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Published Date: 12 April 2020
Global equities staged a sharp rebound rally as the Federal Reserve continued proactively to provide support and liquidity to markets. Some signs of a slowdown in the spread of coronavirus in some countries also provided support to investor sentiment. Having said that, this rally seems counterintuitive in light of initial projections which show a double-digit slowdown in most major economies and as most countries are forced to extend restrictions in economic activities.
Overall, the MSCI All Country index added +10.5% 5d on the back of strength across its sub-indices. The MSCI G7 index, the MSCI EM index and the MSCI FM index added +11.6% 5d, +6.8% 5d and +1.7% 5d respectively. Unsurprisingly, volatility eased off across markets.
Beyond coronavirus, investors will pay attention to economic data across economies as they continue to assess the extent of damage to the global economy. The IMF’s economic projections will also be watched as the first broad based multilateral agency guidance of global growth projections over the next 12 months. Further, the start of the Q1 2020 earnings season will also be on the radar.
The sheer size of the support of central banks, especially in developed markets, can be gauged by the fact that the net purchases for G7 central banks in March 2020 were USD 1.4tn. According to Bloomberg, this is close to five times higher than the previous peak of USD 270bn in April 2009.
Most regional markets closed higher amid positive global backdrop. The S&P Pan Arab Composite index added +4.4% 5d.
UAE bourses closed higher with the DFM index and the ADX index adding +8.8% 5d and +11.9% 5d respectively. The focus last week remained on banking sector stocks as they revealed the extent of their exposure to NMC and Finablr. Abu Dhabi Commercial Bank (-1.7% 5d) and Dubai Islamic Bank (-4.8% 5d) are most exposed with loans amounting to c.9.7% and c.7.2% of their CET1 respectively. First Abu Dhabi Bank, which has no exposure, led gains on the ADX index with a +21.1% 5d rally. Following the request of ADCB, NMC Health was placed into administration by a UK Court.
Beyond banks, Emaar-related shares rallied after the group took cost-cutting measures in light of the current economic situation. Further, it sold 80% of its Dubai District Cooling business to Tabreed for USD 675mn. Emaar Properties and Emaar Development ended the week with gains of +8.7% 5d and +5.6% 5d respectively.
Saudi Arabian equities rallied for a third consecutive week with the Tadawul gaining +3.8% 5d. The rally was supported by strength in market heavyweight stocks with Saudi Aramco (+1.3% 5d) closing above its IPO price and Al Rajhi Bank gaining +1.5% 5d.
Kuwaiti stocks were a notable exception last week with the KWSE PM index losing -3.0% 5d. This was following the decision of MSCI to delay the country’s inclusion in the MSCI EM index to November 2020 from May 2020. The index provider cited the operational difficulties associated with the coronavirus outbreak as the reason for its decision.
Investors in developed markets are at the moment choosing to focus on unparalleled support from global policymakers rather than the economic data which is painting a rather grim picture of the health of the global economy. The Federal Reserve announced a loan program worth USD 2.3tn to aid small and mid-sized businesses and state and local governments as well as fund the purchases of some types of high yield bonds, collateralized loan obligations and commercial mortgage-backed securities.
The sheer power of liquidity drove most developed market equities to a new technical bull market. Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index rallied +12.1% w-o-w, +7.4%% w-o-w and +9.4% w-o-w respectively.
Emerging market equities rallied sharply but underperformed the broader market. The MSCI EM index added +6.8% 5d relative to a +11.0% 5d gain in the MSCI World index. The rally was supported by strength in EM currencies following a sharp decline in the USD. The JP Morgan EM Currencies index added +3.2% 5d. The underperformance can be put down to Chinese equities which closed nearly flat for the week.
GCC Equity Flow Monitor - May 2020