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Published Date: 24 November 2019
Global equities continue to be driven by trade headlines as conflicting signals continue to emerge. Mixed economic data and geopolitical situation also appears to be contributing to lack of catalysts. The MSCI All Country index dropped -0.4% on the back of weakness in developed markets. The MSCI G7 index dropped -0.3% 5d while the MSCI EM index ended the week flat. Volatility increased in developed markets but remained subdued in EM. The VIX index, the V2X index and the CBOE EM ETF Volatility index closed +2.4% 5d, +13.5% 5d and -7.9% 5d respectively.
The focus this week will continue to remain on trade headlines. Further, investors will also watch out for comments from the Fed Chair Jerome Powell, his first since his meeting with the US President. Regionally, investors will be keenly tracking the progress of Saudi Aramco IPO.
The Saudi Aramco IPO is currently accepting orders from investors. It is interesting to see that Saudi Aramco bonds have performed well since the announcement of the IPO price range. The Aramco 29s have rallied from USD 103.675 to USD 104.213 over the last week with yields dropping below 3.0% for the first time since early October 2019.
Regional equities closed mixed in a week which was dominated by headlines covering the ongoing IPO of Saudi Aramco. The S&P Pan Arab Composite index added +0.8% 5d.
The Tadawul was a notable outperformer with gains of +1.8% 5d. The strength came from banking sector stocks with Al Rajhi Bank adding +4.7% 5d and National Commercial Bank gaining +2.5%. It appears that investors are expecting banks to benefit from being able to give enhanced leverage to retail investors for Saudi Aramco IPO. Petrochemical stocks were another beneficiary with Sabic and Yansab rallying +1.5% 5d and +1.2% 5d respectively.
UAE bourses closed lower with the DFM index and the ADX index losing -0.6% 5d and -1.9% 5d respectively. Arabtec dropped -27.7% 5d after the company reported Q3 2019 net loss of AED 491mn. This was the company’s biggest quarterly loss since 2016. The results have also put a doubt on company’s ability to pay dividends in 2019. The company is currently in talks with Trojan Holdings for a possible merger. Among other stocks, Emaar-related names continued to remain under pressure with Emaar Properties (-0.7% 5d) extending its decline to fourth consecutive week. Emaar Development and Emaar Malls dropped -6.9% 5d and -2.1% 5d respectively.
Elsewhere, Egyptian equities dropped for a second consecutive week with the EGX 30 index losing -3.1% 5d. Losses were led by market heavyweights as the wider EGX 100 index outperformed with losses of only -1.4% 5d.
Developed market equities closed lower as mixed headlines on the trade front swayed markets. It appeared to be an old script with various officials appearing to be holding an opposing views on the end-game. There were reports that the Chinese Vice Premier Liu He has invited US negotiators for talks in Beijing but no date was confirmed by the US side. Eventually, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index closed -0.3% 5d, -0.5% 5d and -0.8% 5d respectively. It was the first weekly decline for US equities in six weeks. Interestingly, UK equities closed in positive territory with the FTSE 100 index adding +0.3% 5d on the back of -0.5% weakness in the GBP.
Emerging market equities outperformed broader indices even as sluggishness remained owing to lack of clarity on the trade front between the US and China. The MSCI EM index closed flat for the week relative to a decline of -0.4% 5d in the MSCI World index. Interestingly, the MSCI BRICS index rallied +0.8% 5d to take their year to date gains to +11.4% compared to +8.6% ytd for the MSCI EM index.
The outperformance of the BRICS universe was driven by strength in Brazilian equities. The Bovespa index added +2.5% 5d. It seems that the combination of upward revision to growth estimates amid benign inflation expectations are allowing central bank to cut interest rates which in turn is driving appetite for equities. The biggest Brazilian ETF, iShares MSCI Brazil ETF, saw the biggest daily inflows since 2018 of USD 181mn and USD 195mn on consecutive days last week.
GCC Equity Flow Monitor - May 2020