We’ve had a slight-sell off across markets today. More talk of “Decoupling v.2” on the media in the last 24 hours. Certainly a theme that is gaining more and more ground - when it’s in the mainstream, much of the early arbitrage opportunity has already passed us by though. A great example of some of the emerging market innovation and ingenuity on display recited below. As for markets, Asia wobbled as more reaction was considered following North Korea’s nuclear test, with most of the majors across the region there posting losses between -0.7% and -2%, one of the only bright sparks amidst the losers being Australia (+2%) riding higher on commodity prices (Rio Tinto cutting prices less than expected on iron-ore), and Vietnam managing to make a slight gain (+0.4%) as it continues its “frontier-market” run. European indices all down (avg -1.4%) as investors take a break and look around to determine whether the landscape does indeed provide any cause for further investment following the rapid increase in P/E ratios. Once again, it is less a question of whether or not investors believe in an economic recovery, but more the timing and pace. As mentioned before, any further attempts by markets to climb higher would be an indication that stronger corporate earnings in the medium-term are expected despite still being in the middle of some very difficult business and trading conditions.
With oil and gold slipping in the last few hours of trade (Oil has dipped back below $60/brl), US futures not faring too well at the moment, with DJIA -32pts and S&P -4.2pts.
Top-of-the-list…
Focus on Dubai’s property market again today. In the past, being top-of-the-list was always a goal to strive for in this part of the world – tallest, most expensive, most luxurious etc. – the old marketing tricks have been widely recited and repeated. This latest list however, puts often unfairly targeted Dubai’s woes splashed across the front of a widely-followed and quoted report on world property prices from Knight Frank - Dubai firmly in the spotlight (poor city hasn’t really been out of it recently) as they estimate property prices fell 32% in the last year (following a 48% appreciation the year earlier), ahead of Latvia and Singapore.
Throwing salt on the open wounds of the UAE’s second-largest city with a description of Dubai being in a "mess" and citing a dependency on developers simply hanging on before getting into “fire-sale territory” a little harsh if you consider some of the latest developments and up-tick in sentiment through various UAE efforts. Some aren’t too sure about this Knight Frank. Seems they have been playing catch-up with what many have known and pointed out for some time.
Of course, the property situation is not rosy. As discussed in past commentaries, the growth expected for the UAE is much dependent on ex-pats from some of the lower income countries of the world. The large number of flats and villas coming onto the market are certainly exchanging hands at marked-down prices, and anyone that does not believe that a number of these properties will be subjected to a serious fall in price are mostly likely asking for too much from the optimistic-camp. Nevertheless, there have been some signs (and other reports have pointed out) that a bottom is near – the pace of decline has fallen and price corrections have enabled those previously unable to seek-out a decent property to come into the market. Unfortunately, the latest Residency Visa changes (where property owners are not automatically provided full residency, rather they must renew their residency visas every 6mths!) has dampened any opportunity for international bargain hunters to come in and snap-up a number of locations in dire need of support. A bewildering decision given the timing (market crashing) and the need to placate international investors (frightened at the best of times). Whilst the new rules may be construed to prevent money-laundering etc, and place an emphasis on wanting to attract only those that truly want to make the UAE their home and bring with them a certain level of income, it still remains an incredibly bad move at an incredibly desperate time for the country.
Municipality Munch Crunch…
With the lack of revenue from property developers and the real-estate crash itself, it seems Dubai is seeking to increase its coffers by other means. The belief that the UAE is widely a tax-free environment is very well-known but Municipal taxes are creeping up all over the place. Apart from the obvious indirect taxes (over-priced alcohol etc) there is now also a growing trend of taxes tacked onto existing rental agreements. The most surprising, and irritating, aspect of this seemingly arbitrarily charged “housing fee” that it kicks in whenever the municipal authority feels like it. The cost is calculated (for residential properties) at 5% of the annual rent on a property over 12 months. Imagine the surprise of a Dubai renting resident who has become accustomed to paying a relatively fair price for electricity and water every month who is then confronted with an extra charge, at many times the accustomed charges, in the guise of a “housing fee”. A small gripe – but what is municipal tax doing in a supposedly “tax-free” environment?
There have been many signs that alterations to the way Dubai conducts its business are necessary, and this appears to be one of many trends to lock-in some extra revenue when most required.
Emerging Entrepreneurs
In a very telling sign of innovation and dedication to business that the emerging economies of Latin America (if slightly beyond the boundaries of the law). Police have foiled a plan by incarcerated criminals in Brazil to keep in touch with their counterparts through the use of mobile phones. Now, this doesn’t sound too exciting on its own, but when you factor in the attempt to smuggle into the prison their mobile phones by high-tech model helicopter, controlled by a couple of well-paid students enamoured with the criminal underworld, it becomes a clear testament to the (although misplaced) work ethic and dedication to business. Crime and corruption have been strife throughout these regions, and continue to pose serious threats to attempts by the more law-abiding business communities to increase trust and strength of reputation, but taken with a light-minded attitude, in a world-starved of fresh and bright ideas, one can take heart that at least one type of community is making the most out of technology to further their business interests.
The students were offered a “bonus” for landing the helicopter within the desired spot across the prison’s fence. Western financial firms could learn from this incentive offer of a reward for hitting a firm target!
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