Markaz: Geopolitical uncertainty impacts GCC markets’ performance

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Kuwait City, Apr 03: Kuwait Financial Centre “Markaz” released its Monthly Market Review report for the month of March 2024. Kuwait equity markets ended negative during the month as major blue-chip stocks witnessed selling pressure owing to potential profit-booking by investors. Geopolitical uncertainty influenced market sentiment during this period, thus reducing the volume of purchases. Key economic data releases such as sticky inflation and fiscal deficit in 9M FY 2023/24 added to the negative sentiment. Kuwait’s inflation (CPI) rose by 3.4% y/y in February compared to 3.3% in the previous month, reversing a three-month trend of slowing inflation. The inflation was primarily driven by the food and beverages prices, which rose 5.0% y/y during the month. Kuwait All Share index fell 1.5% in March, affected by the performance of the banking sector. The Banking index declined 2.1% during the month with Boubyan Bank and NBK losing the most, at 3.9% and 3.1% respectively. KFH shares fell 1.7% during the month. Among Premier Market stocks, Mezzan Holding Company gained the most at 9.7% during the month following the positive momentum on the back of strong 2023 earnings. Mezzan Holding Company has recorded net profits of KD 11.5 million in FY 2023 compared to a net loss of KD 2 million in FY2022.

Fitch affirmed Kuwait’s ratings at ‘AA-‘with a stable outlook reflecting Kuwait’s strong ability to meet financial obligations. Kuwait recorded a fiscal deficit of KD 1.7 billion or 4.5% of pro-rated estimated GDP in the first nine months (April-December) of FY2023/24, from a surplus of KD 10.1 billion in the same period of FY2022/23. The drop in revenues linked to lower oil prices and OPEC+ production cuts, and surge in spending above historic trends caused the fiscal deficit. The value of projects awarded in February recorded KD 43 million (-54% y/y), bringing the cumulative year-to-date total to KD81 million (-72% y/y), according to MEED Projects. However, projects activity is expected to remain strong in 2024, with MEED Projects projecting KD 5 billion in awards (excluding Al-Zour).

GCC stock markets were mostly negative during the month despite a rise in oil prices. The S&P GCC composite index registered a decline of 2.6% for the month. The extension of OPEC+ oil supply cuts till the end of Q2 2024 and geopolitical tensions in the Middle East mainly contributed to the decline in GCC equity market indices.

Saudi equity index fell by 1.8% during the month. However, S&P’s affirmation of its “A” sovereign rating with a stable outlook, indicating that the economic and social reforms will continue to improve the country’s economic resilience supported investor confidence and curtailed equity market losses. Saudi Aramco fell 2.7% during the month after recording a net income of USD 121.3 billion in 2023, lower than USD 161.1 billion in 2022. Al Rajhi Bank and SNB fell 7.5% and 5.1% during the month. The Dubai equity index witnessed a dip of 1.5% during the month despite a rally in real estate stocks. Emaar Development and Emaar Properties surged 5.4% and 0.6% respectively boosted by the removal of UAE from the FATF grey list. The return to conventional status is expected to strengthen investor confidence in the UAE as a trade and financial center, leading to an increase in capital, FDI, transfer of technology and portfolio flows. The Abu Dhabi equity index registered a marginal fall of 0.3% during the month. FAB’s shares fell 3.1% during the month. ADNOC drilling rose 7.3% during the month as its parent company announced that it had generated USD 500 million in value through implementation of AI to remotely monitor operations, reduce downtime, map oil and gas fields and support drilling.  Qatar equity index fell 6.0% driven by the sharp drop in natural gas prices and a decline in the banking sector index.

Moody’s has maintained a positive outlook for Saudi’s banking sector owing to stable operating environment driven by the strong non-oil activity and economic diversification programs. According to UAE’s Finance Ministry, the economy is anticipated to grow by 5% in 2024, up from the 3.4% achieved last year.

Global and U.S. markets ended positive despite sticky U.S inflation as the U.S Federal Reserve stayed on track for three interest rate cuts this year and affirmed that solid economic growth will continue. U.S CPI rose 3.2% y/y compared to 3.1% y/y in the previous month, slightly ahead of the 3.1% forecast from the Dow Jones consensus. MSCI World index and S&P 500 indices rose 3.0% and 3.1% respectively in March. Technology stocks rallied during the month, as evidenced by the Nasdaq index rising by 1.2% for the month. Reports that Apple might partner with Google parent Alphabet in offering generative artificial intelligence tools were behind the gains in technology stocks. MSCI EM index rose 2.2% during the month. China edged up mildly by 0.9% during the month as the government’s recent market stabilization measures lifted investor confidence despite an uncertain economic outlook.

Fitch Ratings has raised its 2024 global GDP forecast by 0.3% to 2.4% driven by the U.S growth forecast to 2.1% from 1.2% in the December 2023 report. The revision to the U.S outweighs a marginal cut to China 2024 growth forecast to 4.5% from 4.6%.

The yield on the 10-year U.S. Treasury note remained volatile during the month and closed at 4.20%. Yields rose earlier during the month and peaked at 4.34% as investors assessed the sticky inflation data and anticipated fewer rate cuts by the U.S Fed. However, yields fell after the U.S Fed policymakers projected three rate cuts for the year.

Oil price settled at USD 87.48 per barrel, recording a monthly gain of 4.6%. OPEC+ has planned to extend the voluntary cuts pledged last November until the end of Q2 2024. Iraq pledged to reduce crude exports to 3.3 million barrels per day (bpd) in coming months to compensate for exceeding its OPEC+ quota since January, a decision to cut shipments by 130,000 bpd from last month. Attacks on Russian energy facilities and Ukrainian energy infrastructure and ships traversing through the Red Sea have stoked supply concerns, rising oil prices. Gold prices recorded a sharp increase of 9.3% closing at USD 2,232.4/oz. supported by escalation in geopolitical conflicts and interest rate cut expectations in 2024. Natural gas prices shed 5.2% from USD 1.86/mmbtu to USD 1.76/mmbtu during the month owing to robust production and a seasonally warm winter, resulting in weak demand. Bitcoin prices surged 16.6% to US$71,285 during the month owing to the expected rate cuts by the U.S Fed, the increasing popularity of Bitcoin exchange-traded funds (ETFs), and anticipation of the reward for Bitcoin mining halving in April.

Market participants are expected to track U.S key economic data releases and assess its impact on the magnitude and the timing of the projected interest rate cuts in the following month. Additionally, escalation in geopolitical tensions is anticipated to keep oil prices up and impact the GCC equity markets performance.

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