KFIC report of the Global and GCC Financial Markets

12/07/2016 06:21 AST

Kuwait Finance and Investment Company (KFIC) clarified in its financial report for June; that global equities remained in neutral territory during the quarter as the MSCI World Index closed flat at +0.31%. The markets were impacted by the Brexit decision, which wiped approximately USD 2trn off global markets as Moody's lowered UK's credit rating outlook from AA+ to AA.

The British pound also witnessed its steepest one-day sell-off in recent history, depreciating by-10.5% after Brexit was announced. In the U.S, S&P 500 increased by +1.90%, closing at 2,089.9, and the Dow Jones Industrial Average closed at 17,930, or +1.38% higher. The US central bank announced that the range of its benchmark interest rate would remain unchanged due to Brexit. Eurozone equities plunged post-Brexit, with Germany's DAX falling -2.86% lower to close at 9,680.1, France's CAC 40 falling -3.37% to close at 4,237.5 while UK's FTSE 100 gained +5.33% to close at 6,504.3.

According to the EIU, Brexit's damage to UK economy would be felt until at least 2020 with the economy expected to be 6%, or USD 141bn smaller that it would have been had it stayed in the EU. China's Shanghai Composite fell -2.47% to close at 2,929.6, despite an improvement in business confidence which showed that China's exports increased the most within a year as declines in imports were shrinking, coupled with an improving manufacturing sentiment. Japan's Nikkei 225 fell -7.06% to close at 15,575.9, as the yen has continued to strengthen against the dollar, igniting speculation that Japan is likely to propose further economic stimulus package, which would include assistance for small businesses. Commodities rallied as WTI Crude increased +16.85% to close at USD 48.3/bbl and Brent Crude gained +19.09%, closing at USD 49.7/bbl, despite WTI Crude and Brent Crude falling -2.42% and -1.15% MTD respectively.

The OPEC meeting in Doha ended with no agreements to an output freeze, but unexpected supply disruptions by the labor union strike by Kuwait oil workers, and other disruptions in Nigeria and Venezuela prompted the oil prices to climb. Gold increased by +7.26% and Silver rallied +21.23% to close at USD 1,322.2/oz and USD 18.7/oz respectively, due to the prolonged weakness of the US dollar and the impact of Brexit which has depreciated the British pound significantly, with investors flocking to Gold and Silver as a safe-haven.

GCC Economic

Saudi 2030 vision Saudi Arabia is preparing for the future to diversify away from oil reliance by initiating the world's largest sovereign wealth fund for the kingdom's most valuable assets. The 2030 vision, which has been outlined by Prince Mohammed bin Salman, entitled that Aramco would be listed as an IPO by 2018 and the proceeds would go towards PIF.

Qatar has sold USD 9bn of Eurobonds, marking the biggest-ever bond issue from the GCC where governments are tapping international investors to finance budget deficits left by declining oil and gas revenues, bringing total year-to-date (YTD) GCC international capital market sales to almost USD 30bn.

In Kuwait, thousands of Kuwait oil workers went on strike to protest against the government plans to reduce wages and benefits. The open-ended strikes reduced oil production in Kuwait by approximately 60% which resulted in a sudden spike in oil prices. Kuwait's Finance minister also stated that the economic reform plan excludes the privatization of oil, education, and health services. In UAE, The Emirates NBD Purchasing Managers' Index rose to 54.0 in May from 52.8 in April, the second highest reading so far this year.

Kuwait Times