Investors see coronavirus as an opportunity; UAE equities best bet in GCC
Investors in the UAE and GCC are not rushing to sell their holdings due to coronavirus and rather those investors who missed last year’s rally are taking it as an opportunity to enter emerging markets, say analysts.
“So far, we have not seen any sellout requests from investors. The inquiries that we have seen is that when should we start adding to emerging market equities. And our answer is that if you have already invested, it is wait-and-see time. We’ll not add until coronavirus outbreak dies down. Let us wait and see when the factories reopen in February in China and supply chain returns to normalcy. We have not received a single call from any investor who wants to sell out as yet,” said Anita Gupta, head of equity strategy at Emirates NBD Group.
“In fact, on emerging markets, many people who missed out opportunity are asking when to enter. Investors are looking at it more as an opportunity than a scare,” Gupta said during the release of global investment outlook report for 2020 on Sunday.
After a spectacular 2019, propelled by monetary easing meeting excessive pessimism, Maurice Gravier, chief investment officer, Emirates NBD Group, expects markets to come back to the reality of fundamentals.
He said that the global economic backdrop is resilient, with growth expected to be close to that of last year, while inflation remains subdued. “The effects of last year’s rate cuts will be felt, supporting consumer spending, helping manage the enormous amounts of debt in the system, and providing oxygen to other central banks especially in emerging economies.”
UAE equities: Best bet in GCC
Emirates NBD’s Anita Gupta is the most bullish on the UAE equities among GCC markets.
“The UAE market is trading at lower valuations than the emerging and GCC markets both from price-to-book and price-to-earnings multiple. It also got very high dividend yield. In today’s world turning defensive, that makes the UAE market attractive for investors. However, the UAE market needs a catalyst because trading volumes are low and to take volumes up, what is going to work is the foreign ownership limit. Increased foreign ownership limit means emerging markets indices will add weight to the UAE equities which will results in more inflows both from passive and active investors. And that will increase trading volume as well,” she told Khaleej Times in an interview on Sunday.
“Also, with oil prices being where they are now, are pretty positive for government spend that flows through to private sector. So that should also be the catalyst for the UAE markets, going forward,” she added.
After the UAE, Gupta is quite bullish on the Saudi equities because of the stimulus measures Riyadh is taking.
“Saudi is increasing listings, starting with Saudi Aramco last year. Their corporate governance is also improving; plus, Saudi market is very well-diversified compared to other Gulf markets. They have companies listed from healthcare, insurance, retail, food companies, petrochemical and banking sectors. And the highest trading volume in the region with retail being a big part of their daily trading,” she added.
MR Raghu, managing director of Marmore Mena Intelligence, says GCC equity markets are expected to be neutral with the exception of Dubai, Oman and Bahrain.
“The neutral outlook is supported by moderate improvement in economic conditions and corporate earnings. Wherein oil price is widely expected to be at around current levels. The outlook for Dubai is positive on the back of expected improvement in the corporate earnings. While the outlook for Bahrain and Oman seems negative, given the strains in the economy,” Reghu added.
NRIs in UAE are not subjected to Income Tax
The budget proposals announced by the Indian Finance Minister have sent shock waves to non-resident Indians.
Question: The budget proposals announced on Saturday by the Indian Finance Minister have sent shock waves to non-resident Indians. Will they have to pay tax in India since they don’t pay tax in the UAE? Please explain urgently.
Answer: The proposed amendment is meant to cover individuals who are constantly on the move and spend weeks in different countries in order to avoid tax liability in any country of the world. Typically such persons spend less than three months in each country every year so that they do not fall within the ambit of the tax laws of such country. Therefore, a provision is sought to be introduced in the Finance Bill, 2020, which will be applicable from the financial year beginning on 1st April, 2020, relevant to the assessment year 2021-22, to provide that an Indian citizen who is not liable to tax in any country in the world would be deemed to be a resident of India for tax purposes.
Under the UAE tax law, residents may be liable to tax; certain corporations having specified income are taxable. However, individuals and others are exempt from tax. As and when such exemption is removed, the liability to pay tax will arise. Hence, such persons employed in the UAE or carrying on a business or profession with a valid visa, though technically covered under the UAE tax law, are not subjected to Income Tax. The words “liable to tax” are crucial in this context.
In fact, the amendment is not meant to cover persons who are resident in any country. Under Article 4.1(b) of the Indo-UAE Double Tax Avoidance Agreement, an individual who has spent in the aggregate at least 183 days in a calendar year in the UAE is deemed to be a resident. Hence, Indians working in the UAE will not be covered by this amendment. It is further proposed in the Budget that a person who visits India and spends less than 120 days will retain his non resident status under Indian tax laws; otherwise he will lose it. This proposal will prevent investments from flowing into India and will be opposed. If this amendment goes through, an Indian must ensure that he spends less than 120 days in India in a financial year.
Q: I have invested in shares and debentures of several listed companies. Some of these companies have delayed or defaulted in repaying loans taken by them from banks and financial institutions. As an investor, I am greatly concerned that this information of delay or default is not readily available. If investors are aware of these defaults, they would immediately take remedial action and pull out their investments before the share prices drop substantially. Is there any means of getting this information? I am taking full advantage of the portfolio management scheme.
A: The regulator, Securities & Exchange Board of India, has recently tightened the guidelines for listed companies on disclosure of loan defaults. As per the new norms, when a default is committed by a listed company in repaying the principal amount on schedule, the company has to disclose the fact of such default to the stock exchanges. This requirement is applicable where the delay in repayment of the principal amount and interest is beyond thirty days from the agreed payment date. The notice of such delay or default is required to be given within 24 hours from such thirtieth day.
This will provide transparency and protect the interest of investors so that they can act appropriately in the shortest possible time. These disclosure norms have been formulated by SEBI in consultation with the Reserve Bank of India. Since you are availing of the portfolio management scheme, you may note that SEBI has decided to increase the net worth requirement of portfolio managers from Rs20 million to Rs50 million. This will ensure that the managers have a stronger financial base.
Q: I have served on the board of several companies in the Gulf during the past fifteen years. On returning to India for good, I would like to serve as an independent director on the board of reputed companies if invited to do so, as I believe that there is a substantial shortage of independent directors. What are the consequences of taking up such assignments?
A: Independent directors perform functions which are critical to good corporate governance. However, the liability framework governing such directors casts an onerous burden and the liability-related risks faced by independent directors are disproportionate to the remuneration which they may earn. The Companies Act, 2013 seeks to limit the liability of non-executive directors by providing for certain safe harbour rules designed specially for them. However, the directors have to initially face investigative or legal proceedings before they are exonerated.
Further, you need to know that all independent directors with less than ten years experience of acting as such, will have to take an online proficiency self assessment test before they can be appointed on boards of companies. The test will be conducted by the Indian Institute of Corporate Affairs. This Institute will create and maintain a data bank with names, addresses and qualifications of people who are eligible to be appointed as independent directors. Boards of companies will have to disclose the results of these tests in their annual report.
Optimism on Dubai economy rebounds
Consumer Confidence Index of Dubai Economy show 75% optimistic on employment situation.
A spate of proactive initiatives, reforms and incentive projects have been positively impacting the investment climate of Dubai, leading to enhanced consumer confidence in the economy, according to a surveys and analysts.
Consumers in Dubai see improved job prospects and personal finances ahead, said the quarterly business survey of Dubai Economy. The survey conducted during the last quarter of 2019 shows 75 per cent of consumers confident of the employment situation improving during the next 12 months.
There is optimism on the economy in Dubai as 74 per cent of UAE nationals and expatriates rated it to be excellent or good. The percentage of those who believe Dubai’s economy is in recession remained the same (25 per cent) as the previous quarter, while the percentage of consumers who expect the economy to recover during the next 12 months decreased from 55 per cent to 41 per cent.
Mohammed Ali Rashed Lootah, CEO of the Commercial Compliance & Consumer Protection (CCCP) sector in Dubai Economy, said the emirate’s economy recorded positive results during the fourth quarter 2019 as a result of the initiatives launched by the government. “The public and private sectors responded overwhelmingly to these initiatives consolidating optimism among various communities and attracting more domestic and foreign investments in varied sectors,” said Lootah.
He noted that the year 2020 started with a high level of momentum and coincided with the announcement of the January 4 Charter, the completion of many infrastructure projects, and the government’s aggressive follow-up of institutional performance to ensure preparedness for the Expo 2020 and the next 50 years at the national level.
“Dubai’s economy will indeed see the benefits of these initiatives this year. Already, economic observers and analysts are expecting a renewed wave of growth locally and nationally,” said Lootah.
Analysts see a rebound business optimism surrounding future output with corporates looking to the upcoming World Expo in 2020. They expect the overall economic momentum to be higher, spurring real GDP growth. The official economic outlook for Dubai foresees 3.2 per cent growth in 2020 and 3 per cent in 2021.
MUFG Bank economists expect Dubai to witness a rebound in economic growth this year due to a confluence of factors including, stronger corporate activity, higher real estate prices and renewed business optimism.
S&P Global has predicted that Dubai’s GDP would increase at about 2.5 per cent a year until 2022 and much of the increase could come from economic activity associated with Expo 2020. The ratings agency also predicted that Expo 2020 would boost tourism in Dubai and increase consumer spending which in turn will further stimulate growth.
The Dubai Economy survey showed 77 per cent of UAE nationals as optimistic about finding a job currently, with 22 per cent describing it as excellent, and 55 per cent as good. Among expats, 57 per cent expressed optimism about current job prospects, while 84 per cent nationals and 71 per cent among expats were positive on the chances of finding a job during the next twelve months.
The report said even when the Consumer Confidence Index showed a slight four-point decrease to 133 points from the previous quarter, 77 per cent of respondents were positive about their current personal finances and the percentage of those optimistic rose to 79 per cent when asked about the next 12 months.
Although job security is a major concern, 63 per cent of consumers rated current job prospects as excellent/good, while nearly half said they plan to cut down on outdoor entertainment and delay technology updates. Job security remained the next biggest concern after the economy.
Regarding current personal finances, 76 per cent of consumers expressed optimism.
Perceptions on the economic situation in Dubai were highly positive among nationals at 77 per cent. More than half of the expatriates (56 per cent) also expressed optimism about the current economic situation while the overall percentage reached 63 per cent.
Mubadala’s Strata, Leonardo extend partnership
Companies to leverage collective engineering experience, production capabilities to spearhead new technology
Strata Manufacturing, the advanced composite aero-structures manufacturing company wholly owned by Mubadala Investment Company, and Leonardo have extended their 10-year association by signing a memorandum of understanding to collaborate on the development and fabrication of composite aero-structure components for major OEM programmes.
The agreement will see Strata and Leonardo work to expand their presence in the global aero-structures sector by leveraging their collective engineering experience and production capabilities to spearhead new technology development.
The MoU covers the provision of technical support services and knowledge exchange from Leonardo, a global high-technology leader ranking among the world’s top 10 aerospace, defence and security players.
“Strata’s main goal is to ensure that the company delivers high-quality components to the world, reflecting the value of the ‘Made with Pride in UAE’ brand,” said Ismail Ali Abdulla, CEO of Strata.
“The core objective of the MoU is to grow our mutual business in global OEM programmes. This will be achieved by fostering strategic new opportunities to enhance Strata’s technological knowledge and capabilities – both key factors in driving the UAE’s knowledge-based economy and empowering the next generation of Emirati engineering pioneers,” he continued.
“After more than 10 year of Strata’s contribution to the ATR program, Leonardo is committed to its strategic ongoing collaborations with Strata,” said Giancarlo Schisano, Leonardo’s aero-structures division managing director.
“Our engineering capabilities and advanced technology processes will be a key success factor to capture new business opportunities in a win-win cooperation scheme.
Building on the strategic partnership between Leonardo and Mubadala, the Abu Dhabi-based global investor, established in 2009. Supported by the Tawazun Economic Council under the Tawazun Economic programme, both Strata and Leonardo are advancing the commercial aviation industry in the UAE, in line with promoting Abu Dhabi as a global aerospace hub to diversify its economy. Strata is the first composite aero-structures supplier to Leonardo in the Arab world.
In addition to Leonardo, Strata serves other leading aircraft manufacturers, such as Airbus, Boeing and Pilatus. Based at Nibras Al Ain Aerospace Park, Strata supports the development of a leading aerospace hub in Abu Dhabi as part of the emirate’s economic diversification plan.