Aditya Pugalia - Analyst
Published Date: 09 April 2017
Global equities closed lower as investors paused to reassess in light of developing geo-political concerns, possibility of delay in tax reforms in the US and Fed minutes suggesting the paring down of its balance sheet will begin later this year.
The MSCI World index dropped -0.4% mainly on the back of pull back in developed market equities. The MSCI G7 index lost -0.4% 5d even as the MSCI EM index and the MSCI Arabian Markets index added +0.3% 5d and +1.6% 5d respectively. Volatility spiked across the board with the VIK index (US) and the V2X index (Europe) jumping +4.0% 5d and +18.3% respectively. The JP Morgan EM Volatility index added +5.3% 5d.
With market valuations remaining a concern, investors focus will turn to the Q1 2017 earnings season as they seek near-term validation. Developments on the geo-political front including French elections will also be keenly watched. Regionally, it will be interesting to see if markets can build on the momentum from last week.
Regional equity markets saw greater interest than in the recent past from investors. The Bloomberg GCC 200 index added +1.6% 5d with all major indices closing in positive territory. Investor sentiment also received a boost from +4.6% 5d rally in oil (Brent) prices.
UAE bourses led the gains with the DFM index and the ADX index adding 2.5% 5d and +3.9% 5d respectively. The focus of investors remained on the merged entity of National Bank of Abu Dhabi and First Gulf Bank. The stock rallied +9.8% 5d as it benefitted from inflows from foreign investors owing to inclusion in the FTSE index. The positive impact was also seen on other banking stocks with Dubai Islamic Bank and Union National Bank adding +3.8% 5d and +5.0% 5d respectively. Elsewhere, Emaar Properties did not suffer from the fire at one of its under construction development in Down Town Dubai. The stock closed the week with gains of +2.3%.
The Tadawul (+1.1%) closed in positive territory for a second consecutive week. It does appear that investors are adding positions in anticipation of few potential positive triggers lined up over the next few weeks. These includes the testing of T+2 settlement, additional liquidity from a government sukuk expected to be priced later this week and potential inclusion in the FTSE Global Equity Index Series. Sabic rallied +4.2% 5d to close above SAR 100.0 level for the first time since July 2015.
The KWSE index closed flat even as volumes increased in the run-up to changes in the market structure. The changes include T+3 settlement, improvements in the DVP and possible reductions in the tick size. Banks continue to outperform with National Bank of Kuwait and Burgan Bank adding +6.1% and +7.6% respectively.
Elsewhere, the Doha Bank rights started trading last week. The rights are currently priced at QAR 4.90 which represents a discount of 1.8% to Doha Bank’s closing price of QAR 30.45.
While the weekly index moves may not suggest so it was a rather volatile week for developed market equities as multiple factors came into play. These included hawkish minutes of the Fed’s last meeting, comments from Paul Ryan on tax reforms, missile attacks on Syria by the US and a mixed jobs data in the US. Eventually, the S&P 500 index and the Nikkei index dropped -0.3% 5d and -1.3% 5d respectively while the Euro Stoxx 600 index closed flat.
It is worth noting here that developed market equity indices just had their best quarter in nearly four year and hence the pause could simply be a case of investors seeking near term earnings validation given expensive valuations.
Emerging equities outperformed global equities with the MSCI Emerging Markets index adding +0.3% 5d compared to a decline of -0.4% 5d in the MSCI World index. The outperformance was led by the BRIC bloc with the MSCI BRIC index rallying +1.1% 5d.
The Reserve Bank of India left interest rates unchanged but did raise reverse repo rate by 25 bps. The commentary did appear slightly hawkish as the central bank upped the inflation projection for FY 2018 to 4.5% - 5% with risks evenly balanced. Indian equities took comfort from the back that the RBI has resisted from measures to significantly reduce the liquidity in the system in the near term. The Nifty index added +0.3% 5d.
US non-farm payrolls beat expectations