In­vestors warm to fis­cal moves by CBs

KFIC Re­port for Global and GCC Mar­kets for Septem­ber

Kuwait Times - - BUSINESS -

KUWAIT:

Kuwait Finance and In­vest­ment Com­pany (KFIC) clar­i­fied in its fi­nan­cial re­port for Septem­ber; Global equity mar­kets ended in pos­i­tive ter­ri­tory dur­ing the quar­ter as the MSCI world index rose by +4.4 per­cent.

In­vestors re­acted pos­i­tively to­wards the prospects that global cen­tral banks would keep bor­row­ing costs at his­tor­i­cally low lev­els, with the Fed­eral Re­serve in­di­cat­ing that there is no ur­gency to raise in­ter­est rates un­til De­cem­ber 2016 at the very least. US equities, led by the S&P 500 index, gained +3.3 per­cent dur­ing the quar­ter and the Dow Jones In­dus­trial Av­er­age rose +2.1 per­cent.

US eco­nomic growth was weak in the first half of the year, but there is more ev­i­dence dur­ing the re­cent quar­ter that the econ­omy is ex­pand­ing as per the lat­est GDP and con­sumer con­fi­dence fig­ures. In Europe, mar­kets rose sig­nif­i­cantly led by Ger­many’s DAX index by +8.6 per­cent, fol­lowed by UK’s FTSE 100 by +6.1 per­cent and France’s CAC 40 gained +4.9 per­cent. The ECB has con­tin­ued to add more stim­u­lus and quan­ti­ta­tive eas­ing (QE) mea­sures as the eco­nomic re­cov­ery process steep­ens. There are fur­ther in­di­ca­tions that Brexit is af­fect­ing prof­itabil­ity of UK pro­duc­ers, as the Bank of Eng­land has re­sponded by low­er­ing in­ter­est rates and restart­ing QE.

MSCI Emerg­ing Mar­kets (EM) index in­creased +8.3 per­cent led by Brazil’s Ibovespa which gained +13.3 per­cent after Brazil’s stocks and cur­rency surged amid op­ti­mism that pres­i­dent Michel Te­mer can trim a bud­get deficit and re­store con­fi­dence in a strug­gling econ­omy. China’s Shang­hai mar­ket in­creased by +2.6 per­cent QTD as the Na­tional Bureau of Sta­tis­tics re­ported that in­dus­trial firms prof­its soared +19.5 per­cent com­pared the year-ear­lier data, while the Chi­nese PMI re­mained at 50.4, which main­tains its ex­pan­sion­ary sta­tus. Ja­pan’s Nikkei rose +5.6 per­cent as the Fi­nan­cial sec­tor re­acted pos­i­tively to­wards the Bank of Ja­pan de­ci­sion to in­tro­duce new poli­cies re­gard­ing an in­fla­tion tar­get of +2 per­cent or above and tar­get­ing a zero 10-year JGB (Ja­panese Govern­ment Bond) yield. Oil prices ended the quar­ter in neg­a­tive ter­ri­tory as WTI fell by -3.8 per­cent to close at $48.2/bbl and Brent dropped -1.7 per­cent to close at $50.2/bbl.

OPEC ramped up out­put lev­els with excess sup­ply com­ing from Nige­ria and Iraq, after both coun­tries had pre­vi­ously faced dis­rup­tions, and Saudi Ara­bia has kept pro­duc­tion lev­els close to record highs. How­ever, there is more op­ti­mism for oil prices fol­low­ing OPEC’s pre­lim­i­nary agree­ment to cut pro­duc­tion as the fi­nal de­tails will be dis­closed in an of­fi­cial for­mal meet­ing in Novem­ber.

Saudi bud­get deficit

Saudi Ara­bia’s bud­get deficit is ex­pected to nar­row to ap­prox­i­mately 10 per­cent of GDP in 2017 amid fis­cal ad­just­ments un­der­way, ac­cord­ing to the IMF. In an­other re­cent de­ci­sion taken this month, Saudi Ara­bia can­celed bonus pay­ments for state em­ploy­ees and cut min­is­ters’ salaries by -20 per­cent. In Kuwait, there have been calls to re­view the pub­lic sec­tor wage bill, as stated by Khal­ifa Ha­mada, un­der­sec­re­tary to the finance min­is­ter and to im­ple­ment a fis­cal re­form pol­icy which can help Kuwait’s econ­omy ad­just to low oil prices.

In UAE, solid non-oil pri­vate sec­tor growth was wit­nessed in Au­gust, as per the lat­est Emi­rates NBD UAE PMI data. The health of the sec­tor was re­flected by fur­ther growth of em­ploy­ment and pur­chas­ing ac­tiv­ity, with the lat­ter pick­ing up to a nine-month high. Qatar’s econ­omy has been able to weather low oil prices due to strong macroe­co­nomic fun­da­men­tals in­clud­ing a low fis­cal break-even price, sig­nif­i­cant ac­cu­mu­la­tion of sav­ings, and low lev­els of pub­lic debt, QNB has said in its ‘Qatar Eco­nomic In­sight’ re­port. Oman’s econ­omy is show­ing signs of slow­ing as con­sumer con­fi­dence has weak­ened, govern­ment projects have been cut, and mar­ket con­di­tions re­main­ing bear­ish, ac­cord­ing to an Gulf News. Bahrain has launched ma­jor re­forms to di­ver­sify its econ­omy with large bud­get deficits ex­pected in 2016 and pres­sure from rat­ing agen­cies that have deemed Bahrain in junk cat­e­gory.

GCC equities ended neg­a­tive dur­ing the quar­ter as the MSCI GCC IMI index fell by -5.9 per­cent. Qatar’s QE index was the top per­form­ing re­gional index, fol­lowed by Dubai’s DFM index and Bahrain’s BB All Share Index. Saudi Ara­bia’s Tadawul Index fell -13.5 per­cent with neg­a­tive con­tri­bu­tion across sec­tors. Lag­ging sec­tors in­cluded Ho­tels -25.9 per­cent, Tele­com 19.5 per­cent, Trans­port -19.8 per­cent, and Bank­ing -12.0 per­cent.

Qatar’s All Share Index was the top re­gional per­form­ing mar­ket as it in­creased by +5.6 per­cent on a quar­terly ba­sis, with pos­i­tive at­tri­bu­tion wit­nessed in In­surance +13.6 per­cent, Banks +7.8 per­cent and Tele­com +7.5 per­cent. In UAE, pos­i­tive earn­ings sur­prise and stronger in­vest­ment sen­ti­ment contributed to a modest quar­terly gain of +4.9 per­cent. Dubai’s DFM index ad­vanced +4.9 per­cent with pos­i­tive con­tri­bu­tion re­ported across most sec­tors. The top per­form­ing sec­tors in­cluded: Real Es­tate +7.3 per­cent, Trans­port +7.2 per­cent, and the worst per­form­ing sec­tor was the Ser­vices in­dus­try which dropped -15.1 per­cent. Abu Dhabi’s ADSM index fell -0.5 per­cent with neg­a­tive per­for­mance com­ing from Con­sumer Sta­ples -15.1 per­cent, and In­dus­trial -6.7 per­cent. Pos­i­tive per­for­mance in ADSM index was seen in Tele­com +5.5 per­cent, and Real Es­tate +0.2 per­cent. Bahrain’s BB All Share Index rose +2.8 per­cent with pos­i­tive at­tri­bu­tion from Banks +2.7 per­cent and In­dus­tries +6.2 per­cent. Kuwait’s weighted index jumped +1.0 per­cent which is di­rectly linked to good per­for­mance in Fi­nan­cial Ser­vices +6.7 per­cent, Real Es­tate +0.7 per­cent, and Banks +0.6 per­cent. Oman’s MSM 30 fell -0.9 per­cent as Ser­vices fell by -3.9 per­cent.

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