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Eurozone bonds suffer massive sell offs and the Eurozone turmoil

Eurozone bonds hit by mass sell-off and the Eurozone turmoil

The Eurozone bond market was hit by a massive sell of this month because of investor fears. Investor fears spread beyond Spain and Italy to other triple A rated countries such as France, Austria, Finland and the Netherlands. The premium that France pays over Germany rose to a Euro era record of 192 basis points and the premium that Austria pays over Germany rose to a Euro era record of 184 basis points. Markets are losing patience so they are going for the jugular, which are the core countries not the periphery. There is convergence but it is convergence on the weakest. All main Eurozone countries were affected by the rise in bond yields. The only country that wasn’t affected was Germany, and this suggests that the sovereign debt problems are entering a new phase. Italian bond yields moved above 7 percent, a position that is viewed as unsustainable. Spanish premium to Germany hit 482 bp. Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.

German frustrations over Britain’s approach to the Eurozone crisis erupted when a close ally of Angela Merkel accused the UK of selfishness. Volker Kauder criticised Britain for opposing a European tax of financial transactions. He said that the UK was only defending its own interests and not that of the EU. Ms Merkel has urged the Eurozone to move ahead with the Tobin Tax if Britain continued to block the measure. The Eurozone should raise funds from the financial sector to help cash strapped governments. Mr Kauder told the CDU that annual conference that “The British are not members of the currency union but they are members of Europe and they have a responsibility for the success of Europe”. George Osborne, Britain’s Chancellor of the Exchequer, has called the Tobin tax plan a bullet aim at the heart of London.

President Nicolas Sarkozy announced a review of the funding of Frances social welfare system on Tuesday, the 15 th of November. In his review, he stated that the heavy labour costs it imposed hurt the economy and the country’s ability to compete internationally. The French employees appealed to the country’s politicians for structural reforms to cut labour costs, regenerate growth and overturn a big gap in economic performance between France and Germany that has damaged France ability to withstand the pressures of the Eurozone crisis. Mr Sarkozy intends to appoint an advisory council at the end of the year that will be responsible for proposing ways to reduce the weight of taxation on work. “We must rethink the system of financing our social system”, Mr. Sarkozy said. “The very high cost of labour in our country penalizes our economy and penalizes France in international competition”. Medef, the French business confederation, and Afep, the association of private enterprise, complained that France had lost ground to neighboring country, Germany in terms of export market share, balance of payments, fiscal strength and cost of labour and production.

Negotiators for Greek debt holders have offered to swap their bonds for new ones worth half their face value, but only if the new bonds contain high interest rates and have extra incentives, including annual payments if the Greek economy recovers. The confidential offer was proposed to the Greek authorities and it also insisted that the new bonds be issued under British rather than Greek law. Greek officials are expected to present their own counter proposal when talks begins over the bonds. The negotiations are intended to finalise details of the highly –touted deal struck on October 27 in which the Institute of International Finance agreed to take a 50 percent  haircut in the face value of their bonds. The deal left open questions on how the 50% hair cut would be achieved. Tweaks in interest rates and maturities for bonds used in swaps for the haircut can have a critical effect on how much bond holders are able to recoup, enabling them to achieve less of a hit on the net present value of their holdings than the headline number announced by the European leaders.

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After the Property Crash - The Dubai Real Estate Market

The real estate market in Dubai is showing signs of recovery after a 3 year slump. The real estate market in Dubai was worth around $31 billion at its peak in 2008. However, the mood today is one of cautious optimism as the market is now showing signs of recovery from the recession’s period. At this year’s Cityscape Global event in Dubai, investors had a more business to business atmosphere than in previous years. According to Jones Land LaSalle rental prices in the office and residential sectors are bottoming out and the retail and hotel sectors are already showing a growth buoyed by tourism. This follows a dip of around 18.6 percent in the real estate sector in 2009 and a recovery by around 2.5 percent in real terms in 2010 according to the National Bureau of Statistics. The real estate’s sectors contribution to the real GDP grew exponentially from Dhs 95.6 billion in 2006 to Dhs 111.1 billion in 2007 and to  Dhs 114 billion in 2008 before slumping to Dhs 92.7 billion in 2009. As a result of the real estate crash, the prices of property in Dubai plummeted 60 percent in Dubai. The result of this was that many projects and unplanned constructions where put on hold or even shelved. However, there were other factors at play. For example, the continued government spending on infrastructure, including the Dubai Metro and new roads, and visitor numbers increasing, the real estate sector rebounded to Dhs 95.1 billion in 2010.

One of the hardest hit developers during the real estate crash was Nakheel, which is currently undergoing a Dhs 16 billion debt restructuring programme and has been handed $8.71 billion bt the government and written off Dhs 78.6 billion of its real estate assets due to the emirates property crisis. Nakheel followed the ambitious Palm Jumeirah project with other projects such as other man made palm shaped islands in Deira and Jebel Ali, including the World. These projects left Nakheel exposed during the global financial crisis. But the company is expected to post profits by the end of 2011. The Arab spring has confirmed Dubai as a safe haven for tourists and investors alike. This is because Dubai has benefited from the Arab spring and has seen the rise in tourism and visitors. The Hotel and retail markets have benefited extremely from the Arab spring. But as a result of the sovereign debt crisis in Europe, the outlook here in the UAE has been one of caution. It is no longer about new product launches it is about existing projects. There are very few end users at Cityscape; it is now more an event for B2B contractors and suppliers. There has been a transition and it is more realistic with the overall market becoming a lot quieter because sales activities and the projects have slowed with people reassessing process making it all much more competitive.

The retail sector is growing because tourism is such a major part of the retail sector. The villa sector is starting to improve and the residential sector is starting to improve too. Apartment rentals are still declining, but there will be growth in the residential sector rents in 2012. However, the big cloud hanging over the market is the Eurozone and the US Recovery as Dubai is very closely linked. Recovery is expected to continue especially with the deal made by the Eurozone on the Greek debt crisis. This is seen as having a positive impact and a good effect on the UAE economic future. The Office market is feeling the brunt of the economic crisis and is the worst performer of all the markets. The Jones Lang LaSalle report points out key drivers for the Dubai real estate market stemming from the increase in passenger traffic to Dubai international Airport, increasing by 15 percent in 2010 and continuing to increase in 2011, and hotel occupancy rates at 78 percent as of July 2011, up on the 60 percent as of July 2009

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World Economic Forum: Global business and government experts met in Abu Dhabi to address rapid globalisation and rising sovereign debt

The UAE participated in the 2011 G20 summit in Cannes and it also hosted IRENA, the global clean energy body. This shows and indicates that the UAE is increasingly becoming a global citizen in economic affairs around the world. According to leading political figures at the third World Economic Forum Summit in Abu Dhabi last month, this is a good indication of where the UAE is headed. Over 800 leading experts in academia, business and government convened in the UAE capital to discuss new models for the world’s most pressing challenges, including public debt, climate change and food security.

The continuing uncertain global economic outlook could drive a wedge between international interests if left unchecked. Unstable financial markets combined with rapid globalization and technology uptake are all new factors stoking the need for urgent global conversations. The rise in global wealth has lead to a richer world for many, but many millions are poorer than ever. There is a global inequality. We need to rethink our global competitiveness strategy because we need to address the quality of economic growth. Velocity and country interconnectivity have become so complex at the tipping point that the whole system may collapse. We need new models to survive. The great recession has blinded us to the great revolution.

In addition to increased connectivity across countries and continents, globalization has been paralleled by a shift in power towards the East, as China continues on its incredible growth trajectory and the US buckles under debt pressure and stagnant jobs data. In the last century, global production and consumption was heavily weighted to the west, but recent years have seen a dramatic shift as the BRICS consume and produce more global resources that ever before. Only 40 percent of the worlds production output is in the West and only 43 percent of investment goes to the West. The world is changing very fast. Producers and consumers must work together at this historical juncture.

The prolonged indecision on Europe’s debt woes has also set the stage for mistrust and a need for increased global co-operation. Europe is at the epicenter of today’s crisis. It has fiscal, banking and growth problems and the Euro will not survive. The European Central Bank will have to work to find a solution. What happens in one continent affects another. In a recent WEF poll of 1500 CEOs and academics, less than 10 percent of respondents expressed confidence in the state of global governance over the next 12 months. The world urgently needs to rebuild trust in leaders, government systems and among countries if the international community is to shape new models to solve global challenges

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Damac to hand over six projects

Dubai-based property developer Damac Properties said it will deliver more than six projects to customers this year, comprising more than 3,000 units worth Dh4 billion.

The news comes at a time when scores of projects have either been postponed or cancelled.

Among those to be handed over are two phases of the company’s Emirates Gardens development and Tuscan Residences at Jum-eirah Village South, Lago Vista at IMPZ, XL Tower and Business Tower at Business Bay and Smart Heights at Tecom.

Delivery of these properties will commence as soon as March 2010 starting with the first phase of Emirates Gardens and will continue regularly throughout the year, culminating in the completion of the company’s flagship development Ocean Heights at Dubai Marina in the last quarter of the year.

The projects offer a mix of residential and commercial units totalling more than 3,000.

Chairman of Damac Properties Hussain Sajwani said that 2010 would be a significant year for the company as it builds on its reputation as a private developer that is able to demonstrate both progress and delivery.

Damac Properties expects to announce new contracts for projects in the spring and these will then form the basis of the targets and focus for the next 12 months.

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RTA rolls out new driving test system

Licensing Agency at the Roads and Transport Authority (RTA) has embarked on developing a new driving test system. This is based on three key aspects, with the aim of going a step forward in adopting best in-class practices and implementing quality standards under the drive of realising RTA’s vision of providing safe and smooth transport for all.

According to Mahmoud Al Marzouqi, Director of Drivers Training and Qualifying Department at RTA Licensing Agency, the agency has developed the new system by setting the timing and routes through which driving test process is carried out, along with a new test form. Accordingly, the new test will require student drivers to demonstrate a wider range of driving skills during their test.

“By introducing the enhanced system, we aim to access students on the basis of a specialised scientific vision that translates the intention of the agency to realise the objectives of carrying out driving tests in a fair manner. The new test will take longer than the current test and feature a set test route,” he said.

“The detailed performance criteria encompass two main aspects; minor errors [comprising 16 points] and actual failure cases [comprising five error cases where committing any of them will be good enough to assess the applicant as a failure],” he added.

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Abu Dhabi to focus on investing in infrastructure

Abu Dhabi would give priority to infrastructure in government spending for the next few years as part of its long-term development blueprint intended to achieve sustained growth in the oil-reliant economy.

Mohammed Omar Abdullah, Undersecretary of the Abu Dhabi Department of Economic Development, said the global financial crisis has prompted the emirate to rearrange its priorities, adding that a seven per cent growth target over the next two decades might not materialise.

Asked whether Abu Dhabi would be able to attain its growth target of seven per cent through its long-term development strategy until 2030, Abdullah said growth could fall short of the target, but he played down such a development. He said that the main aim is to achieve viable growth which is not influenced by oil price fluctuations and which will eventually lead to stronger non-oil sector.

“This march towards 2030 could face some unexpected developments and, therefore, we have to be prepared to deal with them. I think the ultimate goal is to maintain growth in the economy and ensure that this growth remains stable, effective and sustained based on a stronger private sector and expansion in the non-oil sector’s contribution to gross domestic product.”

Abu Dhabi has the largest economy in the UAE, accounting for around 52.7 per cent of the country’s GDP in 2008, according to the Ministry of Economy. In nominal terms, the emirate’s GDP leaped by around 29 per cent to Dh519 billion in 2008 from nearly Dh400bn in 2007.

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Dubai tightens rules for labelling on packaged food

The Food Control Department of Dubai Municipality has tightened the Arabic labelling requirements for food importers and re-exporters. Food inspectors are now insisting that the packaged food manufacturers and importers should mention the product’s country of origin, the sensitive ingredients used, production and expiry date and other important data that some companies currently give only in English.

It was two years ago that the Dubai Municipality insisted that the food companies and traders introduce Arabic labelling, without which the products will be sent back to the port of export.

The Arabic labelling requirement was introduced last year to improve food safety standards and the Municipality is now more specific about the Arabic labelling requirements, which some companies still violate.

The “Import and Re-export Requirement for Foodstuff”, released by the Municipality contains specific details about the expiry date calculation of commonly used food products such as meat, fruits and vegetables, beverages and the list of banned food product ingredients or ingredients that cause hypersensitivity.

Khalid Sharif Al Awadhi, Director of Food Control Department, has said in the revised guideline that the minimum Arabic labelling requirement on packed food items are product’s name with a summarised description of the food product – the food ingredients arranged according to weight or volume; country of origin in case its omission leads to misleading the consumer; storage conditions if the product validity depends on such conditions; ingredients which cause hypersensitivity; instructions for using the product and optional displaying of the nutritional value of the product.

In addition, food labels of all new food products in the market and products with amended food labels must be approved before distribution in the local market, said Al Awadhi. However, these requirements may not be applicable in all food products and in some cases lab testing may be conducted. For food products such as rice and white sugar, expiry date is not mandatory, but the crop date should be mentioned.

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Dubai realty will not see ‘significant’ price fall

Property prices in Dubai will not witness any “significant” declines but may fluctuate in a very narrow range, according to Deyaar Development’s CEO.

“People underestimate the fundamentals of Dubai and I believe prices will not see a ‘significant’ drop. Prices may fluctuate five per cent up or down in 2010, but the market won’t recover until 2011,” said Markus Giebel.

As part of its new strategy, the Dubai-based developer is looking to focus on developing income-generating assets through which it expects an annual income of Dh150 million in 2012. “We did not have income producing assets in 2006, 2007 and 2008 as we were building and selling 100 per cent. We expect to add 20 to 30 per cent of the profits achieved in the normal cycle from income generating assets.”

Asked about the strategy for undeveloped land bank in Dubai, Giebel said: “The size is large, but we don’t like to give out numbers as there is a revaluation going on.”

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Oil boost for Dubai

The discovery of an oil field in Dubai is very good news for the emirate and the UAE as a whole. The expectation of new oil revenues for the government will substantially help to restore confidence in Dubai’s economic strategy, which has been battered by the fall-out from the global recession.

The news of a substantial source of new government revenue will force a complete revision of the arithmetic in the Dubai government, greatly to its benefit. It might even change the way the government is going about sorting out the huge borrowings that some of the government-owned or government-backed developers have taken on.

The Dubai government has worked hard to build an economy which does not rely on oil, and it has used the revenues from the economic boom of the last ten years to greatly expand its infrastructure, so that it will be able to handle the business and population growth that is being planned. While the global recession has put a halt to a lot of these plans for eventual growth, the expanded infrastructure will be there to support growth when it comes.

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