MENA MARKETS REVIEW: APRIL 2020

KUWAIT: MAY 7, 2020

HIGHLIGHTS

Markets around the world took a much-needed breather in April as plans of gradually reopening the economy started to emerge.

• Global Markets took a much needed breather in April as plans of gradually reopening the economy started to emerge. The record fiscal and monetary stimulus plans put in place to counter the effects of the COVID-19 pandemic also provided strong support for a market rebound.
• April witnessed the best monthly performance for major US indices in decades as the S&P 500 and the DJIA added 11.1% and 12.7%, while the Nasdaq added 15.5%. US markets outperformed their developed peers as the MSCI EAFE index advanced by 6.3% against 10.6% for the MSCI AC World. Emerging markets, on the other hand, had a strong month with the MSCI EM adding 9.0%.
• After a 55% decline in March, Brent oil ended the month of April on a positive note recovering by 11% to $25.3/bbl after reaching a 22 year low of 19.3/bbl in mid-April. The month also witnessed a historical first when the WTI futures’ May contracts plunged to a negative $39/bbl amid panic selling as traders avoided taking delivery due to lack of storage facilities.
• GCC markets witnessed a broad-based rebound led by the UAE and Saudi Arabia. The MSCI GCC Composite finished the month up 8.2% supported by 14.4% and 13.3% gains in the UAE’s DFM and ADX indices, and a 9.3% for the Saudi Tadawul All Share Index.

US GDP PLUNGES, JOBLESS TOTAL SURGES

High-frequency indicators have started to reveal the massive hit taken by the economy from a combination of ‘stay at home’ orders, business closures and supply chain disruption that began mid-March. Most remarkable has been the surge in new jobless claims, which have risen a staggering 30 million (cumulative) in the six weeks to April 24. This looks consistent with a rise in the unemployment rate to above 15% from 4.4% in March, and potentially heading towards the 25% peak recorded during the Great Depression. These figures include a large number of furloughed workers and those forced to work part time, so the hope is that they will fall back quickly once businesses reopen.

Meanwhile, survey activity indicators have plunged to multi-year lows. Both the manufacturing and non-manufacturing ISM indices – which had held up surprisingly well in March – sank to just under 42 in April (50=no change), consistent with a deep economic contraction across the economy. Even these scores likely overstate economic conditions, with lengthening supplier delivery times – ordinarily signifying suppliers struggling to keep pace with demand – contributing positively to the headline index but in reality a source of economic disruption. Various index sub-components paint a much gloomier picture however, with production in the non-manufacturing survey collapsing to just 26, new orders at 32 and employment at 30 – all series lows.