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Aditya Pugalia - Director, Financial Markets Research
Published Date: 17 February 2019
Global equities received a timely boost from an agreement between political parties in the US to avoid government shutdown and further progress between the US and China during their trade talks. These two developments helped offset a series of weak economic data releases from across the world and continued stagnation in Brexit talks. Overall, the MSCI All Country index added +2.0% 5d. Among major sub-indices, only the MSCI Emerging Markets index closed in negative territory with losses of -0.5% 5d. Volatility declined across the board. The V2X index, the VIX index and the CBOE EM ETF Volatility index dropped -12.4% 5d, -5.2% 5d and -6.4% 5d respectively.
This week will see further talks between the US and China ahead of the deadline at the end of the month. However, it must be noted that the US President Donald Trump has indicated on more than one occasion that he is malleable to extending the deadline. Further, some progress could also be seen on auto tariffs. Additionally, investors will watch for the minutes of the last Federal Reserve meeting to gain insight into the changed stance of the central bank.
Chart of the week
The dovish pivot of most global central banks notably that of the Federal Reserve has increased the attractiveness of dividend stocks. The estimated dividend yield of the MSCI All Country World index at the end of last week stood at 2.8%, higher than the 10y US Treasury yield of 2.66%. This is the longest stretch where the difference between dividend yield and bond yield is positive since the start of 2018.
Source: Bloomberg, Emirates NBD Research
It was a week of two halves for regional equities. The flurry of corporate earnings from market heavyweights towards the end of the week lifted investor sentiment. The S&P Pan Arab Composite index ended the week with losses of -0.6% 5d. A sharp rise in oil prices also provided a boost. The WTI futures and Brent futures ended the week with gains of +5.4% and +6.7% respectively.
The trading week in the UAE was dominated by earnings from Emaar-related companies. All of them came in ahead of consensus expectations which in turn drove stocks to their best week since the start of the year. Emaar Properties, Emaar Development and Emaar Malls added +2.8% 5d, +7.6% 5d and +6.7% 5d respectively. Emaar Properties reported 2018 net profit of AED 6.1bn versus consensus estimates of AED 5.84bn. Similarly, Emaar Development and Emaar Malls beat consensus expectations by 11% and 1% respectively. On the other hand, Air Arabia and Damac Properties reported weak earnings and ended the week with losses of -7.0% and -4.0% respectively.
The speculation on further consolidation in the banking sector in the UAE continues to gather pace. According to a report in Bloomberg, Abu Dhabi Islamic Bank is said to be weighing strategic options for its business including a potential merger. However, the bank has denied the report and said that it is currently not in a process for a merger or acquisition and that ‘it is always studying options available in the market that will strengthen client base and market value’.
Over the weekend, FTSE Russell disclosed details of Saudi companies that will be included in its emerging market index in the first of five tranches effective 15 March 2019. The index provider also increased weightage of four stocks including that of National Bank of Kuwait. All the changes should result in inflows of USD 1.3bn in regional stocks with most of it going into Saudi Arabia.
Egyptian equities continued their positive run to seven consecutive weeks with gains of +1.6%. Stocks received a surprise boost from the Central Bank of Egypt after they cut rates by 100 bps citing moderation in inflationary pressures. The EGP also appreciated to its highest level since March 2017. Banking sector stocks remained at the forefront of the rally with the EGX 30 banks index adding +3.2%.
Developed market equities closed higher across the board amid signs of tangible progress on two immediate overhangs. On one hand political parties in the US reached an agreement to avert any government shutdown and on the other hand both the US and China confirmed progress during their trade talks in China. Eventually, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index added +2.5% 5d, +3.0% 5d and +0.7% 5d respectively.
The earnings season in the US remained robust for the time being. With 79% of S&P 500 companies having reported earnings, 70% of companies reported a positive EPS surprise and 62% reported a positive revenue surprise. According to FactSet, the blended earnings growth stood at 13.1% compared to expectations of 12.1% at the end of 2018.
Emerging market equities underperformed the wider market. The MSCI EM index dropped -0.5% 5d compared to a gain of +2.3% 5d in the MSCI World index. The emerging market assets suffered from concerns over weak global growth prospects and a sharp sell-off in EM currencies. The MSCI EM FX index dropped -0.6% 5d.
Brazil’s Bovespa index was a notable outperformer with gains of +2.3% 5d after confirmation from the government that it will send its proposals to raise the minimum retirement age to Congress early next week.
Global equities closed marginally lower
GCC Equity Flow Monitor
Global equities closed higher last week
Global equities closed higher