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

Equity Markets Monthly Review
May 2017

International Markets Overview:

Global developed equity markets traded with rallied during the month of May as the MSCI World Index gained +1.8%. 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% 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% mainly due to the pound slipping against global currency markets, which analysts put down to political uncertainty. The sterling fell -0.7% against the USD and was also -3.1% lower to close at 1.14 USD/EUR. In Europe, Germany’s DAX index gained +1.4% and France’s CAC 40 index increased by +0.3%. 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% growth exceeding expectations to come in at +0.4% vs analyst consensus of +0.3%. In Japan, the Nikkei 225 gained +2.4% as Japan’s jobless rate stayed firm at 2.8%, which was the lowest reported figure in the last two decades, and retail sales jumped +3.2% on a yearly basis. In China, the Shanghai composite declined by -1.2% 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% to close at USD 48.3 bb/l and Brent plunged by -3.1% to close at USD 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% to close at USD 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 USD300bn to USD400bn. Kuwait’s Deputy Prime Minister and Finance Minister Anas Al-Saleh has affirmed the importance of economic reforms made in Arab oil-exporting 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% in 2017 compared to +2.7% in 2016. It is also forecasting that the UAE government deficit will decline to +1.9% of GDP this year from +3.9% in 2016. In Qatar, Moody’s downgraded its long-term 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% of its current account, compared to 60% 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%, despite 85% of companies in the benchmark reporting Q1 earnings and beating analyst consensus by +13.7%. 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% with negative contribution coming from Capital Goods -13.7%, REITs -10.7%, and Energy -8.3%. Positive contribution came from Retailing +3.5% and Food & Beverages +2.7%. Kuwait’s Weighted Index declined by -0.9% with negative contribution coming from Financial Services -6.9%, Consumer Services -3.8%, and Oil & Gas -3.1%. Gains were reported in sectors which included Consumer Goods +7.9%, and Industrials +4.2%. UAE’s DFM index fell by -2.2% resulting from sector declines in Financial Services -4.2%, Insurance -3.7%, and Telecom -3.4%. Abu Dhabi’s ADSM index dropped -2.2% primarily from Consumer Staples by -12.8% and Energy -7.7%, which was offset by gains in Services by +5.7% and Real Estate +1.0%. Qatar’s QE Index fell -1.6% particularly coming from Real Estate -12.9%, Consumer Services -3.6% which was offset by gains in Financial Services +2.9% and Insurance +0.6%. Oman’s MSM 30 index decreased -1.7% mainly from negative performance in Industrials -2.4%, Services -2.13%, Banking -0.5%. Bahrain’s BB All Share index weakened -1.2% mainly due to Banking -2.3%, offset by rise in Insurance +3.5%, and Industries +1.9%.

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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