Aditya Pugalia - Analyst
Published Date: 14 May 2017
Global equities closed mixed as political risks reduced and earnings growth remained strong even as economic data was slightly soft. The rebound in commodity prices did support investor sentiment.
The MSCI World index dropped -0.2% 5d on the back of weakness in the MSCI G7 index which closed -0.2% 5d and the S&P Pan Arab Composite index (-0.1%). Volatility dropped across the board with the VIX index (US), the V2X index (Europe) and the JP Morgan EM Volatility index dropping -1.6% 5d, -18.9% 5d and -4.0% 5d respectively.
The current leg of risk-on sentiment has been driven by better than expected earnings across the board. With the current earnings season coming to an end, it would not be surprising to see the focus shift back to political rhetoric and the upcoming OPEC meeting. Regional markets will also be keeping an eye on the same as they prepare for typically slower summer months.
Regional equity markets continued to suffer from low investor interest as turnover remained low across most markets. The aggregate 5-day average daily value traded across markets was USD 1.04bn compared to 3-month ADV of USD 1.32bn. A rebound in oil prices did little to help the sentiment. The S&P Pan Arab Composite index declined -0.1% 5d.
While the headline movements were minimal on both the DFM index and the ADX index, earning announcements did impact certain stocks. DXB Entertainments reported Q1 2017 net loss of AED 291.8mn compared to analysts’ estimates of AED 116.3mn. The number of visitors to the park in Q1 2017 stood at 586k. The company expects attendance to dip further in the next two quarters due to summer months. The company has initiated a process to reduce operational cost by 20% by year end. The stock ended the week -7.7% lower. Aldar Properties rallied +3.2% after the company reported Q1 2017 net profit of AED 641mn beating consensus estimates of AED 549mn by 16.7%.
The construction sector continues to underperform. Both Arabtec and Drake & Scull closed lower even as both companies look to raise capital. Arabtec declined -7.8% 5d even as the stock went ex-rights while Drake & Scull dropped -13.8% 5d.
The Tadawul declined -0.6% 5d as improvements on the fiscal front was offset by mixed set of quarterly earnings. NIC ended the week with losses of -7.9% after the company reported Q1 2017 net profit of SAR 103.3mn, missing analysts’ estimates of SAR 130.8mn by 30%.
Ahead of the MSCI decision, the FTSE Russell CEO said that Saudi Arabian equities are more likely than Chinese equities to join the EM index this year. Both the markets are on watch list and the decision is due to be made in September 2017.
Elsewhere, the EGX 30 index ended the week higher and importantly saw its biggest turnover in over a month. Orascom Telecom rallied +7.4% after the company announced a dividend of 10 piastres per share. Talaat Moustafa ended the week with gains of +3.9% after the company reported better than expected earnings of EGP 288mn.
Developed market equities closed mixed as economic data turned slightly soft while political risk premium declined further. However, earnings remained strong and that provided support to equities. The S&P 500 index dropped -0.4% while the Euro Stoxx 600 index and the Nikkei index added +0.3% 5d and +2.3% 5d respectively.
According to data from EPFR, investors put USD 6bn of new capital into European equities in the past week as some critical elections in the region threw up favourable results. The weekly inflow was the largest since at least 2000 when EPFR began tracking the data.
At the end of last week, 91% 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 64% of those beat the mean sales estimate. The blended Q1 2017 earnings growth was 13.6%. If 13.6% growth rate holds then it will mark the highest y/y growth in earnings since Q3 2011.
Emerging equities outperformed global equities with the MSCI Emerging Markets index adding +2.5% compared to a decline of -0.2% 5d in the MSCI World index. Gains were led by the BRIC bloc with the MSCI BRIC index rallying +3.3% 5d.
FOMC minutes showed a difference of opinion