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Published Date: 16 February 2020
Global equities continued their positive run on the back of strength in corporate earnings and macroeconomic data. The Citi Economic Surprise index for major economies has now remained in positive territory since the start of 2020 and is, in fact, close to levels last seen in September 2019. The MSCI All Country index added +1.1% 5d on the back of strength in the MSCI G7 index (+1.1% 5d) and the MSCI EM index (+1.3% 5d).
Notwithstanding the limit impact of coronavirus on equity markets, investors will continue to keep an eye on the virus’s pace of expansion. Further, investors will also look at the minutes from the US Federal Reserve’s last meeting and the decision of the People’s Bank of China on the prime lending rate.
The mixed signals from different asset classes about the impact of coronavirus have led to questions about the sustainability of the current rally in equities. One another example of the same is the outperformance of European equities relative to the EUR. The spread between the Euro Stoxx 50 index and the EUR has widened in 2020 and the 60-day correlation is at the lowest since September 2017.
Regional markets closed lower as weak corporate earnings weighed on investor sentiment. The S&P Pan Arab Composite index declined -1.3% 5d. The rebound in oil prices did not assuage investor concerns.
UAE bourses saw sustained weakness with the MSCI UAE index (-1.9% 5d) closing lower for a third consecutive week. Emaar-related names led the decline on the DFM following their earnings announcement. Emaar Properties dropped -3.3% 5d and Emaar Malls declined -3.4% 5d. Emaar Development bucked the trend with a gain of +0.5% 5d. Emaar Properties reported 2019 net income of AED 6.2bn (+1% y/y), higher than consensus estimates of AED 5.96bn. The full year property sales in Dubai stood at AED 15bn. Dubai Islamic Bank (+0.2% 5d) ended the week higher after the bank’s board recommended raising foreign ownership limit (FOL) to 40% from 25%. The increase in FOL could see inflows, according to market estimates, of as much as USD 200mn when the index compilers readjust their broader indices. The bank also reported earnings that beat consensus estimates.
Elsewhere, the Tadawul and the Qatar Exchange dropped -2.2% 5d and -4.4% 5d respectively. The weakness was led by heavyweight petrochemical stocks. Industries Qatar and Saudi Aramco dropped -6.9% 5d and -0.9% 5d respectively. Sabic also declined -5.1% 5d to take its year to date losses to -14.1%.
Developed market equities closed higher as investors continued to shrug off the impact of coronavirus on the global economy and take comfort from statements of various policymakers about their willingness to act should the situation warrant. Investor sentiment also received a boost from better than expected corporate earnings and macroeconomic data. The S&P 500 index, the Euro Stoxx 600 index added +1.6% 5d and +1.5% 5d while the Nikkei index lost -0.8% 5d.
Given the outperformance of equities at a time when other asset classes are giving mixed signals, the make-up of the recent rally has come into focus. The outperformance of technology stocks and their weightage has also been highlighted. The Nasdaq Composite index has rallied +8.5% ytd compared to gains of +4.6% on the S&P 500 index. It is no surprise to see that an equal weight S&P 500 index would have underperformed the broader S&P 500 index by 250 bps ytd.
The Q4 2019 earnings in the US have turned out better than expected. According to data from FactSet, the blended earnings growth for the S&P 500 index stood at +0.7% compared to the start of quarter estimates of -1.7%. If the number holds then it will be the first time since Q4 2018 that the index would have reported positive earnings growth.
Emerging market equities continued their recovery from coronavirus induced sell-off. The MSCI EM index added +1.3% 5d on the back of strength in the MSCI BRIC index which gained +1.6% 5d. The decision of China to halve tariffs of USD 75bn of imports from the US and the continued talk of further stimulatory measures by Chinese policymakers helped investors to look beyond the impact of coronavirus.
GCC Equity Flow Monitor - May 2020
UAE: A mixed bag of data in January