Kuwait: January 8, 2018
Despite the slide in oil prices and the global turmoil in financial markets, MENA equities performed fairly well during the last month of the year. The S&P GCC Composite was up 0.83% bringing its full year advance to 11.47% supported by a robust performance in Saudi Arabia, Abu Dhabi, and Qatar. The Tadawul All Share Index advanced 8.31% for the year after adding 1.61% in December, while Abu Dhabi’s ADX General Index finished the year with a poisitve 11.75% after advancing 3.04% in December. The biggest gainer, however, remains the Qatar Exchange Index which declined marginally in December by 0.63% but managed to close the year up 20.83%. Boursa Kuwait All Share Index was down slightly by 0.58% closing its first year up 1.59%. Dubai and Oman were the only negative performers in the GCC with the DFM General Index down 25% for 2018 and the Muscat Securities Market Index down 15.21%. In the broader MENA region, the S&P Pan Arab Index was up 0.65% for December and 6.16% for the year, while Egypt’s EGX 30 was down by 2.13% bringing its full year performance for 2018 to a negative 13.21%.
The volatility which characterized the fourth quarter of 2018 intensified during the last month of the year and the market sell-off continued well into the end of December. Fears of a global economic slowdown fueled by trade tensions, in addition to decelerating growth in the US in the middle of a Fed tightening cycle took their toll on global markets during the last few months of the year.
The MSCI All Countries World Index lost more than 7% during December to bring its full year decline to 11.2% while the MSCI EM closed the year down 16.64% after shedding 2.92% in December. Major US indices managed to end the year down in single digits after a record 5% rebound on December 26 that saw the Dow gain more than a thousand points in a single day. The S&P 500 was down 9.18% in December to close the year at a negative 6.24%, while the Dow Jones Industrial Average lost 8.66% in the last month of the year closing 2018 down 5.63%. Both indices had a total drawdown of 19.8% and 18.8% peak to trough in the fourth quarter. Treasury yields, on the other hand, continued their reversal that started at the beginning of November with the 10-year bonds closing the year at 2.69% down from 3.25% in early November. Industrial activity continued to trend down in December as the ISM Manufacturing PMI dropped to 54.1 from 59.3 in the previous month and missed estimates of a decline to 57.9. The Fed’s preferred measure of inflation, Personal Consumption Expenditures declined to 1.8% year-on-year in November compared to a peak of 2.3% in August.
The Stoxx Europe 600 Index declined by 5.55% during December bringing its losses for the full year to 13.24%. Major European markets saw major declines last month with the French CAC40 down 5.46% and he German DAX 6.20% resulting in full year losses of 10.95% and 18.26% respectively. European third quarter GDP was revised down to 1.6% from 1.7% in December. The Market Manufacturing PMI declined to 51.4 from 51.8 in November, while the Market Services PMI registered 51.4 in December compared to 53.4 the previous month. Consumer confidence continue to decline recording -6.2, significantly undershooting consensus of -4.2 and last month’s level of -3.9.
With mounting anxiety that the UK might be forced to exit the EU with no deal, UK equities extended their losses with the FTSE 100 down 3.61% in December and 12.48% for 2018. The Market manufacturing PMI increased to 54.2 from 53.1 last month despite prospects of a no-deal Brexit. This increase in manufacturing activity was interpreted as temporary and resulting from front-loading ahead of Brexit. Consumer confidence continued to slide with the Gfk Consumer Confidence Index retreating to -14 in December compared to -13 in November.
After a brief breather in November, Japan’s Nikkei 225 dived 10.45% in December to close the year down 12.08% after losing 17% during the fourth quarter. Third quarter annualized GDP declined by 2.5% against estimates of a decline of 1.9% while the GDP deflator recorded -0.3% for the same period. The preliminary reading of the Nikkei manufacturing PMI showed a slight advance to 52.4 in December compared to a 52.2 reading during the previous month. Unemployment continued its advance higher registering 2.5% in November compared to 2.4% and 2.3% for the previous two months.
Despite the negative performance, emerging markets managed to outperform global equities during December. The MSCI EM Index declined by 2.92% closing the year with a total loss of 16.64%. Major emerging markets indices declined during the month, but the declines were relatively mild compared to global peers. MSCI Asia ex-Japan was down 2.93%, while the Russia Stock Exchange was down 1.42% and India’s NIFTY 50 and Taiwan Stock Exchange closed down 0.13% and 1.62% respectively.
Oil rebounded from the year lows with Brent bouncing off the USD 50/bbl. mark in late December after data showed OPEC output plunging by 530,000 barrels a day in December, even before the deal to curb output came into effect in January. The decline in output was the result of planned cuts by Saudi Arabia and unintentional cutbacks from Libya and Iran. Libyan output was down 110,000 barrels as violent demonstrators put the country’s biggest oil field, Sahara, offline, while Iran’s output was down 120,000 barrels a day due to sanctions.