GCC Equity Markets April 2017 Review by Kuwait Finance and Investment Company (KFIC)

Equity Markets Monthly Review
April 2017

International Markets Overview:
Global developed equity markets traded with positive sentiment as the MSCI World Index climbed +1.3%. France’s CAC 40 was the top performing developed market index, followed by Japan’s Nikkei 225. In the US, the S&P 500 climbed by +1.3% MTD as companies reported upbeat earnings in Q1 2017, but on the negative side, US GDP slowed to its weakest pace in Q1 2017 since 2014 which adds more uncertainty about the economy following weak data releases. President Donald Trump’s economic team unveiled what they called the ‘biggest tax cut in US history’, proposing a significant reduction in corporate taxes and a simplification of individual rates they said would fuel economic growth. The initial proposal would slash corporate taxes from 35% to 15%. In the UK, the FTSE 100 UK fell by -1.6% as the quarterly GDP slowed at the start of 2017 to its softest pace in a year to +0.3%, just below an average forecast of economists collected by Bloomberg. In Japan, Nikkei 225 rose by +1.5% as the labor market reached its tightest in 26 years but weakness in wages and consumer spending led to stagnant prices, according to economic data for March. In Europe, France’s CAC 40 rose by +2.8% and Germany’s DAX rose +1.0%. The European Union mentioned that economic sentiment elevated to its highest level for nearly a decade. In its monthly survey of the region, the executive Commission said its economic sentiment indicator for the Eurozone rose by 1.6 points in April to 109.6 which is the highest level since August 2007 when early signs of the global financial crisis were emerging. In commodities, WTI closed -3.4% lower at USD 49.1 bb/l and Brent fell by-3.4% to close at USD 52.1 bb/l. OPEC plans to meet with non-OPEC oil producers on the same day as its scheduled May 25 conference, as they decide whether to extend supply cuts into the second half of the year. Meanwhile, US oil-rig counts continue to increase with the latest figure reported by Baker Hughes (As of April 28 2017) at 697 operational rig counts. This represents twice the amount from last year which was approximately 350 rig counts. Gold prices jumped by +1.5% to close at 1268/oz amid rising geopolitical concerns in Syria and North Korea which was been testing missile strikes with the U.S threatening to take military action if required.

GCC Economic Overview:
In Saudi Arabia, King Salman restored bonuses and allowances for state employees, scaling back an austerity program that generated criticism among citizens accustomed to generous state handouts. The government said the perks canceled in September were reinstated because higher-than-expected revenue helped to drive down the budget deficit. Minister of State Mohammed Alsheikh said in a statement to Bloomberg that the injection of more money was expected to stimulate economic growth, but others said the kingdom’s rulers were responding to the discontent the cutbacks created. Kuwait’s Finance Minister and Deputy Prime Minister Anas Khaled Al Saleh stated that there are two main challenges facing Kuwait in the current period: The first challenge is the short-term challenge, which is to close down the budget deficit, and the other is the medium to long-term challenge, which requires diversifying the economy. According to the Deputy PM, the reforms have become more efficient, and they include a five-year plan to improve government efficiency by cutting public spending, shrinking the public sector wage bill, and diversifying public revenues by growing the private sector. According to the IMF, Kuwait’s economy is now expected to shrink by 0.2% in 2017, compared with the IMF’s October forecast for a +2.6% expansion. Growth will rebound to +3.5% next year, IMF said in the World Economic Outlook report. The value of UAE projects awarded rose by a solid +42.6% quarter on quarter in the first quarter of 2017, with both Dubai and Abu Dhabi seeing significant increase. In the case of Dubai, projects linked to Expo 2020, real estate and retail continued to dominate awards in the quarter. Qatar is “well-positioned” to manage the impact that lower oil prices have had on its revenue, the International Monetary Fund has said. The country has taken the necessary first steps to handle new deficits by cutting expenditures and diversifying its economy, the IMF added in a recent assessment. In Bahrain, more than USD10bn of new hotels are to open in Bahrain over the next five years, with the sector witnessing an average annual growth rate of +3%, according to investment agency Bahrain Economic Development Board (EDB). Oman is studying options for privatizing parts of the state-owned energy infrastructure, its oil minister said, as the sultanate looks to diversify the economy and raise money amid the sustained slump in crude prices.

GCC Equities Review:
GCC equities, as indicated by the MSCI GCC IMI Index, fell by -1.2%. Abu Dhabi’s ADX General Index was the top performing regional index and Qatar’s QE Index was the worst performing. Earnings season is currently underway and approximately 85% of company estimates are available from the overall MSCI GCC IMI index. Within the companies which have estimates available, 62% of companies have reported earnings with a +5.2% positive surprise over analyst estimates. In the GCC region, Materials had the strongest earnings beat with a +15.0% surprise above Bloomberg estimate consensus (BeST), followed by Industrials +7.1% vs BeST, Energy +6.1% vs BeST, and Financials +5.3% vs BeST. Saudi Arabia’s Tadawul Index closed flat at +0.1% bolstered by upbeat earnings and positive economic news. REITS was the best performing sector as it gained +10.7%, Retailing rallied +4.0%, and Energy stocks gained +3.4%. Kuwait’s Weighted Index fell by -1.6% mainly due to Financial Services falling by -6.6%, Real Estate -3.8%, and Telecom -3.1%. UAE’s DFM Index dropped -1.9% mainly due to declines in Telecom -8.4%, and Investment & Financial Services -7.9%, which was offset by an increase in Banking by +0.8%. Abu Dhabi’s ADSM Index rose +1.8% mainly due to a sharp rise in Banking by +5.3% and Energy +8.2%, with declines witnessed in Telecom -3.3% and Consumer Staples -3.1%. Qatar’s QE Index fell -3.1% mainly due to a small decline in Real Estate by -2.5% and Banking -0.5%. Oman’s MSM 30 Index fell 0.7% mainly due to a decline in Industrials -4.5% offset by a rise in Banking by +2.8%. Bahrain’s BB All Share Index fell -1.5% mainly due to a drop in Hotels & Tourism by -6.9% offset by an increase in Industries by +2.9%.

Source: KFIC Research, Reuters, Bloomberg, Arabian News, Oman Times, CNBC, Zawya, Argaam

About Kuwait Finance and Investment Company (KFIC):
Interview with Tareq Mishari Al Bahar, KFIC’s Board Member & CEO of KFIC: Kuwait Finance and Investment Company (KFIC), a Well-Established Asset Manager in Kuwait

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