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Aditya Pugalia - Director, Financial Markets Research
Published Date: 20 October 2019
Global equities closed higher as strong corporate earnings and easing of rhetoric on Brexit and trade helped investors shrug off worries over economic growth. The IMF lowered its growth forecast for the global economy to 3.0% for 2019. The MSCI All Country index added +0.8% 5d on the back of strength across major sub-indices. The MSCI G7 index and the MSCI EM index gained +0.7% 5d and +1.2% 5d respectively. Volatility declined across the board with the VIX index, the V2X index and the CBOE EM ETF Volatility index dropping -18.9% 5d, -3.3% 5d and -17.5% 5d respectively.
The focus this week will remain on whether the UK government is able to close out the Brexit deal in Parliament or not. Further, economic data and corporate earnings as expected to set the tone in the first half of the week before the focus shifts to the European Central Bank meeting in the second half of the week.
With Brexit potentially heading for a final showdown, it was no surprise to see some interest returning back to UK domestic equities. The Vanguard FTSE 250 UCITS ETF which tracks the index of mid-cap companies saw a weekly inflow of GBP 81mn, the largest since the start of this year. The FTSE 250 index comprises of companies which benefit from domestic growth and are generally positively correlated to moves in the GBP.
Regional equities closed mixed as the focus of investors shifted onto quarterly earnings. The S&P Pan Arab Composite index closed +0.5% 5d.
UAE bourses closed mixed with the DFM index losing -1.1% 5d and the ADX index adding +0.4%. While the market heavyweights dragged the broader DFM index lower, there was greater investor interest in midcap stocks. Amlak Finance rallied +10.5% 5d to take their gains to 91% over the last three weeks. The strength is following a statement from the company that it had been awarded AED 780mn in an arbitration by the Dubai International Arbitration Center. While no further details about the counterparty was provided, the company said that the impact on financial statements will only happen in 2020. The amount is significant considering that the market cap of Amlak Finance stood at AED 813mn at the end of last week.
Among market heavyweights, Emirates NBD (-3.8% 5d) announced details of its rights issue. The company will offer 1 share for every 8 held at AED 8.50 per share. The bank aims to raise AED 6.45bn from the rights offering which will be open for subscription from 10 November 2019 to 20 November 2019.
Elsewhere, the Qatar Exchange rallied +2.0% 5d following better than expected corporate earnings from leading companies. Qatar National Bank and Qatar Islamic Bank +1.5% 5d and +2.0% 5d respectively. Qatar Islamic Bank reported Q3 2019 net profit of QAR 780mn (+17% y/y).
Developed market equities closed higher on the back of better than expected corporate earnings in the US. Some clarity on Brexit and easing of rhetoric between the US and China also helped investor sentiment. The S&P 500 index added +0.5% 5d and the Nikkei index gained +4.4% 5d while the Euro Stoxx 600 index closed flat. Interestingly, the FTSE 100 index dropped -1.3% 5d as GBP gained +2.5% 5d.
Nearly 15% of companies in the S&P 500 index have reported earnings for Q3 2019. According to FactSet, 84% of those companies have beaten estimates. The blended earnings decline for Q3 2019 is 4.7%. If the earnings continue to show a decline then it will be the first time since Q2 2016 that the index has had three consecutive quarters of earnings decline.
Emerging market equities outperformed broader indices as solutions seemed in sight for multiple issues plaguing the global economy at the moment. The MSCI EM index added +1.2% 5d compared to a gain of +0.7% 5d in the MSCI World index.
Chinese stocks underperformed the broader EM markets on the back of weak economic data. The Shanghai Composite index dropped -1.2% 5d after a report showed that GDP growth slowed to 6% in Q3 2019. The nominal rate of growth slowed to 7.6% y/y, the lowest reading since Q3 2016. The slowdown was primarily on account of slowing investments as retail sales held up.
Global equities closed marginally lower
GCC Equity Flow Monitor