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29 March 2024

Saudi index top loser in May over global cues

Saudi regulator approves two IPOs for 2010. (AFP)

Published
By Vicky Kapur

Global markets swung into heavy losses in the month of May as a myriad of economic and geopolitical factors came together into a month of record market declines.

According to the monthly update by Kuwait Financial Centre (Markaz), MSCI World lost 10 per cent in May, eradicating the gains made so far this year and taking the YTD performance to a loss of six per cent.

"The picture in the GCC was just as bad as investors traded on global cues due to lack of local/regional catalysts," MR Raghu, Head of Research, Markaz, said. "MSCI GCC shed 11 per cent for the month, which is the first monthly decline since January 2010."

This loss all but eradicated the gains made since the beginning of the year, bringing the YTD return to just one per cent, according to the Markaz report.

Saudi was the top loser for the month, suffering its largest decline since December 2009 with a 10.88 per cent loss, followed by Qatar with a 10.09 per cent decline. All other GCC markets too suffered monthly declines in the mid-high single digits, with the Abu Dhabi index declining the least (–6.23 per cent).

Dubai fell by 9.22 per cent, followed by Bahrain (–8.90 per cent), Oman (–7.85 per cent) and Kuwait (–6.62 per cent). These losses and the subsequent decline in the first few days of June mean that all GCC markets are now down year-to-date, led by the Dubai index, which has lost around 16 per cent since the beginning of the year. On the other hand, the Qatar market, having dropped just under two per cent YTD, has lost the least.

However, despite these attractive valuations, the fear of a global double-dip recession is holding back investors from taking long positions in the local markets.

The regional declines in May were spurred by global cues as well as a decline in the global crude price, say market analysts.

"The sharp drop in crude oil prices also triggered a panic in local markets, leading to sharp monthly losses," Raghu said, adding that "Sabic shed a massive 15 per cent for the month in reaction to the fall in oil prices."

Crude Brent ended the month at $73 per bbl, a 15 per cent monthly decline, which is the first monthly loss since January 2009 and the largest decline since December 2008.

Liquidity was down across the GCC countries in May, with volume and value traded declining 17 and two per cent, respectively.

In terms of volume, only Saudi Arabia witnessed a monthly increase (24 per cent) while Kuwait saw the largest decline of 37 per cent.

Likewise, for value traded, Saudi Arabia saw an increase of 15 per cent while Kuwait was down by half.

Volatility was up in almost all markets, with Saudi MVX leading the way with a tripling of risk; pan-GCC risk was up about 2.5x in May.

Monthly returns were sharply negative across the world with Europe leading the way on a monthly decline of 13 per cent. India managed to limit its monthly loss to three per cent as economic growth projections are stable. The CBOE VIX index, as a result of the volatility of market returns, saw its largest monthly jump since September 2008, spiking 45 per cent in May.

China announced continued efforts to reign in its property bubble and reduce fixed-asset investment, which will likely have a negative impact on commodity demand as the economy slows; the moves led to a severe drop in crude oil prices.

The Shanghai index lost 10 per cent and is down 21 per cent for the year as China continues to announce policies that point to a shift into a more consumer-driven society.