NBK Capital: Global markets continue to rise driven by plans to reopen the economy

KUWAIT: JULY 07, 2020

Emerging markets recorded strong gains, exceeding 6.9%, to reduce their losses since the beginning of the year

Global Markets continued to build on the rally which started to in mid-March driven mostly by economic reopening plans. Emerging markets outperformed with a large margin during the month as markets in the United States stumbled in June as worries about a resurgence of COVID-19 cases in some states impacted sentiment. The MSCI AC World Index advanced by 3.03%, narrowing its year-to-date losses as of mid-year to -7.14%, while the MSCI EAFE Index gained 3.22% in June. Emerging Markets recorded solid gains during the month with the MSCI EM Index up 6.96% bringing its year-to-date losses down to 10.73%.

Emerging markets outperformed by a large margin during the month supported by a robust performance in Asia and South America. The MSCI EM added 6.96% in June and narrowing its loss for the first half of the year to 10.73%. The MSCI Asia ex-Japan Index, on the other hand, rallied by 7.87% reducing its loss since the beginning of the year to -5.73%. The Shanghai Composite Index added 4.64%, while India’s Nifty 50 and Taiwan’s Stock Exchange Index outperformed with gains of 7.53% and 6.21% respectively. Elsewhere, Turkey’s Borsa Istanbul 100 Index outperformed most global indices with a double-digit gain of 10.43%, lifting its year-to-date performance to positive territory with a gain of 1.84%, after recording a 30% advance in the second quarter. Russia Stock Exchange Index, on the other hand, advanced marginally by 0.31%.

The performance of the GCC market was generally positive with some markets at par with the performance of emerging markets and other underperforming. The best performing for the month were the markets of the UAE. Dubai’s DFM General Index added 6.18% enhancing its performance during the second quarter of 16.60%, while Abu Dhabi’s ADX General Index added 3.48% for Q2 return of 14.76%. Both indices, however, are still down for the year by 25.3% and 15.6% respectively. Kuwait came in second with the Kuwait All Share Index adding 2.70% in June, while the blue-chip Premier Market index advanced 3.37%. In Doha, the Qatar Exchange Index added 1.74%, while Bahrain managed to record a marginal gain of 0.63% and Oman declined by -0.81%. The performance of the S&P GCC Index was weighed down by the underperformance of the Saudi market. The S&P GCC added 0.94% while the Saudi Tadawul All Share Index advanced marginally by 0.15%. The broader S&P Pan Arab Index, on the other hand, was support by a strong performance in Egypt as the EGX30 managed to add 5.33% in June.

Major US indices turned briefly negative during the month but managed to close in the green with modest gains. The S&P 500 closed up 1.84% while the Dow Jones Industrial Average (DJIA) was up 1.69%. For the first half of the year, both are still down with -4.04% for the S&P 500 and -9.55% for the DJIA. The NASDAQ Composite, on the other hand, continued to break new records with a gain 5.99% for the month and 12.11% as of mid-year. Volatility spiked briefly around mid-June reaching a high of 44.5 before receding back to the mid-30s levels by month-end. The treasury market was also volatile in June; the 10-year rate climbed from 0.66% at the beginning of the month to a high of 0.96% on June 05 before coming back gradually down to 0.65% by the month-end.

Economic indicators in the US continue to show signs of recovery. The ISM Manufacturing PMI for June surprised on the upside, climbing to 52.6 from 43.1 in May compared to expectations of 49.5. The ISM Manufacturing Employment Index also recorded a marked improvement, increasing to 42.1 in June from 32.1 for the previous month. The US economy added 4.8 million jobs this June up from 2.7 million in May while the initial jobless claims 4-week average continued to decline from its April highs. It recorded 1.50 million for the week ending June 26 compared to 1.62 for the week ending June 19. The third estimate of the US Gross Domestic Product., on the other hand, confirmed an annualized contraction of 5.0% during the first quarter, while the unemployment rate declined to 11.1% in June from 13.3% as reopening spurred more hiring.
Revised estimates of the European Gross Domestic Product now point to a contraction of 3.6% during the first quarter of the year up from previous estimates that put the contraction at 3.8%. The Euro area Markit Manufacturing PMI improved to 47.4 in June from 39.4 for the previous month. It was supported by the Markit Manufacturing PMI in France which recorded 52.3 in June, compared to 45.2 and 47.5 for Germany and Italy respectively. In terms of market performance, the Stoxx Europe 600 added 2.85% during the month. The market indices of the two largest European economies, Germany and France, recorded a robust performance for the month. The German DAX added 6.25% in June to the previous month’s 6.68% narrowing its first half losses to -7.08%. The French CAC450, on the other hand, gained 5.12% compared to 2.17% for May. For the first half of the year, the French index is still 17.43% in the red.