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

Equity Markets Monthly Review
October 2017

International Economic Overview:

Global equity markets rallied during the month as measured by the MSCI World Index which climbed +1.8% MTD. Japan’s Nikkei 225 was the top performing market, followed by India’s Sensex Index. In the US, S&P 500 closed +2.2% higher as the prospect for American tax cuts boosted confidence in the global economy. President Donald Trump has mentioned that he will be revealing the candidate to lead the Federal Reserve by 3 November 2017 and the Federal Reserve has maintained interest rates at 1.25% while further indicating that a rate hike in December is imminent. In Europe, Germany’s DAX strengthened by +3.12% and France’s CAC 40 rose +3.3% as the sentiment on the European markets was boosted by solid corporate earnings. In the Spanish region of Catalonia, separatists had officially filed for independence as investors in the euro zone assess the economic and market impact of the geopolitical tensions. In Japan, the Nikkei 225 gained +8.1% as The Bank of Japan has kept its monetary policy steady as they have decided to leave the policy rate and 10-year government bond yield target unchanged. Japan’s economy has grown for six consecutive quarters with the momentum likely to sustain as the country maintains a long-term inflation target of 2%. In China, the Shanghai Composite rose by +1.3% as China reported its economy expanded +6.8% last quarter, with retail sales and industrial output accelerating in September. However, official factory gauge fell this month, with new orders and prices leading the decline, as officials increasingly prioritize a campaign to clamp down on polluting industries and rein in debt. In commodities, WTI jumped by +4.7% to close at USD 54.4bb/l and Brent gained +7.7% to close at USD 60.9bb/l. Ahead of OPEC’s next policy meeting, Saudi Arabia and Russia declared their support for extending a global deal to cut oil supplies for another nine months as the pact runs to March 2018. Gold prices remained flat as it fell by -0.7% to close at USD 1271.1/oz.

GCC Economic Overview:

Saudi Arabia and Russia will establish a USD 1bn energy investment fund. King Salman visited Moscow from Oct. 4-7, marking the first time a Saudi ruler has travelled to Russia in an official capacity. The visit aims to deepen bilateral relations and discuss geopolitical issues. The two top oil exporters are looking to strengthen cooperation in oil, gas, electricity, and renewable energy. Saudi Arabia and Russia have worked closely together over the past year to reach an agreement between OPEC and non-OPEC oil producers to cut global output and boost prices. In Kuwait, officials are considering an annual public spending cap of KWD 21bn (USD 69.5bn) on average over the next three fiscal years to help the government plan future debt sales. The cap is being included in a proposed budget for the fiscal year starting in April and the total expenditure for the current fiscal year is estimated to reach KWD 19.9bn. In UAE, Abu Dhabi raised USD 10bn in bonds, pushing regional sales to a record. Abu Dhabi sold USD 3bn of five-year notes, USD 4bn of the 10-year tranche and USD 3bn of the 30-year offering as investors submitted bids in excess of USD 30bn. Qatar’s sovereign wealth fund is weighing more asset sales after reducing holdings in Credit Suisse and Rosneft to support the country’s economy amid a standoff with its neighbors. In addition, Qatar is said to plan raising at least USD 9bn from international bond markets as the nation seeks to lessen the impact on its fiscal reserves. In Oman, officials have pledged to create 25,000 public sector jobs by December, a move aimed at staving off potential unrest over unemployment but one that risks adding to a budget gap that was the Gulf’s widest last year. In Bahrain, more than USD 200 million worth of investment into Bahrain’s manufacturing and logistics sector was attracted in the first half of this year, according to the Bahrain Economic Development Board (EDB). Bahrain’s manufacturing, transportation and logistics sector is currently one of the largest contributors to the country’s GDP, and accounted for 20.3% of 2016 GDP.

GCC Equities Review:

GCC equities, as measured by the MSCI GCC IMI Index declined by -2.7% MTD. UAE’s DFM Index was the top performing regional index, followed by Abu Dhabi’s ADSM Index. In the GCC region, Q3 2017 earnings have currently over-performed Bloomberg Estimates (BeST) by +7.2% mainly due to positive surprises from Saudi Arabia by +16.5%, Oman by +5.8% and UAE by 3.7%. Actual Year on Year (YoY) earnings have so far grown by 16.9% in the GCC region mainly due to higher reported growth in UAE by +33.0% and Saudi Arabia +20.6%.Saudi Arabia’s Tadawul index dropped by -4.8% with losses coming from Media -10.9%, Phar, Bio & LS -9.3% and Materials -3.5%. Kuwait’s Weighted Index fell by -2.5% with negative performance coming from Consumer goods -9.2%, Telecom -7.9% and positive gains came from Oil & Gas +1.4%. Dubai’s DFM, the top performing index, rose by +2.0% mainly due to significant gains in Investment and Financial Services +10.5%, Transport +6.1%, and Insurance +5.4%. Abu Dhabi’s ADSM Index increased by +1.9% mainly from Telecom +3.2% and Real Estate +2.3%. Qatar’s QE All Share Index fell by -1.8% with negative returns coming from Real Estate -7.6% and Insurance -10.9%. Oman’s MSM 30 Index fell by -2.4% as Banking dropped by -4.9% and Industrials fell by -4.2%. Bahrain’s BB All Share Index dropped by -0.5% mainly due to Banking -2.1% and Services -2.1%.

Source: KFIC Research, Reuters, Bloomberg, Arabian News, The National, Times of Oman, Emirates 24/7

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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