GCC equity markets remain bearish – KFIC Report for Global and GCC Financial Markets

KUWAIT: Motorists line up at a petrol station on August 31 evening before the petrol prices went up on September 1.
KUWAIT: Motorists line up at a petrol station on August 31 evening before the petrol prices went up on September 1.

KUWAIT: Kuwait Finance and Investment Company (KFIC) clarified in its financial report for August; Global equities ended the month on a negative note as MSCI World Index closed down marginally at -0.13 percent. US equity markets weighed heavy on MSCI World as S&P 500 and Dow Jones Index were down by -0.12 percent and -0.17 percent respectively. All other major equity markets were in positive territory except for CAC 40 index that lost -0.04 percent. German DAX continued to recover from the lows earlier during the year and recorded +2.47 percent. Emerging Markets rose on the back of strong move from China Equities as Shanghai Composite +3.6 percent. The US markets remained week despite positive labor data showing more than expected job additions during the month of July. Weakness in oil sent oil stocks lower in S&P, as the index erode earlier month advance. The index failed to maintain momentum after reporting negative performance breaking a five months positive streak amid mixed economic data and uncertainty regarding next Fed move. The MSCI EM Index trimmed performance for the third consecutive month in weak of weakness in commodity prices impacting momentum for commodity dependent countries. Oil prices recovered during the month as WTI and Brent were up +5.6 percent and +6.62 percent respectively after having lost the most in a month the previous month. Oil prices started moving after reports that Saudi Arabia and Russia were covering ground to prepare for an output freeze next OPEC meeting. However, prices stalled at USD 50/bbl. On 31 August, Saudi Arabia announced that it won’t boost output to capacity and flood a market that’s contending with a global inventory overhang of crude and fuel supplies.

Budget deficit

According to recent IMF report, Saudi Arabia’s budget deficit is expected to narrow to just under 10 percent of GDP in 2017 amid fiscal adjustments underway. The deficit which persists despite government initiated series of spending cuts and reigned in spending. The lowered spending has put significant burden on local contracting companies that had to lay off thousands of expat worker who are stranded with unpaid back pays. However, the government has recently issued a series of directives and allocated SAR 100mn to resolve the issues faced. According to the Finance Ministry, Kuwait’s FY2016 budget deficit was 28 percent below estimates. Actual deficit for FY ending March 31 was KD 5.98 billion, less than projected despite lower oil prices. Increased revenues from higher oil output as well as lower current expenditure were main reasons for the decline. According to Moody’s, Kuwait decision to increase fuel prices are credit-positive as it will reduce spending and boost public finances. Revising fuel subsidies could also reduce wasteful overconsumption however, admitted that the overall impact on fiscal gains from the reforms are likely to be moderate. S&P has reaffirmed Abu Dhabi’s AA/A-1+ ratings with a stable outlook. However, S&P estimates general government deficit will widen to 5 percent of GDP in 2016 from around 4 percent in 2015. In Qatar, government attempts to nurse fiscal deficit locally by borrowing from local banks has triggered a cash squeeze resulting in increase in loan-to-deposit ratios for Qatari banks to 130 percent in July from 127 percent the prior month. Qatar’s fiscal deficit is a result of depressed energy prices and increased government spending ahead of the 2022 soccer World Cup. The ratio had temporarily improved in June after the government raised USD 9bn from the Middle East’s biggest ever bond sale.

Equities decline
GCC equities declined during the month with all contrives ending the month in the red except for Qatar and Dubai. MSCI GCC index declined -1.15 percent extending YTD losses to -5.62 percent lead by declined in the biggest equity market in the region. Saudi Arabia’s Tadawul Index fell -3.53 percent extending YTD losses to -12.04 percent (the worst performer in GCC) with negative contribution from most of the sectors. Bottom performers were Insurance, Cement and Transport which declined -9.35 percent, -8.00 percent and -7.01 percent. While top performing sectors included Energy, Petrochemical and Multi Investments growing by +2.45 percent, +1.23 percent and +1.02 percent respectively. Kuwait’s KSE weighted index is the second worst performer during the year and declined by -0.96 percent MTD. Heavy weights Banks and Telecoms underperformed and dropped -1.21 percent and -3.92 percent during the period. Positive performance from Real Estate and Financial Services of +0.86 percent and +1.05 percent were not enough to support the market. In UAE, Abu Dhabi’s ADSM index declined by -2.28 percent with all sectors ending negative except for Energy which recorded +4.92 percent. Consumer Staples was the worst performer and declined -20.04 percent dragging the sector’s performance below zero for the year. Dubai’s DFM index was able to make marginal gains and it grew +0.58 percent driven by Services, Real Estate and Investment sector which increased by +5.97 percent, +1.92 percent and +0.42 percent. Transport was the worst performing sector declining -5.04 percent. Qatar’s All Share Index was the top performing regional index closed +3.07 percent higher leading YTD performance to +8.86 percent. Except for Real estate and Consumer, all sector were green lead by Telecom and Insurance which rose +6.93 percent and +6.17 percent. Telecom is the best performer during the year rising +28.68 percent. Oman’s MSM 30 reported a decline of -1.86 percent as all sectors declined. Banking sector was the worst performer with a drop of -1.97 percent. Bahrain’s the BB All Share index dropped -1.16 percent as all sectors fell except for Banking that was marginally positive.

Back to top button