Aditya Pugalia - Analyst
Published Date: 07 May 2017
Global equities closed higher as political risks reduced and earnings growth continued to remain strong. While weakness in commodity prices did weigh on investor sentiment, they were largely shrugged off.
The MSCI World index rallied +0.9% 5d on the back of strength across G7 markets. The MSCI G7 index added +0.9% 5d. The MSCI EM index closed flat while the MSCI Arabian Markets index declined -0.9%. Volatility dropped in developed markets with the VIX index (US) and the V2X index (Europe) dropping -2.3% 5d and -0.5% 5d respectively. The JP Morgan EM Volatility index dropped -2.4% 5d.
The next leg of risk-on sentiment could well depend on the margin of Macron’s victory over Le Pen. Needless to say, in case of a victory for Le Pen, we are likely to see a reversal in investor sentiment. Regional markets are likely to keep an eye on comments from various OPEC members ahead of the meeting in the last week of this month.
Regional equity markets continued to remain plagued by lack of investor interest. In fact, it was the quietest week of the year for Egyptian and Kuwait stock indices. The Bloomberg GCC 200 index dropped -0.8% 5d.
The ADX index rallied +2.3% 5d on the back of strength in banking sector stocks. First Abu Dhabi Bank rallied +4.6% 5d following comments from the bank’s CEO that they are looking seriously to enter the Saudi Arabia market via acquisition or a new license. Trading on the DFM was marked by activity in small cap stocks. Arabtec (-7.8% 5d), Amanat (+12.5% 5d) and Gulf Finance House (+0.9% 5d) together accounted for more than 50% of the total volume on the DFM. Emaar Properties rallied -0.9% even as after news surfaced about Blackstone and CVC Capital being among buyout firms weighing a bid for as much as a 40% stake in Emaar’s entertainment division. Emaar Entertainment's portfolio includes: Dubai Aquarium & Underwater Zoo, Dubai Ice Rink, KidZania, SEGA Republic, and Reel Cinemas at The Dubai Mall. While detailed separate numbers for this division are not available, the hospitality & leisure, commercial leasing and entertainment business of Emaar represented circa 18% of recorded revenues in 2016 ( AED 2.749 billion of the group total of AED 15.54 billion).
The Tadawul dropped -0.3% 5d to close below the 7,000 level despite better than expected earnings from banks and market heavyweight Sabic. It does appear that the weakness in oil weighed on investor sentiment. The ICE Brent futures declined -5.1% 5d and that may have prompted foreign investors to pare their position in the market. As per market data, foreign investors were net sellers to the tune of USD 31mn in Sabic. The stock closed -1.1% 5d.
Elsewhere, the Qatar Exchange dropped -1.5% 5d to close lower for a fourth consecutive week. Foreign investors continued to remain sellers. Qatar National Bank which closed the week with losses of -2.6% saw foreign investors remaining net sellers to the tune of USD 10mn.
Developed market equities continued their positive run as political risk premium reduced and economic data remain strong. The Federal Reserve sounded optimistic following its meeting and remained steadfast in increasing interest rate at its next meeting in June. Earnings season continues to remain strong and that provided further support to equity markets.
The S&P 500 index, the Euro Stoxx index and the Nikkei index rallied +0.6% 5d, +1.9% 5d and +2.0% 5d respectively.
At the end of last week, 83% of companies in the S&P 500 index had reported Q1 2017 earnings. According to FactSet, 75% of those companies beat the mean EPS estimate and 66% of those beat the mean sales estimate. The blended Q1 2017 earnings growth was 13.5%. If 12.5% growth rate holds then it will mark the highest y/y growth in earnings since Q3 2011.
Emerging equities underperformed global equities with the MSCI Emerging Markets index closing flat compared to a gain of +1.0% 5d in the MSCI World index.
India’s Nifty index closed -0.6% 5d lower even as the government made a fresh bid to resolve the non-performing asset issue in the banking sector. The government amended the banking regulation act to give more power to the Reserve Bank of India to issue specific guidelines in specific cases of non-performing loans.
GCC Equity Flow Monitor