KFIC Report on Global, GCC Markets Gulf equities buoyant amid bearish trends across world


KUWAIT: Kuwait Finance and Investment Company (KFIC) clarified in its financial report for October; Global equity markets ended in negative territory during the month as the MSCI world index fell by -2.0 percent. In the US, S&P 500 fell by -1.9 percent. US Real Gross Domestic Product (GDP) grew by +2.9 percent in the third quarter, exceeding economist expectations for +2.6 percent and much stronger than the +1.4 percent growth rate reported in the second quarter. It was the fastest reported growth in nearly two years, mostly due higher amount of exports and a smaller decrease in government spending, and this has raised speculation that the fed will be comfortable to raise interest rates by December.

In China, Shanghai’s composite index gained +3.2 percent after the official manufacturing purchasing managers index (PMI) rose to 51.2 in October from 50.4 in September, adding to signs that the world’s second-largest economy is stabilizing – A measure above 50 indicates growth. Japan’s Nikkei increased by +5.9 percent, despite Japan’s industrial output stalling in September in a worrying sign that the economy may be losing some momentum due to weak consumer spending and exports.
In Europe, markets were positive led by Germany’s DAX index which increased +1.5 percent, followed by France’s CAC 40 +1.4 percent, and UK’s FTSE 100 rose +0.8 percent. GDP in the Eurozone has continued to grow steadily despite political instability and economic headwinds surrounding the region, as GDP rose +0.3 percent in third quarter, compared to the second quarter. Economic growth and inflation were in line with analysts’ forecasts. The indicators were closely watched not only for what they might say about the health of the Eurozone economy, but for how they might affect decisions by the European Central Bank that can have a profound effect on financial markets.

Oil prices in negative territory
Oil prices ended the month in negative territory as WTI fell by -4.0 percent to close at $46.9/ bbl and Brent diminished -4.2 percent to close at $48.6/bbl.  Economists and analysts have kept their average Brent price outlook for 2016 almost unchanged at $44.7/ bbl, as growing hurdles to a global deal on production limits put downside pressure on crude oil prices, according to a Reuters poll. OPEC members have been divided, with two of the heavyweights, Iran and Iraq, disputing OPEC data on output. Iraq has also put further pressure on the chances of a possible deal, saying that it should be exempt from production cuts because of the war it is fighting against ISIS. While there is a strong possibility of top producer Russia agreeing to freeze output at current peak levels, other non-OPEC producers were unlikely to join the effort and may even end up increasing production, analysts said.

Saudi Arabia raised $17.5bn in the biggest ever bond sale from an emerging-market nation as it seeks to shore up finances battered by the slide in oil. The International Monetary Fund (IMF) has reiterated that the pace at which Saudi Arabia is driving up austerity is appropriate as it has little room to ease up on the spending cuts due to the sharp economic growth slowdown. The Kingdom’s budget has been strained by low oil prices and the government has slashed capital spending this year and delayed payments that it owes to some companies, while last month it announced cuts to allowances for public sector workers. Masood Ahmed, director of the IMF’s Middle East department, said Riyadh could not afford to soften austerity policies significantly without endangering its goal of balancing its budget in about five years.

In Kuwait, the parliament was dissolved setting the stage for early elections within two months, after disagreement among cabinet members over austerity measures due to fiscal budget constraints. In other news, Ernst and Young (EY) tax advisory service agent Alok Chugh said Kuwait will start preparing to impose value added tax (VAT) within six months at most. EY Kuwait said VAT implementation in Kuwait would start by the beginning of 2018 and that companies would be given enough time to adjust their accounting systems prior to implementation. In UAE, growth of the non-oil private sector eased in September, with business conditions improving at the weakest pace since June. The Emirates NBD UAE Purchasing Managers’ Index (PMI) — a composite indicator of operating conditions in the non-oil private sector economy, fell to 54.1 from 54.7.

In Oman, the budget deficit continued to decline amid the drop in oil revenues. Oman plans to turn to international funding sources to plug up to 70 percent of its shortfall this year, according to the chief of the Central Bank of Oman. In Qatar, despite the moderation in real GDP expansion in the first half of 2016, QNB believes growth is poised to rebound in the second half of this year. Qatar’s GDP data for the second quarter revealed +2 percent YoY growth, compared to a +1.4 percent gain in the first quarter. Bahrain’s non-oil sector grew by +3.6 percent in the second quarter of 2016, an improvement from +2.7 percent in the first quarter of 2016, according to the latest Bahrain Economic Quarterly report.

GCC equities
GCC equities, as indicated by the MSCI GCC IMI index, rose by +2.8 percent. Saudi Arabia’s Tadawul index was the top performing regional index, followed by Kuwait’s Weighted Index and Bahrain’s BB All Share Index. Saudi Arabia’s Tadawul Index rose +6.9 percent after investors reacted positively towards KSA’s biggest bond sale which would be used to bridge its budget shortfall. The top performing sectors included Industries +14.1 percent, Banking +12.3 percent and Real Estate +11.0 percent. Lagging sectors included Cement -9.2 percent and  Multi-Investment -1.3 percent. Kuwait’s weighted index remained flat at +0.6 percent with positive contribution from Telecom +8.3 percent, Consumer Goods +3.8 percent, and Industrials +0.6 percent. Lagging sectors included Financial Services -3.7 percent and Consumer Services -1.6 percent. Qatar’s QE Index fell -2.5 percent with negative contribution coming from most sectors including Consumer -6.5 percent, Real Estate -6.0 percent, and Industrials 3.9 percent. Abu Dhabi’s  ADSM Index fell -3.9 percent with negative impact coming from Telecom -5.8 percent, Consumer Staples -4.6 percent, and Financial Services & Investment -2.6 percent.  Dubai’s DFM index fell -4.1 percent as the worst performing sectors were Telecom -6.5 percent, Transport -5.1 percent, and Real Estate -4.0 percent.  Oman’s MSM 30 index declined -4.3 percent with negative contribution from Industrials -4.8 percent, Banking -3.8 percent, and Services -2.6 percent. Bahrain’s BB Index closed flat at -0.1 percent with positive performance from Industrials +4.5 percent and Insurance +3.5 percent. Lagging sectors included Services -2.1 percent and Banking -0.8 percent.

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