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GCC equity markets recover in Q4 after Covid shock

MANAMA, January 3, 2021

GCC equity markets underperformed their global peers and witnessed mixed performances across individual stock exchanges in the region for the bulk of 2020, but recovered during the fourth quarter (Q4) of the year, a report said.

Volatility in the GCC equity market was the highest in four years with 49 days when the markets moved more than 1% during the year as compared to 37 days in 2019 said Kuwait-based Kamco Invest, a non-banking financial powerhouse, in its “GCC Markets: 2020” report.

The aggregate MSCI GCC index reported a yearly decline for the first time in five years and was affected by twin dilemmas during the year. On one hand, governments had to impose Covid-19 restrictions that resulted in one of the most severe impact on the economic front with an expected 2.7% decline in GDP rates for the GCC region, as per the IMF.

Kuwait

After four consecutive years of positive performances as one of the best performing markets in the GCC, as well as globally in 2019, Kuwait reported the biggest decline in the region during 2020. The decline came after investor sentiments were severely affected by the decline in corporate profitability as a result of the Covid-19 restrictions.

In addition, the enthusiasm related to the MSCI EM upgrade was severely affected when the upgrade was postponed due to operational issues led by the lockdowns. The Premier Market index witnessed the biggest decline among the Kuwait benchmarks, with a fall of 13.3% after 13 out of the 20 constituents of the large-cap index reported declines during the year that was partially offset by gains reported by 5 stocks.

On the other hand, the decline in demand for crude oil, the biggest revenue source for the GCC governments, resulted in historic slide in prices to reach a three-decade low at its lowest point in the year.

UAE

The Abu Dhabi Securities Market (ADX) index closed broadly flat in 2020, recovering from the Covid-19 related lows of Mar-2020, and ending the year marginally down 0.6% y-o-y. The index closed at 5045.31 points, and sectoral performance was positive barring Banks.

Banks were  down  15.3%  y-o-y,  predominantly  driven  by  higher provisions,  impairment charges, and lower  revenues  due  to  the unprecedented operating environment, given challenging market conditions during Covid-19.

The Dubai Financial Market (DFM) index was the second worst performing index in the GCC for the year 2020, registering a decline of 9.9% y-o-y. The index however recovered over 48% from the lows of 2020 and closed the year at 2491.97 points.

Sectoral performance was mixed for the year between gainers and decliners. The Insurance sector was the best performing index on the DFM, gaining by 21.3% y-o-y for the year, as most stocks on the index gained during the year. D

Saudi Arabia

Saudi Arabia recorded the best equity market performance during the year reporting gains for the fifth consecutive year at 3.6%. On the other hand, Kuwait, which was the best performing market in 2019, reported the biggest decline as investors booked profits after last year’s gains that was led by the announcement of the MSCI EM inclusion. The movement in oil prices during the year was especially reflected in the performance of Saudi market, in addition to passive impact on other markets in the region.

Bahrain

After closing 2019 as one of the best performing markets in the GCC, the Bahrain Bourse declined by 7.5% in 2020 and closed at 1489.78 points. Sectoral performance was mixed between gainers and decliners. The Investment sector (-16.8%), Hotels & Tourism  (-16.2%)  and  Commercial  Banks  (-14.8%)  were  the  sectors  that  declined  for  the  year.  Services (+25.5%) and Industrials (+22.1%) indices were the best performing indices on the exchange.

Oman

The declining streak in the Muscat Securities Market (MSM) MSM continued during 2020 as the MSM 30 index declined for the fourth consecutive year despite seeing marginal recovery towards the end of the year. The index started the year on a positive note with consecutive gains during the first two months. However, the Covid-19 led decline during March-2020 pushed the index down 16.5% during the month.

The trends remained largely positive for the rest of the year but the consecutive declines in September-2020 and October-2020 resulted in an 8.1% decline by the end of the year with the index closing at 3,658.8 points. The sectoral index performance was mixed during the year. The Services index once again witnessed the steepest decline amongst the three indices after falling by 16.1% during the year followed by the Industrial index with a decline of 11.0%.

Low oil increases fiscal pressure on GCC governments

The decline in oil revenues resulted in fiscal pressure on GCC governments and the additional spending associated with Covid-19 resulted in record deficits. Debt issuance in the region was at a record high as well. Also, the culmination of fiscal pressure and over dependence on oil resulted in downgrades of four out of six sovereigns in the region.

In terms of sector performance, more sectors in the GCC witnessed gained during the year; however, a decline in large-cap sectors more than offset these gains. On the gainers side, the Consumer Durable & Apparel index witnessed the highest yearly returns of 86.1% benefitting from the sustained demand despite the lockdowns due to the inelastic and non-cyclical nature of the stocks in the index.

A similar impact was seen on the Food & Drug Retail sector that posted the second biggest returns during the year at 56.2% after being the best performer in 2019. Healthcare related indices also recorded gains of more than 40%, whereas the Food & Beverage index was up 28.8%. On the  other  hand,  the  Banking  index  was  the  biggest  decliner during the year sliding by 5.5% followed by 2.4% decline in the Real  Estate  index.

Energy and Diversified Financials sectors reported declines of 1.9% each.  Trading activity on the GCC exchanges was higher during 2020 and was largely broad based, barring in Oman and Bahrain. Total value traded in the GCC more than doubled to $659.8 billion vs. $309.9 billion in 2019.

Global equity markets

Key global equity markets especially in North America and Asia posted double digit gains during 2020 despite the significant setback to economic growth and investments from the lockdowns caused by the Covid-19 pandemic. The development of vaccines for Covid-19 further boosted markets towards the end of the year, while markets recovered from the impact of the pandemic, as majority of the lockdowns were lifted during H2-2020.

On the other hand, the performance of European markets were affected by the re-emergence of a new strain of virus during December-2020, that led to stricter restrictions in several cities in the region.

The MSCI World index closed the year with a gain of 14.1%, supported primarily by double digit gains from US indices, as well as similar returns from Asian markets including Japan, India and China. In terms of regional performance, the MSCI Asia Pacific Index was up 17.1% during the year, while the MSCI Emerging Market Index ended 2020 with a yearly return of 15.8%.– TradeArabia News Service



 




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