Boursa Kuwait All-Share Index drops 2.8% in Aug: NBK Capital

GCC markets under pressure over trade tensions, recession fears

KUWAIT, September: GCC markets ended the month of August in the red as the S&P GCC Composite shed 6.23 percent dragged down mostly by the Saudi and UAE markets. The largest decline was in Saudi Arabia where the Tadawul All-Share Index lost 8.16 percent, shrinking its year-to-date performance to 2.47 percent.

August witnessed the second and final phase of the Saudi MSCI inclusion which has been already priced-in and wasn’t enough to support the market. Dubai was the second largest decliner with the DFM General Index down 5.47 percent for the month and Abu Dhabi followed with a 2.86 percent decline for the ADX General Index.
Boursa Kuwait All-Share Index was also down 2.87 percent for the month, while the Premier Market Index significantly underperformed the general market declining by 3.21 percent. Qatar and Bahrain also saw losses during August declining by 2.59 percent and 0.94 percent. Oman, on the other hand, was the only GCC market to end the month in the green closing up by 6.49 percent which marks its first positive month since September of last year. Egypt managed to strongly outperform with the EGX 30 rebounding by 10.77 percent for the month.

Markets remained under pressure during the month of August amid continued trade tensions and fears that they would trigger a global slowdown. The MSCI AC World Index retreated by 2.57 percent in August, while the MSCI EM Index dropped by 5.08 percent shrinking its year-to-date gain to 1.92 percent down from 7.38 percent as of last month. The sharp drop in emerging markets was driven by concerns of slowing growth and trade tensions especially after the downgrade of Argentina and the effect of increased tariffs on the Chinese economy and currency stability.

The effects of trade tensions are starting to reflect into the US economy as the 2Q 2019 GDP was revised down marginally to 2.0 percent from 2.1 percent previously and compared to 3.1 percent for 1Q 2019. The downward revision was mainly driven by a decline in exports and investments, despite stronger consumer spending which was up by 4.7 percent. Overall, the US GDP is now up 2.6 percent for the first half of the year. The Michigan Consumer Sentiment Index retreated to 89.8 in August against estimates of 92.1 dropping to a three-year low on concerns that trade wars will negatively impact the US economy. Inflation, on the other hand, remained tame as the Federal Reserve preferred measure, the core Personal Consumption Expenditures (core PCE) recorded 1.6 percent in July and 1.7 percent for the second quarter, both below the Fed’s target of 2.0 percent. Major US indices lost finished the month of August in the red.
The S&P 500 and the Down Jones Industrial Index (DJI) declined by 1.81 percent and 1.72 during August, while the losses for the tech-heavy NASDAQ were relatively more severe with a decline of 2.60 percent. All three indices, however, managed to close off their beginning-of-month lows when the S&P 500 and DJI were down by a more than 4.0 percent while the NASDAQ was down 5.50 percent. Treasury yields continued their steep decline triggered by the outlook on interest rate levels and intensifying concerns about an imminent recession. The yield on 10-year treasury bonds ended the month at 1.506 percent down from 2.021 percent at the end of July. The two and thirty-year yields, on the other hands, have dropped from 1.89 percent and 2.53 percent to 1.50 percent and 1.96 percent respectively in August.

European markets followed the general direction of global markets and trended down during the month. The Stoxx Europe 600 ended August down by 1.63 percent after managing to recover most of the losses incurred during the first two weeks when it was down by as much as 5.4 percent. The same trend was followed by the French and German markets with the CAC40 and DAX closing down 0.70 percent and 2.05 percent respectively. Both indices were trading down 5.11 percent and 6.37 percent by mid-August before slowly recovering during the second half of the month. On the economic front, manufacturing activity picked up marginally but remained weak with preliminary figures showing the Markit Manufacturing PMI edging higher to 47.0 in August from 46.5 the previous month. The Markit Services PMI, on the other hand, remained robust and recording 53.4 compared to estimates of 53.0 and a previous reading of 53.2. Eurozone inflation remained weak at 1.0 percent during August, raising market expectations that the ECB will ease monetary policy in September.
In the UK, political tensions intensified on the back of the Prime Minister’s decision to suspend parliament for a period of 5 weeks starting mid-September, which was seen as an attempt to make the MPs’ ability to block a “no deal” Brexit harder. The stock market responded to the new uncertainty by a sharp decline with the FTSE 100 closing the month down 5.0 percent after failing to recover its losses like its European counterparts. In the meantime, the Gfk Consumer Confidence Index revisited its December 2018 dropping to -14 in August from -11 the previous month, while the CPI surprised on the upside recording 2.1 percent year-on-year compared to consensus expectations of 1.9 percent and a previous month’s reading of 2.0 percent. The Markit Manufacturing PMI, on the other hand, dropped to 47.4 in August from 48.0 in July. The index was expected to show an improvement to 48.4 during the month.

Emerging markets underperformed their global peers significantly with the MSCI EM and MSCI Asia ex-Japan dropping 5.08 percent and 4.61 percent respectively. The declines were mainly driven by trade and FX tensions in addition to the downgrade of Argentina. The Argentinian stock market lost 38 percent in one day after the country’s downgrade to close the month of August down 41.5 percent. Turkey’s Boursa Istanbul Index was down 5.25 percent. Other emerging markets fared better with India’s Nifty 50 down 0.85 percent and Brazil’s Ibovespa Index down 0.67 percent. Mexico Stock Exchange, on the other hand, gained 4.31 percent to return to the green for the year with a total year to date return of 2.36 percent.

Global Markets Commentary