Kuwait: May 7, 2017
APRIL 2017: STEADY WORLD OUTLOOK, MORE REALISM IN US, ELECTION FEARS RECEDE IN EU
Markets appear in steady mode these days. Most markets are taking a breather after run-ups late last year, especially following the Trump election in November. The leading markets seem to be in trading ranges now or just stalled near highs, awaiting some catalyst event or a change in economic conditions. We are still up 4-6% ytd on US equities, and close to 9-10% on European and emerging market stocks (on a USD basis); GCC markets are lagging. Interest rates are still up on the year (US 10-year at 2.3%) but off their recent highs seen after the December 2016 Fed hike. The dollar, too, had a run-up in 2016, but is now actually down on the year against the major currencies (EUR, JPY).
MENA equities continue to underperform, with the S&P Pan Arab Composite generating a loss of 1.1% in April. The index was weighed down by a weak performance in Saudi equities as the IMF downgraded its Saudi GDP growth forecast for 2018 to 1.3% from 2.3%.
The Saudi Tadawul All Share Index continues to recover following poor performance at the start of the year, up 0.2% in April. The index was negatively impacted by the IMF downgrade of Saudi growth as well as lower oil prices and a new lawsuit related to 9/11 in the US against Saudi companies and banks. Although positive bank profits were announced, this alone was not enough to support the market. The index did rally slightly following the King’s announcement to reinstate bonuses and allowances to state employees. The reinstatement of these benefits, explained by the Minister of State, was a result of effective spending cuts over the past two years and better than expected budgetary performance in the first quarter of 2017. This resulted in the actual deficit for Q1 2017 being half of what was originally projected. Furthermore, the Saudi Minister of Finance announced that the domestic bond program is expected to resume within a few months, following its suspension last October.