Global-market-issue040-En

GLOBAL MARKETS COMMENTARY – JANUARY 2020

NBKCapital Global Markets Commentary, latestNews

Kuwait: February 05, 2020

NBK Capital: Corona virus threatens global economy with widespread negative effects

Kuwait, February: After a strong start for the markets at the beginning of the year in a continuation of the robust performance of December, major indices around the world retreated significantly and erased all of the gains recorded during the first 2 weeks of January. The outbreak of the Coronavirus took its toll on world markets and is threatening to have wide reaching effects on the world economy. Confirmed cases of the virus topped 15,000 with more than a 100,000 under medical observation for possible infection and a death toll exceeding 300. The World Health Organization (WHO) declared the outbreak of the virus a global emergency after more than 25 countries reported cases and airlines around the world started suspending flight into and out of China.

The MSCI AC World Index closed the month of January in the red with a loss of 1.2%. The index was up as much as 2.5% by mid-January before strongly retreating as it was pulled back by the negative performance of Asian and Emerging markets. The MSCI EAFE index, which represents the performance of developed markets outside of the US and Canada, declined by more than 3% during the second half of the month to close January at a negative 2.1%.

Kuwaiti market
The Kuwaiti market, on the other hand, continued to build on its positive performance of the previous year and closed the month of January in the green with the Kuwait All Share Index up 0.7% and the blue-chip Premier Index up 0.8%. Elsewhere in the MENA region, Egypt’s EGX 30 managed to recover most of the losses incurred during the first half of the month which took the index down by as much 1.5% and closed January with a marginal decline of 0.3%, while Morocco’s MADEX and Jordan’s ASE Index finished the month in the green at 3.1% and 2.9% respectively.

GCC markets
In general, the GCC markets managed to buck the global markets trend in January with the exception of Saudi Arabia. The S&P GCC and the S&P Pan Arab indices closed the month down 1.6% and 0.7% respectively, dragged down by the performance of Saudi equities. The Tadawul All Share index closed the month down -1.7% despite a rebound in the last two trading days of January which narrowed its losses from -2.7%. On the positive side, Bahrain was the best GCC performer with a gain of 2.9% followed by Oman’s MSM 30 Index which started the year on a positive note with a gain of 2.5% after recording a loss of 7.9% for 2019. In the UAE both markets closed in the green with gains of 1.6% and 0.9% for Abu Dhabi’s ADX General Index Dubai’s DFM General Index respectively.

Emerging markets
After a record performance for emerging markets in December, the MSCI EM Index and the MSCI Asia ex-Japan declined sharply during the second half of January and closed the month down 4.7% and 4.5% respectively. The indices had declined by as much as 7.4% and 7.9% from their January 17 peak as the risk off mode prevailed on the back of the coronavirus concerns. Asian markets were mostly affected among their emerging market peers; the Shanghai Composite and Taiwan Stock Exchange index declined by 2.4% and 4.2% respectively. Brazil’s Ibovespa recorded a loss of 1.63%, while Turkey’s Borsa Istanbul 100 index and Russia’s Stock Exchange index bucked the trend with gains of 4.1% and 1.0%.

Global markets
In the US, market tumbled on the last day of the month to continue a downward trajectory which started in the middle of January. A mix of global growth concerns stemming from the coronavirus outbreak and the not-so-good economic number in the US contributed to the decline. The preliminary numbers of the fourth quarter US GDP growth came in at an annualized 2.1% unchanged from the previous quarter. Looking deeper, however, shows that the biggest contributor to this number was 1.5% resulting from a decline in net exports, which retreated by 11.6% during the last quarter of 2019. These figures, although positive on the surface, reflect a weaker demand for the US economy as the reduction is net exports was a result of a slowing demand rather than an acceleration in exports.
Major US indices were caught up in the global markets decline and closed the first month of the year in the red after being up as much 3% around mid-January. The risk off mode which prevailed over markets during the second half of the month intensified at month end sending volatility to levels last seen in October 2019 as the VIX index reached a high of 20.0 at the end of January. Both the Dow Jones industrial Average and S&P 500 closed the month down at -1.0% and -0.2% after retreating by more than 3.0% from their January 17 peak. The tech heavy Nasdaq managed to still close in the green despite a 2.7% decline from its mid-month peak which brought its performance down from 4.7% to 2.0% at the end of January.

European Gross Domestic Product for the fourth quarter showed a further deceleration to 1.0% whereas preliminary estimated Q4 GDP was expected to grow by 1.1% compared to a Q3 reading of 1.2%. Inflation for January also retreated to 1.1% compared to 1.3% in December and consensus estimates of 1.2%. Manufacturing activity on the other hand improved somewhat as the Markit Manufacturing PMI increased to 47.8 compared to 46.3 in December. German manufacturing activity lent some support as the Markit Manufacturing PMI for Germany improved to 45.2 in January from 43.7 in December.
Equity markets in the Euro area virtually followed the trend of their global peers; following up on their December gains until mid-month then tumbling with the spread of the coronavirus pandemic. The Stoxx Europe 600 lost 1.2% during January, while the German DAX and the French CAC40 recorded losses of 2.0% and 2.9% respectively.

In the UK, the FTSE 100 closed the first month of the year and the last month as an E.U. member with a loss of 3.4%. January 31 marked the departure of the UK from the European Union after more than three and half years of the Brexit vote. Manufacturing activity bounced back strongly in January after having contracted at the fastest since mid 2012 in December. The Markit manufacturing PMI recovered to 49.8 up from 47.5 for the previous month. Inflation declined markedly during December with the headline and core CPI measures recording 1.3% and 1.4% down from 1.5% and 1.7% in November respectively.

Share this Post