Wealth Monitor April Issue

April 2016 | www.wealth-monitor.com

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omApril 2016

VOLUME: 01 | ISSUE: 12

Taking StockMomentum Investing

42

In FocusIshrat Kiyani, Head of Mashreq Gold

40

Its not a catastrophe for Dubai property marketSays Ismail Al Hammadi, Managing Director, Al Ruwad Real Estate, Dubai

Safe As Houses?

Quants

BULLS VS BEARS

TECHNOLOGY TRENDZ

The New Case For Risk Assets

Islamic Home Finance

MARKETSCOSMOSEnergy: Crude Awakening

WHATSHOT

BLUE CHIP

Portfolio: UAE Property Market Ready Reckoner

www.wealth-monitor.com | April 2016

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Wealth Monitor Turns 1... And We Just Want To Say Thank You!

For the past one year, we at Wealth Monitor have worked hard to bring out a magazine that is insightful, surprising and original in content. This month we celebrate our first anniversary and its been such a fun (and stressful at times) ride to get here.

As we celebrate, we believe its just a beginning. Over the past

12 months, weve been making efforts to create editorial products to appeal to all sorts of readers from the avid financial markets watcher to the occasional re-tweeter. But most importantly, weve packaged content in such a way that it deepens the engagement among readers. And not to speak of the partnerships that weve leveraged over a short period of one year. For our valued partners from ADX, DGCX, IIF, Skyline University College and Phillip Futures DMCC, to leading research firms such as Marmore MENA Intelligence, Marketstoday.net, IFA Global and Tradepedia we have a lot to be thankful for.

We are also thankful for our readers today and every day!

We encourage your active participation and invite you to share your views at [email protected] on how we can improve the magazine further. Weve been successful in publishing some of the memorable articles and Exclusive news reports across our digital and print platforms. Over the last year, we have been fortunate to publish hundreds of articles and news reports, including news, countless online articles and research reports from our Wealth Monitor Intelligence desk. We have lost count on how many online specials and social media posts weve published so far, all of which got tremendous response and likes.

As you read this Special issue, we look back and we look ahead.

As we look back on this past year, we realize how much we have done. But weve miles to go together. Over the coming months and years, we will continue to set new benchmarks for the financial media in the Gulf region and beyond. We also do hope you will continue your support to us.

Happy reading Wealth Monitor!

EDITORS FLOOR

VOLUME: 01 | ISSUE: 12

April 2016

Semantics Global Media FZ LLCDubai Media CityPO Box 500683Dubai, U.A.ET: +971 4 2766080 F: +971 4 [email protected] | www.semantics.ae

Editor in ChiefArshad Khan | [email protected]

EditorSunil Kumar Singh | [email protected]

Research & AnalysisFareem Chagla | [email protected]

ContributorsAshley FreemanDr. Garbis IradianBruce Powers, MarketsToday.netTradepediaIFA Global DMCC, DubaiMarmore MENA Intelligence, A subsidiary of Markaz

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DisclaimerAll content published in Wealth Monitor is for information purpose only. Nothing in this magazine shall be construed as investment advice, nor does it represent the opinion of or recommendations by Semantics Global Media on any particular stock, commodity, mutual fund, portfolio, or investment strategy. Wealth Monitor or Semantics does not have any liability for any investment loss arising due to the decisions based upon the content published herein and under no circumstances shall Semantics or its employees be held responsible for any loss or damage caused by investments based on information obtained from Semantics publications. Readers/subscribers are advised to discuss with an expert/broker/financial planner before buying or selling any asset or making any investment decision. Semantics and Wealth Monitor magazine do not claim to be complete or free of errors and the liability to verify pricing, data, views and other information published in Semantics and its publications rests with the reader/subscriber. While the information/data/statistics in this issue are taken from sources believed to be reliable, Semantics Global Media does not guarantee its accuracy and correctness and any error or omission shall not be made the basis for any claim or demand or cause of action. All rights reserved. No part of the publication should be reproduced, distributed, or copied without the written permission from the publisher.

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P.44 Blue ChipScaling Up

P.47 Whats NotThe US dollar tumbled after the Feds dovish stance, and is likely to remain

under pressure in the near future

P.54 DashboardThe Next Step

Forward

P.56 The Last LaughHoming In

CO

NT

EN

TS

The Cycle Hasnt Turned YetP.28Some base metals have seen short-term rising trend. But is the metal sector really turning around?

P.08

Ishrat Kiyani, Head of Mashreq Gold

Face Value

Bulls vs BearsP.10

Safe As Houses?


P.04 Opening BellMajor News Stories From

Around the Region

P.23 Markets CosmosNews and Data on Precious Metals, Base Metals, Energy,

Agri/ Soft, Currencies and Arabian Bourses

P.45 Markets RewindHistory of Property Bubbles

P.46 Whats HotWill the bullish momentum con-

tinue?

P.42 Taking StockBefriending the Trend

Agri-commodities prices continue to remain under pressure

Closing The GapP.32

Precious metals are on the rise after the US Federal Reserve struck a dovish tone

P.24

CO

NT

EN

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In FocusSafe Haven in Turbulent Times?

P.38

Technology TrendzP.48

Crude Awakening

The Bulls Back

P.28

While crude oil is expected to trade with a positive bias, fresh longs should be avoided at elevated levels

Number Game


OPENING BELL

4

We are looking forward to support economic diversification policies which complement the UAE Beyond Oil Strategy. We will focus on creating integrated solutions and innovative initiatives that contribute to the achievement of these ambitious objectives and national priorities.

- H.H. Sheikh Ahmed bin Saeed Al Maktoum, Chairman of DAFZA

$500m

61%

Sukuk listed by Arab Petroleum Investments Corporation (APICORP)

on Nasdaq Dubai on the 8th March 2016.

UAE High Net Worth Individuals Set to Invest in Global Real Estate in 2016,

according to Cluttons 2016 Middle East Private

Capital Survey. Dubai joins London & New York as preferred investment

destinations.

HNWIs surveyed under the 2016 GCC Wealth Insight Report, by

Emirates Investment Bank believe movement in oil prices to be key

theme impacting investment decisions.

QAR 66mThe net income

recorded by Shariah compliant, Qatar First

Bank (QFB) for full year 2015.

9%Overall YoY growth in

card spends across the UAE, as per a report by Network International.

46%

NewsIn Numbers


5

OPENING BELL

Today the question on everyones mind is: will the low oil price environment stall the growth of renewables? We dont believe so.

- Alex Thursby, NBADs Group CEO

$3.7bAED 176 bn

Overall group revenue for Majid Al Futtaim, the

leading shopping mall, retail and leisure pioneer across

the MENA, up 8%YoY for full year 2015.

Added to the UAEs GDP from 2011 to 2015 by increased electronic

payment (card) usage as per study commissioned by

Visa Inc.

Size of Dubais non-oil trade with China over 2015, maintaining its

position as Dubais leading trading partner.

86%The percentage of

Saudis going online at least once daily

via smartphone or a computer, a whopping

42% increase since 2012 as per Googles latest Saudi Arabia

Connected Consumer Survey.

4%Annualized Returns to Bondholders in

2015 distributed by National Bonds.

AED 23mCash pay-out, translating

to a dividend of 20% declared for the year

2015 by Dubai National Insurance & Reinsurance

PSC (DNIR).

0.23%Average contribution of card usage to UAE GDP

between 2011-2015.

$864.2mThe size of public cloud services market in the Middle East and North Africa (MENA) region

projected to grow 18.1% in 2016, according to

Gartner, Inc.

AED 27.3b


OPENING BELL

6

News That Made Headlines

Whats pushing UAE residents into debt trap?

3-in-4 Gulfs super-rich prefer to keep their assets close to home

UAE residents adopting a lavish lifestyle and taking out excessive loans they cannot afford are increasingly putting themselves at risk of long-term debt, according to the regions financial broker, Nexus Group. As oil prices drop to the lowest rates the world has witnessed in decades, and regional businesses face cutbacks, responsible spending has become the mantra of 2016 with many of the countrys residents striving to save more and spend less. However, the

privileges that many have been enjoying for years makes this lifestyle change easier said than done, say experts.

In extreme situations, debt repayment should not exceed 30 per cent of your income the remaining 70% should be kept for savings and other expenditures, said SS Raju, personal finance expert at Nexus Group.

And 30% is the absolute maximum. Prudence would suggest it should be no more than 10%. However, today, we find that many residents spend a great portion of their salaries paying back existing debt. To protect consumers, the UAE Central Bank has specified that the Debt Burden Ratio (DBR) the maximum percentage of an individuals income that goes towards debt payment should be no more than 50%.

The majority (76%) of GCC HNWI investors prefer to invest in the region over global markets, despite any geopolitical concerns, says the 2016 GCC Wealth Insight Report, published by Dubai-based Emirates Investment Bank, an independent private and investment banking boutique. The GCC Wealth Insight Report 2016 is based on a survey of HNWIs from the United Arab Emirates, Qatar, Kuwait, Saudi Arabia, Oman and Bahrain. Face-to-face interviews were held in each country between September and November 2015 among the national population as well as expatriates. This years findings show that in

what has been a challenging year for the region, with the falling oil price and geopolitical instability, the GCC remains an attractive investment destination for HNWIs. However, there is a clear element of caution lingering amongst investors. In this years report, we see a clear shift towards conservative investments, with GCC HNWIs appearing to be more risk averse and adopting a defensive approach to their wealth allocations. This is evidenced in the notable shift this year towards cash and deposits as well as gold and precious metals, Khaled Sifri, CEO of Emirates Investment Bank, said.

GCC debt issuances could crowd out private borrowers GCC governments are expected to raise between $285-390 billion cumulatively through 2020 through local and international bonds and the new debt issuances by the GCC government could usher in a new era for GCC fixed income markets, according to a presentation by Kuwait Financial Centre Markaz on Forecasting Sovereign Debt Issuances in GCC in collaboration with Kuwait Banking Association. The challenging environment posed by lower oil prices should be converted into an opportunity to develop the domestic debt markets. In this regard, establishment of debt management office and regulatory framework to clearly communicate to the markets is necessary. Though domestic debt issuance allows for easier and faster way to raise capital at lower credit spreads, it could usurp liquidity and crowd out borrowing space for private borrowers, the presentation delivered by M.R. Raghu, Head of Research at Markaz and Managing Director of Marmore MENA Intelligence, a research subsidiary of Markaz, said.On an overall basis for 2016, Raghu stated that the financing need for GCC countries to be at $151.3 billion of which $78.1 billion is expected to come from reserves (52%), $57.7bn from domestic and international bond issuances (38%) and the rest through loans (10%). Raghu said that the low oil prices has altered the fiscal landscape of GCC countries as the prized fiscal surplus registered in erstwhile years has flipped into large scale deficits to the tune of $160 billion in 2015 and 2016 respectively. In 2015, the deficit was partly met by domestic bond issuances and the remaining by liquidating reserves held in Sovereign Wealth Funds (SWFs). Saudi Arabia for the first time in 8 years issued local debt to raise approx. $26 billion from domestic banks and utilized almost $100 billion of its reserves.


OPENING BELL

7

The Best From www.wealth-monitor.com

Will the rising borrowing by GCC governments crowd out private investment and make bank financing tougher for private borrowers ?

Wealth Monitor March Poll

To vote, log onto www.wealth-monitor.com

1

3

2

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8

910

Crude Oil Jumps 57%: The Rally That Few Saw Coming

A Step-By-Step Guide to Buying Property in Dubai

Commodity Rally Gathers Pace: Where Will It Go From Here?

Crude oil prices will rebound further, says StanChart

Global capex to shrink by a further 4% this year, says S&Ps

Revealed: The Highest Dividend Yield Stocks in UAE and Saudi Arabia

3-in-4 Gulfs super-rich prefer to keep their assets close to home

Gulf Countries Dollar Pegs To Remain For The Next Few Years

Cash levels Down, Commodities positions Up: BofA ML Fund Manager Survey

Investor appetite for risk assets back in vogue. Is the worst over?

To read more of our web specials, log onto our website.

wealth-monitorwealthmonitor wealthmonitor

wealth_monitor wealthmonitor

Most Read on www.wealth-monitor.com

Yes

25%

54%

21%

No

Cant say

World in the Grip of an Unwarranted Economic AnxietyThe last one month has seen a sudden change in the gloom and doom which engulfed the globe in the beginning of the year. Stock markets, generally treated as a sentiment indicator, world over have seen a recovery of sorts oil has breached the $40 a barrel level (Read: Crude Oil Jumps 57%: The Rally That Few Saw Coming) and there are fewer murmurs around China and the bubble it was growing into. Local sentiment too has been buoyed by the change of heart, few have answers to, and suspicion grows around the sustenance of the swing.

We interacted with Dr. Marie Owens Thomsen, Chief Economist, Indosuez Wealth Management, the global wealth management brand of Crdit Agricole group, for some of her thoughts around the same, besides her views around comparatively low oil prices being an impetus towards change and reforms in the GCC.

Dr. Thomsen underlines what she refers to as the Economic Anxiety that has gripped the world, which makes a case for disbelief around any greenshoots or positivity. To give an idea, 2008 had nearly 90 countries in what may be referred to as recession the comparable figure today is 22. The world GDP stands at nearly 3% against the 30-year average of 3.5%. She gives a perspective around this anxiety being an offshoot of a high degree of misconception prevailing around:

Majority linking deflation with depression. Differing with this, she highlights the world is not facing deflationary recession but as deflationary expansion.

Importance of energy to the world economy. Oil-dependent nations contribution to world GDP is approximately 17%, roughly the same as China. Besides, it must be stressed that a global recession has never been provoked by low oil prices. In an

environment where western monetary and fiscal policies are largely exhausted and structural reform is difficult to enact, low oil prices are the one pro-growth factor that has generally supported the positive job creation, higher real income, and low inflation environment which the worlds major economies are experiencing.

Banking system going kaput. The exposure the banking system globally has towards the energy is largely exaggerated and fears around the same leading to a systemic crisis are highly pronounced.

On the impact of lower oil prices to the GCC, she highlights Low oil prices will support the global economy over the short to medium term, while continuing to inflict pain on the oil-exporting countries. Only structural reform is capable of easing that pain and, as such, the low oil price scenario is presenting a huge opportunity for the GCC countries. Reforms do work, and should not be limited to restoring fiscal balances but rather broadened to promoting an efficient allocation of resources in the economy, boost job creation, and nurture non-oil sectors. This will be necessary to restore the regions GDP growth to the levels it is accustomed to.


8

FACE VALUE | Ishrat Kiyani

Ishrat Kiyani, Head of Mashreq Gold, tells Wealth Monitor regional wealth managers are focusing more on local markets, than offshore destinations, for investment opportunities

Given the current market conditions, what will 2016 look like for the UAE and the Arabian Gulf wealth management sector?The wealth management industry is entering an exciting stage in the UAE and the Gulf region. This, to a large degree, is driven by the global events, such as the slowing down of Chinas economy, pressure on the US Fed to increase interest rates, and of course the low crude oil prices.

In the GCC region, the shift in the wealth management business is also driven by the fact that over the past decade this region has earned its status as a global financial hub. The growth opportunities for wealth management in the GCC are immense. Over the last 10 years, the huge boom in crude oil prices has generated wealth creation both at an individual

as well as government level (in the form of sovereign wealth funds or SWFs). Interestingly, we are seeing a new development in the regional wealth management sector. Until a few years ago, a major chunk of clients money tended to be invested abroad in global markets for higher yield. Of late, theres been a shift in this trend because of the fact that the competition for wealth management business is intensifying in the region with many local as well as global banks vying for a share of the pie and to expand their local presence.

Thats why we see the life of the suitcase banker being a thing of the past now. Earlier, wealth managers and private bankers used to travel out of the Gulf region for business purpose as the target of investment was outside the region. There was

Suitcase Banker is a Thing of the Past


FACE VALUE | Ishrat Kiyani

A ProfileIshrat Kiyani

Prior to his position at Mashreq, Kiyani was the Regional Head of Wealth Sales at HSBC Bank Middle East for the MENA region, where he was responsible for the implementation of the wealth infrastructure, managed costs and executed discretionary incentive schemes, and supervised wealth transformation strategy across the network. Kiyani has also undertaken a number of senior managerial positions at HSBC bank of Middle East including his role as Head of Premium Banking, Wealth Management and Mortgages (UAE), and Regional Head of Insurance and Wealth Management MENA.

less focus on recruiting wealth advisors, and training and reskilling them as investment opportunities lay in offshore destinations where there was no need for local relationship managers (RMs) and advisors. All that the wealth manager had was a product suite, which he would sell to his clients. That trend is becoming extinct as wealth managers are now refocusing internally on local markets.

Going forward, I believe, the wealth management business in the GCC is well-placed despite whats going on in the global and regional markets. But 2016 will be a tough year for all businesses including the wealth management industry.

How are you addressing the current market needs? Clients are now looking for simplicity, clarity, alignment of interest and someone they can work with and trust. We believe its important to do need-based selling rather than product push which happens quite often in this region. We believe in establishing a long-term relationship with clients, understand their needs and goals and match those goals and needs with the products that we have on offer, rather than the other way round where RMs keep pushing products irrespective of whether it meets clients needs or not. That leads to mis-selling. Based on whether our clients are cautious, balanced or adventurous, we create a portfolio around that to make sure it fits into their needs. Subsequently, we review the portfolios on a regular basis to ensure they are on track to meet the clients financial objectives.

One of the issues in this part of the world is that the customer experience is not that great. Thats where the role of RMs assumes prime importance in order to build the relationship with our clients. During the last 8 months, since I joined the bank, weve doubled the size of our salesforce. We had around 30 RMs when I arrived and now weve over 60 in the UAE

alone. As a consequence of this, weve been able to reduce the ratio of clients to RMs, thus giving them more time to broaden and deepen the relationship with their clients.

How would you describe Mashreq Golds growth so far in terms of AUM, client segments? What sectors have you favored historically?The AUMs have grown in line with our expectations and whilst I cannot share the exact numbers, we have grown by mid-single digit during the last 12 months. Regarding asset choice, we believe theres no one-size-fits-all concept since asset class selection depends on each individuals needs and goals.

From a product perspective, how does Mashreq Gold compete with large global wealth management and private banks?Multinational wealth management firms have had significant presence in the region, especially in recent times. Local banks, on the contrary, are expanding their presence. Its not only their size that is increasing but also the level of sophistication. Therefore, the competition is more among the local banks and not so much with multi-nationals. Mashreq has 4 decades of experience and existence in the UAE and overseas and we are well placed to service our clients efficiently with well-rounded financial solutions.

Whats your investment discipline? Do you believe active value investing pays off in current market conditions?Our investing discipline depends on clients needs, their risk profile, their time horizon and objectives. Based on that we make recommendations and so we believe theres no one overarching investment recommendation. Also when times are volatile, as they are at the moment, we encourage our clients to drip-feed

their investments through dollar-cost averaging.

Its said, the client is always right. What has your experience been like so far?Client is always right in the sense that its their money and we owe it to them to make sure that we do the right thing for them and build a strong relationship with them. If you manage to establish a strong relationship with them, the clients are not going to come back and tell you, You sold me something that I wasnt aware of! Thats the reason why we encourage our RMs to make sure no sale is executed in a hurry, but only after fully understanding the clients needs and financial objectives. We treat our clients money as our own money. It is also impressed upon our RMs to ensure that they always put their clients first, because if you look after your clients, they will in turn look after you. One piece of bad advice or mis-selling issue can damage your brand, reputation and relationship. One of the issues in this part of the world is that therere no robust, independent regulation related to mis-selling of financial products, unlike many mature economies where there are well-established rules governing the sale of financial products.

9

One of the issues in this part of the world is that therere no robust, independent regulation

related to mis-selling of financial products, unlike many mature economies


BULLS VS BEARS | UAE Property Outlook

10

Is it time to worry about another housing slowdown in UAE? Will the property market hit the brakes in 2016, or is it on the cusp of recovering? Four of the regions best property minds discuss the changing real estate landscape to figure out what lies ahead for the UAEs realty market

There is a tendency to associate the rise in real estate values with bubble, while the moderation in prices with the property endgame. But is that always the case? Not necessarily. Residential sales in Dubai did record across-the-board declines last year, with villa sales prices down year-on-year by 11% and apartments by 8%, as per estimates by real estate consultancy Asteco. In case of Northern Emirates also, with the exception of Fujairah and Ajman, rental rates declined marginally last year, with Sharjah and Ras Al Khaimah recording

2% falls each. Abu Dhabi however saw a slow but overall positive market

performance in 2015, as apartment rental

rates increased, on average, by 5%, with prime projects achieving up to 10% growth, and 3-4% growth for apartment sales prices.

Wealth Monitor asked market experts if 2016 is time to buy or sell. The experts debate on the current state and the outlook of the UAE property market and try to get insights into the factors behind why property prices in many areas in Dubai are in

downward spiral and the moderation is faster than the rents? Are off-plan sales are making a comeback again in Dubai? What are the risks involved from an investors perspective? Are they seeing investor demand for luxury property in Dubai waning and that of mid-level affordable accommodation on the rise? Whats the best option from the point of view of a customer: buy or rent property in Dubai? How real estate brokers are combatting falling sales and the downturn in the Dubai property market?

And heres what they had to say.


1111


David Dudley, International Director and Head of Abu Dhabi Office at JLL MENA

Matthew Green, Head of Research & Consultancy, CBRE, UAE

Its A Correction Not A Major CrashThe current slowdown in the UAE real estate market should be seen as a minor correction as opposed to a major crash. While the impact of reduced oil prices on the economy will lead to a short-term slowdown in demand, this is occurring at a time of minimal supply completions leading to relatively stable market conditions. The market experienced a major upswing from 2013 to 2014, led by the residential sales market, with prime residential prices growing at 25% per annum. This pace of growth was unsustainable. The current phase is a slowdown and a relatively minor correction, rather than a major crash with reduced supply coming through at a time of weak demand, allowing underlying dynamics to catch up with the pace of value growth.

Selective FundingWhile liquidity has tightened, funding is still available for project finance and corporate level lending it is just more selective. The good news is that demand growth continues from projects that

started when oil prices were strong. Developments such as the airport expansion or the growth of Etihad Airline have an economic multiplier effect, ensuring continued GDP growth, albeit at a reduced pace.

Abu Dhabi Property Law To Bring OpportunitiesThe new laws place greater responsibility and regulation on developers, which will inevitably suppress supply growth. This will help reduce the risk of over-supply in the current period of weaker demand; however the key will be to allow sufficient supply to come through to maintain a healthy balance between supply and demand to keep rents and prices at a competitive level. The good news is that demand growth continues from major capital projects that started when oil revenues were strong. Projects such as the airport expansion, the growth of Etihad Airline and other major tourism attractions, including The Louvre Abu Dhabi have an economic multiplier effect, ensuring continued GDP growth.

Markets Become FlexibleThe slowdown in activity within the residential sales environment has certainly encouraged more flexibility in the market, although this has broadly come from developers through waiving of registration fees and offering of more flexible payment plans to investors.

A Long Term InvestmentAs with any market, there are potential risks when purchasing a home in Dubai, particularly when utilising bank finance in a country where visas are linked to your employment. Given the uncertain economic environment in the region at this time, security of employment has been identified as a key concern,

specifically for expatriates working in the oil and gas sector and in some parts of the public sector. However, whether it is in Dubai or any other international market, real estate should always be viewed as a long term investment, and should be considered within your means.

Demand For Off-Plan SlowsAs was the case during 2006-2008, there was significant interest in off-plan sales during the last boom cycle from 2013-2014, particularly for units from high profile developers such as Emaar, DPG, Deyaar and Damac. However, since the second half of 2014, demand has slowed considerably as investor sentiment has turned negative amidst the onset of


12

Haider Tuaima, Head of Research, ValuStrat


Property Prices Begin StabilizingProperty prices in Dubai were indeed in a downward spiral, but only for a limited period, between July 2014 and July 2015, after which, prices generally began to stabilize. According to our proprietary ValuStrat Price Index (VPI), June 2014 saw an index peak of 112.9 points as compared to the starting 100 point index for January 2014, by July 2015, the index dropped to 98.4 points, bottoming out at 97.9 points in January 2016, it then saw a slight uptick to 98.0 points during the following month. Therefore there was no effective overall change in values across the 26 neighborhoods we measure during the second half of last year, with a minute indication of recovery in some districts during the first quarter of 2016. As far as Dubais asking rents are concerned, they continue to soften.

Demand on Generally speaking, theres continued demand for the full spectrum of properties on offer, however, we do see more focus on properties priced less than AED 1 million as almost half (46%-49%) of the residential transactions in the last 14 months were in this

bracket, while on the other side of the spectrum, properties priced more than AED 10 million represented 1.47% of all residential transactions during Q1 2016, which is double the 0.72% recorded the quarter prior to it.

Speculators Out Of PictureWith speculators mostly out of the picture, off plan investors as well as future end-users have become more cautious with their decision making as purchasing off plan can involve a number of risks or drawbacks, especially in the case of buying something that is not yet tangible and cannot be seen. Firstly, if the property market experiences a decline during the construction phase, the return on investment may not be as good as initially hoped for. Or in extreme cases, a project can be delayed due to the developer being short of funds, the market position, or other reasons which all translate to a loss of money and time for the investor Many such cases exist from past crisis with buyers paying significant sums in deposit payments on projects that become delayed and stalled.

global economic challenges and concerns over local market dynamics. Oversupply and the slowdown in a number of key source markets, including some of the BRIC economies, were important factors in this shift. Whilst supply fears have yet to be realised amidst the slowing pace of many construction projects, Dubai has become a more expensive investment destination for some international investors due to the unrelenting strength of the US dollar, resulting in weaker inward investment volumes over the last 2 years. However, history has shown that Dubai has a cyclical and often speculative real estate market, attracting significant capital from international investors over the years, buoyed by its safe haven status within the region. As a result, we would expect to see off-plan properties find favour once again as the Emirate starts to recover.


Wrapping UpReal estate market, like any other asset class, tends to move in a cycle. However, unlike many other assets, real estate markets are little more predictable as the recovery of real estate follows the macro-economic recovery. The outlook for the UAE housing market therefore appears increasingly tied to the overall recovery in the economy, especially the crude oil prices. The UAE, and especially Dubai and Abu Dhabi, has been an investment destination for buyers from around the world for many years, a trend which is expected to continue. The elephant in the room, as experts would have us believe, is the attractive yields offered by Dubai property sector that continues to outpace many developed markets around the world, both on the sales and leasing side.

1313

Ranju Kapoor, General Manager, Hamptons International


Developers In Wait-And-Watch ModeThe rental market in Dubai has overall reflected a marginal softening in rates. There has been growth in rentals of new offerings and declines in projects with inventory overhang. New units are entering the market, however several freehold developers are carefully managing their pipeline with projections for delivery in 2017-18, and adopting a wait-and-watch attitude for this year. With less new supply entering, the rental market trends are dictated by demand from end-users who seek specific conveniences including connectivity, ease of access to lifestyle and leisure attractions, and a preference to be part of established communities.

More Demand For End-Use HomesOver the past year, the rental markets in Dubai have held steady in most established communities including Downtown Dubai, The Greens and Dubai Marina, principally, for this reason. Today, there is increasing

demand for end-use homes, as people seek to shift from a rental model to an owned-home lifestyle. Across the market, we see a shift in sentiment, with more customers asking, when should we buy? as against when should we sell? Several affordable communities have been launched to meet the appetite for value housing but these are yet to be handed over.

Dubais Rental Market AttractiveThis year will offer interesting insights on how the rental market of Dubai will respond to the shifts in the neighbouring emirates. Sharper drops might have a fall-out as small families may seek to shift their location of residence. But the traffic woes, charges by way of road toll and the time lost in commuting, which in turn impacts the quality of life, will be deciding factors. For now, though, Dubais rental market continues to be attractive in terms of yield. This is based on firm fundamentals, and that is the mark of a mature property market.


14

Ismail Al Hammadi, Managing Director, Al Ruwad Real Estate, Dubai, tells Wealth Monitor Dubai property market is not slowing down. Rather its just a correction of rates and a rebalancing between demand and supply

Could you please take us through in a bit detail about Al Ruwad Real Estate, how did you start etc.?Al Ruwad Real Estate provides complete property related services ranging from Project Planning, Real Estate Consultancy, Property Management to Property buying and selling, Leasing and Brokerage. Al Ruwad is a one-stop shop for all types of property investors, either corporates or individuals. Initially, the idea behind starting Al Ruwad was to venture into property consultancy in Dubai as that was the area where we found opportunities. My background in real estate gave me considerable edge and advantage to start

PORTFOLIO | Interview

Its not a catastrophe for Dubai property market


15


this business. I have 20 years of experience in Real Estate handling multiple projects in Dubai.

Overall, the 20 years of my career in Sales and Commercial Operations in the Real Estate sector enriched me professionally and enabled me to develop deep understanding about Dubai property market. Al Ruwad is a brainchild of that experience. After two years of operations of the Consultancy business, I decided to expand and include other activities of Real Estate business, such as brokerage, etc.

How do you see the current Dubai property market conditions? Contrary to what many say, I believe Dubai property market is not slowing down. Rather its just a correction of rates and a rebalancing between demand and supply. Theres a pretty fresh supply coming into the market, which in many cases is outstripping the demand. Dubai is expanding and various real estate projects are coming up in areas where nobody had expected so 5 years back. Areas like Remraam, JVC, etc. are seeing new interests from residents and nationals moving in those areas.

Whatever therefore is happening in the market, we shouldnt be scared of as this is a normal and healthy development. If markets continue to go up without any correction, investors will face the same situation as they faced in 2006-07 when there was too much hype built around property market. Today, thankfully, theres no speculation, either in property sales or leasing. Despite the correction, Dubai property market is still giving the average yield of 7% yield on both sales and leasing side, which is higher than many other property hotspots around the world.

Going ahead, do you expect the ROI of Dubai property market to go up? Dubai property market offers unique value proposition as it offers quality lifestyle, zero taxation and a world-class infrastructure, which remains unparalleled. Many investors who bought in the boom years before 2007 may find it a tough market as property rates have come down from the peak. On the other hand, investors who entered the downturn phase of the cycle are reaping capital gains now, since low property prices have resulted in higher yields. So it all depends

on which point of price cycle one has entered the market.

Where do you see the market now and going into 2016?Im very optimistic that the prices will surely move up in the near future. Nevertheless, the correction that weve seen over the last several months has been immaterial. A correction of 5-10% in Dubai property prices is not a huge number overall. Its not a catastrophe for Dubai property market. Rather its a normal phase.

Last month, Dubai Land Department statistics revealed that on a single day registered property transactions in Dubai jumped to Dh1.4 billion, one of the highest daily property transactions registered with DLD in recent times. This shows investors trust is returning in market.

Do you see demand for affordable housing increasing in future? Yes of course. Dubai property market cannot sustain and serve only high-end and rich investors always. Weve seen demand for affordable property segment at much higher level than luxury segment, on both sales and leasing side. As much as 70% of demand is coming for affordable and 30% for luxury properties. Thats why youll see many developers launching affordable housing projects as theres where the growth lies.

Whats the best option from the point of view of an investor: buy or rent property in Dubai?Our strategy is to first identify the needs of clients and then propose the solution. As an advisor, we look at clients appetite, financial conditions and their requirements, before advising. Understanding the clients needs and meeting their expectations is the first priority.

Al Ruwad aims to be among the top 10 property consultancies in the region by 2021. Do you have plans to go for property development?Its too early to say that. My dreams are definitely big, but I like to focus more on achieving immediate targets than speculating on future plans. At present, I see myself as an adviser to property developers for the coming three years.

Despite the correction,

Dubai property

market is still giving the

average yield of 7%

7%


16

PORTFOLIO | Property Ready Reckoner

Theres been lots of talk going around UAE property market slowdown from buyers/investors singing the blues, speculations about things going from bad to worse, to likening current market conditions to those of 2008, among others. Isnt the

slowdown much hyped? Following a flurry of noisy and negative gyrations going nowhere, several recent trends reiterate that the fundamentals of the real estate market are being overlooked or misinterpreted. Despite talk of gloom,

however, therere reasons to

believe the property market remains resilient.

The market seems to be in for a quiet year and many suppose because there was a rush into property a few years back, it can be unsettling to see the market

going through

Is 2016 going to be a reprise of 2008 for the UAE real estate market, or a turnaround is in the offing? Sunil Kumar Singh tries to explore

The Realty Bet


17171717


bouts of volatility. But thats because the market has now settled into a steadier, less-spectacular groove, and surely, the current situation cannot be likened to the tough realty market of 2008-09, when the global financial crises hit the region.

The Two-Speed MarketThe gulf in property values and rentals had widened last year in the UAE, especially Dubai which, of late, is showing signs of narrowing. The latest trend is the softening of the asking rents in many micro markets of Dubai.

As of Q4 last year, median asking rents were 2.3% less than the quarter prior to it, 5% less than Q4 2014 and 10.4% less than the same period two years ago. This can be explained by analysing at the new supply coming online in some locations, providing more options for tenants, and by the long vacancy periods some landlords initially opted for to secure higher income, then realizing that a slightly lower asking rent would reduce the vacancy, reasons Haider Tuaima, Head

of Research at ValuStrat.

A recent report by Emirates NBD Dubai Real Estate Update: Feb 2016 also confirms that the pace of the price decline in Dubais residential sector is stabilizing in Feb 2016. Residential property prices have remained relatively unchanged in February 2016 with apartment prices down -12.1% y/y and villa prices down -10.9% y/y, according to Phidar Advisorys Dubai 9/5 House Price Index, which is based on Dubai Land Department (DLD) data but includes only nine apartment communities and five villa communities in investor zones in Dubai, the report said. Apartments account for about 90% of residential real estate

transactions in Dubai.

The luxury (premium) segment in the villas sector was more resilient at -9.1% y/y while the standard segment of the apartments sector also softened at -7.6% y/y in February 2016. The strength of the US Dollar is a constraint on demand, particularly for foreign investors, while low oil prices continue to weigh on sentiment.

Not So Affordable After AllSince the introduction of the regulations on mortgage lending by the UAE Central Bank in October 2013, the issue of affordable housing has been hogging the limelight with many developers coming up with projects labelled as being affordable. But is that really so?

Despite attempts by Dubai Municipality to create designated affordable housing quarters in the city, this is yet to take off enmasse and remains a vastly underserved segment of the market. In order to help drive developer interest, aside from prescriptive legislation on quotas for affordable housing, the authorities need to formalize the definition of affordable housing; not only in terms of those who could potentially qualify, but also the type of housing stock that needs to be created to help Dubai remain competitive and attractive to all income brackets, notes a report by Cluttons.

The formalisation of an affordable housing asset class, it added, would go a long way to help create and nurture a new property market segment, while at the same time providing a new route to ownership for aspiring households.

Fred Durie, CEO of Nshama, a Dubai-based private developer, explains the

How Average 2BR Apartment RentalsHave Moved Across UAE Since 2008

Dubai Abu Dhabi Al Ain Ajman Fujairah Sharjah New Ras Al Khaimah New Umm Al Quwain

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Investor Optimism is GrowingSameh Muhtadi, CEO, Bloom Holding, says the one positive trend over the last few months is that investor optimism is growing

The general sentiment in the regions real estate sector everyone is talking about is that of slowdown. Whats your take?

The real estate sector is going through somewhat of a slowdown, and in some parts of the UAE weve seen significant corrections in the prices. However, the slowdown is not everywhere. At the end of the day, it all depends on whats on offer to the buyer, the location, the pricing level, and whats the overall look and feel of the project. In regards to Bloom Properties, weve been doing extremely well. February 2016 was one of our best months ever. Though were not immune to what is happening in the market, weve positioned ourselves well in the marketplace, primarily because our emphasis is on being strategic more than tactical. All our projects are in prime locations. In a nutshell, the key to our success lies in our

value proposition, i.e., we offer the right product in the right place and at the right price.

Many players in the UAEs real estate sector are struggling to maintain positive cash flows in the current market conditions and also as banks in the UAE being more cautious now while lending to property sector. Are you facing any kind of such issues?

Banks certainly have become more cautious now, but thats obviously in response to the property market conditions. Banks are now looking at feasibilities of the project much more closely, they rely more on independent evaluators reports, and they regularly review the projects progress. However, in so far as Bloom Properties are concerned, we havent had any issues in arranging project financing.

When do you think the market sentiment will improve?

The global economy and markets have become more volatile, complex and even more unpredictable and we all have seen that in case of the fluctuations in crude oil prices. Just when everyone thought prices are on the way to hit new lows, there was a sudden rebound and a shift upwards. The real estate market is no different from other asset classes in that, in many cases, real estate investment decisions are driven by sentiment and optimism about the future. Nonetheless, the one positive trend weve seen over the last few months is that investor optimism is growing. The other significant factor impacting the real estate market sentiment is the stock market trends. Thankfully, weve seen some recovery in both Abu Dhabi and Dubai equity markets in the last period.

18


maths behind affordability, The UAE has over 820,000 middle-income households representing about 40% of all households in the country. By definition, affordable housing must not cost more than 30% of the gross household incomes for households earning between AED 10,000 to AED 30,000 per month.

From market trends, we have observed that Dubais property sector is maturing, and there is clear demand for end-use homes, he adds while underscoring the need to build houses for mid-to-low income bracket earning between AED 12000-25000 per month to drive Dubai property growth to the next level.

Concurring with Durie is John Stevens, Managing Director of real estate services company Asteco, who says, We are currently witnessing buyer preference focused on more affordable mid-market products as evidenced by the take-up iin recent launches targeting this market segment, this is the combination of an affordable price tag and attractive payment plans offered by developers.

Find Good Reasons To Buy Off-PlanOff-plan properties became popular during the height of the property boom in Dubai in 2005-06. But the buyers of these properties were also among the worst hit when the market fell sharply in 2008-09. However, now as developers are seeing off plan sales making a comeback, this naturally raises the question around the risks involved from an investors perspective. Experts say, off-plan

properties traditionally attract a higher percentage of investors and speculators than end-users when there are ample finished properties available for sale in the market.

Across the UAE, the rental market shows stability and therefore demand is still strong from investors for off-plan properties who are looking at procuring assets which yield a good return on investment, maintains Stevens of Asteco.

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Dubai Property Cycle Turns FasterDev Maitra, CEO of Dubai-based Indigo Properties, says what makes Dubai property market unique from other parts of the world is that the cycle tends to be shorter and faster

What stage of the cycle Dubai property market is in currently, and how has this influenced your market strategy?

Real estate market is cyclical in nature, like any other industry. However, what makes Dubai property market unique from other parts of the world is that the cycle tends to be shorter as the cycle turns much faster, on the back of the strong growth opportunities that Dubai property market offers. Were already in the bottom-end of the cycle and the wild distress has been eliminated. Given the slow but sure revival in crude oil prices in recent months, I believe Dubai property market is now on the cusp of a steady upturn, unless some black swan events take place. Therefore, it is a good time to buy now, especially from the end-user perspective. Having said that, the current market conditions have benefitted us as a developer as the costs

of building materials and construction have gone down.

Dubai residential property prices continue to soften faster than the rents in many areas. How do you see this paradoxical trend?

What drives the value of real estate fundamentally is demand and supply. However, therere many factors at play behind this demand dynamics such as investor sentiment, growth prospects and population. Supply on the other hand is generated by the developer launching the project. Over the last few years, authorities in Dubai have been taking steps to restrict speculations and which allows only serious developers to remain in the market. While these steps are welcome, they have created supply side limitations in the market, which have failed to meet

the demand of rising population, a large chunk of which still prefers to rent housing. Because of this, rents in many areas have either remained steady or have even gone up. I think this is a sign of a maturing market.

Going forward, do you expect developers to focus more on affordable or mid-range housing rather than on luxurious properties?

Therell be demand for both property segments. Dubai has the highest per capita millionaires in the whole world and itll always attract luxury property buyers. Along with luxury properties, I believe affordable properties would always be one of the key drivers of Dubai properties going forward.

1919


He cutions that there is still interest from bullish long-term speculators (as opposed to quick flippers) to invest in off-plan properties, as they believe that property prices will continue to rise over the next few years, thereby delivering them capital growth on their investments.

A Tale of Two Cities While residential sales in Dubai last year recorded across-the-board declines, with villa sales prices down year-on-year by 11% and apartments by 8%, in Abu Dhabi saw apartment rental rates increase, on average, by 5%, with prime projects achieving up to 10% growth, and 3-4% growth for apartment sales prices, as per Asteco figures.

Industry experts have also declared the new property law will benefit Abu Dhabis real estate growth. Abu Dhabis new Property Law No. (3) of 2015 took effect in January this year. Chris Taylor, CEO of Abu Dhabi Finance, is confident that recent legal and economic developments in the capital will bring best practice into the capitals real estate, with numerous factors

contributing to buyers security and subsequently enhancing growth.

Theres one more difference. Unlike Abu Dhabi, in Dubai the pipeline of supply is massive as many projects having been announced in the last couple of years. As Sameh Muhtadi, CEO of Abu Dhabi-based Bloom Holding, explains, . An estimate of up to 50,000 units is in the pipeline for delivery in the next 3-4 years. On the contrary, the Abu Dhabi property market doesnt have a supply overhang. In fact, the market has a scarcity of supply, both on the sales as well as leasing fronts.

Wrapping up, UAEs, and especially Dubais property prices are expected to rise as growth returns. Theres a broad-based real estate pullback, with prices correcting in many areas but things are stabilizing now. The drivers for this slowdown are a mix of supply-side factors and demand-side factors, but therere signs that the upside will finally unravel. The odds of a further price correction is remote, unless black Swan events take place that are almost impossible to predict.

Ahmad Al Matrooshi, Managing Director, Emaar Properties, sums it up like this, Dubais property sector has evolved significantly over the past few years and is today a maturing market with strong demand from end-user investors. The core economic sectors of Dubai including tourism, retail and hospitality are performing well. The ongoing preparations for Expo 2020 Dubai and the infrastructure projects being developed continue to attract professionals from around the world, in turn benefiting the real estate market. The various measures undertaken by the government authorities have strengthened the property sector. Flipping, a practice that fueled concerns in the past, has been curbed. Apart from governmental regulations, Emaar has also introduced several measures in place to protect the long-term interests of investors and to prevent unhealthy speculation.

In a nutshell, in a property market going through speed bumps get your ducks in a row before you make decision to buy or rent.


202020


Rizwan Sajan, Founder & Chairman, Danube Group, says if a project is offered at right price, at right payment terms and at right location, therell always be buyers in the market

Project financing has never been an issue for us

Please take us through the current and upcoming projects of Danube Properties and your business model.Danube Properties first project was Dreamz that was launched in June 2014, comprising of 171 townhouses. Subsequently, last year, we launched Glitz Residence 1, 2 and 3; all located in Dubai Studio City and have almost 850 apartments. The latest project which we just launched in January this year is Ritz Residence, located in Al Furjan and offering 454 units. Hopefully, in April well be launching another new project in the same Al Furjan area and almost on the similar design and patterns of Ritz project.

Since beginning, Danube Properties focus has always been to cater to buyers looking for affordable property, especially those whore currently paying rent, and thus enable them to own their apartment by offering them more value for their money. Weve received tremendous responses for all of our projects so far simply because we offer more value to our customers through two of our unparalleled offering. The first is the flexible payment terms. As per this plan, buyers of our property can pay only 25% upfront within 60 days of booking and the balance 75% can be paid in 75 equated monthly instalments of only 1% per month. The second way through which we create value is by offering not just furnished apartments but expandable living rooms as well that can be converted into a bedroom. While sofa and wall cabinet make a wonderful addition to our living rooms, buyers can easily unfold the expandable sofa and pull down the wall cabinet to use it as a bed.

Whats encouraging you to launch projects in current times when everybody is talking about slowdown?We believe that if a project is offered at right price, at right payment terms and at right location, therell always be buyers in the market.


2121


Many potential investors have a view that buying off-plan property has risks associated. Whats your take? It all depends on which off-plan development the buyers are investing in. If investment is made in a right off-plan project, it could turn out to be better than buying ready-for-possession properties.

Do you believe the rent-to-own schemes are catching up with developers and buyers alike?Buying a house in Dubai is often a better idea than renting one, especially for the expats who are going to stay in Dubai for a long time. However, in case after spending 5-6 years or more, if buyers have to go back to their home country for any reason whatsoever, they can get relief from the fact that theres always an exit clause in the property agreement whereby they can sell that apartment to another buyer at the prevailing market rate.

What is the biggest challenge facing the UAEs and the regions real estate market? What sort of hurdles you are experiencing in the current market situation?For most developers, the biggest challenge in current market conditions is to sell their inventory. In so far as were concerned, we havent had to face the selling pressure and liquidate our properties. Weve successfully overcome the market challenges simply because of the brand equity that we have built up over the last two decades. Our buyers, investors, and stakeholders trust in Danube brand and thats the reason why they invest in our projects. Several developers have dabbled in affordable property segment, but unfortunately many of them could not be as successful as we are.

Many players in the regions real estate sector are struggling to maintain a positive cash flow in the current scenario. How are you optimizing the cash flow management?For us, arranging project financing has never been an issue because of our strong balance sheet. Weve been working on good terms with banks in the region for a long time and that has established a strong relationship of mutual trust. We have never had issues in repaying loan back to banks, even during the

tough market conditions of 2008-09. This coupled with the fact that our forte in building materials further gives us a 10-15% cost advantage, thats transferred to our customers. This also gives an edge over other developers operating in this market since most of them have to source building materials from us.

How do you plan to fund your projects going forward? Will you be looking to raise funds through own equity, or youll be exploring external funding such as bank loans?At present we dont require external funding as our financials are very strong. Weve enough cash flow to plough back the profits in the development of new projects. Our approach is to go slow and finish one project at a time. Its only when we finish selling off a particular project that we go for another one. This is unlike other developers whore launching multiple projects at one go, which makes it difficult for them to execute and handover all projects within the deadline.

With the crude oil prices slightly jumping back to $40 levels and equity markets in the recovery mode, do you have plans to go for public listing/IPO?

Ours is a small family business and we dont have plans to go public. In the future we may go for it, but not at present. In fact, weve never felt that we should go to a stock exchange to raise capital.

Danube Group recorded an annual turnover of AED 2.3 billion in 2014, with a 15% increase year-on-year. How has been the performance in 2015?In 2015, our turnover was AED 5.13 billion and this year we expect to grow at another 15-20%.

If you could share one factor behind Danube Groups success so far, what would that be?Ive a strong conviction that working with complete sincerity always pays off. One shouldnt try something extraordinary unless one is really a genius. Lot of entrepreneurs planning to launch own company give all-out effort to grow too fast or do something which is against the market trend. Thats the reason why many of them fail. I believe that an entrepreneur must strive to do business thinking of not how much money he is going to make if he is successful, but instead how much money he would be losing if he fails.

How do you describe your leadership style and what advice do you give to future CEOs?I usually remain calm and cool even under pressure. I also believe in delegating the right tasks to the right people. Most importantly, I trust my employees and expect them to carry out their responsibilities effectively. For future entrepreneurs, I would advise them to be sure of the market they are venturing into. If one wishes to do business, never ever start off without first going into the detail of that business. Its very easy to start a business but equally difficult to sustain it. So go gradually, go slowly and theres a way out.

Of all the gadgets you own, which one you prefer the most? Whats your favorite pastime?My favourite gadget that I still like to use is my Blackberry because of the speed and ease of typing on the keyboard. Socializing is one of my favourite pastimes. I like to go out to parties and meet friends and on weekends, I dont forget to catch a movie. My day starts with swimming and a bit of workouts. For social networking I am mostly on Whatsapp and Facebook.

In 2015, our turnover was AED

5.13 billion and this year

we expect to grow at

another 15-20%

5.13 billion


11th Annual

11 & 12 April 2016 Dubai, United Arab Emirates

PRUDENT PRACTICESFOR GLOBAL GROWTH

For Partnership opportunities, please contact us at: [email protected] ORGANISED BY

Abdulla Mohammed Al AwarChief Executive Officer

Dubai Islamic Economy Development Centre(DIEDC)

Strengthening Takaful as a key pillar of the Islamic ecosystem

New Horizons for Takaful - Opportunities in Takaful in the UK

KEYNOTE SPEAKERS

Dave MatchamMember of Executive Committee

Islamic Insurance Association of London(IIAL)

@WorldTakaful, #WTC16 | WTC16.COM

WTC 2016 to feature exclusive launch of groundbreaking Finance Forward World Takaful Outlook Report 2016

Currencies

Arabian Bourses

Agr i/Soft

Prec ious Metals

Energy

Base Metals


11th Annual

11 & 12 April 2016 Dubai, United Arab Emirates

PRUDENT PRACTICESFOR GLOBAL GROWTH

For Partnership opportunities, please contact us at: [email protected] ORGANISED BY

Abdulla Mohammed Al AwarChief Executive Officer

Dubai Islamic Economy Development Centre(DIEDC)

Strengthening Takaful as a key pillar of the Islamic ecosystem

New Horizons for Takaful - Opportunities in Takaful in the UK

KEYNOTE SPEAKERS

Dave MatchamMember of Executive Committee

Islamic Insurance Association of London(IIAL)

@WorldTakaful, #WTC16 | WTC16.COM

WTC 2016 to feature exclusive launch of groundbreaking Finance Forward World Takaful Outlook Report 2016

Currencies

Arabian Bourses

Agr i/Soft

Prec ious Metals

Energy

Base Metals

Energy P.28Crude Awakening

Precious Metals P.24The Bull is Back

Base Metals P.26The Cycle hasnt Turned Yet

Agri/Soft P.30Closing the Gap

Currencies P.32Dollar Doings

DGCX Data P.37Global Single Stock Futures

ARKETSMIn this section, Wealth Monitor analyses news and data from the regional and international

financial markets with specific focus on precious metals, base metals, energy, agri/soft, currencies and Arabian bourses

SMOSC

23Arabian Bourses P.34Technical Analysis: TASI, ADI & DFM


PRECIOUS METALS | Consolidation

24

Precious metals are on the rise after the US Federal Reserve struck a dovish tone that sent the dollar sharply downward. The prices however remain vulnerable to the global economic stance

Precious metals, lead by gold, continued to enjoy their share of limelight into the month of March amidst the global economic slowdown. With the Chinese Premier Li Keqiang announcing a targetted range of GDP growth at 6.5% - 7% for 2016 and abandoning a guidance towards the trade target, underscoring the degree of uncertainty around global growth, sentiment surrounding precious metals is expected to remain buoyant in the immediate to mid term future.


PRECIOUS METALS | Consolidation

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Gold Inches Up In what may seem ironical, Moodys Investor Service downgraded the ratings for Goldcorp Inc, the worlds 3rd most valuable gold miner to the lowest investment grade with a negative outlook on a day gold prices surged to the highest level in the last 12 months. Conquering the $1280/oz level, the yellow metal continued the upmove which commenced from the beginning of the year. Investors who abandoned gold in recent years, a reason for the dismal fortunes at Goldcorp Inc., have started to return and with prices holding up, short-lived corrections and less of a threat from the stock markets, which remains mired in uncertainty, there is a growing belief on the interest towards gold as an investable asset class continuing in the coming months.

Support to this buying is expected to continue from the Central Banks across the world. 2015 saw Central banks purchase 588 metric tonnes (mt) of gold, the 6th year of continuous buying, amongst the longest spree of buying on record. As per the World Gold Council, Russia and China dominated the Central bank purchases during 2015. As Central banks around the world adopt negative interest rates in an effort to stimulate economic growth and target higher inflation, gold is expected to continue playing role as an economic shelter. With a near 19% appreciation for the current year, it would be interesting to see how the move continues from here given the metal has not been known to register the stupendous growth rates equity markets record on rebounds. The highest annual return recorded over the last 10 calendar years was 28% in 2007.

Silver GainsWhile silver has often been viewed as the cheap proxy to gold, it has not really traced the path gold has followed. We outlined the gold/silver price ratio over the last 5 years to put this in perspective. As seen, it has reflected a steady upwards trajectory. In fact, for the 3 months into the current calendar year, the same moved from 77 to 82 currently, indicative of gold clearly winning this race. Proponents of an undervalued silver seek refuge in its significantly higher proportion of use in industrial activity. However, with global growth expectations subdued, it would be a wait before Silver dons that role. Till then

it is expected to largely enjoy the tag of a pillion to the rally in gold. An event worth highlighting during the month of March has been CME Group introducing China Construction Bank as an official member in the silver pricing process, thus adding another feather to Chinas cap donned in the commodity market globally.

Platinums ComebackThe month of March saw platinum gain ground, conquering the $1000 per oz level after having touched a 7 year-low of $812 per oz in January. The World Platinum Investment Council in its quarterly report, platinum Quarterly Q4 2015, released earlier in the month highlighted the challenge in outlining the price softness of platinum over the last 3 years; this, inspite of a deficit in the market. This is unlike the trend in most other commodities which have seen prices decline in light of a surplus indicated by their supply-demand status. The platinum market is forecast to have a deficit of 135 koz (000 oz) in 2016, smaller than the deficits in the prior three years. Further in an observation, they note that in the last 40 years, platinum prices have only 4 times been at a discount to gold for a sustained period. In all these instances, the price has recovered strongly in the subsequent year.

The platinum market is forecast to have a deficit of 135 koz (000 oz) in 2016, smaller than the deficits in the prior three years

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BASE METALS | Price Recovery

26Some base metals have seen short-term rising trend. But is the metal sector really turning around?


27

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The falling price trend in base metals which dominated most of 2015 crept into sentiment for the early part of this year. Concerns around the global economy, dominated by the negative sentiment surrounding the Chinese economy in particular, led to a direct fallout in demand and prospects for industrial metals. While prices have recovered since then, it would be imprudent to opine that the cycle has turned. While February saw a broad-based rally across the commodities market, March has seen some level of cynicism creep into sentiment prevailing around the bounce back buoyancy. The year remains heavily laden with economic events and related data is expected to continue to dictate the sentiment around the base metal markets.

Copper RecoversCopper prices reversed the downwards trend which continued during the beginning of the current year and have seen some price stabilization come in. The fallout of the near 25% price correction during 2015 has been witnessed in a number of producers cut production or completely suspend output. Results for Antofagasta PLC, amongst the top 10 producers of copper miners worldwide, which reported a pre-tax profit of $259 mn over 2015 from $1.5 bn, a year ago are a stark reflection of the year gone by and the hit the industry has taken.

As per the recently released outlook by the International Copper Study Group (ICSG), the global refined copper market is expected to remain essentially balanced in 2016 compared with a previous forecast in October for a 175,000 tonne surplus.

This downward revision, they highlight has been made for both supply and demand, in view of global weaker economic outlook, project delays and price related production cuts.

Nickel SlidesWhile commodities have had it difficult over the last few years, few metals have had it as difficult as Nickel, a key ingredient in stainless steel, which trades a level close to the lows seen at the peak of the 2008 global crisis. Nickel futures prices at approximately $8600 per metric ton currently seem a distance away from the highs of $49700 per mt levels seen in April 2007. It is of little surprise that China remains the major reason for Nickels woes. With the country accounting for nearly 30% of global consumption, price trend remains inherently correlated to the sentiment around the economic reality. Besides, Nickel stockpiles continue to mount at 441,912 metric tons as on end February for the London Metal Exchange (LME), they stand at nearly 3.5 times for the same period in 2011. The World Bank in its quarterly update, Commodities Markets Outlook published in January 2016 predicted a 16% drop in prices for the current year given the woes around the metal including a glut of supply, there is little to suggest a reversal of the long term bearish trend which has gripped the metal.

Aluminum RisesAluminum prices too have enjoyed the ascent seen across metals since late January, with the metal moving towards its highest price point seen since October 2015. However, the rally around the

metal which again has suffered in light of an industry burdened by overcapacity and stagnating demand across primary markets is expected to see a gradual halt. The Goldman Sachs Group, which outlined its views around commodities during the month envisaged a slide as much as 20% in the prices of Aluminum over the next year. According to the data released by the International Aluminum Institute, China produced 2.48 million metric tons of aluminum in January 2016, a YoY decline of nearly 4.5%. This is the second consecutive month where Chinese aluminum production has fallen, an event not seen since December 2010.

Zinc Prices JumpZinc prices have recovered on the back of strong fundamentals. The month of February saw prices rebound 8% seeing some cool off in March to the current levels around $1750 per mt. This has been aided by significant supply cuts by Glencore and a consortium of Chinese smelters. Stock piles at the LME at current levels around 459,000 mt continue to trend lower to give a perspective, warehouse piles in 2013 stood at over 1.2 million mt. While demand has trended lower as is the case with most other metals, supply growth has fallen more sharply which is leading to expectation of the industry seeing a deficit for the current year. With mining company MMG declaring the end of production at Century Mine, one of the worlds largest zinc deposits earlier and Horsehead Holding Corp, a leading US zinc producer, operational for around 150 years filing for Chapter 11 bankruptcy in February, the supply side constraints are expected to see prices supported going ahead.

Copper Prices ($/Pound)3.1

2.9

2.7

2.5

2.3

2.1

1.9

1.7

Jan-15

Feb-15

Mar-15

Apr-1

5

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov

-15

Dec-15

Jan-16

Feb-16

Mar-16

3.1

2.9

2.7

2.5

2.3

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2007Jan May Sep

2008Jan May Sep

2009Jan May Sep

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2011Jan May Sep

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Nickel Futures (LME $/Tonne)Monthly Highs Since Jan 2007

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ENERGY | Rebound

28

While crude oil is expected to trade with a positive bias, fresh longs should be avoided at elevated levels, says Dharmesh Bhatia, Manager - Commodities Market, Emirates NBD Securities

Last month, the international bench-mark Brent crude jumped by 5% and quoted at $37 while the US benchmark WTI (West Texas Intermediate) reached at the peak of $34.69. However, later this rally was supported by funda-mentals and prices rallied further. Major upheaval in prices has been witnessed so far during the current year. The Brent was dropping to a 12 year-low of $27.10 a barrel in January before embarking on an uneven recovery. Daily swings of more than 7% have been recorded on four occasions in February alone. Between 2012 and 2013, when oil averaged close to $100 a barrel, there was only one trading day when Brent moved 7% over the entire period.

In the second of weak of March, 5% jump was witnessed with assumption about supply crunch in the global market because of disruptions in the pipelines of Iraq and Nigeria. The stoppage in the pipeline of Turkey cut off about 600,000


barrels a day of crude from Iraqi Kurdis-tan for the past two weeks, with reports suggesting the line may not be back until the March end. The leakage in the pipeline of Nigeria Royal Dutch Shale Company has been described as force majeure and the production of daily 250,000 barrels Forcados crude has been suspended. No-body knows when this production would resume.

Brent crude may witness monthly price increase, first time since October, as 850,000 barrels per day production of above two countries would be out of the market which constitutes less than 1% of the total global demand. Talks are being held between Russia, the biggest exporter country outside OPEC cartel and Saudi Arabia, the biggest oil producing country in the OPEC to reach at an agreement for production freeze, though it is yet to win the support of all OPEC members. During a major industry gathering in Houston last month Ali al-Naimi, Saudi Arabias oil minister, ruled out the possibility of cutting output, damping hopes of more aggressive action to curb a glut estimated by some traders to be as large as 2m b/d.

However, Eulogio Del Pino, Venezuelas oil minister said that Qatar, Russia and Saudi Arabia will hold a meeting in March to discuss efforts to stabilize oil markets. On the other end, Baker Hughes, the US rig count company stated that the US rig drilling number at the week ended on 19th February reduced from 413 of the previous week and remained at 400, which were 986 during the corresponding period of the last year. Under the direct impact of all these news, money managers and

hedge funds have considerably reduced their net short position recently.

NYMEX crude oil trades near $38 per barrel after a sharp 7.2% gain last week which marked its fourth weekly gain.

Crude rose as high as $39 per barrel, the highest level since December 7, 2015. Crude has witnessed a sharp rebound since hitting a 13 year-low of $26.05/bbl in early February. Crude has benefitted from improved risk appetite amid hopes of additional central bank monetary easing measures. Also supporting the price are prospects of easing supply amid slow-down in US crude production and OPECs production freeze. While we expect price to trade with a positive bias, fresh longs should be avoided at elevated levels.

ICE Brent crude rose 4.3% last week and spread between WTI and Brent crude nar-rowed to near $0.3/bbl. WTI may remain at a discount as optimism about US economy will be countered by higher US supply.

Stocks and Demand The US Energy Information Administra-tions (EIA) weekly report noted a 3.88 million barrels increase in US crude stocks largely in line with market expectations of 3.9 mn bbl rise. Stocks have reached a fresh record high level. Stocks at Cushing, the delivery terminal for NYMEX crude futures, rose to a fresh record high level of 66.9 million barrels. US crude production was largely unchanged at 9.078 million barrels per day after six weeks of decline. US crude production has fallen to the low-est level since November 2014 due to drop in rig count. The number of rigs drilling for crude fell by 6 to 386 rigs, the lowest level since 2009. EIA however noted a bigger than expected 4.526 million barrels decline in gasoline stocks and 1.119 mn bbl decline in distillate stocks. Demand rose in the report week. Crude demand, as measured by total product supplied, av-eraged 19.864 million barrels per day, up 3.5% from a week ago. Gasoline demand rose 3.2% to average 9.411 mn bpd while distillate demand rose 10.2% to average 3.706 mn bpd.

WTI crude May contract traded at a dis-count of $0.3/bbl to Brent crude as against a discount of $0.97/bbl a week ago. WTI crude outperformed Brent amid signs of slowdown in US crude production and continuing decline in US crude rig count. Brent was affected by countering view of OPEC and Iran over production freeze. WTI will remain in discount against Brent and spread may remain below $1/bbl. We may see some volatility on position squaring near contract expiration of NYMEX April contract.

ENERGY | Rebound

29

Highlights of Crude Oil in March 2016

NYMEX crude rose 7.2% marking its fourth weekly gain

Crude remains supported by improved risk appetite and prospects of lower supply

ECB announced spate of monetary easing measures; Draghi does not see more cuts

Chinas crude imports rose 19.1% to 31.8 million tonnes in Feb

Iran will join production freeze once its production reached 4 mn bpd, said Oil Minister

Oil prices might have bottomed out, said International Energy Agency

The US dollar index fell 1.1% marking its second weekly decline

The number of rigs drilling for crude oil fell by 6 to 396 rigs, lowest since 2009

EIA noted a 3.88 mn bbl increase in US crude stocks for the week ended March 4

WTI crude may remain at discount on higher US supply

4-Jan 11-Jan 18-Jan 22-Jan 29-Jan 8-Feb 15-Feb 22-Feb 29-Feb 7-Mar 15-Mar 22-Mar

Crude Oil Price Over The Current Year

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AGRI/SOFT | Signs of Stabilization

Agri-commodities prices continue to remain under pressure. However, the gap between global supply and demand is expected to narrow this year


31

AGRI/SOFT | Signs of Stabilization

While the initial part of the year has seen buoyancy within commodities at large, the agri-commodities segment continues to remain under pressure. The Bloomberg Agriculture Index, a representative index comprised of eight farm products has seen a 4% decline in the current year as on February end. While March has seen the gauge regain lost ground, as seen from the chart prices have had a fairly dismal run over the last few years with the broad trend being downwards. The index slumped to a 7 year-low recently. As highlighted in the January 2016 report Commodity Markets Outlook, World Bank, agri prices are projected to decline 1.4%, with declines in almost all main commodity groups, reflecting adequate production prospects.

Wheat GlutMaking its first global production forecast for wheat in 2016, the Food and Agriculture Organization (FAO), estimates the years harvest at 723 mt (million tonnes), marginally lower than the record hit in 2015. The European Commission highlighted that unsold wheat inventories within the European Union, the worlds top wheat producer, will reach an 8-year high as on end-June 2017. All of this underscores the fact that the wheat industry i

Wealth Monitor April Issue

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