Major Gulf indexes fall alongside subdued global equities
Major stock markets in the Gulf ended lower on Wednesday as doubts about the easing of coronavirus lockdowns and simmering US-China tensions cast a shadow over global equity markets.
US President Donald Trump has kept up the pressure on China, urging the country to be transparent about the origins of the coronavirus, which began in the Chinese city of Wuhan late last year.
Saudi Arabia’s benchmark index dropped 0.8 percent, with National Commercial Bank, the country’s largest lender, falling 2 percent and Al Rajhi Bank down 0.7 percent.
Moody’s on Tuesday affirmed ratings of all Saudi Banks, but changed outlooks to negative. Clothing manufacturer Thob Al Aseel gained 3.3 percent after signing a 97.5 million riyals ($25.97 million) contract for medical supplies.
Meanwhile, Saudi Arabia’s crude oil exports in May are expected to drop to about 6 million barrels per day, the lowest in almost a decade, and domestic refining output is likely to fall as the coronavirus crisis hits demand, Reuters reported citing industry sources and analysts.
Dubai’s main share index retreated by 0.7 percent. Blue-chip developer Emaar Properties declined 2.3 percent, while budget airliner Air Arabia slid 3.7 percent.
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Businesses urged to use Fintech to counter AML
The UAE’s top regulators have asked financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) to utilise reliable technology and Fintech tools to ensure that compliances to anti-money laundering (AML) and combating the financing of terrorism (CFT) are being fully complied with.
This advisory was issued jointly by the UAE Central Bank, Ministry of Economy, Ministry of Justice, Securities and Commodities Authority, Insurance Authority, Abu Dhabi Global Markets and Dubai Financial Services Authority on the treatment of financial crime risks in the wake of Covid-19 pandemic and in line with the Financial Action Task Force (FATF) report published on April 1, 2020.
The Paris-based FATF, world’s main AML watchdog, issued a report on the UAE last week, which showed that the UAE made a significant progress in implementing suitable legal framework and reporting mechanism for AML and CFT laws.
Acknowledging that it will be more difficult for businesses to adhere to identify and verify processes due to remote working models in the aftermath of Covid-19, the regulators asked FIs and DNBFPs to use “Fintech, Regtech, Suptech to the fullest extent possible.
“FIs and DNFBPs should also take into consideration the published FATF Guidance on Digital ID, which highlights the benefits of trustworthy digital identity for improving the security, privacy, and convenience of identifying people remotely for both onboarding and conducting transactions while also mitigating money laundering and terrorist financing risks,” said the advisory, adding that businesses can also utilise UAE government’s validation gateway, the UAE Pass or Emirates IDs.
“Where an FI or DNFBP is unable to make use of such technology, exception handling provisions acceptable by the supervisory authorities can be utilised. However, the supervisory authorities expect such businesses to maintain a record of when these provisions were legally vetted and invoked and for senior management to be aware of such events, as part of its’ AML risk management framework,” it said.
The regulators asked FIs and DNFBPs to revisit their risk assessment and control frameworks and revise their internal policies, procedures, and/or control measures as necessary where such enhancements are warranted.
Mayank Sawhney, managing director of MaxGrowth Consulting, said the issuance of the guidance for FIs and DNFBPs reaffirms the commitment and seriousness with which the UAE authorities are implementing all the compliance requirements of FATF in relation to AML and CTF even during these challenging times of Covid-19.
“One of the thing which has been emphasised in this guidance note is for FIs and DNFBPs to have an authentic and reliable Digital ID for their customers for the digital transactions done by them,” said Sawhney.
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ADEX powers UAE’s export community
Abu Dhabi Exports Office (ADEX) has launched a national campaign to help business leaders use financial products and services to rebuild global export business and help the economy recover from the Covid-19 crisis.
ADEX, formed in 2019 by Abu Dhabi Fund for Development to help drive expansion of UAE export businesses and advance national economic diversification, is working to establish partnerships with Departments of Economic Development and Chambers of Commerce across all emirates.
Together they will co-host a series of forums educating UAE export business leaders on how to use the ADEX suite of export credit facilities.
The move will help the UAE’s export community to be more competitive in the global marketplace while safely and securely expanding into international markets, where overseas buyers have limited access to traditional commercial financing in the current Covid-19 economic environment.
Mohammed Saif Al Suwaidi, Director General of ADFD and Chairman of the ADEX Export Executive Committee, said: “This is not only a difficult time for UAE exporters, but it’s also a challenging time for their overseas buyers. Both are dealing with liquidity and cash flow issues, delayed supplier payments and limited access to financing. ADEX provides a solution to these challenges that enables both the exporter and foreign importer to quickly and easily fund mutually beneficial transactions.”
ADEX has allocated Dh550 million ($150 million) in funding for qualifying export transactions of national companies that is immediately available to support Covid-19 economic recovery.
ADEX is currently working with other Chambers of Commerce and government partners across the emirates to schedule additional education forums to ensure all UAE companies know how to access its financial products and services. Details of those forums will be shared as soon as events are scheduled.
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Emirates set to review Australian operations
An airport services subsidiary of Dubai’s Emirates Group said on Wednesday it would review its operations in Australia after being left out of a government scheme there to save jobs.
The dnata business includes ground handling and catering services and retail and hospitality.
Australia in March announced a A$130 billion ‘job keeper’ package to project jobs from the coronavirus crisis that has sent shockwaves through the economy.
However, companies owned by foreign governments have been excluded from the scheme that provides funds to businesses to pay workers. Emirates Group, which also counts the Emirates airline among its assets, is owned by Dubai’s state fund.
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Off-plan units have big share of deals
Off-plan units still command a lion’s share of property transactions in Dubai despite slowdown in new project launches because there is a significant amount of off-plan projects with available units in the market, says industry analysts.
Due to decline in property sales, developers are also expected to sell ready, finished units in the secondary market as upcoming supply will continue to put pressure on local property market, said Lynnette Abad, director of research and data at Property Finder.
Around 1,824 transactions worth over Dh3.62 billion were conducted in April 2020, taking the year-to-date total to 12,254 sales transactions worth Dh24.15 billion. Off-plan accounted for 72 percent of all transactions and was dominated by Villanova and Dubai Creek Harbour for villa/townhouses and apartments, respectively.
“There is a significant amount of off-plan projects with available units, even projects which are currently under construction or almost completed. While many units are being completed this year, we will likely see developers selling ready, finished units in the secondary market. Upcoming supply will continue to put pressure on sales and rental prices, especially in the areas where you have like for like properties,” said Abad.
Dubai’s property developers – especially those backed by the government – have pulled back from projects launches in order to curtail supply of new units. A high level committee has been set up to bring stability in supply and demand in the local property market.
Due to oversupply, prices and rentals have been consistently declining over the last few years. Property Finder data showed said top off-plan sales locations were The Lagoons in Dubai Creek Harbour (123 transactions), Jumeirah Village Circle (112), Villanova (110), Umm Suqeim (105) and Business Bay (97). The volume of transactions for the secondary market were considerably lower than the off-plan market however Dubai Marina (40) and Palm Jumeirah (39) dominated as always. These were followed by Mudon (31), Downtown Dubai (26) and Dubai Hills Estate (21).
Ready home cash sales According to ValuStrat, Q1 2020 saw cash sales of ready homes sales grew 30.4 peer cent annually with no change quarterly.
Despite the Covid-19 challenges which began to impact during the second half of March, this was considered as the best first quarter for ready home cash sales since 2014. It said off-plan home sales grew 18.2 percent annually, however, there was a considerable drop of 26.3 percent when compared to Q4 last year, mainly due to developers limiting new project launches during the quarter due to oversupply concerns, as well as discontinuing further sales since lock-down measures were put in place.
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Lockdown inflicts sharper business downturn in April
The UAE non-oil private sector suffered an even sharper downturn in April as lockdown measures in place throughout the month led to steep falls in activity, purchases, employment, and export sales, latest Purchasing Managers’ Index showed.
Providing an overview of operating conditions in the non-oil private sector economy, IHS Markit UAE PMI report said the outlook for future activity reached the worst since August 2017. Input costs declined as companies made efforts to lower expenses, including a solid drop in employment, wage cuts, and weaker purchases.
The PMI fell for the sixth month running to 44.1 in April, down from 45.2 in March. The index set a record low for the second successive month, with the figure indicating a sharp deterioration in business performance.
Businesses were heavily impacted by public health measures taken to curb the spread of coronavirus disease in April.
“Movement restrictions and forced company closures led to a record fall in activity, as many companies lowered output and adopted working-from-home policies,” said the PMI survey.
Employment in the non-oil private sector was pared back again in April amid lockdown measures. Although solid, the rate of job shedding was slower than that seen in March. As well as workforce reductions, several companies asked employees to take unpaid leave and salary cuts in order to reduce staff costs. Firms made further efforts to lower expenses, including a steep drop in purchasing activity. Consequently, overall input costs fell at a modest pace, allowing businesses to reduce selling prices for the nineteenth month running.
David Owen, economist at IHS Markit, said lockdown measures and business restrictions led to a steep decline in UAE non-oil private sector activity in April.
“Shop closures and restrictions in domestic and international travel had huge repercussions on new business, which fell at an unprecedented pace after also declining sharply during March.”
According to Standard Chartered, non-oil economic activity in the UAE is likely to weaken on external, domestic demand. It expects UAE’s non-oil economic activity could contract by 4.7 percent year on year in 2020.
To mitigate the economic fallout of the Covid-19 lockdown across all sectors, the federal and various local governments have rolled out a spate of stimulus measures along the Central Bank of the UAE and various free zones.
To ensure business continuity as the economy gradually reopens post Covid, the CBUAE has announced up to $70 billion (about 17 percent of GDP) in liquidity support to the banking sector. In addition, federal and emirate-level governments have announced targeted measures, particularly for SMEs, to ease near-term operating challenges.
Owen said average prices charged by UAE businesses fell again in April. The rate of reduction accelerated, in part reflecting the loss of sales. To recover costs, many firms reduced employment or asked employees to take salary cuts and unpaid leave, with spending on inputs also sharply lowered.
“Business sentiment reached the lowest in nearly three years, reflecting heightened uncertainty from the Covid-19 crisis. While firms on balance remain optimistic of growth in the coming year, some panellists were apprehensive, noting that the risk of an economic downturn was increasing.”
While restrictions led to a further collapse in new business during April, firms saw a slowdown in client activity as shop closures and movement restrictions led to a sharp fall in consumer demand.
“That said, some businesses noted a rise in online sales. Tourism declined sharply again, as countries worldwide imposed similar restrictions amid the virus pandemic.”
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UAE second-strongest financially in Arab world’s emerging economies
The UAE has been ranked second in the Arab world and among the top 20 financially-strong emerging economies globally, according to The Economist’s analysis of 66 countries.
The report measures financial strength of countries based on their public and foreign debts, cost of borrowing and reserve cover. The UAE is rated high on low cost of borrowing, followed by low public debt and reserve cover and foreign debt.
The latest data by the International Institute of Finance showed that the debt held by the UAE’s households, non-financial corporates, government and financial sector inched up in the fourth quarter of 2019 compared the previous quarter. But it was still among the lowest in emerging markets.
The UAE’s strong $1.16 trillion sovereign wealth reserves – the highest in the region – also provide a key role in its financial stability and cushion to its economy from any external shocks. Moody’s Investors Service has said that the UAE and other Gulf countries holding strong sovereign wealth funds are better positioned to absorb the external shocks.
Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, said the UAE improved its ranking globally because of its strong drive towards reforms have anchored many initiatives to enhance competitiveness including the institutional framework, infrastructure, macroeconomic stability and ICT use.
“The UAE’s financial system has proven to favour SMEs by providing liquidity to grow across the globe. It ranked ahead of India, Malaysia and other reason because of its sound fiscal policies, which kept the fiscal deficit in control since 2008, adopting global norms to control expenditure, attract FDI to boost economy, various stimulus packages supporting SME growth though incubation and increasing the federal reserve while controlling the inflation on basic necessities,” he said.
Regionally, Saudi Arabia tops with the eighth ranking followed by the UAE (17th), Kuwait (22nd), Qatar (35th), Oman (58th) and Bahrain (63rd) among the 66 emerging economies.
Globally, Botswana, Taiwan, South Korea, Peru, Russia, the Philippines, Thailand, Saudi Arabia, Bangladesh and China are the top 10 economies who have low public and foreign debts, strong reserve cover and low cost of borrowing. The bottom-ranked countries are Venezuela, Lebanon, Zambia, Bahrain, Angola, Sri Lanka, Tunisia, Mongolia, Oman and Argentina.
Air Arabia, the only listed carrier in the United Arab Emirates, has laid off 57 employees due to travel disruptions caused by the coronavirus outbreak, a spokesman said on Tuesday.
The Abu Dhabi index fell 2 percent, dragged down by a 2.8 percent drop in the country’s largest lender First Abu Dhabi Bank and a 2.4 percent fall in telecoms group Etisalat.
In Qatar, the index slipped 0.5 percent, hurt by a 1.9 percent fall in Qatar Islamic Bank.
Outside the Gulf, Egypt’s blue-chip index bucked the trend to close 1 percent up. Commercial International Bank was up 1.5 percent.
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NMC admin team lands in Abu Dhabi from UK
NMC Health has flown to Abu Dhabi a team of experts from London to oversee the operations of the debt-ridden hospital operator and extend support to various investigations underway.
The five-member team, delegated by NMC’s UK court-appointed administrator Alvarez & Marsal, arrived in the UAE capital by a chartered flight on Saturday and is currently kept under regulatory quarantine, NMC sources revealed on condition of anonymity.
“In a significant development, the core team from Alvarez and Marsal has landed in Abu Dhabi. They are undertaking a 14-day mandatory quarantine and utilising this period to come to grips with the situation at hands,” the source said.
A banking source, who is in the know of the developments, said NMC’s business has a global presence with significant and sizeable businesses in the UAE and the Gulf. “The magnitude of the problems of this once-iconic healthcare enterprise would be multifold, and the efforts to restructure the company must start sooner than later and that too via operating at ground zero. Hence, A & M did well to fly down and start engaging hands on.”
The scandal-tainted company, which has been caught in a whirlpool of debt totalling $6.6 billion as its founder BR Shetty and five other senior officials faced criminal charges of fraud and forgery, is also undergoing investigations on several fronts.
Britain’s accounting regulator has already opened investigation into Ernst and Young’s audit of NMC Health as the firm gets entangled in class-action lawsuits filed by several shareholder rights litigation firms in the US.
Subsequent to NMC’s formal delisting from the London Stock Exchange, the hospital operator’s newly-appointed CEO Michael Davis has now a free hand to “squarely look after the business while working with the administrators on ground, and the new board, on reconstructing the company,” a source at a creditor bank of NMC said.
“The last two months had been eventful for Davis as the entire top tier at NMC had left leaving him alone to be working with staggering sets of business profiles, changing boards and close to half a dozen consultants,” the source said.
NMC was placed under administration by the UK court following weeks of uncertainty relating to the firm’s huge debt levels and undisclosed shareholder dealings.
The UAE’s biggest private hospital group has seen its stock value plunge by more than 60 percent since December after short-seller Muddy Waters questioned its financial statements.
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UAE central bank says GDP grew by 1.7pc in 2019
The overall real GDP of UAE is estimated to have grown by 1.7 percent in 2019, according to the Central Bank of the UAE.
“The UAE hydrocarbon sector is estimated to have exhibited a growth of 3.4 percent in 2019. However, non-oil activities advanced at a softer pace growing by 1.0 percent. As a result, overall real GDP is estimated by FCSA (Federal Competitiveness and Statistics Authority) to have grown by 1.7 percent in 2019,” said the financial regulator in its Annual Report 2019.
“The spread of Covid-19 is expected to impact trade and supply chain movements, coupled with travel restrictions which paves the way for high volatility in capital markets and commodity prices. While the outbreak is expected to negatively affect the global and domestic economies, it is still early to gauge the scale of the economic fallout,” the report added.
The report noted that the higher hydrocarbon output, as well as growth in non-hydrocarbon economic activity, supported the pace of the country’s overall economic growth in 2019.
“Meanwhile, the fading effect of VAT, the appreciating dirham, lower energy prices and decline in rents pushed inflation in negative territory. However, the employment rate registered a steady rebound. Looking ahead, the economic outlook for 2020 remains uncertain owing to the Covid-19 outbreak,” the report said.