GCC Equity Markets Q3 2017 Review by Kuwait Finance and Investment Company (KFIC)

Equity Markets Quarterly Review
September 2017

International Markets Overview:
Global equity markets rallied during the quarter as measured by the MSCI World Index which climbed +4.4% QTD. US Dow Jones Industrial was the top performing market, followed by Shanghai SE Composite +4.9%. Around the world, economic indicators have been solid in many countries including Europe, UK, Japan and Brazil, reporting significantly stronger GDP growth than the consensus had expected. In the US, the S&P 500 ended with a positive return of +4.0% which is the sixth positive month in a row. US GDP increased at a 3.1% annual rate in the second quarter but Hurricane Harvey is expected to disrupt third-quarter GDP Growth as there  were declines in retail sales, industrial production,  homebuilding and home sales in August and further weakness is anticipated in September because of Hurricane Irma. In Europe, Germany’s DAX and France’s CAC 40 both gained +4.1% as the euro area posted Q2 GDP growth of +2.2% – which was the highest level since 2011. Meanwhile, the EUR weakened against the USD to reach 1.1814 USD/EUR, as Janet Yellen provided strong hints that the Federal Reserve will raise interest rates which in effect would strengthen the USD against the EUR currency. In Japan, the Nikkei 225 rose by +1.6% as Japan’s core inflation accelerated, industrial output rose more than expected and demand for labor remained at its strongest in over 40 years in a further sign of solid growth momentum. In commodities, the spread between WTI and Brent prices continued to widen by a difference of $5.1 mainly due to the impact of Hurricane Harvey and Irma temporarily disrupting US crude oil production. WTI rose sharply by +10.5% to close at USD 51.7bb/l and Brent gained +14.5% to close at USD 56.8bb/l. Gold prices increased by +3.1% to close at USD 1,280.2/oz as investors flocked to purchase more safe-haven assets due to USD currency weakness.

GCC Economic Overview:
In Saudi Arabia, Saudi Arabia’s gross domestic product fell by -1.0% compared to the same period a year earlier, when it expanded +0.9%. The GCC’s largest economy is still coping with low oil prices and businesses are finding it difficult to withstand the economic reforms which were introduced by the government. Oil GDP shrank -1.8% during Q2 and non-oil GDP expanded slightly by +0.9%, driven mainly by the government sector. In other news, Index provider FTSE Russell refrained from adding Saudi Arabia to its index of emerging market countries amid its September country classification annual review. Saudi Arabia will be assessed again in March, it said. In Kuwait, the country was upgraded by FTSE Russell to classify it under emerging market status, which will become effective by September 2018. The upgrade could prompt cash inflows of approximately USD 700mn from foreign investors, according to NBK Capital. In UAE, Growth in the non-oil private sector economy climbed to the fastest pace seen since February 2015, supported by sharp expansions in new orders and output, according to the latest UAE PMI survey. In Qatar, The trade, tourism and banking sectors have been worst hit by the restrictions put in place since June by Saudi Arabia, the United Arab Emirates, Egypt and Bahrain, according to Moody’s. It estimates that about USD 30bn has flowed out of Qatar’s banking system and expects further withdrawals. Meanwhile, Qatar’s stock market has lost 15% of its market value in 100 days, hitting a 52-month low during September. In Oman, positive growth was reported in the first half of this year, supported by public revenues growing to more than OMR 4bn (USD10.39bn). The state budget has targeted OMR 8.7bn public revenues for the year. According to the Oman News Agency (ONA), the rise in revenues reflects efforts by the government to reduce reliance on oil revenues and diversify sources of income. ONA reported that revenues derived from sources other than oil, along with non-tax revenues, grew to OMR 748.2m compared to OMR 532.7m at the same period last year – a growth of +40.5%. In Bahrain, The Bahrain Economic Development Board said the country’s real estate sector grew 4.5% in Q1, adding USD 1.7bn to the country’s economy.

GCC Equities Review:
GCC equities, as measured by the MSCI GCC IMI Index declined by -0.64% QTD. Kuwait’s Weighted Index was the top performing regional index, followed by Dubai’s DFM index. Saudi Arabia’s Tadawul index dropped by -1.9% with losses coming from Food & Beverages -15.1%, Telecom Services -9.5% and Utilities -5.7%. Positive contribution came from Media +121.24%, Commercial & Professional Services +12.3% and Consumer Services +7.9%. Kuwait’s Weighted Index the top performing regional index during the quarter, surged +7.9% with gains coming from Telecom +16.0%, Banks +11.1% and Industrials +5.6%. Negative performance came from Consumer goods -15.7% and Oil & Gas -1.9%. Dubai’s DFM index increased +5.1% as strong performance was reported in Investment & Finance Services +8.5%, Real Estate +6.6% and Banks +4.6%. Abu Dhabi’s ADSM index declined by -0.6% led by negative performance in Services -12.1%, Consumer Staples -3.6% and Banks -1.6%. Positive contribution came from Energy +21.8% and Industrial +2.6%. Qatar’s QE All Share Index dropped by -8.2% as the GCC crisis remains unresolved. Negative performance was witnessed across all sectors with Insurance -17.0% and Transportation -12.6%. Oman’s MSM 30 Index rose by +0.4% and Bahrain’s BB All Share index fell by -2.0%.

Sources: 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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