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Published Date: 29 March 2020
Global equities closed higher, for the first time in three weeks, as rafts of measures announced by various central banks and governments assured investors that ‘whatever it takes’ is finally kicking in. The MSCI All Country World index added +9.9% 5d on the back of strength across its sub-indices. Having said that, there were enough signs which showed that uncertainty over the length and depth of the viral outbreak remains a dominant concern for investors. Volatility remained elevated despite the rally in stocks with the VIX index remaining above 60 levels throughout the trading week.
The focus this week will remain on various governmental efforts to fight the physical and economic impact of coronavirus. Investors will also be keeping an eye on economic data to gauge the intensity of damage to the global economy.
The Federal Reserve has led global central banks in taking proactive steps to ensure market stability and liquidity. The extent of support became evident when the Fed’s balance sheet surpassed USD 5tn for the first time. The central bank added as much as USD 586bn worth of assets in the week ended March 25, 2020.
Regional markets closed mixed as positive global backdrop was offset by a sustained decline in oil prices. The increased restrictions in economic activities due to coronavirus also weighed on investor sentiment. The S&P Pan Arab Composite index added +1.4% w-o-w.
UAE bourses closed mixed with the DFM index losing -0.6% 5d and the ADX index adding +2.3% 5d respectively. Market heavyweights outperformed broader indices with Emaar Properties adding +3.1% 5d and First Abu Dhabi Bank rallying +4.3% 5d. The government continues to work towards providing additional stimulus to support the economy. Following announcements from earlier in the month, Dubai announced an economic incentive package for its free zones last week. The measures included postponing rent payments and cancellation of fines.
Egyptian equities outperformed their peers with the EGX 30 index adding +7.7% 5d. The rally was on the back of announcements of investments in equity markets by the government and state-owned banks. While Banque Misr and National Bank of Egypt said they will invest as much as EGP 3bn, the government allocated EGP 20bn to support equity markets.
The combination of continued measures by central banks notably the US Federal Reserve and fiscal stimulus from governments ignited risk sentiment. The announcements also allayed fears of dithering by governments. The fiscal USD 2tn stimulus bill passed by the US Congress was the key catalyst last week. Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index added +10.3% 5d, +6.1% 5d and +17.1% 5d respectively.
The rally last week can be classified as a relief rally as market participants continue to grapple with questions over the impact of current economic environment on corporate earnings. While earnings downgrades have begun, the consensus view is to wait for more clarity to emerge. So far this month, the 1y forward EPS estimates for US equities have dropped about USD 10 per share or c.5.5%. This is much lower than m/m reduction in EPS estimates in previous such instances notably the 2008 global financial crisis.
Emerging market equities rallied but underperformed relative to broader markets. The MSCI EM index added +4.9% 5d compared to gains of +10.7% 5d in the MSCI World index. Gains in emerging market currencies also supported strength in equities.
Policymakers in emerging markets joined their developed market counterparts in announcing initiatives to support the economy. South Korea doubled its emergency funds to around KRW 100tn while the Indian government unveiled an initial stimulus plan of INR 1.7tn. Further, the Reserve Bank of India, in an emergency meeting, cut interest rates by 75 bps and announced steps to boost liquidity by cutting the cash reserve ratio by 100 bps and initiating TLTROs.
GCC Equity Flow Monitor - May 2020