Markaz: Most GCC markets positive despite mounting concerns on economic recovery

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Markaz: Most GCC markets positive despite mounting concerns on economic recovery 04 - Oct - 2020

Kuwait Financial Centre “Markaz” recently released its Monthly Markets Review report for the month of September 2020. Markaz report stated that, most GCC equity markets ended the month in green despite concerns of economic recovery amid threat of second wave of COVID-19 and fall in oil prices.

The report stated that Kuwait markets were positive, with the Kuwait All Share index registering a gain of 2.9% in September. On 29th September 2020, the Kuwait All Share index fell by as much as 3.4% during trading but trimmed the losses to 2.2% at trade close. The fall was due to concerns over the condition of the Emir’s health, whose demise was confirmed later in the day.  Regionally, the S&P GCC composite index gained 2.5%, with all markets except Abu Dhabi and Oman ending the month in positive territory. Among Kuwait sectors, insurance was the top gainer, rising 8.3%, while consumer goods index saw the biggest decline, down 3.6% for the month. Among blue chips, Kuwait Finance House (KFH) gained the most at 5.6%, followed by Agility Public Warehousing gaining 5.3%, while Mobile Telecommunications (Zain) lost 2.7% for the month. Fitch has affirmed KFH’s ratings at A+ with stable outlook. Agility has signed a PPP agreement for an investment project in Sabah Al Ahmed City. Kuwait All Share Index’s PE ratio was at 13.1 by the end of the month. Market liquidity in September as indicated by the average daily traded value has increased by 44% over previous month to USD 165million. Boursa Kuwait, following its successful IPO, surged more than 10 times in its trading debut this month, as it became the third publicly traded exchange in the Middle East after the Dubai Financial Market and Tel Aviv Stock Exchange, respectively. Moody’s has downgraded Kuwait’s sovereign ratings by two notches from Aa2 to A1, citing liquidity risk on back of fast depleting liquid reserves and weak institutional strength due to its inability to adjust fiscal policy as the expenditure structure remains rigid. S&P rating agency estimates Kuwait’s GDP to fall by 7.0% in 2020 and economic recovery to gain momentum in 2022.  

Saudi Arabian equity market gained 4.5% in September followed by Bahrain, which gained 3.9%. Saudi Arabia has partially lifted travel bans since mid-September and plans to scrap all travel restrictions for citizens on January 1, 2021. The country’s economy contracted by 7% in Q2 2020, with the non-oil sector contracting by 8.2% and oil sector contracting by 5.3%. Moody’s has affirmed Qatar’s ratings at Aa3 citing exceptionally high per-capita income and proved hydrocarbon reserves. S&P has opined that Bahrain’s property prices would fall at an accelerated pace while banks will face pressure on profits towards the end of 2020, but the deterioration would remain broadly manageable. GCC governments have issued bonds amounting to USD 42billion so far in 2020, as they try to raise funds in the market to plug record deficits due to the oil price crash and the COVID-19 crisis.

Markaz report also stated that among the GCC blue chip companies, Ezdan Holding (Qatar) increased by 38.4% in September. FTSE Russell has upgraded the company from its midcap index to large cap index. Abu Dhabi National Energy Company (UAE) decreased by 6.1% in September. 

The performance of global equity markets was negative, with the MSCI World Index losing 3.6% in September on the back of concerns over economic recovery due to threat of second wave of COVID-19 and fading stimulus measures. U.S. market (S&P 500) declined by 3.9% in September, led by losses in tech stocks. U.S sought to ban two Chinese apps – TikTok and WeChat, renewing U.S-China tensions. While TikTok is in discussion with U.S investors and other stakeholders, the ban is yet to be implemented as it faces legal hurdles. The U.K (FTSE 100) markets lost 1.6% for the month. Eurozone economies have renewed some lockdown restrictions due to spike in COVID-19 cases. Emerging markets decreased by 1.8% for the month.

Oil prices closed at USD 41.0 per barrel at the end of September 2020, posting a monthly loss of 9.6%. Persisting COVID-19 fears, renewal of some lockdown restrictions in the Eurozone and expectation of lower oil imports by China have led to fall in prices. OPEC and IEA have also revised their demand forecast for 2020 downwards. Saudi Arabia’s energy minister has said that OPEC+ will complete all compensations for oil overproduction before the end of the year.

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