Performance of the Stock Markets in the Region Affected by the Drop of Chinese Stocks and Oil Prices

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Performance of the Stock Markets in the Region Affected by the Drop of Chinese Stocks and Oil Prices 09 - Aug - 2015

Kuwait Financial Centre “Markaz” recently released its Monthly Market Research report. In this report, Markaz examines and analyzes the performance of equity markets in the MENA region as well as the global equity markets for the month of July.

The report stated that Kuwait’s price index ended the month of July with a gain of 0.8%. Trading activity picked up in the market in the post-Eid sessions as major investors began investing in select small-cap stocks after a period of lull. Liquidity in the market was quite low increasing investor anxiousness. Stakeholders in the market have suggested the need for incentives, market makers and derivatives in order to attract regional and local funds.

The report said that MENA markets gave lackluster returns during the month of July 2015. Abu Dhabi (2.3%) had the highest return of the lot followed by Oman (2.1%), Morocco (1.7%) and Dubai (1.4%). Qatar (-3.4%) was the last in the pack and ended the month in the red, along with Bahrain (-2.6%) and Egypt (-0.5%). The fall in Chinese equities had a global impact, and the Middle East markets were no exception to this trend. The sell-off in Chinese equities combined with the fall in oil prices were the reason behind the muted performance of the stock markets in the region. Abu Dhabi’s stock market return of 2.3% was largely influenced by the performance of the banking stocks, more specifically First Gulf Bank and National Bank of Abu Dhabi. The positive performance of the banking stocks were influenced by the positive results in the quarterly numbers. The S&P Pan Arab Composite index returned -1.7% during the month of July, while the S&P GCC index declined marginally by 0.1%.

The celebration of the holy month of Ramadan led to the drying up of liquidity in the MENA markets in July 2015, with volume falling 33% and value traded falling 29%. The notable exception to this trend was seen in Oman and Morocco. Oman’s total value traded increased by 6% and the volume increased by 5%, while Morocco’s value traded increased by 16.3%, despite stock volume decreasing by 33%.

Shares of Kuwait Projects Company (7.9%) had the highest return among the blue chip stocks during the month of July 2015. Kuwait projects Co., the Gulf state’s largest Investment Company, reported a 17.5% rise in its 2nd quarter net profit, which led to the increase in share value. Despite the increase in its 2nd quarter net profit by 13%, Kingdom holdings of Saudi Arabia (-8.9%) had the lowest return among the blue chip stocks during the month of July. The drop in global oil prices this month weighed heavily on the Saudi stock market, which was also one of the main reasons behind the fall in the price of the share.

Chinese stocks continued to be volatile with the Shanghai index dropping almost 15% in July 2015. The fall of the Chinese stock market since mid-June has resulted in nearly USD 4Trillion being wiped out from the stock market. The Chinese economy has been slowing down and recent reports suggest that the estimated GDP growth has dropped to 7%, well below the 8-14% range that the country has been witnessing over the past several years.

On July 14, 2015, it was announced that the P5+1 -- the United States, the United Kingdom, France, China, Russia and Germany -- along with the European Union (EU), had achieved a long-term nuclear deal with Iran. The recent decision by US and the Eurozone countries to lift the economic sanctions imposed on Iran few years ago has presented an interesting dynamic to oil prices. The lifting of sanctions would result in Iran adding 500,000 barrels a day within a week after sanctions end and by 1 million barrels a day within a month to the global production, according to the Iran oil ministry. Some of the sanctions that were imposed on the country were clearly aimed at stifling the growth of the country’s economy by curtailing large-scale investment in the country’s oil and gas sector. Oil producers such as BP Plc and Royal Dutch Shell Plc have expressed interest in developing Iran’s reserves, the world’s fourth-biggest, once sanctions are removed. Iran is organizing a conference in London in December to discuss new oil contract models with international companies. Iran was producing a total of 3.6Mn barrels per day during 2011, before the sanctions and its current production stands at 1.4 Mn bpd resulting in a spare capacity of 2 Mn Bpd, without the need for additional investments. Impact of Iran’s production on oil markets is not expected to be felt till 2016 but it is still expected to stifle the crude’s recovery from six-year low earlier this year. Citi group expects the crude oil prices to remain flat at the end of this year while Goldman Sachs expects the prices to go further down from current levels in 2016.



About Kuwait Financial Centre “Markaz”
Established in 1974, Kuwait Financial Centre K.P.S.C “Markaz” is one of the leading asset management and investment banking institutions in the Arabian Gulf Region with total assets under management of over KD 1.10 billion as of June 30th, 2015. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.

For further information, please contact:
Osama Al Musallam
Senior Communications Officer
Media & Communications Department
Kuwait Financial Centre S.A.K. "Markaz"
Tel: +965 2224 8000 ext 1819
Dir: +965 2224 8075
Fax: +965 2241 4499