Markaz: GCC Markets Positive On Multi-year High Oil Prices

Kuwait Financial Centre “Markaz” recently released its Monthly Market Review report for the month of January 2022. In line with its GCC peers, Kuwait’s all share index gained 4%, supported by rise in oil prices. Oil prices, which acted as an important factor driving the GCC stock market performance, reached seven-year highs.

Among sectors, Boursa Kuwait’s Technology sector was the top gainer, rising 10.6% followed by Basic Materials at 8.5%. Utilities and Consumer staples sector index declined, falling 1.8% and 1.0% respectively. Boursa Kuwait’s banking sector index was up by 5% in January. Among Premier Market stocks, National Investment Company and Kuwait Projects Company were the top gainers during the month, rising 27.4% and 15.5% respectively. Q4 2021 earnings season has commenced with industry bellwethers reporting their results. Boubyan bank and National Bank of Kuwait released their Q4 earnings, with their FY 2021 profits surging 41% and 47% YoY respectively.

As per the draft budget for FY 2022-23, Kuwait’s deficit is expected to fall by 74.2% YoY on the back of an 83.4% YoY increase in oil revenues supposedly based on an oil price assumption of USD 65 per barrel and a break even oil price of USD 75 per barrel. With current and anticipated oil prices to hover higher than this level, Kuwait can also post its first surplus in nine years. S&P has affirmed its sovereign credit rating whereas, Fitch has downgraded Kuwait’s long-term foreign-currency issuer default ratings from ‘AA’ to ‘AA-‘. Kuwait Investment Authority, third largest sovereign fund in the world, aims to make its portfolio entirely ESG compliant. 

Regionally, S&P GCC composite index rose by 7% for the month, driven by sustained increase in oil prices. All GCC markets gained for the month. Saudi Arabia, Qatar and Kuwait were the biggest gainers among GCC, rising 9.0%, 7.5% and 4.4% respectively, while Oman recorded modest loss of 0.3%. Abu Dhabi, Bahrain and Dubai gained 2.5%, 0.7% and 0.2% respectively. Among the GCC blue chip companies, the best performer was Riyad Bank, which gained 25.5% during the month, followed by Saudi national bank, which gained 14.6%. The anticipated multiple interest rate hikes are expected result in increased profit margins for banks, thereby painting a positive outlook for the GCC banking sector.

Global equity markets had a volatile month, with major indices ending in negative territory. Though concerns surrounding the spread of the new variant eased, geo political tensions and tapering of rates by the US Federal Reserve to curb high inflation acted as headwinds. Post the FOMC meeting this month, analysts expect as much as five rate hikes in 2022. Q4 earnings started with unsatisfactory results & outlook from JP Morgan and ended on a positive note with one of the world’s most valuable company, Apple, reporting highest revenue in the company’s history amid increase in iPhone sales. Investors looked out for management commentary on and financial impact of high inflation & supply chain bottlenecks. The MSCI World and S&P 500 (U.S.) indices each lost 5.3% for the month. Emerging market stocks also suffered losses as foreign asset managers were on a selling spree owing to rising US yields. At a time when most major economies are looking to hike interest rates, China had lowered its benchmark rates with a view to boost economic growth, especially in its property segment. The country’s Q4 2021 GDP figures and retails sales growth for December reflected signs of weakness.

Oil continued its winning rally through January and reached multi year highs on the back of rising geo political tensions and supply constraints against strong recovery in demand. Majority of banks and other institutions have upgraded their estimates for the oil price and currently expect it to reach USD 100 per barrel in the near future. On the other hand, Gold had a mixed month. Despite gold being considered as a safe bet against inflation, the strengthening of the US dollar towards the month end wiped off earlier gains in gold prices.