Kuwait: January 7, 2020
KUWAIT, 7 January: Although most GCC markets managed to close the year in the green, they have significantly underperformed compared to their developed and emerging markets peers. The only exception was in Kuwait and Bahrain with Kuwait being by far the best performer in the GCC. Status upgrade to emerging market by FTSE and the announcement of an MSCI upgrade in May 2020 provided a significant boost for Kuwait equities. The All Share Index closed the year with a gain of 23.7% while the blue-chip Premier Market Index recorded a 32.3% gain which puts it high on the list of the 2019 top performers globally. Bahrain was the second-best performer in the GCC with 20.4% during the year after posting a gain of 5.45% in December. The Tadawul All Share Index managed to boost its yearly performance to 7.2% from a flat line as at the end of November after posting a gain of 6.75% in December placing it at the top of the best GCC performers list for December. The performance of Saudi and Kuwait boosted the S&P GCC Composite which recorded 5.6% in December, ending the year up 7.6%. In the UAE, Dubai outperformed with a monthly gain 3.2% against 0.89% for Abu Dhabi resulting in yearly gains of 9.3% and 3.3% for the UAE markets respectively.
December was the best month for emerging markets since January. The MSCI EM and the MSCI Asia ex-Japan added 7.17% and 6.42% during the month respectively bringing the full 2019 performance of both indices to 15.4%. Emerging markets benefited from the de-escalation of the US-China trade tensions, and the positive economic growth outlook in developing countries, and in China in particular. In Asia, the Shanghai Composite and the Taiwan Stock Exchange added 6.20% and 4.42% in December, closing the year at 22.30% and 23.33% respectively. Elsewhere in the EM space, Brazil’s Ibovespa Index was among the best performers for the year with a gain of 31.58%. It was followed by Russia Stock Exchange Index and Turkey’s Borsa Istanbul 100 Index with gains of 28.55% and 25.37% respectively.
Despite heightened volatility driven mainly by trade tensions between the US and China, concerns of a slowdown of major economies, and the Brexit saga in the UK, the year 2019 turned out to be one of the best years for global markets since the financial crisis a decade ago. Trade tensions were diffused by a “phase one” deal between the US and China which the US President said he will sign on January 15 at the White House, then immediately start negotiations on phase two.
The MSCI AC World Index advanced by around 3.39% in December closing the year at 24.0%. This is its strongest performance since the financial crisis in 2009 and was mainly driven by US tech giants, and to a lesser extent by a recovery in the eurozone and Asian markets. The MSCI EAFE index, which represents the performance of developed markets outside of the US and Canada, underperformed adding 18.44% during the year after a 3.16% performance in December.
In the US, the latest reading of the third quarter GDP growth was confirmed at 2.1% compared to a Q2 growth of 2.0%, while Core Personal Consumption Expenditures (PCE) remained stable at 2.1% over the same period. Unemployment edged marginally lower in November to 3.5% from 3.6% a month earlier with the with the US labor participation rate at 63.2% virtually unchanged from the 63.1% at the beginning of the year. Despite the good economic numbers coming out of the US, the economic outlook is still uncertain with a persistently marked weakness in manufacturing activity. The ISM manufacturing PMI unexpectedly declined to 47.2 in December down from a previous reading of 48.1 in November and expectations of a partial recovery to 49.0.
In terms of market performance, major US indices led their global peers in terms of performance and closed the year at all time highs. The S&P 500 ended the year up 28.88% after adding 2.86% in December, while the Dow Jones Industrial Average (DJIA) was up 22.34%. The tech heavy Nasdaq, on the other hand, added 3.54% during the last month of the year closing 2019 up 35.23%. Treasury yields continued their normalization and recovery which started at the beginning of September. The 10-year closed the year at 1.92% up from a 1.43% at the start of September, while the shorter term 2-year yield was range-bound and closed at 1.57%.
In Europe, while the Gross Domestic Product stabilized at 1.2% for the third quarter, there was an uptick in inflation during November as the core Consumer Price Index (CPI) edged higher to 1.3% from a previous reading of 1.1%. Manufacturing activity remained slow as the Markit Manufacturing PMI declined to 46.3 from a revised 46.9 for November. Germany’s manufacturing sector weakened further as shown by the German Markit’s Manufacturing PMI which declined to 43.7 from 44.1 the previous month. The equity markets, however, seem to have shrugged the economic weakness and pressed on during December to record double-digit gains. The Stoxx Europe 600 added 2.06% during the month to close the year with a gain of 23.16%, while the German DAX and the French CAC40 added 0.10% and 1.23% for the month and closed the year with gains of 25.48% and 26.37% respectively.
The sweeping victory of the UK’s conservative party and Prime minister Boris Johnson seemed to have added to the market confidence that the Brexit saga is on its way to closure. The FTSE 100 surged 2.67% during December and managed to close the year with a gain of 12.10%. On the economic front, however, numbers remain weak. The Markit Manufacturing PMI for December contracted at the fastest pace since July 2012 according to IHS Markit. It fell to 47.5 marking the eighth straight month below the 50.0 level. Inflation stabilized in November as both the headline and core CPI measures were unchanged at 1.5% and 1.7% respectively.