KUWAIT: Kuwait Financial Centre (Markaz) released its Monthly Market Review report for the month of January 2024. Kuwait equity index recorded a positive start to the year and was the top gainer among GCC markets in January 2024. GCC equity indices were mixed during the month as the possibility of early rate cuts by the US Fed reduced due to strong Q4 2023 real-GDP growth in the US.

Kuwait market has rebounded after a decline in 2023. The formation of a new Kuwaiti Cabinet, pickup of non-oil activity and projections of rate cuts by US Fed in 2024, mainly in the second half of the year buoyed investor sentiment. Kuwait All-Share index rose 6.6 percent in January, supported by broad based gains in all the sectors. Banking stocks recorded a 6.6 percent increase during the month. NBK and KFH, the two large banks in terms of market capitalization, registered monthly total returns of 9.6 percent and 6.3 percent respectively on anticipation of a positive earnings announcement. Among Premier Market stocks, Kuwait Investment Company and Boursa Kuwait Securities Company gained the most, recording total returns of 49.6 percent and 17.7 percent respectively. Kuwait Investment Company’s stock price moved owing to some large block trades during the month without any material disclosures from the company. Kuwait’s CPI accelerated to 3.37 percent y/y in December 2023, driven by 6.72 percent y/y increase in the cost of clothing and footwear.

Kuwait’s consumer spending growth (measured by card transaction data) eased to 5.4 percent y/y (0.5 percent q/q) in Q4 2023 from 8.7 percent in Q3. Spending grew 8.6 percent y/y in 2023, normalizing from the post-pandemic surge of 21.7 percent in 2022. Kuwait’s budget deficit in the fiscal year 2024/2025 is expected to hit KD 5.89 billion ($19.15 billion), down 13.5 percent on y/y basis based on the oil price assumption of $70/bbl. Kuwait real estate sales rose 13.6 percent q/q to KD 771 million in Q4 2023. Robust investment and commercial sector activity and a less marked decline in residential sector sales supported the real estate performance. However, on a y/y basis real estate sales dropped by 22 percent in 2023 to KD 2.8 billion in 2023 owing to higher interest rates and residential valuations.

GCC markets posted a mixed performance during January despite a surge in oil prices. The S&P GCC composite index witnessed a marginal decline of 0.6 percent for the month. The S&P GCC composite index performance was weighed down by the negative performance of Saudi and Abu Dhabi equity indices, which fell 1.4 percent and 0.7 percent respectively. Qatar equity index fell 6.8 percent triggered by the sharp fall in natural gas prices. However, positive economic growth expectations for Saudi boosted the performance of few stocks. Alinma Bank recorded a monthly total return of 7.2 percent following its announcement of doubling its stake in Arabian Shield (insurance company in KSA). Dubai equity index gained 2.7 percent supported by the strong earnings of blue-chip stocks. Emirates NBD recorded a total return of 2.3 percent after registering a net profit of about $5.9 billion (AED 21.5 billion) in 2023, up 65 percent y/y from AED 13 billion in 2022. On the contrary, real estate stocks trended downwards during the month and dragged down the performance of the Dubai stock index. Emaar Properties and Emaar Developers fell 6.2 percent and 2.7 percent respectively during the month. UAE’s real GDP is projected to grow by 5 percent in 2024, exceeding the 3 percent growth estimated for 2023, according to S&P Global estimates. The rating agency projects continued strong momentum in Dubai’s hospitality, wholesale and retail, and financial services sectors to drive growth in 2024/25.

According to the World Bank, Saudi’s GDP is expected to grow by 4.1 percent in 2024, as the non-oil economy continues to get a boost from the Saudi Vision 2030 programs. Saudi Arabia is expected to tap the debt market in 2024 with estimated financing needs of $22.93 billion under its borrowing plan for deficit financing and repay upcoming debt maturities.

Global and US markets were mildly positive despite stronger than expected US economic growth reducing the possibility of early rate cuts. The MSCI World index and S&P 500 indices rose 1.1 percent and 1.6 percent respectively in January. According to the data released by the US Commerce Department on January 25, US GDP grew by 3.3 percent y/y in Q4 2023, surpassing expectations of 2 percent y/y by Wall Street. Technology stocks rallied during the month driven by the continued momentum for generative AI. However, the market performance was stunted by geopolitical concerns due to the China-Taiwan conflict, weak US unemployment data and higher-than-expected inflation in the U.S. The MSCI EM index fell by 4.7 percent for the month led by the6.3 percent fall in the Chinese stock index. Chinese equities were weighed down by rising geopolitical risks and persisting deflationary pressures in the economy.

US inflation hit 3.4 percent y/y in December 2023 compared to 3.1 percent y/y rise in November and dimming market expectations that rate cuts would be implemented as soon as March. The European Central Bank (ECB) left its policy rate unchanged at 4 percent in the January meeting, signaling a dovish stance. The yield on the 10-year US Treasury note crossed the 4 percent threshold in mid-January and closed at 3.99 percent during the month. The investor concerns over geopolitical risks coupled with comments from Fed Governor that the rate cuts priced in by the markets for 2024 are unlikely, underpinned the rebound in yields.

Oil price settled at $81.7 per barrel, recording a monthly gain of 6.1 percent supported by the ongoing geopolitical conflicts in the Middle East and projections for strong oil demand in 2024. The disruption of oil supply from two major oil fields in Libya and attack in the Red Sea drove up oil prices. IEA expects oil demand to grow by 1.24 million barrels per day (bpd) in 2024, up 180,000 bpd from previous estimates. Production outages in the US from cold weather also supported oil prices. Gold prices marked a fall of 1.2 percent closing $2,037.2/oz. The strong US dollar following waning expectations of an early interest rate cut in the US and rise in US treasury yields were behind the fall in gold prices. Natural gas prices witnessed a steep decline of 16.5 percent during the month amidst warmer temperatures expected in late January leading to reduced demand for heating.

The global and GCC markets performance for February 2024 hinges on two major factors – i) indications from the US fed on the onset of the rate cuts and ii) earnings announcement from the blue-chip companies.

Established in 1974, Kuwait Financial Centre KPSC ‘Markaz’ is one of the leading asset management and investment banking institutions in the MENA region with total assets under management of over KD 1.16 billion ($3.75 billion) as of Sept 30, 2023. Markaz was listed on the Boursa Kuwait in 1997. Over the years, Markaz has pioneered innovation through the creation of new investment channels. These channels enjoy unique characteristics and helped Markaz widen investors’ horizons.

Examples include Mumtaz (the first domestic mutual fund), MREF (the first real estate investment fund in Kuwait), Forsa Financial Fund (the first and only options market maker in the GCC since 2005), and the GCC Momentum Fund (the first passive fund of its kind in Kuwait and across GCC that follows the momentum methodology), all conceptualized, established, and managed by Markaz.