Markets: Regional stocks

Global overview

The resurgence of worries in the Eurozone caused by the peripheral nations' debt situation, disappointing economic news from major economies and an impasse over the raising of the US debt ceiling severely undermined investors' appetite. Crude oil prices continued to trade higher, but the rising uncertainty sent gold soaring to record levels above the $ 1,600 (Dh5,876) per ounce mark.

Global indices remained weak throughout May as weak US economic news hit risk appetite: manufacturing and services activity indices for April declined, private employment numbers came in worse than expected and weekly jobless claims numbers surged. Investor concerns were heightened further on the back of firm oil prices, which pushed the US trade deficit higher and a difference in opinion among the European Union, IMF, European Central Bank and Germany regarding the Greek debt extension.

Brief spells of optimism were seen when the US non-farm payrolls report came in better than expected and Microsoft Corp announced that it would buy Skype for $8.5 billion. But Greece's credit rating downgrade and news of Italy facing a downgrade risk, coupled with China reporting a dip in PMI to a 10-month low, overturned the positive mood.

Negativity continued in June, as for the second month in a row US private employment and manufacturing activity numbers disappointed. Later the US Fed acknowledged a slowdown in the US economy but didn't hint at further support measures.

Equities gained as valuations were perceived to be attractive and were further supported by news of corporate M&A deals. On the other hand, Greece's government successfully forwarded an austerity plan, thus making it eligible for the next tranche of the bailout fund.

In July optimism was upheld by an uptick in the US manufacturing activity index and private employment numbers. But sentiment turned lower after a disappointing non-farm payrolls report and resurgence in Eurozone debt worries sparked by a surge in yields on Italian and Spanish government bonds. Markets continued to trade higher as China reported economic growth improvement and the Fed chief hinted at steps to boost the flagging US economy.

But as differences continued to prevail on the US debt ceiling plan, pessimism gripped the markets.

The Gulf

Investors in the GCC region remained cautious as weak global cues negatively impacted risk appetite. High oil prices did not fuel much buying interest except in May when the Tadawul All Share Index gained on the back of the petrochemical index. Investors focused on the emerging market status update for the UAE and Qatar by MSCI, which was postponed until December, giving time for the exchanges to implement key initiatives required for the upgrade. Real estate stocks in the UAE witnessed an uptrend after the government announced extended visa period rules for foreign buyers of real estate in July. But the overcast global conditions pressed upon both the country's indices.

The Dubai Financial Market index lost 7 per cent during the quarter as broad-based selling engulfed the UAE index. Weakness was primarily seen in the financial services and real estate sector indices, which slipped 14.1 per cent and 10.8 per cent respectively. Trading in May was sluggish amid a lack of any significant local catalysts, while June witnessed MSCI postponing its decision on the UAE's status upgrade to ‘emerging market', which further weighed on the index. But in July the benchmark index bucked the negative trend with a marginal rise of 0.04 per cent as the banking, telecom, insurance and the transport sector indices underpinned the main index. The DFM adopted new sector indices in conformity with the Emirates Securities and Commodities Authority's directives from May 1. Also in May, Tamweel resumed trading after a suspension of almost two years and evinced significant trading activity.

The Abu Dhabi Securities Exchange index closed 2.8 per cent lower at the end of the quarter as negativity in May and July overturned the gains made by the benchmark index in June. In June the ADXGI was pushed up by a near 8 per cent gain made by index heavyweight etisalat which surged on the back of news that it has signed an MoU with the Health Authority to jointly provide e-health services. The insurance sector shrugged off the overall risk deficit with the sectoral index gaining 4.6 per cent during the quarter. The share price of Aldar Properties came under pressure after it issued Dh2.8 billion mandatory convertible bonds to Mubadala Development. Encouraging corporate earnings reports from some of the listed companies led to positive movements in specific stocks. The ADX also adopted new sector indices in conformity with the Emirates Securities and Commodities Authority's directives from May 1.

The Saudi Stock Exchange index lost close to 5 per cent during the quarter as 12 out of the 15 sectoral indices closed in the red, led by the insurance and transport sectors. In May the benchmark index was the sole gainer among GCC peers, as it broadly tracked oil price movements during the month and edged up to a four-month high of 6,754.82 on May 29 upon the oil-price strength. But a softening of oil prices and the overall negativity led to the main index being southbound over the next two months. In June a weakness in China, which is a major importer of Saudi petrochemical products, added to investor woes. In spite of encouraging earnings data, the index dipped in July. A pickup in construction projects has led to an uptrend in cement sector stocks, which is evident from the 9.2 per cent rise in the sectoral index during the quarter.

The Kuwait Stock Exchange index plunged more than 7.5 per cent this quarter, being primarily dragged down by the investment sector index, which declined close to 13 per cent. In addition, the real estate and industry sector indices lost more than 8 per cent each. In May a brief uptrend was witnessed after the Kuwaiti government announced plans to allow companies from other member states of the GCC to open branches in Kuwait. But the main index closed lower amid mixed corporate earnings results and lingering political and economic concerns. Continued political worries negatively impacted the index in June as well, while mixed expectations for second-quarter results further undermined investor sentiments. In July the index slumped further after the country's central bank highlighted growing domestic economic concerns.

The Qatari index was the best-performing index in the region as it declined the least, i.e. 1.7 per cent during the three-month period. In May the Qatari market benefited from the prospective ‘emerging market' status upgrade by MSCI, but trends reversed as global and regional cues weighed on the main index. Further investors were also concerned after the Qatari exchange said that it would not raise foreign ownership limits in stocks listed on the domestic bourse, which is a requisite of MSCI. Investors held on to their positions in June in the absence of major market-moving news, but expectations of encouraging second-quarter earnings helped cap overall losses. In July the main index ascended after the exchange announced that it would introduce direct market access service later during the summer, to modernise exchange techniques and provide ease especially to foreign investors, which was taken as a positive step on the status upgrade path. But overall negativity pulled the benchmark index lower.

The Muscat Securities Market's benchmark MSM30 index emerged as the biggest loser in the GCC region for the second consecutive quarter. Across-the-board selling dragged the main index below the key 6,000 point mark by July end. At the beginning of May, the Omani government approved the establishment of the first Islamic bank in the sultanate, which came in favour of many banks in Oman and other GCC countries, but the positive momentum was shortlived, and the main index dipped more than 5 per cent during the month. Pessimism prevailed in June as well, but towards month-end risk appetite was seen emerging after the launch of the Al Arabi Oman 20 Index by Oman Arab Bank, which is designed to track the weightage of profitability and liquidity of the stocks listed on the exchange. But July was marked by a mixed corporate earnings season, wherein equities that announced better results were lapped up by investors, while the others came under selling pressure.

The Bahraini index too reflected the weakness in the regional indices as it slid more than 8 per cent during the quarter. While weakness was seen across the board, the investment and services sectors were the worst-hit as they declined 15.7 per cent and 9.1 per cent respectively. In May mixed corporate earnings data led to a similar trend in the benchmark index, but overall negativity dragged the index into the red. In June United Gulf Bank, which announced that it was in its final stages of setting up Taka'ud Pensions and Savings Company in the form of an equally-owned joint venture with Kuwait Projects Company (Holding), topped the gainers' chart. Meanwhile, Gulf Finance House, which announced a reverse stock split, witnessed intense bearish pressures. July trading was influenced by second-quarter results with some counters evincing investor interest, but overall negativity pushed the main index down.