Gulf equities buoy­ant amid bear­ish trends across world

KFIC Re­port on Global, GCC Mar­kets

Kuwait Times - - BUSINESS -

Kuwait Fi­nance and In­vest­ment Com­pany (KFIC) clar­i­fied in its fi­nan­cial re­port for Oc­to­ber; Global eq­uity mar­kets ended in neg­a­tive ter­ri­tory dur­ing the month as the MSCI world in­dex fell by -2.0 per­cent. In the US, S&P 500 fell by -1.9 per­cent. US Real Gross Do­mes­tic Prod­uct (GDP) grew by +2.9 per­cent in the third quar­ter, ex­ceed­ing economist ex­pec­ta­tions for +2.6 per­cent and much stronger than the +1.4 per­cent growth rate re­ported in the sec­ond quar­ter. It was the fastest re­ported growth in nearly two years, mostly due higher amount of ex­ports and a smaller de­crease in gov­ern­ment spend­ing, and this has raised spec­u­la­tion that the fed will be com­fort­able to raise in­ter­est rates by De­cem­ber.

In China, Shang­hai’s com­pos­ite in­dex gained +3.2 per­cent af­ter the of­fi­cial man­u­fac­tur­ing pur­chas­ing man­agers in­dex (PMI) rose to 51.2 in Oc­to­ber from 50.4 in Septem­ber, adding to signs that the world’s sec­ond-largest econ­omy is sta­bi­liz­ing - A mea­sure above 50 in­di­cates growth. Ja­pan’s Nikkei in­creased by +5.9 per­cent, de­spite Ja­pan’s in­dus­trial out­put stalling in Septem­ber in a wor­ry­ing sign that the econ­omy may be los­ing some mo­men­tum due to weak con­sumer spend­ing and ex­ports.

In Europe, mar­kets were pos­i­tive led by Ger­many’s DAX in­dex which in­creased +1.5 per­cent, fol­lowed by France’s CAC 40 +1.4 per­cent, and UK’s FTSE 100 rose +0.8 per­cent. GDP in the Euro­zone has con­tin­ued to grow steadily de­spite po­lit­i­cal in­sta­bil­ity and eco­nomic head­winds sur­round­ing the re­gion, as GDP rose +0.3 per­cent in third quar­ter, com­pared to the sec­ond quar­ter. Eco­nomic growth and in­fla­tion were in line with an­a­lysts’ fore­casts. The in­di­ca­tors were closely watched not only for what they might say about the health of the Euro­zone econ­omy, but for how they might af­fect de­ci­sions by the Eu­ro­pean Cen­tral Bank that can have a pro­found ef­fect on fi­nan­cial mar­kets.

Oil prices in neg­a­tive ter­ri­tory

Oil prices ended the month in neg­a­tive ter­ri­tory as WTI fell by -4.0 per­cent to close at $46.9/ bbl and Brent di­min­ished -4.2 per­cent to close at $48.6/bbl. Econ­o­mists and an­a­lysts have kept their av­er­age Brent price out­look for 2016 al­most un­changed at $44.7/ bbl, as grow­ing hur­dles to a global deal on pro­duc­tion lim­its put down­side pres­sure on crude oil prices, ac­cord­ing to a Reuters poll. OPEC mem­bers have been di­vided, with two of the heavy­weights, Iran and Iraq, dis­put­ing OPEC data on out­put. Iraq has also put fur­ther pres­sure on the chances of a pos­si­ble deal, say­ing that it should be ex­empt from pro­duc­tion cuts be­cause of the war it is fight­ing against ISIS. While there is a strong pos­si­bil­ity of top pro­ducer Rus­sia agree­ing to freeze out­put at cur­rent peak lev­els, other nonOPEC pro­duc­ers were un­likely to join the ef­fort and may even end up in­creas­ing pro­duc­tion, an­a­lysts said.

Saudi Ara­bia raised $17.5bn in the biggest ever bond sale from an emerg­ing-mar­ket na­tion as it seeks to shore up fi­nances bat­tered by the slide in oil. The In­ter­na­tional Mone­tary Fund (IMF) has re­it­er­ated that the pace at which Saudi Ara­bia is driv­ing up aus­ter­ity is ap­pro­pri­ate as it has lit­tle room to ease up on the spend­ing cuts due to the sharp eco­nomic growth slow­down. The King­dom’s bud­get has been strained by low oil prices and the gov­ern­ment has slashed cap­i­tal spend­ing this year and de­layed pay­ments that it owes to some com­pa­nies, while last month it an­nounced cuts to al­lowances for pub­lic sec­tor work­ers. Ma­sood Ahmed, di­rec­tor of the IMF’s Mid­dle East depart­ment, said Riyadh could not af­ford to soften aus­ter­ity poli­cies sig­nif­i­cantly with­out en­dan­ger­ing its goal of bal­anc­ing its bud­get in about five years.

In Kuwait, the par­lia­ment was dis­solved set­ting the stage for early elec­tions within two months, af­ter dis­agree­ment among cab­i­net mem­bers over aus­ter­ity mea­sures due to fis­cal bud­get con­straints. In other news, Ernst and Young (EY) tax ad­vi­sory ser­vice agent Alok Chugh said Kuwait will start pre­par­ing to im­pose value added tax (VAT) within six months at most. EY Kuwait said VAT im­ple­men­ta­tion in Kuwait would start by the be­gin­ning of 2018 and that com­pa­nies would be given enough time to ad­just their ac­count­ing sys­tems prior to im­ple­men­ta­tion. In UAE, growth of the non-oil pri­vate sec­tor eased in Septem­ber, with busi­ness con­di­tions im­prov­ing at the weak­est pace since June. The Emi­rates NBD UAE Pur­chas­ing Man­agers’ In­dex (PMI) — a com­pos­ite in­di­ca­tor of op­er­at­ing con­di­tions in the non-oil pri­vate sec­tor econ­omy, fell to 54.1 from 54.7.

In Oman, the bud­get deficit con­tin­ued to de­cline amid the drop in oil rev­enues. Oman plans to turn to in­ter­na­tional fund­ing sources to plug up to 70 per­cent of its short­fall this year, ac­cord­ing to the chief of the Cen­tral Bank of Oman. In Qatar, de­spite the mod­er­a­tion in real GDP ex­pan­sion in the first half of 2016, QNB be­lieves growth is poised to re­bound in the sec­ond half of this year. Qatar’s GDP data for the sec­ond quar­ter re­vealed +2 per­cent YoY growth, com­pared to a +1.4 per­cent gain in the first quar­ter. Bahrain’s non-oil sec­tor grew by +3.6 per­cent in the sec­ond quar­ter of 2016, an im­prove­ment from +2.7 per­cent in the first quar­ter of 2016, ac­cord­ing to the lat­est Bahrain Eco­nomic Quar­terly re­port.

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