MMR - November 2018

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Markaz Research

S&P GCC index marginally up 0.1% for October 04 - Nov - 2018

Kuwait Financial Centre “Markaz” recently released its Monthly Markets Review report. Markaz report stated that Kuwait extended its losing streak for the third month running, declining by 1.7% in October. However, the YTD returns remain positive at 7.0% buoyed by the FTSE emerging market inclusion. All of Kuwait’s blue chip companies were negative with Zain Telecom sliding 6.3% during the month. Despite losing 6.4% during October, Boubyan Bank was the best performing blue chip stock in Kuwait during the year, with a YTD return of 26.7%. Liquidity in Kuwait markets fell during the month, with average daily value traded reducing by nearly 25% compared to September after adjusting for the FTSE EM inclusion.

The S&P GCC index was marginally up 0.1% for the month, retaining the overall gains for the year at 9.8%. Qatar was the best performing market during the month, gaining 5.0% despite the ongoing selloff in emerging market equities. Qatar’s resilience in overcoming the embargo through progressive economic reforms aided the market’s rebound in 2018, helping it gain 20.9% in YTD 2018 after a lacklustre end to 2017.  The beat down in Dubai stocks continued as Dubai’s DFM General Index extended its losing streak, falling by 1.8% during October and 17.4% in YTD 2018. Intermittent volatility was observed in the Saudi markets during October, as geopolitical concerns and heavy foreign selling weighed in on the country’s index. However, Saudi Arabia’s main index lost only 1.2% during the month, much lesser than its emerging market peers after receiving support from domestic institutions. Abu Dhabi, Bahrain and Oman indices lost 0.7%, 1.8% and 2.7% respectively during the month.
 
Markaz report stated that Qatar National Bank and Industries Qatar were the top performers among GCC blue chip companies, rising by 10.2% and 9.9% during the month respectively. The strong performance of Industries Qatar was on the back of a solid earnings growth of 62% during Q3 2018. Growth in sales volume and increased prices of petrochemical products compared to the previous year were the key drivers of profit for the company.
 
Crude has been under consistent pressure during the month despite U.S. sanctions on Iranian exports due to come into force in a few weeks. Concerns over falling global demand and oversupply has seen Oil prices tumble by 8.8% in October, its largest monthly decline since July 2016.
 
Market trends
Saudi equity markets witnessed turbulence during October. On October 14, the main index plunged by nearly 7% during intraday before recovering about 3.5% at close. Ongoing geopolitical events have weighed in on investor sentiment as Saudi stocks witnessed heavy selling from foreign investors. During the month, the index has fallen by 1.2%, reducing its YTD gains to 9.4%. As the U.S. sanctions on Iran’s crude exports are expected to kick in by November 2018, all eyes remain on Saudi Arabia as the oil markets gear up for a change in dynamics.
 
Investor sentiment in Chinese markets remain jittery due to trade war concerns. The world’s leading emerging market has faced severe wealth erosion as the country’s equity index fell by 7.8% during the month, extending its YTD losses to 21.3%. Brewing uncertainties of the trade war and rising US interest rates cast shadows over China and other developing markets as the world witnesses the longest selloff in emerging market assets since the Global Financial Crisis.
 
Strength of the U.S dollar is likely to continue in the short term until the trade uncertainties and the divergence in growth between the US and other markets persist. The U.S. Dollar appreciates by 5.4% in YTD 2018 amidst muted expectations at the start of the year. However, a downward correction is expected in the longer term as the large U.S. trade deficit, wearing down of the fiscal impulse given by U.S tax reforms and the mean reversion of international interest rates and economic growth will weigh down on the US Dollar.

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