The state of Arab equity markets last February
The monthly report released by the Arab Federation of Capital Markets (AFCM) showed MENA equity markets activity relatively mixed during the month of February.
In fact, the Russia-Ukraine war sent shockwaves across the four corners of the globe sparking a risk-off mood, affecting negatively investors’ sentiment and therefore the overall global equity markets which plunged in the red over the fourth week of the month.
Brent prices crossed for the first time since 2014 the $100 per barrel as the Russia-Ukraine conflict fueled concerns about disruptions to global energy supply as per the head of Research at AFCM, Dr. Fadi Kanso.
MENA equity markets
MENA equity market capitalization reached $4,268 billion at the end of February 2022, up by a strong 7.1% when compared to end-January 2022, mainly boosted by Saudi Exchange and Abu Dhabi Securities Exchange recording their best monthly performance in the region (+8.5% and +8.7% respectively).
However, the total value of shares traded for the month of February reached $71.4 billion, up by 10.3% when compared to the previous month.
The total number of volume traded reached 77.9 billion shares during the month of February, up by 5.7% when compared to the month of January, mainly on the back of an increase in traded volumes of the Iraq Stock Exchange by 7.7% which represented around 63% of total traded volumes in the MENA region over the month of February, as per Kanso.
S&P Pan Arab Composite index
MENA equity markets recorded upward price movements during the month of February, as reflected by the S&P Pan Arab Composite index which is designed to track the performance of 11 equity markets. The latter recorded an increase of 2.7% on a monthly basis, to reach 1,086.6 as at end-February when compared to a rise of 6.5% in January.
Despite the geopolitical turmoil involving Russia and Ukraine and its effect on global markets, the gain in crude oil prices supported GCC financial markets. Barring Oman, all markets gained for the third consecutive month during February. The MSCI GCC index rounded off the month with a gain of 4.5%. Bahrain had the biggest monthly gain at 8.5% followed by the two UAE bourses. In terms of sector performance, energy led the GCC markets with 8.3% gains, this was followed by Hotels, Restaurant & Leisure indices with gains of 5.4%.
The Saudi Exchange, whose market capitalization represents circa 72% of the total regional market capitalization, registered price gains of 2.6% in February, mainly supported by robust oil price increases. It is worth mentioning that Saudi Exchange market capitalization hit a record of $3.1 trillion in February, a rise of 8.5% on a monthly basis, as Saudi Aramco hit a record $2.2 trillion in market value with its shares soaring to their highest level since listing.
In detail, Saudi Arabian Oil Company (“Aramco”) has signed a $15.5 billion lease and leaseback deal involving its gas pipeline network with a consortium led by BlackRock Real Assets and Hassana Investment Company, the investment management arm of the General Organization for Social Insurance (GOSI) in Saudi Arabia, in one of the world’s largest energy infrastructure deals. Aramco will hold a 51% majority stake in Aramco Gas Pipeline Company and sell a 49% stake to investors led by BlackRock and Hassana.
In addition, Zain KSA approved last month a Public Investment Fund-led consortium offer to acquire an 80% majority stake in its 8,069-tower infrastructure for SAR 3 billion.
UAE equity market
The UAE equity markets registered positive performance during February, mainly supported by some favorable company-specific factors and an oil price spike. In fact, Abu Dhabi’s FTSE ADX index was the second-best performing market in the GCC after Bahrain Bourse during February with over 7.1% gain while Dubai Financial Market (DFM) General Index was the third-best performing market in February, up 4.7%.
The UAE equity markets registered price falls over the first week of the month, mainly weighted by the country’s plans to introduce a 9% federal corporate tax on business profits for the first time starting June 2023, as the country seeks to align with international efforts to combat tax avoidance and address challenges arising from the digitization of the global economy.
The Bahrain Bourse notched the best monthly performance among GCC markets during February. Bahrain’s All-Share Index rose by 8.5% to 1,963.62 points. The gains were led by the Materials index, with its single constituent, Aluminum Bahrain (Alba), soared 43%, as Alba disclosed US$ 1.2 billion in net profit for FY-2021 compared with a profit of US$ 26 million in 2020. The total volume of shares traded rose by 32% while the value traded rose by 35%.
In parallel, the Russia-Ukraine conflict pushes the Egyptian Exchange into the red zone, with a drop in EGX30 by 3.1% on a monthly basis and a retreat in market capitalization by 5.4%. on another hand, the Egyptian Exchange’s (EGX) Listing Committee has approved the final de-listing of the National Bank of Kuwait Egypt’s (NBK Egypt) (NBKE) shares over the last month.
Derivatives markets recorded a tangible increase of 72.1% in turnover, from $8 billion in January to US$ 13.7 billion in February. In fact, Dubai Gold and Commodities Exchange, the region’s first commodity derivatives exchange and the leading derivatives exchange in the Middle East, issued 190,705 contracts in February against 106,940 contracts in January. In fact, volatility has been a recurring theme over the past few months, with investors and traders continuing to grapple with a range of factors including inflation, oil prices and geo-political developments. Against this backdrop, DGCX saw its precious metals’ portfolio lead trading activity on the exchange, in addition to a sharp uptick in Indian Rupee trading as market participants look to hedge their exposure to one of the world’s fastest-growing economies.
MENA bonds and Sukuk markets dipped further into the red over the month, mainly tracking a broad sell-off mood following higher-than-expected US inflation in January 2022, which has sent US Treasury yields to highs unseen since July 2019 and fueled bets about an aggressive US Fed monetary policy tightening after minutes of the January 2022 FOMC policy meeting showed that most participants suggested that a faster pace of increases in the target range for the federal funds rate would likely be warranted, and as soaring oil prices fueled by Russia-Ukraine stoked concerns about rising inflationary pressures.