Markaz: Kuwait Markets remain resilient amidst a broad-based fall in GCC equities

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Kuwait City, June 3: Kuwait Financial Centre “Markaz” released its Monthly Market Review report for May 2024. Kuwait’s equity index remained flat for the month with a positive bias, supported by the optimism over implementation of business reforms and the Sovereign credit rating affirmation by Moody’s. GCC markets were mostly negative, weighed down by weak oil prices and uncertainty over Fed rate cuts. The moderation of U.S inflation and strong earnings season boosted the U.S. equity markets although the Fed flagged that high inflation readings could delay interest rate cuts.

Kuwait equity market remained flat for the month, however remained the best performing GCC market on year-to-date basis supported by Kuwait Emir’s comments that have called on the new government to accelerate the implementation of strategic development projects and infrastructure projects. Moody’s has affirmed Kuwait’s credit rating at A1 with a stable outlook citing strong balance sheet and fiscal buffers. The Banking index gained 0.6% during the month with Al Ahli Bank and Kuwait International Bank gaining the most, at 14.2% and 8.7% respectively supported by strong corporate earnings in Q1 2024. Al Ahli Bank has reported a 35% y/y rise in net profit amounting to KD 14.5 million for Q1 2024. KIB registered a net profit of KD 6 million in Q1 2024, up by 74% y/y compared to KD 3.5 million in Q1 2023. Among Premier Market stocks, Alimtiaz Investment Group gained the most, rising 26.8% during the month. Kuwait-based conglomerate Beyout Investment Group’s IPO on Boursa Kuwait has been priced at 500 fils per share, equating to market valuation of KD 150 million (USD 488 million). The company has offered 30% of its share capital and would be raising KD 45 million. The company’s shares were oversubscribed by 17x.

Kuwait’s consumer price inflation rose to 3.2% y/y in April, compared to 3.0% y/y in March driven by the rise in food prices. According to Kuwait Purchasing Managers’ Index, the country’s non-oil economic growth index dropped to 51.5 in April from 53.2 in March on the back of lower job creation, shortage of raw materials and sharp rise in input costs.

Most of the GCC stock market indices ended negative during the month amid volatility in oil price, geopolitical concerns and uncertainty over interest rate cuts. The S&P GCC composite index registered a decline of 6.0% for the month. Weak corporate earnings in Q1 2024 due to the impact of higher for longer interest rates added pressure to the markets. Hawkish comments from the U.S. Fed fueled negative market sentiment as investors started to dial back their bets on early interest rate cuts in 2024.

Saudi equity index fell by 7.2% during the month as Tadawul-listed companies registered a decline in aggregate net profits of 8% y/y to SAR 135.83 billion in Q1 2024 from SAR 147.62 billion in Q1 2023. Saudi Arabia’s Q1 2024 real GDP shrunk by 1.8% y/y on the back of lower oil output. SNB share price fell 7.7% during the month after reporting a marginal increase of 0.4% y/y in net profits for Q1 2024. Saudi Aramco fell 2.1% during the month following a 14.5% y/y fall in net profits to USD 27.3 billion in Q1 2024. The Dubai equity index declined 4.3% during the month, weighed down by the performance of the real estate sector. Share prices of Emaar Development and Emaar Properties fell as Emaar Group reported weaker than expected earnings during Q1 2024. The Abu Dhabi equity index fell 2.3% in May due to weakness in blue chips. Etisalat shares fell by 3.0% despite beating analysts’ estimates and recording a 7% y/y rise in net profits owing to the increase in subscribers. Qatar equity index declined 4.2% during the month despite the rebound in natural gas prices during the month.

Supported by a rebound in growth in both oil and non-oil sectors, World Bank expects real GDP growth in GCC to grow at a rate of 2.8% and 4.7% in 2024 and 2025 respectively. Kuwait’s economy is expected to grow at a rate of 2.8% and 3.1% during 2024 and 2025 respectively. According to S&P Global, the profitability of GCC Banks is expected to remain strong in 2024 and their asset quality is likely to stay robust despite higher-for-longer rates due to supportive economies, contained leverage, and a high level of precautionary reserves.

Global and U.S. markets ended positive despite hawkish comments from U.S Fed, supported by strong corporate earnings of U.S. Technology stocks. U.S. inflation rose 3.4% y/y in April, in line with market expectations. Markets reacted positively due to the increased probability of interest rate cuts in September. S&P 500 ended May with monthly gains of 4.8% while the technology-heavy Nasdaq index rose 6.3% in May driven by steep gains in the share price of AI chipmaker NVIDIA. The Federal Reserve has opted to keep interest rates unchanged within the range of 5.25%- 5.5% during the May FOMC meeting. However, U.S Fed Chair Powell reiterated the possibility that rates could remain elevated until inflation subdues. The MSCI EM index gained 0.3% during the month. The Chinese equity index was mildly down by 0.6% for the month despite the government measures to stabilize the country’s ailing property sector.

The yield on the 10-year U.S. Treasury note remained volatile during the month and closed at 4.51%. However, yields fell from the previous month’s close of 4.69% due to downside inflation and growth surprises.

Oil price settled at USD 81.6 per barrel, recording a monthly decline of 7.1% due to uncertainty over global oil demand, and rising production from the United States. The market is waiting for the OPEC+ producer group meeting on June 2 where the decision to extend (or phase out) the voluntary oil output cuts of 2.2 million barrels per day. Gold prices recorded an increase of 1.8% closing at USD 2,326.97/oz. as the demand for safe haven rose after the escalation in geopolitical conflicts. Natural gas prices registered a sharp rise of 29.9% from USD 1.99/mmbtu to USD 2.59/mmbtu. during the month due to anticipation of increased demand and warmer weather in the coming months.

Investors are expected to look forward to U.S key economic data releases such as inflation and labour market statistics for cues on the timing of interest rate cuts. Additionally, escalation in geopolitical tensions is expected to weigh down on market sentiment in the GCC region.

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