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Global equity markets started the New Year on a positive note amid strong economic data from the US and the Eurozone. Investor sentiment also received a boost from Chinese economic data and the fact that authorities are taking proactive measures to avoid a repeat of early 2016 even as they ring-fence the Yuan.
The MSCI World index rallied +1.8% wow with the MSCI EM index adding +2.2% 5d. Volatility declined across the board with the VIX index (US) and the JP Morgan EM Volatility index losing -15.3% 5d and -2.8% 5d respectively. The V2X index (Europe) dropped -15.3% 5d.
Looking ahead, equity markets are likely to be dictated by the start of Q4 2016 earnings season even as the inauguration of Donald Trump lurks in the background. Investors will also keep an eye on comments from the Federal Reserve speakers. Regionally, too, the focus will remain on the earnings season which kick starts this week.
MENA equities made a positive start to 2017 as both local and foreign investors started putting money back to work. The continued strength in oil prices also helped investor sentiment. The Bloomberg GCC 200 index closed the week with gains of +1.2% 5d.
UAE bourses closed higher with the DFM index and the ADX index adding +2.8% wow and +1.2% wow respectively. Much of the flow from local investors concentrated around actively traded small-cap stocks in the insurance sector. This can be put down to speculation around possible M&A activities in the sector. It must be noted here that insurance sector as a whole accounts for 0.64% weight on the DFM index and 2.15% weight on the ADX index. Islamic Arab Insurance Company gained +18.0% wow while Aman rallied +73.0% wow. On the other hand, foreign investors continued to prefer Emaar Properties (+3.7% wow) with inflows of USD 15mn into the stock in the last week.
The DFM and ADX announced further market reforms with both markets planning to introduce regulated short-selling in the coming months.
The Tadawul (-0.2% 5d) closed marginally lower with the index failing to hold onto 7,200 levels. The decline was mainly on the back of weakness in banking sector stocks. Samba declined -4.7% 5d as the stock reversed a part of its recent gains. Riyad Bank dropped -1.6% 5d after the bank lowered its 2H 2016 dividend to SAR 0.30 per share from SAR 0.35 per share. At first glance, it appears that SAMA’s decision to increase the LTV (loan to value) allowed on first property purchases by nationals to 85% from 70% had little impact on banking stocks.
Insurance companies in Saudi Arabia also saw increased investor interest with Shield and Walaa rallying +29.2% 5d and +11.7% 5d respectively.
Elsewhere, the MSM 30 index closed +0.2% 5d higher. However, telecom companies closed lower following announcement by the regulator that royalty payments would be increased from 7% to 12%. Ooredoo and Oman Telecom dropped -4.2% wow and -4.3% wow respectively. Based on 9m 2016 net profit, it is estimated that there will be an impact of OMR 8.7mn for Ooredoo and OMR 16.0mn for Oman Telecom.
It was a positive start to the year for developed market equities as economic data from the US and the Eurozone came in line with expectations. Having said that, there were signs during the week which showed some strains in the reflation trade. For example, the Russell 2000 index underperformed the broader S&P 500 index for the first time in three weeks. The USD, too, had some choppy moves but that has not yet had any meaningful impact on equity markets.
The S&P 500 index, the Euro Stoxx 600 index and the Nikkei index closed the week with gains of +1.7%, +1.1% and +1.8% respectively. The Dow Jones index rallied +1.0% wow to come within 0.37 points of crossing the 20,000 level.
Emerging market equities outperformed global equity markets with the MSCI emerging markets index adding +2.2% wow compared to +1.8% wow rally in the MSCI World index. The outperformance was driven by the BRIC bloc with the MSCI BRIC index adding +2.6% wow.
Aditya Pugalia
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