Global, GCC markets remain under pressure – KFIC report capital markets for February

oilKUWAIT: Kuwait Finance and Investment Company (KFIC) clarified in its financial report for February; in which the report highlights the performance of the world’s major financial markets that there were negative returns. As the MSCI World Index in February fell by -1.0 percent. Along with the US equities that were measured by the S&P 500, in which it closed slightly lower by -0.4 percent. The government stated that the GDP grew at an annual rate of 1 percent in the fourth quarter, which is an improvement from an estimate of 0.7 percent. Furthermore, consumer spending also grew in January at the fastest pace in eight months.

With regards to China Shanghai Composite, it has gained 1.1 percent. As China’s central bank head mentioned that the country has more room to support the economy. China’s central bank reiterated assurances that it will not use currency depreciation to boost exports, and that it intends to keep the Yuan stable against a basket of currencies. In regards to the Eurozone equities, it has slipped for the second month in a row. As Euro-Area economic confidence declined to the lowest level since June. Germany’s DAX index closed -3.1 percent lower, France’s CAC 40 fell by -1.4 percent. On the other hand, UK’s FTSE 100 finished the month flat at +0.2 percent amid global concerns, surrounding Britain’s possible exit from the European Union. As most G20 finance ministers agreed that this matter would pose a risk to the world economy. In Japan’s the Nikkei 225 plunged by -8.5 percent. The trigger was caused by the yen’s rise and concerns over the scenario of Brexit.

Freezing of oil production

The report has shown that the commodities have witnessed mixed performances in February. WTI Crude declined by 4.3 percent to $32.8/bbl and Brent Crude fell by 0.7 percent to $35.4/bbl. This was derived from Saudi Arabia’s initiation to freeze oil output near record levels of supply of January, in which it was agreed upon with Russia, Qatar, and Venezuela. However, this was below market expectations as markets were expecting an output reduction. Gold and silver on the other hand, reported strong gains, increasing by 10.8 percent and 4.5 percent respectively.

Rating downgrade
In Saudi Arabia, liquidity is being dampened as the government is being forced to tap into local banks for funding, trim spending and withdraw government deposits. However, SAMA contacted commercial banks to inform them that the amount they can lend as a portion of deposits has been raised to 90.0 percent from 85.0 percent. In February, for the second time in four months ratings agency S&P has downgraded Saudi Arabia’s debt rating which makes it more expensive for sovereign issuers to borrow money. S&P cut its rating on Saudi Arabia’s debt from A+ to A-. S&P notes that Saudi Arabia is currently primed for a deficit of 13.0 percent in 2016, on oil trading at USD 45/bbl. In Kuwait, S&P sees Kuwait weathering the current low oil price environment despite the drop in oil prices given its large fiscal and external net asset positions. Real GDP growth was forecasted at an average of 2.4 percent in 2016-2019. Subsequently, it is anticipated that Kuwait budget surpluses around 8 percent of GDP for budget years 2016-2019. In UAE, the IMF lowered its forecast for growth to 2.5 percent for 2016 from 3 percent, citing weaker investor confidence and a further drop in oil prices since October which contributed to the downward revision. IMF also stated that the recent tightening of liquidity in the banking sector will have an adverse effect overall and slow down credit growth. However, the UAE remains in a strong position with assets providing a fiscal buffer. Qatar on the other hand, has stable outlook according to Moody’s Investors Service, in which it has affirmed the country at AA+/A-1. The outlook reflects view that the economy will remain resilient and supported by macroeconomic fundamentals. Oman’s sovereign credit ratings was downgraded by two notches to A3 by Moody’s Investors Service and kept the rating on review for a further downgrade. Citing that Oman had comparatively weaker asset cushion, with government financial assets amounting to only three years of net spending. In 2016, Oman is expected to face a current account deficit of almost 25 percent of GDP, improving only slowly to a deficit of 16 percent by 2018. Bahrain was stripped of its investment grade credit rating by S&P. The ratings agency lowered its ratings on Bahrain to “BB” with a stable outlook, from “BBB-“with a negative outlook. This is due to the impact of falling oil prices that have impacted kingdom’s revenues and its influence on its public finances.

Gulf Index rises
MSCI GCC IMI index increased by 3.6 percent in February. ADX General Index contributed to the highest gains, followed by DFM Index and QE Index. Saudi Arabia’s Tadawul index rose by 1.6 percent. Positive performance came from Energy, which increased 9.2 percent, Telecom 5.5 percent, and Cements 6.2 percent. Negative performance came from Hotels at 15.5 percent which continued to witness a decline in occupancy rates. Dubai’s DFM index surged 8.1 percent higher with Telecom rising 9.8 percent, Real Estate 16.1 percent, and Financial Services 17.6 percent. Abu Dhabi’s ADX index increased by 7.3 percent as Energy rose 16.2 percent, Financial Services 14.9 percent, and Real Estate 13.5 percent. Consumer Staples declined by 3.5 percent. Kuwait’s weighted index increased by 1.4 percent. Strong performance came from Consumer Goods which rose 15.9 percent and Oil & Gas increased 3.4 percent. Qatar’s QE index surged by 4.3 percent with positive contribution coming from Consumer 16.9 percent and Real Estate 9.2 percent. Oman’s MSM index increased 4.2 percent with positive attribution coming from Banking, which rose 5.1 percent. Bahrain’s BB index fell 0.8 percent with negative contribution coming from Industries 6.1 percent.

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