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Published Date: 23 February 2020
Global equities dropped as first signs emerged of probable economic impact from the coronavirus. Further, the spread of the virus to newer areas across continents forced investors to reassess the probable length of the outbreak. The MSCI All Country index dropped -1.3% 5d on the back of weakness across sub-indices. The MSCI G7 index, the MSCI EM index, and the MSCI FM index dropped -1.2% 5d, -2.0% 5d and -0.4% 5d respectively. Volatility increased sharply with the VIX index, the V2X index and the CBOW EM ETF Volatility index adding +20.7% 5d, +20.6% 5d and +8.2% 5d respectively.
The primary focus of investors’ will be on the virus’s pace of expansion. Additionally, investors will keep an eye on second-tier economic data to look for clues into the health of the global economy. The Bank of Korea’s meeting will also be watched in light of recent coronavirus-related developments.
The sharp drop in bond yields has seen investors add positions in defensive stocks. European utilities sector stocks have rallied +16.0% ytd. However, that has resulted in the Stoxx 600 utilities index at its most expensive level since 2008 relative to the broader regional index on an estimated earnings basis.
Regional markets closed mixed amid signs of bottom-fishing following a period of underperformance relative to global markets. The S&P Pan Arab Composite index added +1.4% 5d. A sustained bounce in oil prices helped investor sentiment.
UAE bourses closed mixed with the DFM index adding +0.1% 5d and the ADX index dropping -0.1% 5d. Much of the focus last week remained on DP World, listed on Nasdaq Dubai, following the company’s decision to de-list and become a private company. The parent company Port and Free Zone World have offered to buy 19.55% of shares at USD 16.75. At the time of the offer, the price indicated a 29% premium to the traded price. Last week share price gained +26.8% 5d to close at USD 16.40.
Elsewhere, the Tadawul and the Qatar Exchange added +1.7% 5d and +0.9% 5d. Gains on the Tadawul were led by strength in petrochemical stocks. Saudi Aramco and Sabic rallied +1.7% 5d and +2.6% 5d respectively. Banking sector stocks led the broader Qatari stock index higher with Qatar National Bank and Commercial Bank of Qatar adding +0.5% 5d and +0.2% 5d respectively.
The combination of coronavirus outbreak gathering pace outside of China and weak macroeconomic data weighed on developed market equities. The IHS Markit Composite PMI dropped to 49.6, the lowest reading since October 2013. Importantly, the decline in the composite index was led by services that accounts for the largest share in the US economy. Similar readings from other economies showed a mixed trend. Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index dropped -1.3% 5d, -0.6% 5d and -1.3% 5d respectively.
Emerging market equities underperformed broader indices. The MSCI EM index dropped -2.0% 5d compared to a drop of -1.2% 5d in the MSCI World index. Ironically Chinese equities were among the best performing emerging market equities with the Shanghai Composite index adding +4.2% 5d after policymakers continued to take measures to stimulate the economy.
However, South Korea’s Kospi index dropped -3.6% 5d as the virus outbreak spread in the country. The South Korean President Moon Jae-in raised the disease alert level to red, the highest possible. Elsewhere, Turkey’s Borsa Istanbul 100 index dropped -2.8% 5d as political issues trumped the central bank’s decision to cut interest rates by 50 bps. In an unrelated development, the Turkish exchange said that it will reset the benchmark, effective 27 April, by dividing the points level by 100.
GCC Equity Flow Monitor - May 2020