Global equities buoyant, Gulf economies resilient
KFIC REPORT ON GLOBAL, GCC MARKETS
KUWAIT: Kuwait Finance and Investment Company (KFIC) clarified in its financial report for May; that the global developed equity markets traded with rallied during the month of May as the MSCI World Index gained +1.8 percent. UK’s FTSE 100 was the top performing market, followed by Japan’s Nikkei 225. In the US, the S&P 500 strengthened by +1.2 percent as president Donald Trump embarked on a global tour which involved wrapping up key strategic and financial deals which bolstered alliances in the Middle East. President Trump also criticized NATO allies for not spending enough on military defense, saying that certain member countries owed “massive amounts of money” to the US and NATO - despite the fact that allied contributions are voluntary. In the UK, the FTSE 100 surged by +4.4 percent mainly due to the pound slipping against global currency markets, which analysts put down to political uncertainty.
The sterling fell -0.7 percent against the USD and was also -3.1 percent lower to close at 1.14 USD/EUR. In Europe, Germany’s DAX index gained +1.4 percent and France’s CAC 40 index increased by +0.3 percent. ECB President Mario Draghi gave the strongest suggestion that the central bank is not yet ready to relax its fiscal stimulus policy, despite better economic growth across the Eurozone, which caused the euro to turn lower against the US dollar. France is on the road to economic recovery as indicated by French consumer sentiment which hit the highest level in almost a decade and the nation’s GDP QoQ percent growth exceeding expectations to come in at +0.4 percent vs analyst consensus of +0.3 percent. In Japan, the Nikkei 225 gained +2.4 percent as Japan’s jobless rate stayed firm at 2.8 percent, which was the lowest reported figure in the last two decades, and retail sales jumped +3.2 percent on a yearly basis. In China, the Shanghai composite declined by -1.2 percent as Moody’s rating agency lowered China’s credit-rating outlook to negative from stable in March 2016, citing an accumulation of rising debt, falling currency reserves and an uncertainty over governmental authorities ability to carry out reforms. In commodities, WTI declined -2.6 percent to close at $48.3 bb/l and Brent plunged by -3.1 percent to close at $50.8 bb/l.
Agreements between OPEC and Russia took place which further extended crude oil output cuts until March 2018 in an effort to rebalance the global crude market. Under the agreement principles, OPEC and other producers including Russia pledged to cut output by approximately 1.8mn bpd during the first half of the year. US shale oil continued its upward trajectory in rig counts which have increased for 19 consecutive weeks, as indicated by Baker Hughes, with the latest figure of rig counts being reported at 908 which compares to 404 rig counts last year. Gold prices rose by +0.1 percent to close at $1,269/oz as strong US economic data strengthened the case for the Federal Reserve to raise interest rates next month.
GCC economic overview
Saudi Arabia signed billions of dollars of deals with US companies during President Donald Trump’s visit to Riyadh. Estimates of the total deal value vary from $300 billion to $400 billion. Kuwait’s Deputy Prime Minister and Finance Minister Anas Al-Saleh has affirmed the importance of economic reforms made in Arab oilexporting countries against the sharp drop in global oil prices. He referred to reforms made by oil-producing countries in the Arab world regarding strategies of diversifying economy, increasing non-tax revenue, control salaries, strengthening efficiency of general investments and others. Moody’s Investors Service has upgraded its creditworthiness outlook for the UAE. Moody’s is forecasting UAE economic growth of +1.7 percent in 2017 compared to +2.7 percent in 2016. It is also forecasting that the UAE government deficit will decline to +1.9 percent of GDP this year from +3.9 percent in 2016. In Qatar, Moody’s downgraded its longterm debt rating from Aa2 to Aa3 but changing its outlook to stable from negative. Moody’s pointed to the country’s sharply rising external debt and doubts about its model to promote economic growth. In Oman, S&P lowered its long-term rating to BB+ from BBB- with a “negative” outlook, which officially places Oman in junk category. The rating agency estimated that Oman’s net external asset position has fallen to 30 percent of its current account, compared to 60 percent a year ago. In Bahrain, Moody’s maintains negative outlook on Bahrain’s banking system over the next 12 to 18 months due to weaker economy and government debt exposure.
GCC equities review
GCC equities, as indicated by the MSCI GCC IMI Index fell by -1.7 percent, despite 85 percent of companies in the benchmark reporting Q1 earnings and beating analyst consensus by +13.7 percent. Kuwait’s weighted index was the top performing regional index and Dubai’s DFM index was the worst performing. Saudi Arabia’s Tadawul index fell by -2.0 percent with negative contribution coming from Capital Goods -13.7 percent, REITs -10.7 percent, and Energy -8.3 percent. Positive contribution came from Retailing +3.5 percent and Food & Beverages +2.7 percent. Kuwait’s Weighted Index declined by -0.9 percent with negative contribution coming from Financial Services -6.9 percent, Consumer Services -3.8 percent, and Oil & Gas 3.1 percent. Gains were reported in sectors which included Consumer Goods +7.9 percent, and Industrials +4.2 percent. UAE’s DFM index fell by -2.2 percent resulting from sector declines in Financial Services -4.2 percent, Insurance -3.7 percent, and Telecom -3.4 percent. Abu Dhabi’s ADSM index dropped -2.2 percent primarily from Consumer Staples by 12.8 percent and Energy -7.7 percent, which was offset by gains in Services by +5.7 percent and Real Estate +1.0 percent. Qatar’s QE Index fell -1.6 percent particularly coming from Real Estate -12.9 percent, Consumer Services -3.6 percent which was offset by gains in Financial Services +2.9 percent and Insurance +0.6 percent. Oman’s MSM 30 index decreased -1.7 percent mainly from negative performance in Industrials -2.4 percent, Services -2.13 percent, Banking -0.5 percent. Bahrain’s BB All Share index weakened -1.2 percent mainly due to Banking -2.3 percent, offset by rise in Insurance +3.5 percent, and Industries +1.9 percent.