A Speed bump in the rally?

09/07/2009

April/May momentum is dampened as markets trade sideways for June; after two consecutive months of gains, MSCI World posts a loss of 1%. YTD returns for the index remained constant at just under 10%. On a weighted basis, the US market has provided only 1.6% of the 10% YTD gain in the MSCI world index. The majority of it has come from the emerging markets. Although, the large market gains of May, where India and Russia gained more than 30% each, have not been repeated. Top gainers in June were Australia: +11%, Austria: +7% and Brazil: +6%. US markets were flat for the month.

Risk levels in markets continue to decline, but at a decelerated pace; VIX down 9% in June, i.e. much slower than the 20% decline seen in May. The commodities rally has slowed notably; after surging 30% in May, crude oil prices gained just 4.8% in June. The YTD gain is at 55% for oil prices. The underlying economic data continues to be pessimistic. The U.S. unemployment rate hit 9.5%, its highest since 1983 while the US home builders index saw a slight drop to 15 in June from 16 the previous month.

YTD Market Cap Weighted returns of MSCI World Constituents

GCC Markets Review

GCC markets underperformed emerging markets again in June; losing 2.63% versus MSCI EM’s loss of 1.53%. Losses in the GCC were the result of some steep declines in blue chips. Emaar properties lost 20% in June versus a surge of 48% in May while Sabic lost 8% in June after gaining 37% the previous month.

The PE expansion in the GCC region has been significant at 93% from 7.9x to 15.3x by the end of June. At current levels, GCC is trading slightly higher than EM. Among the markets, the UAE markets are trading with the lowest PE multiple of 7.14x LTM earnings. Comparatively, MSCI Kuwait is still the most expensive, trading at the highest PE among the GCC peers at 22x LTM earnings. The significant expansion in PE for Kuwait can be attributed to inclusion of Q1 & Q4 numbers, where in many investment companies recorded losses.

Value traded in GCC markets declined 11% on a monthly basis in June to USD 68.3 bn. However, the contribution of top 5 value traded stocks in terms of market cap remains low across the GCC, lowest being in UAE (8%).

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Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD781 million as of March 31, 2009, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.