Global equities closed higher last week

Global equities closed higher last week as trade tensions between the US and China eased and central banks (most notably the European Central Bank) showed that they remain committed to proactive measures to boost economic activity. The MSCI All Country index added +1.3% 5d on the back of strength across major sub-indices. The MSCI G7 index and the MSCI EM index added +1.3% 5d and +1.9% 5d respectively. The MSCI Frontier Markets index was a notable exception with losses of -1.2% 5d.

The focus of investors this week will be on the Federal Reserve and how geopolitics evolves following the attack on oil facilities in Saudi Arabia over the weekend. With regards to the Federal Reserve, a 25 bps rate cut is baked in and the focus of investors will be on the language accompanying the cut. It must be remembered that market participants are anticipating further cuts in 2019 and they will seek whether comments from Fed officials validate those expectations.

Chart of the week

With the Saudi Aramco IPO fast tracked, it is worth highlighting the performance of other oil majors this year. Royal Dutch, Chevron, Total and Exxon Mobil at the end of last week were trading -1.1% ytd, +11.7% ytd, +1.0% ytd and +6.5% ytd respectively. While looking at returns from these companies, it must be noted that the size of Saudi Aramco would be much bigger compared to existing listed companies.

Performance of oil stocks (ytd)

Source: Bloomberg, Emirates NBD Research

MENA Markets

It was yet again a mixed week of trading for regional equities as major indices continue to be impacted by technical factors. Notably, it is the readjustment of fund flows following inclusion in the broader indices which is weighing on prices. The S&P Pan Arab Composite index closed -1.6% 5d.

UAE bourses closed mixed with the DFM index adding +0.6% 5d and the ADX index losing -0.2% 5d. Arabtec gained +6.2% 5d after the company confirmed that it is in talks with Trojan Holdings to merge construction business. Shuaa Capital (+1.4% 5d) extended its positive run to five consecutive weeks after the company confirmed that it is selling its brokerage and market-making businesses to a unit of International Holdings Co in an all-cash deal. The company also confirmed that the financial impact of the sale will be reflected in either Q3 or Q4 2019 earnings.

The Tadawul dropped -2.7% 5d as the focus remained on the potential listing of Aramco on the Tadawul and resultant impact on weights of other stocks in the index. According to reports, Aramco could sell shares in tranches with 1% being sold as early as November 2019. It is worth noting that the decline on the broader index was led by stocks which account for the greatest weights on the index i.e., Al Rajhi Bank (-1.8% 5d), National Commercial Bank (-5.6% 5d), Sabic (-6.5% 5d) and Saudi Telecom Co (-3.1% 5d). These four stocks together account for c.34.6% of total weight on the Tadawul index.

Developed Markets

Developed market equities closed higher amid an exchange of goodwill gestures between the US and China ahead of a resumption of trade talks between the US and China in October. While China left out some goods from the tariff list, the US President delayed the effective date of latest tariffs by two weeks to 15 October 2019. Risk sentiment also received a booster shot from expectations of a continued ‘central bank put’. Moves by the European Central Bank to restart quantitative easing, cut interest rates deeper into negative territory and ask governments to embark on fiscal stimulus not only fed into those expectations but also raised them of steps from other central banks including the Federal Reserve.

Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index added +1.0% 5d, +1.2% 5d and +3.7% 5d respectively.

Emerging Markets

Emerging market equities outperformed the broader trends as a multitude of factors including easing of trade tensions between China and the US and accompanied weakness in the USD boosted investor flows. The MSCI EM index added +1.9% 5d compared to gains of +1.2% 5d in the MSCI World index.

Turkey’s Istanbul 100 index was a notable outperformer with gains of +4.1% 5d. The main catalyst behind the move was a deeper than anticipated interest rate cut by the central bank. The monetary policy committee reduced rates by 325 bps to take the total easing to 750 bps over the last two meetings. However, the central bank also noted that the ‘current policy stance is considered to be consistent with the projected disinflation path’.  This is turn suggests that there may be room for further easing should inflation continue to surprise on the downside.

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