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Aditya Pugalia - Director, Financial Markets Research
Published Date: 08 September 2019
Global equities closed higher following confirmation from the US and China that trade talks would restart in October. The revival in risk sentiment was also helped by a law passed by the UK Parliament which reduces the risk of a no-deal Brexit. A weak non-farm payrolls data was largely shrugged off as the Fed Chair all but assured a rate cut at its meeting later this month. The MSCI All Country index added +2.0% 5d on the back of strength across major sub-indices. The MSCI G7 index and the MSCI EM index added +1.8% 5d and +2.4% 5d respectively. The MSCI Frontier Markets index was a notable exception with losses of -0.8% 5d.
The focus of investors this week will be on Europe as the ECB rate decision and the ongoing Brexit process take center stage. The economic data from the US in the lead-up to the Federal Reserve meeting will also be keenly watched as expectations of a rate cut remains bedded in.
With the Brexit process getting gridlocked, it is interesting to see that the impact of the same is minimal on equity prices. A part of it can be put down to weakness in the GBP. However, it is worth noting that almost all major indices are in positive territory since the Brexit vote. In fact, the small and emerging cap index (FTSE AIM) has outperformed other indices all through the interim period.
Source: Bloomberg, Emirates NBD Research
With the exception of the DFM index, it was a mixed week of trading for regional equities. The revival of risk sentiment in global markets had limited impact on local markets as they continued to trade on technical factors. The S&P Pan Arab Composite index gained +0.8% for the week.
UAE bourses closed mixed with the DFM index adding +4.8% 5d and the ADX index losing -1.0% 5d. The DFM index was supported by a sharp rally in Emirates NBD. The stock gained +19.5% 5d after the bank decided to increase the foreign ownership limit from 5% to 20% with immediate effect. Further, the bank said that it will seek shareholder’s approval to increase the limit to 40%.
This past week, Dubai also set up a committee to balance property supply and demand. The committee will be chaired by His Highness Shaikh Maktoum Mohammad Bin Rashid Al Maktoum and have representatives from all real estate companies including Emaar Properties, Nakheel among others. Real estate sector stocks closed mixed following the announcement with Emaar Properties adding +1.0% 5d and Damac Properties losing -0.9% 5d.
The Tadawul gained +0.4% 5d to close in positive territory for the first time in six weeks. Gains were led by market heavyweights with Al Rajhi Bank adding +0.5% 5d and Safco gaining +2.9% 5d. It seems that after-effects of fund movements following the completion of inclusion in the MSCI EM index is reducing as focus shifts back to fundamentals.
Elsewhere, the EGX30 index (+0.7% 5d) closed in positive territory for a sixth consecutive week. In an attempt to increase liquidity, the Chairman of Egyptian Exchange said that short selling could be introduced by December 2019.
Developed market equities closed higher amid optimism over trade talks between the US and China and as risks of an imminent no-deal Brexit receded. Comments from the Fed Chairman that the central bank will act as ‘appropriate’ to sustain growth expansion also helped investor sentiment. Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index added +1.9% 5d, +2.0% 5d and +2.4% 5d respectively.
Emerging market equities outperformed the broader trends as multitude of factors including confirmation of trade talks between China and the US in early October and announcement of stimulus measures boosted investor flows. The MSCI EM index added +2.4% 5d compared to gains of +1.9% 5d in the MSCI World index.
The People’s Bank of China said it will cut all bank’s reserve ratio by 50 bps effective 16 September 2019. The central bank added that it would further reduce the reserve ratio by 100 bps for some qualified banks. The move is expected to release CNY 900bn of liquidity in the system. The said move was well telegraphed and could be seen as a counterbalancing act to rising CNY. The Shanghai Composite index rallied +3.9% 5d to take its year to date gains to +20.3%.
Global equities closed higher
Global equities closed lower
GCC Equity Flow Monitor - June 2019
UK July GDP firmer than expected