Markaz: GCC and global markets trounced as pandemic fears weaken sentiment with anticipation for clear economic reforms


Kuwait Financial Centre “Markaz” recently released its Monthly Markets Review report for the month of March2020. Markaz report stated that, Kuwait and other GCC markets continued their downward spiral amidst coronavirus spread and oil price crash, as countries impose strict measures to curb the spread of COVID-19. GCC governments and Central Banks initiate reforms to soften its impact on the economy.

The report stated that Kuwait All Share Index registered aloss, decreasing by20.6%in March.Among Kuwait’s Blue Chip companies, Agility Public Warehousing was the biggest loser, falling by 28.4% as lockdowns cause supply chain disruptions. S&P has downgraded Kuwait’s credit ratings from AA to AA- with stable outlook, citing lower oil prices and slow pace of reforms. Following the U.S Fed’s lead, Central Bank of Kuwait has cut its policy rate twice this month, by a cumulative 125 bps. Fitch Rating has opined that Kuwait’s banks are better placed than its GCC peers to handle the current crisis. However, with rate cuts and measures such as delayed loan repayments expected to affect the sector’s profitability, banking sector index has decreased by 23.0% for the month.While Consumer goods sector was the topgainer at 2.2%, Consumer services sector was the top loser, falling by 28.0%.

Regionally, the S&P GCC composite index declined by18.2%for the month, withall markets posting losses. With businesses across sectorsaffected by coronavirus spread, oil price crash has fueled furtherdeclines in share prices. Dubairegisteredthe highest loss, declining by 31.6%.Saudi Arabia ended the month losing 14.7%. Qatar has fallen the least, stemming its losses at 13.5%.S&P has affirmed its current sovereign credit ratings for Saudi Arabia and Qatar at A- and AA- respectively, citing strong fiscal buffers.UAE, Saudi Arabia and Qatar had announced fiscal and monetary stimulus over the month. The fiscal stimulus aided markets in limiting the losses. Following the U.S Fed, the central banks in GCC economies had also cut interest rates.

Markaz report also stated that among the GCC Blue Chip companies,Saudi Telecom had gained 5.9%. Emirates NBD has declined by 42.4%. The bank has taken measures such as deferment of loan repayments to help borrowers.

The performance of Global equity markets was negative with the MSCI World Index losing 13.5% for the month. U.S. equities (S&P 500)fell by12.5% in March. U.S. Fed has cut its policy rate twice this month, to near zero. It also announced quantitative easing (QE) and other measures to ensure liquidity and credit flows to household. The Fed’s strong action was construed as signaling a negative outlook, pushing the markets down. U.S. has passed a USD 2 trillionstimulus package to support its economy.The UK market (FTSE 100 index) closed13.8%lowerduring March.UK has also cut rates, initiated QE and has pledged a fiscal stimulus.Emerging markets ended the month in negative, with the MSCI EM posting monthly loss of 15.6%. China’s Shanghai A - share index has declined by only 4.5%, aided by slowdown in spread of the virus, resumption of factory activities and monetary policy stimulus.

Oil pricesclosed at USD 22.7 per barrel at the end of March2020, which is 55.0%lower than February 2020. Earlier this month,talks between OPEC+ allies broke off with Russia refusing to agree to further production cut. Saudi Arabia retaliated by decreasing price of its oil to some of its customers and announced plans to increase its oil output by 2 million barrels per day. Notwithstanding the weakening demand due to coronavirus, these developments have pushed the oil price to record lows. As lower oil price would also affect shale producers, U.S. is taking efforts to end the oil price war. Gold has marginally decreased by 0.9% over the month. It has been a volatile month for the yellow metal. While spread of the virus moved investors to the safe haven asset, fiscal stimulus and investors selling the metal to cover their positions pushed prices down.