KFIC Re­port for the Global and GCC Fi­nan­cial Mar­kets in June

Kuwait Times - - BUSINESS -

Global eq­uity mar­kets rise dur­ing the sec­ond quar­ter of 2017 as the MSCI World In­dex gained +3.38%. Ja­pan’s Nikkei 225 in­dex was the top per­form­ing In­dex, fol­lowed by the Dow Jones In­dus­trial Av­er­age. In the US, S&P 500 climbed +2.57% QTD as re­tail sales in­creased +0.4% in April (forecast was 0.6% rise) af­ter a 0.1% in­crease the prior month (re­vised from 0.2% de­cline) and US con­sumer con­fi­dence in­dex rose to 97.7 in May (forecast was 97) from 97 in April. The US Fed­eral Re­serve also raised short-term in­ter­est rates to 1.25% from 1.00% amidst an im­prove­ment in the US eco­nomic con­di­tions.

In Europe, Germany’s DAX in­dex in­creased by +0.1% QTD 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 dol­lar. France’s CAC 40 closed flat by 0.04% af­ter French Pres­i­dent Em­manuel Macron’s up­start party scored a ma­jor­ity in par­lia­men­tary elec­tions, which brings more op­ti­mism into the French eco­nomic re­form poli­cies. UK’s FTSE 100 de­clined -0.14% as the U.K for­mally be­gins EU exit. Ac­cord­ing to S&P rat­ings agency, Bri­tain con­tin­ues to be over­shad­owed by po­lit­i­cal un­cer­tainty, which may lead to a neg­a­tive ef­fect on for­eign in­vest­ment in the UK fol­low­ing fears over Brexit. How­ever, Pound strength­ened against the USD af­ter Prime Min­is­ter Theresa May an­nounced in April 18 to hold snap elec­tions in June 2017.

In China, Shang­hai’s Com­pos­ite In­dex de­creased by -0.93% QTD as Moody’s down­graded China’s rat­ing to A1 from Aa3 and changes out­look to sta­ble from neg­a­tive. Mean­while, China A shares en­tered the MSCI Emerg­ing Mar­ket in­dex with a small fac­tor of 5%, which con­sti­tutes 0.73% of the bench­mark. An­a­lysts are ex­pect­ing the coun­try to take longer than its peers for full in­clu­sion, which could even­tu­ally drive USD 340 bil­lion of for­eign cap­i­tal. This could ap­prox­i­mately ac­count for 11% of the A-share’s mar­ket cap­i­tal­iza­tion, into China, ac­cord­ing to MSCI’s es­ti­mates.

In Ja­pan, Nikkei 225 in­creased +5.95% as ex­ports rose +14.9% in the last quar­ter com­pared to last year mainly due to an in­crease in ship­ments of cars and steel. In Com­modi­ties, oil prices con­tin­ued to slump dur­ing the sec­ond quar­ter as WTI dropped -10.88% QTD to close at USD 46.0 bb/l and Brent fell -9.84% QTD to close at USD 48.8 bb/l. Crude oil posted con­sec­u­tive weeks of losses as OPEC mem­bers failed to agree on pro­duc­tion cuts to re­duce the sup­ply glut. Gold prices de­clined by -0.62% QTD and Sil­ver fell by -8.97% QTD due to sub­dued de­mand of pre­cious me­tals from jewel­ers, re­tail­ers and in­dus­tries.

GCC Eco­nomic Over­view

Saudi Ara­bia and other Arab coun­tries cut diplo­matic, eco­nomic and trans­porta­tion ties with Qatar, ac­cused of hav­ing links to ter­ror­ism and work­ing against the in­ter­est of the Gulf na­tions. Qatar has strongly de­nied the ac­cu­sa­tions as lack­ing factual ba­sis. Saudi Ara­bia, the UAE, Bahrain and Egypt sent Doha a list of 13 de­mands, in­clud­ing clos­ing the state-funded Al Jazeera News net­work as con­di­tions to nor­mal­iz­ing re­la­tions. Kuwait’s Amir Sheikh Sabah Al-Ah­mad Al-Jaber Al-Sabah con­tin­ues to play a ma­jor role in me­di­at­ing re­la­tion­ship be­tween the Gulf coun­tries by vis­it­ing Qatar, Saudi Ara­bia, and UAE in ef­forts aimed at re­solv­ing the diplo­matic rift.

In other news, Saudi Ara­bia’s King Sal­man has ap­pointed his son Mo­hammed bin Sal­man as crown prince, re­plac­ing his nephew, Mo­hammed bin Nayef. Dur­ing the month, MSCI de­cided to in­clude Saudi Ara­bia on its watch-list for po­ten­tial ad­di­tion to Emerg­ing Mar­ket In­dex as The King­dom showed sig­nif­i­cant will­ing­ness to im­prove stock mar­ket reg­u­la­tions and eas­ing con­di­tions for for­eign in­vestors.

In the UAE, The Emi­rates NBD UAE Pur­chas­ing Man­agers’ In­dex (PMI), a key in­di­ca­tor of the health of the UAE’s non-oil pri­vate sec­tor, fell to 54.3 from 56.1 dur­ing the quar­ter amid a slow­down in de­mand for ex­ports. In Oman, S&P has 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% of its cur­rent ac­count, from 60% a year ago. Bahrain, hav­ing the largest fis­cal deficit, has been un­able to re­duce the de­cline in its for­eign re­serves; ac­cord­ing to a new re­search note from Bank of Amer­ica Mer­rill Lynch Bahrain is one of the most vul­ner­a­ble oil ex­porters as oil prices strain the small­est econ­omy in the gulf.

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