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Aditya Pugalia - Director, Financial Markets Research
Published Date: 03 February 2019
It was largely a positive week for global equities as none of the key events threw a negative surprise. In fact, the Federal Reserve meeting was a positive catalyst while the UK Parliament vote on Brexit and the China-US trade talks turned out to be non-events for lack of development. The strength in commodities and relatively strong corporate earnings helped investor sentiment further. Overall, the MSCI All Country index added +1.4% 5d with all major sub-indices closing in positive territory. Volatility eased further with VIX index and the V2X index (Europe) dropping -7.4% 5d and -5.4% 5d respectively.
This week will see release of first-tier economic data which becomes important given the decisive shift of policymakers towards data dependency. Additionally, the focus will also remain on the US President Donald Trump’s State of the Union speech and corporate earnings.
At a time when the Federal Reserve has turned dovish and toned down their description of the US economy, the latest jobs data did question that hypothesis. However, if one looks at the Bloomberg US Economic Surprise index then we find that it still remains in negative territory. A further breakdown of the index shows that only labour market and personal & household sectors are in positive surprise category.
It was largely a positive day of trading for regional equities amid a rebound in underperforming stocks and mixed corporate earnings. The sustained strength in oil prices also helped investor sentiment. The S&P Pan Arab Composite index added +0.6% 5d.
UAE bourses closed in positive territory with the DFM index rallying +2.1% 5d and the ADX index gaining +0.5% 5d. Gains on the DFM index this past week helped the broader DFM index move into positive territory for the year. The rally was helped by strength in Emaar Properties (+4.9% 5d), Emaar Development (+6.7% 5d) and Aldar Properties (+3.9% 5d).
Among other developments, Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank agreed to merge. The combined entity will potentially be the Gulf’s fifth largest lender with about USD 114bn in assets. ADCB has offered 0.5966 share for every UNB share and the combined entity will buy Al Hilal Bank for about AED 1bn. The deal is expected to close in the first half of 2019 with ADCB Chairman Eissa Mohamed Al Suwaidi and ADCB CEO Alaa Eraiqat becoming the Chairman designate and CEO designate respectively of the combined entity. The new banking group will carry the ADCB identity. ADCB and UNB closed the week with gains of +2.2% 5d and +1.8% 5d respectively.
The Tadawul added +1.5% 5d. Saudi Electricity was one of the outperformer with gains of +10.4% 5d following comments from the Saudi economy minister that the privatization of power generation companies under Saudi Electricity is at a very advanced stage.
Elsewhere, Egyptian equities had their best week since the middle of December 2018. The EGX 30 index gained +4.6% 5d following increased speculation of a rate cut by the central bank when they meet later this month. Real estate stocks were the main drivers behind the rally with the EGX 30 Real Estate index adding +9.0% 5d.
Developed market closed higher as the Federal Reserve turned decidedly dovish. The central bank repeated that it would be ‘patient’ and cut its reference to ‘further gradual increases’ from the statement. Economic data from the US especially on the jobs front came in stronger than expected with non-farm payrolls showing addition of 304,000 jobs in January 2019. European equities, however, underperformed broader equities following weak economic data releases and weaker corporate earnings from banking sector stocks. Overall, the S&P 500 index, the Euro Stoxx 600 index and Nikkei index ended the week with gains of +1.6% 5d, +0.5% 5d and +0.1% 5d respectively.
The earnings season in the US gathered strength last week. With 46% of companies in the S&P 500 index having reported earnings, 70% of companies have reported a positive EPS surprise and 62% have reported a positive revenue surprise. According to FactSet, the blended earnings growth is 12.4% compared to estimates of 12.2% at the end of 2018.
Emerging market equities continued their positive run. The MSCI EM index (+1.7% 5d) closed in positive territory for a sixth consecutive week on the back of dovish Federal Reserve and weaker USD.
Indian equities ended the week higher after the government unveiled an interim budget for FY 2020 which is expected to boost consumption. The Nifty index added +1.1% as the budget proposals contained populist measures for every section of the society at the cost of the government breaching its fiscal deficit target for a second consecutive year.
GCC Equity Flow Monitor
Global equities closed higher