Markaz: GCC markets positive on multi-year high oil prices

Kuwait Financial Center “Markaz” recently released its monthly market review report for the month of January 2022. In line with its GCC peers, Kuwait’s all-stock index gained 4%, buoyed by rising oil price. Oil prices, which have played a big role in the performance of the GCC stock market, hit seven-year highs.

Among sectors, Boursa Kuwait’s technology sector was the biggest gainer, rising 10.6%, followed by basic materials at 8.5%. The indices for the utilities and consumer staples sectors declined, falling 1.8% and 1.0% respectively. Boursa Kuwait’s banking sector index rose 5% in January. Among Premier Market stocks, National Investment Company and Kuwait Projects Company were the biggest gainers during the month, rising 27.4% and 15.5% respectively. The fourth quarter 2021 earnings season has begun with industry indicators releasing their results. Boubyan Bank and National Bank of Kuwait released their fourth-quarter results, with their profits for fiscal 2021 up 41% and 47% year-on-year, respectively.

According to the draft budget for the fiscal year 2022-23, Kuwait’s deficit is expected to decline by 74.2% YoY due to an 83.4% YoY increase in oil revenues supposedly based on a oil price assumption of USD 65 per barrel and a break-even point for oil. price of 75 USD per barrel. With current and anticipated oil prices above this level, Kuwait may also post its first surplus in nine years. S&P affirmed its sovereign credit rating while Fitch lowered the long-term default ratings of Kuwaiti foreign currency issuers from “AA” to “AA-“. Kuwait Investment Authority, the third largest sovereign wealth fund in the world, aims to make its portfolio fully ESG compliant.

Regionally, the S&P GCC composite index rose 7% over the month, driven by the sustained rise in oil prices. All GCC markets rose during the month. Saudi Arabia, Qatar and Kuwait were the biggest gainers in the GCC, up 9.0%, 7.5% and 4.4% respectively, while Oman recorded a 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 Riyadh Bank, which gained 25.5% during the month, followed by Saudi National Bank, which gained 14.6%. Multiple expected interest rate hikes are expected to lead to higher profit margins for banks, thus opening a positive outlook for the GCC banking sector.

Global equity markets had a volatile month, with major indexes ending in negative territory. Although concerns surrounding the spread of the new variant have subsided, geopolitical tensions and the US Federal Reserve’s rate cut to curb high inflation have acted as headwinds. After the FOMC meeting this month, analysts expect up to five rate hikes in 2022. Fourth-quarter results began with JP Morgan’s unsatisfactory earnings and outlook and ended on a note. positive with one of the world’s most valuable companies, Apple, recording the highest revenue in company history amid surging iPhone sales. Investors sought management’s comments on the financial impact of high inflation and supply chain bottlenecks. The MSCI World and S&P 500 (US) indices each lost 5.3% over the month. Emerging market stocks also suffered losses as overseas asset managers began selling on rising US yields. At a time when most major economies are looking to raise interest rates, China had lowered its key rates in a bid to spur economic growth, particularly in its real estate segment. The country’s Q4 2021 GDP figures and retail sales growth for December reflect signs of weakness.

Oil continued its winning rally through January and hit multi-year highs on rising geopolitical tensions and supply constraints amid a strong recovery in demand. The majority of banks and other institutions have updated their oil price estimates and currently expect it to hit $100 a barrel in the near future. In contrast, gold had a mixed month. Although gold is considered a safe bet against inflation, the strengthening of the US dollar towards the end of the month erased earlier gains in the price of gold.


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Felix J. Dixon