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Published Date: 22 March 2020
Global equities recorded a consecutive double-digit weekly decline as uncertainty over the size of the impact of the viral outbreak on the global economy outweighed fiscal measures announced by various governments. The MSCI All Country World index dropped -12.0% 5d on the back of weakness across its sub-indices. Volatility continued to remain elevated with the VIX index and the CBOE EM ETF Volatility index jumping +14.2% 5d and +7.7% 5d respectively.
The focus of investors will remain on the breadth and pace of the spread of coronavirus and the response of governments to deal with the issue. They will also be paying attention to economic data across economies to get an early sense of the depth of probable impact on economic growth.
The after effect of coronavirus on the energy sector is quite evident following a simultaneous increase in supply and a sharp decline in demand. Over the last two weeks, global oil companies have lost USD 1.4tn in market capitalization which in turn is forcing them to cut back on dividends, buybacks and spending.
Regional markets closed sharply lower to close at multi-year lows. The increased restriction in economic activities due to coronavirus and the sustained fall in oil prices weighed on investor sentiment. The S&P Pan Arab Composite index lost -1.2% 5d.
The week was marked by actions from governments to support the local economy as well as stabilize equity markets. The Abu Dhabi government assigned AED 1bn to establish a fund to enhance liquidity and sustain the balance between supply and demand for stocks. Further banks in Dubai announced support for investors in UAE equity markets by offering suitable installment payment plans against additional collateral to help them maintain their margin trading positions. Elsewhere, Qatar directed state funds to increase their investment in the local equity market by QAR 10bn.
Egyptian equities had one of their trading weeks on record with the EGX 30 index losing -17.8% 5d. The drop was despite the central bank of Egypt cutting interest rates by as much as 300 bps in an emergency meeting. The central bank also gave businesses and individuals a six-month extension for credit repayments and cancelling ATM withdrawal fees for the same period.
Developed market equities closed sharply lower as worries over the economic impact of the viral outbreak outweighed multiple fiscal measures announced by various governments last week. Central banks continued to do their bit with the Bank of England cutting rates further to 0.1% and other central banks announcing their intention to buy government and corporate bonds in various quantities. Further, the Federal Reserve opened several swap lines in its bid to ensure USD liquidity.
Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index dropped -15.0% 5d, -2.1% 5d and -10.8% 5d respectively. It is worth highlighting that US stock trading volumes surged to about 60% above the average amidst expiring options and futures contracts.
Emerging market equities were no different as all major market indices closed sharply lower. The MSCI EM index lost -9.9% 5d to take their year to date losses to -27.9%. The losses in emerging market currencies added to the pain of equity markets. The JP Morgan Emerging Market currencies index dropped -3.5% 5d.
It is worth noting that circuit breakers were triggered in multiple emerging market markets as investors took money off the table. This included markets in Manila, Jakarta, Seoul, Karachi and Mumbai. According to market data, investors withdrew USD 4.04bn from emerging market exchange traded funds.
GCC Equity Flow Monitor - May 2020