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Aditya Pugalia - Director, Financial Markets Research
Published Date: 23 September 2018
Global equities rallied sharply as strong economic data across economies, reports of China easing rules on taxes to boost consumption and relatively stability in emerging markets boosted risk appetite. The MSCI World index added +1.5% 5d on the back of gains across its sub-indices. The MSCI G7 index, the MSCI EM index and the MSCI Arabian Markets index added +1.5% 5d, +2.2% 5d and +1.3% 5d respectively. Volatility declined across the board. The VIX index, the V2X index and the CBOE EM ETF Volatility index declined -3.2% 5d, -7.8% 5d and -4.4% 5d respectively.
The focus this week will remain firmly on the Federal Reserve meeting. While the Fed is widely expected to raise rates by 25bps, the commentary accompanying the hike is likely to be minutely analyzed for clues into the future direction. A ‘hawkish hike’ can possibly trigger fresh volatility in emerging markets. Elsewhere, the UK and China will also be on the radar after the deterioration in relationship between the UK and the Eurozone at last week’s Salzburg conference and sanctions on China’s defense agency by the US over the weekend.
The sharp fall in Egyptian equities has brought into focus sustained outflows from foreign investors since the start of September 2018. Foreign investors have sold stocks worth EGP 4.1bn so far in September 2018. In fact, the last trading day of last week (20 September 2018) saw the first day of inflows from foreign investors this month. Despite the recent outflow, foreign investors are net buyers to the tune of EGP 7.1bn so far in 2018.
Regional markets, with the exception of the Tadawul, closed lower as investor sentiment remained weak. The S&P Pan Arab Composite index added +0.4% 5d.
UAE bourses closed lower with the DFM index and the ADX index losing -1.6% 5d and -1.0% 5d respectively. Emaar Properties closed lower for a fourth consecutive week to take its year to date losses to -26.1%. There was no fresh trigger for the decline. Deyaar Development outperformed its sector peers and the broad index with 5d gains of +6.6%. There was no corporate news flow which drove the move. Abu Dhabi based banks which are in talks for a potential merger gave up some of their recent gains with UNB and ADCB losing -3.2% 5d and -2.7% 5d respectively. ADIB (-5.3% 5d) has been another notable underperformer ahead of its rights issue.
The Tadawul (+2.3% 5d) closed in positive territory for the first time in three weeks. Banking sector stocks led the move higher with the Tadawul Banks index adding +3.0% 5d. Sabic gained +4.1% 5d after the company entered into an agreement with Clariant to develop their strategic relationship further.
Egyptian equities closed lower for a third consecutive week with the EGX 30 index losing -8.0% 5d. The move last week took the index into negative territory for the year. There were multiple triggers for the sharp decline including concerns over FX, margin calls for retail investors and an arrest order on former President Hosni Mubarak’s sons for stock market manipulation. The upcoming MPC meeting later this week will be keenly watched by investors given the conundrum facing the central bank on easing rates further.
Developed market equities continued their positive run as sustained strong economic data offset continued stalemate between the US and China on the trade front. Gains in oil prices helped commodity stocks and a rise in treasury yields helped financials. Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index gained +0.9% 5d, +1.7% 5d and +4.6% 5d respectively.
According to data from Bloomberg, investors put in USD 38bn into US stock ETF through Thursday last week. The EPFR data showed that US equity funds received USD 14.5bn in the week ending September 19. This was the largest weekly inflow since March 2018. One reason for the surge in inflows is the revision to the Global Industry Classification Standard. S&P Global will be merging some internet and media stocks with phone companies to form a new group called communication services. The change will take Alphabet, Facebook and Netflix from their respective subsectors and force investors to shuffle their money accordingly.
Emerging market equities outperformed broader equities. The MSCI EM index added +2.2% 5d relative to a gain of +1.5% 5d in the MSCI World index. The decline in volatility in EM currencies and some positive development on the policy front played a part in the rally.
China’s Shanghai Composite index gained +4.3% 5d for its biggest weekly gain in 2018. Reports that the government plans to cut taxes and lift consumption drove the rally. The measures include reduction in value-added tax and simplification of deductions in individual income tax.
Indian equities underperformed with the Nifty index losing -2.0% 5d. The decline was precipitated by concerns over the health of non-bank financial companies following a default by IL&FS.
Global equities closed marginally lower
GCC Equity Flow Monitor
Global equities closed higher last week
Global equities closed higher