NBK Capital: Global markets ended the month of May in positive territory after plans to reopen the economies started

KUWAIT: JUNE 07, 2020

Global markets ended the month of May in positive territory after plans to reopen the economies started to materialize and lockdown measures in several countries are eased further. Markets in developed countries were able to build on the strong rally of the previous month, while developing markets underperformed with a mostly mixed performance. The MSCI AC World Index advanced by 4.15% during May, while the MSCI EAFE recorded a gain of 4.07%, bringing total gains for the two indices for the second quarter so far to 15.17% and 10.61% respectively. The MSCI EM, on the other hand, was practically unchanged with a marginal gain of 0.58% for the month.

Major indices in the US recorded solid gains with the S&P 500 and Dow Jones Industrial Average adding 4.53% and 4.26% during the month. The tech-heavy Nasdaq and the small-cap Russell 2000 index outperformed with gains of 6.75% and 6.36% respectively. Volatility eased further as the CBOE Volatility Index (VIX) continued its downtrend closing the month at 27.5, a level last seen at the onset of the market rout during the last week of February. Treasuries, on the other hand, remained stable and traded mostly sideways during the month with the 10-year yield closing at 0.65% and the two-year at 0.16%.

In the US, economic indicators started to show signs of stabilization after the record declines they sustained as a result of the Covid19-induced economic shutdown. The May ISM manufacturing PMI, although still deep in contraction territory, climbed to 43.1 up from 41.5 for the previous month, while the ISM Manufacturing employment index improved to 32.1 from 27.5 for the same period. The initial jobless claims 4-week average dropped to 2.6 million for the week ending May 22 from 3.04 million a week earlier, while continuing jobless claims recorded 21.05 million in mid-May down from 25 million a week earlier. Preliminary figures for the US GDP now show the US economy contracted by an annualized 5.0% during the first quarter. The rate of unemployment reached 14.7% in April while consensus estimates point to a further deterioration close which could take the rate closer to 20% in May.

While the European Gross Domestic Product declined by 3.8% during the first quarter compared to the fourth quarter of last year, it is expected to contract between 5% and 12% for 2020 according to the European Central Bank President Christine Lagarde. Meanwhile, the three largest European economies saw their GDPs contract for the first quarter. Germany’s GDP declined by 2.2% during Q1 compared to Q4 of last year, while those of France and Italy declined by 5.3% each over the same period. The Markit Manufacturing PMI for the Euro Area started to show signs of stabilization, however, despite remaining in the contraction area at 39.4 for May up from 33.4 for April. In terms of market activity, the Stoxx Europe 600 index was able to build on the previous month’s rally advancing by 3.04%. It was supported by robust gains for the German DAX which added 6.68% and, to a lesser extent, by the French CAC40 which advanced by 2.70% in May. In the UK, the markets broadly underperformed compared to developed markets as the FTSE 100 managed to add 2.97% during May on the back of the previous month gain of 4.04%. The Markit Manufacturing PMI showed a significant improvement jumping to 40.6 in May up from 32.6 for the previous month as the economy started its gradual reopening.

Emerging markets generally underperformed with the MSCI EM recording a marginal gain of 0.58% in May as it was weighed down by the performance of Asian markets. The MSCI Asia ex-Japan index declined by 1.41% after failing to build on the 8.9% advance during April. The Shanghai Composite declined by 0.27%, while India’s Nifty 50 retreated by 2.84% and the Taiwan Stock Exchange index lost 0.45%. Notable performers in the emerging market space included Brazil’s Ibovespa Index which advanced by 8.57% for the month, in addition to Turkey’s Borsa Istanbul 100 Index and Russia Stock Exchange Index which added 4.36% and 3.18% respectively.

The solid rally which propelled Brent oil by 40% during the month of May wasn’t enough to provide support to the stock markets in the GCC as oil prices, at around $35/bbl, are still far from their levels before the beginning of the current turmoil. The GCC markets witnessed a generally mixed performance during the month with the S&P GCC Composite Index recording an advance of 1.73%. It was mainly supported by the Saudi market as the Tadawul All Share index topped the list of GCC gainers with an advance of 1.41%. It was followed by the Qatar Exchange Index with a gain of 0.92% and Boursa Kuwait All Share index with a gain of 0.41%. In Kuwait, however, blue chip companies outperformed as Kuwait’s Premier Market index added 1.27% during the month. The largest decline was sustained by Dubai’s DFM General index which closed 4.02% in the red. It was followed by Bahrain Bourse All Share index and Abu Dhabi’s ADX General Index which declined by 3.14% and 2.10% respectively. In other markets within the MENA region, the Egyptian EGX 30 declined 3.16%, the Moroccan MADEX gained 4.92%, and the Jordanian ASE Index shed 0.45% since trading resumed on May 10th, 2020 after activity was suspended for almost two months back in mid-March 2020.