GCC markets see marginal gains after late recovery

Kuwaiti indices close with mixed performance; Saudi market witnesses spike in volatility

TReport prepared by KAMCO

Research

aking cues from global weakness, GCC markets trended downward during the start of September-18, only to recover during the second half of the month. This trend was particularly visible in Saudi Arabia, on the back of higher oil prices and attractive valuations in the GCC as compared to most of the other emerging markets across the globe. In terms of monthly sector performance, energy stocks recorded the biggest gains during the month, supported by an oil price recovery, followed by Insurance and Banking stocks, while the other sectors declined. Globally, most markets witnessed weak trends during the month, as the ongoing US-China trade war intensified after both the trading partners imposed additional tariffs on trades between the two countries.

Manufacturing activity in China has already started showing signs of softening, while surveys point to a cooling down in domestic and export demand. Meanwhile, oil prices have provided strong support to oil exporting Gulf economies with crude prices reaching 4-year high, led by US sanctions on Iran that have gradually started reflecting in oil market fundamentals. Brent crude futures reached USD 82.7/b on the back of tightening oil supply while GCC producers added production. Investors also took positions in GCC stocks amid an emerging market turmoil that has affected most of the emerging market currencies against the USD. As most of the GCC currencies are pegged to the USD, the impact on the economy was minimal, and is also supported by strong government balance sheets of most countries in the region. Moreover, the healthy project market in the region that got additional support from upcoming plans from Saudi Arabia to boost spending next year also supported markets towards the end of the month. Boursa Kuwait Kuwaiti benchmarks indices witnessed mixed performance during September-18 as gains recorded by large-cap names were offset by weakness in small-cap stocks. Investors continued to buy bluechip names in anticipation of the market upgrades. During the month, Kuwait witnessed the first phase of the FTSE upgrade in which 12 stocks were included in the index compiler’s Secondary Emerging Market index. Index trends during the month clearly showed investors interest with the Premier Market index up by 1.6% while the Main Market and the All Share Market Index declined by 3.3% and 0.1%, respectively. The steep decline in the Main Market index pushed YTD18 returns in the red zone to show a decline of 1.9%, while the Premier Market index gains were double digit at 11.5% that pushed gains for the All Share Index to 6.2%. The sector performance chart reflected the effects of higher oil prices with the Basic Materials and Oil & Gas indices as top monthly performers with returns of 4.1% and 3.4%, respectively, followed by Insurance and Bank indices at around +2%. The Real Estate Index was the top decliner for the month with a fall of 9.6%.

Trading during the month was boosted by the FTSE upgrade. The day before the upgrade, on 20-September-18, the exchange recorded KWD 167.3 mn worth of trades, the highest daily value traded since May-2013. Volume during the day was also the highest in 17 months at 345.6 mn. For the full month, total value traded was up almost 50% to reach KWD 523.8 mn as compared to KWD 356.5 mn during August-18. Volume traded also surged, although at a much slower pace or 17.4% to reach 2.1 bn traded shares. The m-o-m increase in trading activity also came as a result of a lower base during August-18 due to the week-long holiday. NBK (+3.7%) topped the trading activity in terms of monthly value traded recorded at KWD 116.0 mn followed by KFH (+1.7%) and Zain (-0.2%) at KWD 90.9 mn and KWD 55.4 mn, respectively. In terms of monthly volume, Al Tameer Real Estate Investment Co. (-1.0%) topped the chart with 172 mn shares changing hands during the month followed by KFH and NBK at 152 mn and 140.4 mn traded shares, respectively. Saudi Arabia (Tadawul) Saudi market witnessed a spike in volatility during September-18 with the benchmark reaching 6-month low during the first half of the month amid a broader emerging market sell-off followed by a strong recovery during the second half that saw the index reaching a one month high level. TASI closed the month with a gain of 0.65% to reach little short of the 8,000 mark at 7,999.5 points after gaining 1.3% in the last trading session. The monthly gain further pushed YTD-18 gains to 10.7%. Gains during the month were led by a strong recovery in shares of large-cap stocks after being battered during the first half sell-off by foreign institutional investors. This was also reflected in the sector performance chart with the Telecom index leading monthly gains at 3.9% followed by Banks and Energy with monthly gains of 2.7% and 2.1%. On the other hand, Utilities dragged monthly performance with biggest decline of 9.8% followed by Commercial & Professional Services and Healthcare & Equipment indices that recorded declines of 8.3% and 6.6%, respectively.

Trading activity took a hit during September-18 due to the initial sell-off. Monthly value traded declined by 8.5% to reach SAR 49.7 bn in September-18. Monthly volume traded was up by 10% to reach 2.2 bn shares as compared to 2.0 bn shares during August-18. Alinma Bank once again topped the monthly volume and value chart with a total of 356.7 mn shares traded during the month worth SAR 7.4 bn followed by Dar Al Arkan Real Estate Development and Saudi Kayan with volumes at 323.6 mn and 195.9 mn, respectively. In terms of monthly value traded, SABIC was second on the list with SAR 6.7 bn worth of shares changing hands during the month followed by Al Rajhi Bank and Saudi Kayan with shares worth SAR 3.3 bn and SAR 3.2 bn trading during the month, respectively. Abu Dhabi Securities Exchange Similar to other frontline GCC indices, the ADX index was broadly rangebound in Sept-18 and closed marginally lower by 1.0% m-o-m at 4,835.37 points. Market breadth favored decliners, as 16 stocks gained, while 27 stocks declined. Sectoral performance also included more decliners than gainers. Energy was the best performer during Sept-18, as the index closed higher by 3.4% m-o-m, led by Dana Gas which gained by 6.3% mo-m. Investment and Financial Services followed with gains of 1.9% m-o-m, as Waha Capital single handedly drove the increase, as the stock was up by 2.2% in Sept-18. Consumer Staples, Real Estate and Telecoms were the major decliners in Sept-18, as they receded by 7.4%, 4.9% and 2.3% m-o-m respectively. Consumer Staples saw most of its stocks close lower and was dragged down by Agthia Group (-8.6%) and FOODCO Holding (-9.5%). Real Estate names also lower levels led by Aldar (-5.7%). Dubai Financial Market After declining by 3.9% in Aug-18, the DFM index closed broadly flat, declining only marginally. The index declined by 0.2% m-o-m and closed at 2,834.95 points, as the performance of sectoral indices was mixed. Insurance was the best performing index, as the index went up by 19.5%, driven mainly by the 47.4% gain in the share price of Islamic Arabic Insurance Co. Banks followed as the index went up by 3.0% m-o-m, driven by Commercial Bank of Dubai, which gained by 5.1% followed by a 1.6% gain from Emirates NBD. Transportation and Services were the worst performing indices as they receded by 6.4% and 5.8% respectively. Financial and Investment Services companies also went down by 5.3%, as Dubai Investments & DFM stock went down by 6.0% and 3.6% m-o-m respectively.

Dubai Investments announced that the construction of its Mirdif Hills project, a mixed-use project being developed by its subsidiary Dubai Investments Real Estate Company (DIRC), is close to 50% complete. Construction for the project is reportedly as per schedule, with the completion of 54% of Janayen Avenue, 50% of Nasayem Avenue, and 12% of Multaqa Avenue. Arabtec announced that the consortium between its wholly owned subsidiary Target Engineering Construction Company and Spain’s Tecnicas Reuindas has been awarded the AED 3.2 Bn for the Gas Development Expansion PhaseII project by ADNOC LNG. Target Engineering’s share of the contract value is expected to be between 40% and 50%. In ratings action, S&P lowered the rating of Dubai’s state-owned utility player Dubai Electricity & Water Authority by one level to BBB, which is now rated two steps above junk, and forecasted a negative outlook. It also downgraded DIFC Investments to BBB- with a stable outlook. The rating downgrades were ascribed to Dubai’s deteriorating credit conditions that may affect the ability to provide extraordinary support to state-related firms if needed. Qatar Exchange Qatar exchange closed marginally down in Sept-18 but continues to lead other regional markets YTD. The QE 20 index declined by 0.7%% m-o-m to close at 9,813.32 points in Sept-18. The Qatar All Share index which maps the broader market, closed flat as compared to the previous month. Market breadth favored decliners as 26 companies receded, while 18 companies moved higher as compared to the previous month. Sectoral performance was mixed and included both gainers and losers. Consumer Goods & Services was the best performing index during the month, as the index went up by 11.1% m-o-m, led by the jump in Qatar Fuel’s stock price (+17.7%), followed by a 16% gain by Zad Holding. Industrials followed with gains of 2.0% m-o-m, buoyed by Mesaieed Petrochemical (+7.3%) and Industries Qatar (2.7%). Telecoms was the worst performing index as it declined by 5.4% m-o-m in Sept-18, as both Ooredoo and Vodafone Qatar declined by 5.8% and 4.9% respectively. Real Estate followed with declines of 2.7% m-o-m, dragged down by Ezdan (-3.4%) and Barwa Real Estate (-2.8%). Bahrain Bourse The Bahrain Bourse was amongst the few gainers in the GCC for the month of Sept-18, albeit marginally. The Bahrain Bourse closed at 1,338.55 points, gained by 0.5% m-o-m and remains flat on YTD basis as well. Commercial Banks went up by 0.7% m-o-m, driven by AUB as the stock rose by 0.8% m-o-m over the same period, followed by Al Khaleeji Commercial Bank and Al Salam Bank as they moved up by 3.5% and 2.0% respectively. The Services sector also gained by 0.7%, as Bahrain Cinema (+23.5%) almost singlehandedly contributed to the sector’s m-o-m increase. Sectors that declined were mainly the Industrial and the Insurance indices. The Industrials index declined by 2.3% and was brought down single-handedly by Aluminium Bahrain as the stock declined by 2.4% m-o-m. Similarly, a 3.6% drop in the share price of Bahrain National Holding was solely responsible for the decline in the Insurance index.

In economic releases, Fitch Solutions forecasts Bahrain’s real GDP growth at 3.4% in 2018, slower than the 3.8% increase in real GDP seen in 2017, due to the disrupted oil output in Q1-18. They further expect growth to slow from 2019 on the back of fiscal tightening and see risks in the public finances in Bahrain, with high and rising levels of government debt and lower fiscal buffers. Fitch Solutions sees the upcoming bailout program sponsored by Kuwait, Saudi Arabia and the UAE to be contingent on fiscal consolidation in Bahrain’s 2019 budget. Muscat Securities Market MSM recorded the second consecutive month of growth during September-18 and was one of the top performers in the GCC during the month. The benchmark MSM 30 index recorded the best monthly performance in the GCC during the month. The index witnessed positive trend since the start of the month with almost two weeks of consecutive daily gains, albeit marginal. The index closed the month with a gain of 2.8% reaching 4,543.68 points, although in terms of YTD-18 performance, the index recorded the second highest decline in the GCC at 10.9%. Gains during September-18 was backed by positive returns in all the three sectoral indices. The Services index recorded the highest monthly gain of 3.8% followed by Financial Index and Industrial Index with gains of 2.0% and 1.5%, respectively.