Aditya Pugalia - Analyst
Published Date: 19 March 2017
Global equity markets closed higher as the Federal Reserve delivered a dovish rate hike and political risks declined in Europe following the results of the Dutch election.
The MSCI World index rallied +0.9% 5d on the back of broad based strength. The MSCI EM index, the MSCI G7 index and the Bloomberg GCC 200 index added +4.3% 5d, +0.8% 5d and +0.1% 5d respectively. Volatility declined across the board with the VIX index (US), the V2X index (Europe) dropped -3.3% 5d and -27.2% 5d respectively. The JP Morgan EM Volatility index dropped -5.6% 5d.
With major central bank meetings behind us and the Q1 2017 earnings season still a fortnight away, the focus will shift to economic data. It is likely that risk appetite may continue in the absence of any negative catalyst even as concerns over valuations build up. Regionally, markets are likely to suffer from lack of investor interest.
Regional equities continue to suffer from a lack of catalysts. The Bloomberg GCC 200 index added +0.1% 5d amid dwindling volumes across indices with the exception of the Qatar Exchange. Volumes on the Qatar Exchange received a boost from the FTSE trade.
A common trend which has been visible across markets is the inability of market heavyweights to hold onto their levels post dividends. National Bank of Abu Dhabi and Air Arabia dropped -1.0% 5d and -2.7% 5d respectively. In Qatar, United Development and Qatar Navigation declined -4.1% 5d and -1.8% respectively. National Bank of Kuwait (+4.2%) is one of the few notable ones to buck the trend.
On the DFM index, the focus remained on Shuaa Capital (+15.9% 5d) and Gulf Finance House (+9.2% 5d). Shuaa Capital rallied following news that the company is buying Integrated Capital and that it is in talks for a merger with Gulf Finance House. Abu Dhabi Financial Group, the parent of Shuaa Capital, has cross holdings in Gulf Finance House.
The Qatar Exchange declined -1.0% 5d as the demand on the FTSE trade day was met by sufficient supply from local investors. Foreign investors bought stocks worth USD 276mn on that day. As part of rebalancing of the index, Medicare Group will replace Mazaya Qatar Real Estate Development Co and Qatar First Bank will join the QE All Share index.
The Tadawul closed flat in what was one of the quietest week of trading. Bank Al Jazira rallied +9.8% 5d after the bank announced a cash dividend of SAR 0.50 per share and 3 bonus shares for every 10 held. United Electronics gained +25.8% 5d after reports that the original founder is retaking over the control of the company.
With the exception of the Nikkei index, developed market equities closed higher as the Federal Reserve delivered a ‘dovish’ 25 bps hike in interest rates. The fact that no changes were made to the dot plot for 2017 and 2018 led to renewed risk appetite. The fact that there was no negative surprise in the Dutch election also gave a boost to investor sentiment. The S&P 500 index and the Euro Stoxx 600 index added +0.2% 5d and +1.4% 5d respectively. The +0.4% 5d decline in the Nikkei index can be attributed to +1.9% 5d strength in the JPY.
Emerging equities outperformed global equities as the tone of the Federal Reserve was more dovish than what was anticipated by investors. The MSCI EM index added +4.3% 5d compared to a gain of +0.9% 5d in the MSCI World index.
The MSCI Russia Index added +4.9% 5d after the S&P raised its outlook on Russia’s credit rating. This puts the country on the cusp of regaining its investment-grade status.
Third FED rate hike in 2017 remains likely