Monthly Insights February 2020

Published Date: 13 February 2020

 

  • Global macro: The optimism that greeted the signing of a ‘phase one’ trade deal between the US and China last month has been derailed by the outbreak of the coronavirus in China. It will take time to ascertain the durable economic impact of the disease, but first quarter activity at a minimum will be negatively impacted. Markets have been quicker to react, with oil and metals in particular moving sharply downward.
  • GCC macro: Downside risks to our 2020 GDP growth forecasts have increased as a result of the coronavirus. Survey data for January pointed to a soft start to the year in the region’s three largest economies.
  • Sub-Saharan Africa macro: The GCC is emerging as a critical contributor to Africa’s growth trajectory in terms of FDI, with the UAE in particular investing in a range of projects across the extractive and consumer-focused sectors. Given the projected growth in Africa and the opportunies for scale the market presents to UAE firms, we expect that this trend will continue.
  • MENA macro: Lebanon’s political and economic crisis continues. It is less than one month until its USD 1.2bn March 2020 Eurobond is set to mature, and it is as yet unclear whether the government will pay its debts or default for the first time through its decades of economic and political turbulence. As a result, yields on the issuance have hit 436%.
  • Currencies: Investor fears over the impact of the coronavirus epidemic have been the dominant feature of currency markets over the last month. This has benefited the US dollar and the Japanese yen which have been the best performing major currencies.
  • Equities: Over the last month, global equities continued to build onto gains from 2019. Investors, largely, shrugged off the impact of coronavirus as they factored in the probable stimulus from governments and central banks should the situation worsen, a rather upbeat economic data releases from most economies and robust corporate earnings.
  • Fixed Income: The spike in negative yielding bonds over the course of 2019 pushed investors into riskier debt as they chased yield. It was no surprise than to see the Bloomberg Barclays Global High Yield Total Return index deliver +12.6% return last year. So far this year, the Bloomberg Barclays Global High Yield Total Return index has delivered +0.7% return.
  • Commodities: Metals markets have been brutalized by the collapse in industrial activity in China in response to the coronavirus outbreak. Conditions may deteriorate further, taking prices down with them while precious metals may display some resilience.
  • Sector Report: The Emirate of Abu Dhabi diversification programme under Economic Vision 2030 highlights the manufacturing sector as one of the key drivers for that diversification aim.

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