Kuwait outperforms global markets to kick off 2017

GCC markets continued the uptrend seen over the previous two months with almost all markets closing January-17 with positive returns. This was also reflected in the overall MSCI GCC index that closed the month with a gain of 1.94 percent. The exceptions included 2016’s best performer, Saudi Arabia, that declined by 1.5 percent on the back of softer full year earnings along with a marginal decline of 0.1 percent for Oman. The decline in Saudi Arabia can also be attributed to oil prices that remained range bound during the month after a positive start to the year.

Kuwait recorded the best monthly performance amongst major global equity markets during January-17 with a gain of 18.9 percent as a result of multiple positive factors that included a change in the MSCI Frontier Market index constituents that benefited Kuwait further supported by reportedly higher buying by institutional investors. In addition, full year earnings have so far remained positive which provided a boost to investor confidence with banks recording healthy year-on-year growth in their bottom-line. Kuwait also announced its new economic development plan called “New Kuwait” that runs until 2035 and is aimed at transforming Kuwait into a regional business and cultural hub.

On the economic front, the surge in oil price over the past few months has provided additional confidence for GCC governments as spending is expected to increase after being curtailed and optimized over the past two years. According to the recent budget announcements, Saudi Arabia, UAE and Qatar have signaled higher spending during 2017 in order to achieve near term diversification targets. Moreover, these budgets are based on an oil price of less than $ 50/b, which we believe lends additional buffers as oil continued to trade above this level during January-17.

GCC equity markets monthly

Kuwaiti equity markets recorded the world’s best monthly performance during January-17 on the back of a number of positive factors. The Price index surged 18.9 percent during the month, recording the highest monthly gain in 14 years. The index reached a monthly peak of 6,943.24 points towards the end of the month, the highest close in 26-months. Similarly, the monthly return of 12.44 percent for the Weighted index was the highest since February-10. The index reached the highest level in 21 months and closed January17 above the 400 points mark for the first time since August-15. The large-cap Kuwait 15 Index recorded a monthly gain of 11.34 percent, the highest monthly return since the inception of the index, and closed the month at 985.4 points. The index surged past the psychologically important 1,000 points on 29-Jan-17 to reach 1,006.17 points, the highest level in 17 months.

Sector performance also reflected the positive investor sentiments in the market with all the indices closing the month with positive monthly returns, with the only exception of the Health Care index that declined by 5.9 percent. The Technology index recorded the highest monthly return of 31.1 percent, followed by Financial Services and Basic Materials indices with monthly returns of 23.7 percent and 21.3 percent, respectively. Among the large-cap sectors, the Banking index surged 11.5 percent during the month while the Telecom index went up by 13.3 percent. Trading activity during the month was the highest since May-13 with both volume and value traded at almost four times the level achieved during December-16. Zain (+20.7 percent) was the most actively traded stock during the month with a total value of KD 82.8 million followed by KFH (+14.8 percent) and NBK (+12.3 percent) with KD 67 million and KD 51.3 million worth of shares traded in these stocks, respectively.

A change in the MSCI Frontier Market index during the month was one of the key factors that led to the strong buying activity on Boursa Kuwait. The index compiler announced that Pakistan with a weight of 10.2 percent would be upgraded to emerging market status later this year.

This would benefit Kuwait by mostly increasing its weight in the MSCI Frontier Market Index, which currently stands at 18.03 percent, highest in the group. Moreover, a number of initiatives are being undertaken by Boursa Kuwait to reduce transaction costs and bringing efficiencies and standardization, much similar to efforts seen in Saudi Arabia and UAE.

On the economic front, the country launched a new economic development plan, called “New Kuwait”, which runs till 2035 and envisions to transform the economy into a business and cultural hub. The key pillars of the ambitious plan includes diversification of the economy towards non-oil sectors by investing in mega projects with the help of private investments and development of education and transportation sectors to boost tourism. The initial strategy includes a five year development plan with a earmarked spending of $100 billion out of which $ 15 billion is planned be spent between 2017-2018.

Tadawul

Saudi’s equity market took a breather during Junuary-17 after a rally that lasted for almost two months. The benchmark TASI receded 1.5 percent during the month to close at 7,101.9 points after plunging below the 7,000 mark during the third week on the back of poor earnings for some of the key stocks in the market. However, the index made a strong recovery during the last week after higher clarity emerged on the state of the economy that is now expected to post a smaller budget deficit led by higher oil prices coupled with reduction in austerity measures as well as implementation of VAT starting from 2018. The month also saw the adoption of GICS standards for sector classification on the exchange to more closely reflect the business activities of listed companies. We also see this move as a step closer towards the bid to win the emerging markets status this year that would lead to flow of additional passive funds in the market. Another move seen in this direction was the publishing of draft rules for the introduction of a T+2 settlement cycle. The CMA aims to implement the new settlement cycle by June-17, the month when MSCI decides on whether to review Saudi Arabia for inclusion in the its emerging markets index that would be followed by a review by FTSE in September-17.

Monthly market performance reflected the earnings results for FY-16 with the Insurance sector leading the monthly sectoral gains after reporting a 165.6 percent jump in FY-16 earnings. A majority of the large-cap sectors witnessed declines during the month with the Banking index down by 1.2 percent, Telecom by 6.6 percent and Energy index down by 8.4 percent. The monthly gainers chart was dominated by insurance stocks with 3 out of the top 5 gainers belonging to this sector. Arabian Shield Co-op Insurance topped the chart with a gain of 64.7 percent backed by the insurer’s 147 percent jump in FY-16 net income. On the decliners side, Tihama Advertising topped the chart with a decline of 22.3 percent followed by Nama Chemicals with a drop of 18.5 percent led by higher reported losses. Alinma Bank continued to be the one of the most actively traded stocks in terms of value traded that stood at SAR 8.3 billion followed by SABIC at SAR 7.8 billion.

Abu Dhabi Securities Exchange

After ending 2016 up by 5.5 percent, the ADX index closed almost flat m-o-m in Jan17. The index closed at 4548.82 points, as sectoral indices included both gainers and decliners for the month. The Financials pack did well in the first month of the year and was led by the Investment & Financial Services index, which rose by 18 percent, followed by the Insurance index which surged by 15 percent, while Banks improved by 1.1 percent. Waha Capital was solely responsible in pushing up the Investment & Financial Services index, while a strong performance in Al Wathba Insurance drove the insurance index. NBAD and ADCB were the big banking stocks which rose in the first month of 2017 as against Dec-16, as their share prices rose by 4.1 percent and 3.5 percent respectively, while FGB improved by 0.8 percent m-o-m. In terms of laggards, Telecoms receded the most and lost ground by 4.8 percent for the month of Jan-17, followed by the Energy index and the Services index, as each closed the month down, marginally by under 1 percent m-o-m.

In prominent earnings releases that commenced for full year 2016 and Q4-16 numbers, National Bank of Abu Dhabi (NBAD), which is set to merge with FGB, reported a 28 percent y-o-y increase in Q416 net profits driven, by lower expenses and impairment charges, beating consensus expectations. NBAD made a profit of AED 1.33 billion in the Q4-16 compared to AED 1.03 billion in Q4-15. For full year 2016, NBAD reported net profits of AED 5.296 billion, up 1.2 percent y-o-y, while operating profit grew by 5 percent y-o-y as non-interest income grew while expenses were tightly managed. Abu Dhabi Commercial Bank (ADCB) reported a full year 2016 net profit of AED 4.157 billion, down 16 percent from AED 4.927.

Dubai Financial Market

The QE 20 index started the year in positive territory, as the index moved up by 1.5 percent m-o-m, and closed at 10597.22 points. The Qatar All Share index also improved by 1.4 percent for the first month of 2017, while sectoral trends were mixed. Heavyweight indices such as Banks & Financial Services, Real Estate, and Telecoms index closed in the green. Banks which gained during Jan-17 included Qatar International Islamic Bank and Masraf Al Rayan which moved up by 7.8 percent and 6.5 percent respectively. United development and Barwa led the real estate pack gaining by 9.2 percent and 4.8 percent m-om respectively. Ooredoo pushed the Telecoms index higher and gained by 3.1 percent m-o-m, even as S&P affirmed Ooredoo’s long term corporate credit ratings at ‘A-’ and changed its outlook from Stable to Positive. S&P’s change in outlook is largely driven by expectations that Ooredoo will require lower capital expenditure, resulting in higher free operating cash flow in 2017 and 2018.

After ending 2016 on a flattish note, The Bahrain All Share index kicked off 2017 as the second best performing market in the GCC. The Bahrain All Share Index closed 6.8 percent higher on a m-o-m basis for the month of Jan-17. The index closed at 1303.70 points at the end of the month. Sectoral performance was mixed for the month, and included both gainers and decliners. Market breadth for the index was broadly even, as 12 stocks gained ground, while 14 stocks witnessed declines in their share prices. Commercial Banks was the main sector which drove the index up as the sector was up 11.6 percent for the month. The Investment sector went up as well by 8.7 percent, mostly due to a significant jump in the stock price of Ithmar Bank. Industrials were the main laggards for the index as it went down by 13.7 percent for the month of Jan-17. In earnings related releases, National Bank of Bahrain (NBB) reported a net profit of BHD 58.24 million in 2016, an increase of 5.4 percent y-o-y as compared to BHD 55.26 million in 2015. For Q4-16, NBB recorded a net profit of BHD 12.03 million, compared to BHD 11.90 million in Q4-15. EPS for full year 2016 improved from 48.5 fils in 2015 to 50.9 fils in 2016. In Telecoms, Zain Bahrain reported revenues of BHD 64.6 million in 2016, a 9 percent increase from BHD 71.1 million from the previous year.

Muscat Securities Market

After two consecutive months of marginal uptrend, the MSM 30 index ended flat during January-17 after gains in Financial and Industrial indices were completely offset by declines in the Services index. The Financial Index surged 3.6 percent, the highest gain in terms of relative sector performance, on the back of double digit returns recorded in insurance stocks. Shares of Al Madina Takaful went up by 30 percent during the month, while Oman United Insurance shares recorded gains of 14.9 percent. Among the large cap stocks, National Bank of Oman was the only stock in the sector to record a gain of 1.3 percent. On the other hand, shares of Bank Muscat, the biggest stock in the market and in the sector, declined by 2.1 percent despite report higher earnings for Q4-16 and for the full year. The earnings season was significantly positive as compared to the previous year with total profits for listed stocks up by 19.2 percent to OMR 785.8 million as compared to OMR 659.1 million during the previous year.

The DFM index which was the best performing index in 2016, continued on its upward trajectory in 2017. DFM closed the month marginally up by 3.2 percent at 3642.85 points. Sectoral trends were broadly positive, as more indices gained ground as compared to declining for the month. For the current month, Services names rose significantly by 8.6 percent, driven by a surge in the price of Amanat Holdings, which went up by over 17.3 percent. Insurance index followed and gained by over 8.5 percent for the month, while Transportation index gained by 6.8 percent for the month of Jan-17. The financials indices comprising of Banks, Financial and Investment Service and Insurance also closed the first month of the year with strong gains and outperformed the DFM index. Indices, which lost ground during the month, were led by Consumer Staples, which went down by 7.4 percent m-o-m, followed by Telecoms, which recede by 3.2 percent m-o-m.