It was a relatively quiet week of trading for global equities

It was a relatively quiet week of trading for global equities as investors remained in a holding pattern ahead of the G-20 meeting. The lack of escalation in geopolitical tensions and mixed economic data also played their part in stock price movements. Overall, the MSCI All Country index closed flat with most sub-indices showing limited movements. The MSCI G7 index, the MSCI EM index and the MSCI FM index ended the week -0.1% 5d, +0.2% 5d and +0.2% 5d respectively. Volatility continues to remain surprisingly subdued. The VIX index and the V2X index dropped -2.1% 5d and gained +2.6% 5d respectively.

With the G-20 meeting over the weekend turning out to be relatively positive in terms of developments on the trade front, it will not be surprising to see a renewal in risk appetite. The agreement between Russia and Saudi Arabia on extending oil output cuts for another nine months will also be seen as incrementally positive by financial markets.

Chart of the week

The decision of MSCI to include Kuwait in its emerging market index had no positive follow through in stock prices. It could primarily be a function of the fact that this decision was widely expected and that in anticipation of this decision, Kuwaiti stocks had already rallied. In fact, the KWSE PM index is the best performing stock index in the region and has also outperformed the broader MSCI EM index and the MSCI FM index.

Kuwaiti stocks outperform broader EM and FM indices

Source: Bloomberg, Emirates NBD Research

MENA Markets

Regional markets closed lower amid a weak global backdrop and continued worries over geopolitical developments. The S&P Pan Arab Composite index dropped -1.1% w-o-w.

UAE bourses closed lower with the DFM index and the ADX index losing -1.2% and -1.1% respectively. Shuaa Capital was a notable outperformer with gains of +7.2% 5d after the company confirmed its merger with ADFG. The company will issue 1.47bn new shares to Abu Dhabi Capital Management in return for the entire issued share capital of ADFG. The agreed price reflected a premium of more than 60% to Shuaa Capital’s share price on 21 March 2019. The combined entity will have USD 12.8bn of assets under management. DP World underperformed with losses of -4.1% 5d following global worries about the impact of trade tensions between the US and other countries. In fact, the stock closed lower for a fourth consecutive week.

The KWSE PM index dropped -0.1% 5d even as MSCI confirmed that will be add Kuwaiti stocks to its EM index. The change will be implemented in June 2020. It must be noted here that Kuwaiti stocks were already part of some other EM indices. In terms of valuations, the KWSE PM index is trading at a 12m forward PE multiple of 11.5x. This is relative to the MSCI EM index which is trading at a 12m forward PE multiple of 12.8x and the MSCI Arabian Markets Combined Index which is trading at 9.1x 12m forward earnings.

Developed Markets

Developed market equities closed mixed in a week that was defined by small moves as investors remained wary ahead of the talks between the US President and the Chinese President Xi Jinping. While the Nikkei index and the Euro Stoxx 600 index closed flat, the S&P 500 index dropped -0.3% 5d. Despite cautiousness last week, developed market equities had their best first half of the year in decades. Yet, in terms of fund flows, European and US equity funds saw outflows of USD 71bn and USD 41bn respectively.

Over the weekend, the talk between the two Presidents resulted in a decision to resume trade negotiations. As part of a fresh effort to reach a deal, US President Donald Trump said that he would not put new duties on China for the ‘time being’ and that he will allow Huawei Technologies to buy some products from US suppliers.

Emerging Markets

Emerging market equities marginally outperformed the broader market. The MSCI EM index added +0.2% 5d compared to the MSCI World index which closed flat.

India’s Nifty index added +0.6% 5d as investors positioned themselves ahead of the first budget of the new government. It is widely expected that measures will be announced in the budget to boost consumption and revive investments. But questions remain whether those will be done at the expense of fiscal consolidation which the government has assiduously followed in its previous term. In the first half of 2019, Indian equities have underperformed global peers as worries grew about economic growth. The Nifty index added +8.5% in H1 2019 compared to gains of +15.6% in the MSCI World index and +9.2% in the MSCI EM index over the same period.

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