending rates and banks’ reserve requirements but has yet to follow other countries’ measures such as slashing rates to almost zero and introducing massive bond buying sprees. Whether this will take place in China remains to be seen. However, latest figures see China escaping a technical recession as its economy grew by 3.2% in Q2 – a figure much higher than many analysts had expected and having all the hallmarks of a V-shaped recovery for the world’s second biggest economy.

IMF’s managing director Kristalina Georgieva noted that there were signs of recovery but warned the global economy is ‘not out of woods yet’ and will face ongoing problems, including the possibility of a second wave. That being the case, she is recommending that governments maintain their support programmes, even as restrictions are being eased. She is also concerned about the future of some G20 SMEs, suggesting that for this sector, the number of bankruptcies could triple this year, rising to 12% of the total compared to 4% last year, with Italy the worst hit. Services sectors will suffer the most, with liquidations rates above 20%.

The global agency estimated that the world economy will shrink 4.9% this year and that it will lose more than US$ 12 trillion over the next two years. Some other indicators are causing concern that could scar certain countries’ economies for some time in the future, as 170 countries will be left worse off by Covid-19 and end the year with a lower per capita income. Two problem areas are debt and employment. The global debt levels now stand at over 100% of GDP and Economics 101  indicates that the only way that governments can manage such huge balances is via higher taxes or cutting public services; maintaining the level at these historical highs – even more attractive with interest rates so low – does not seem viable to Treasury mandarins the world over. It is time that economists looked closer at the long-standing and traditional viewpoint that public deficits are inherently bad and should be avoided at all costs. Covid-19 may force a welcome and belated rethinking of this theory. Even though restrictions are being lifted and more people are returning to work, unemployment rates continue to be worryingly high and are unlikely to return to pre-crisis levels in the short term. It has been said that the US lost more jobs this March and April than it had created since the end of the 2008 GFC.

The latest IMF forecast sees 2020 4.7% falls in the economies of the ME and Central Asia, driven by the double whammy of Covid-19 and lower oil prices – 2.0% higher than in April; next year, a 5.4% recovery is on the cards, despite downside risks still remaining. Global uncertainty is still present, more so in the ME, because of both the pandemic impact on businesses, now and in the short-term, is still unknown as is the possible volatility risks in the oil market on global trade. There has been more than US$ 11 trillion poured into global economies to try to limit the economic fallout from Covid-19 that has, to date, infected 12.8 million and killed 568k.

It is patently obvious that the UK has to plan for a post-pandemic economy, with a priority on quickly repaying the expected US$ 465 billon it will borrow this year. This will lead to higher taxes and a massive cut in public spending for an economy that is set to slump by 12.4% this year and see its public debt equating to 104.1% of GDP. Promises to pump in extra funds into the embattled NHS, as well as the prospects of having to pay extra costs of an ageing population and an increasing number of unemployed, (still at an estimated 12.0% by the end of the year and 10.1% in 2021), will push up public spending in certain sectors that will have to be met by reducing spending in others to meet that particular deficit and more to cut back the massive public debt. The situation will not be helped by the fact that business indebtedness will rise to record levels, which will see less tax revenue being generated, and other companies falling by the wayside. It has been estimated that to return UK’s debt level to an “acceptable” 75% of GDP would require an extra US$ 75 billion (via tax rises or public spending cuts) every year until 2070! However, as indicated above, the government would do well to look at this debt problem from a different angle, as it tries to solve the conundrum of managing and controlling falling tax revenue and rising public costs.

In the four months to 30 June, UK payroll numbers fell by 649k, although the overall jobless rate was unchanged. The headline unemployment remains steady at 3.9%, to the surprise of many who thought it would surge; however, the fact that 11 million are still on the government furlough scheme skews the employment statistics. A look at the number of hours worked gives a clearer picture – weekly hours worked since the onset of Covid-19 have tanked by 16.7% to 877.1 million hours, equating to its lowest level since 1997. To make matters worse, the average real pay is 1.3% lower than a year earlier. The simple truth is that there are not many jobs around for anyone – and a storm is coming with the worst-case scenario being an October unemployment level of over four million Riders On The Storm.

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