As per the Arab Federation of Capital Markets (AFCM) monthly report, MENA equity markets initiated the year 2022 with strong price gains, tough with lower traded volumes
They benefitted from improved investor sentiment, mainly driven by an extended soaring oil price rally amid higher-than-anticipated global demand for energy, as Brent prices touched the $90 per barrel level for the first time since 2014.
However, the third week of the month reversed somehow the upward trajectory that has been prevailing since the beginning of the year, mainly tracking a global risk-averse sentiment sparked by prospects of more aggressive global monetary policy.
This happened as the Fed indicated in its latest policy update that a potential rate hike could come in March, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.
MENA equity markets
Dr. Fadi Kanso, head of research at AFCM, stated that MENA equity market capitalization reached $3,984 billion at the end of January 2022, up by 4.5% when compared to end-December 2021.
It was mainly boosted by Saudi Exchange and Qatar Stock Exchange recording their best monthly performance in the region in years.
However, the total value of shares traded for the month of January reached $64.8 billion, down by 7.7% when compared to the previous month.
On another hand, the total number of volume traded reached 73.3 billion shares during the month of January, down by 31.6% when compared to the month of December, mainly on the back of a considerable increase in traded volumes of Iraq Stock Exchange by 36% which represented around 62% of total traded volumes in the MENA region over the month of January.
MENA equity markets recorded tangible upward price movements during the month of January, 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 6.5% on a monthly basis, to reach 1,057.8 at end-January when compared to a rise of 3.9% in December.
The GCC financial markets gained for the second consecutive month during January, as the MSCI GCC index gained 7.4%.
Saudi Arabia recorded the biggest monthly gain at 8.8% followed by Qatar and Kuwait with gains of 7.5% and 4.4%, respectively. In fact, the gain in crude oil prices supported markets in the region, although regional geopolitical issues kept investors cautious.
The Saudi Exchange, whose market capitalization represents circa 70% of the total regional market capitalization, registered strong price gains of 8.8% in January, mainly supported by robust oil price increases, as Brent prices hit a multi-year high of $90 per barrel after recent data released by the Energy Information Administration showed that US crude oil stockpiles fell more than expected to their lowest levels since October 2018.
Gains were also impacted as global oil demand had proven stronger than expected since the latest Coronavirus variant inflicted a softer hit to the economy than anticipated, as per the International Energy Agency.
News that Saudi Arabia’s sovereign wealth fund is planning to invest about $10 billion into listed stocks as it pursues the goal of more than doubling its assets by 2025 supported strong equity price gains.
Saudi Aramco’s market capitalization represents 71% of the total Saudi market capitalization.
The Qatar Exchange posted decent price increases of 7.5% in January when the QE Index has surged over 800 points over the month, making it the best monthly gain in over a decade for investors.
Sharp economic recovery aided by persistent fall in omicron cases, rising oil prices, gains in regional and global stock markets, and expectations of better results from local companies fueled the rally in Qatar’s stock market.
It is worth mentioning that the European liquefied natural gas (LNG) imports hit a record high in January at 11.8 bcm (billion cubic meters), compared with a previous record in November 2019 of around 9 bcm.
Kuwaiti equity market
Kuwait’s equity market saw a positive January with gains across the four benchmark indices with a gain of 4.4% in the All-Share Market Index, mainly supported by oil price gains.
In fact, the Board of Directors of Kuwait’s National Industries Co., also known as KPSC, approved a 35% increase in the company’s capital. KPSC will issue a total of 524.7 million new shares at 100 files each, plus another 100 files to cover the issue premium, as Boursa Kuwait announced.
In addition, as per the draft budget for FY 2022-23, observers expect Kuwait’s deficit to fall by 74.2% y-o-y on the back of an 83.4% y-o-y increase in oil revenues.
The Egyptian Exchange registered price declines of 3.9% in EGX30, amid sales operations by Egyptian and foreign investors by the end of the month, as some market players sought to lock their profits following last year’s double-digit price gains.
The derivatives market recorded a drop of 42.8% in turnover, from $13.9 billion in December to $8 billion in January. In fact, Dubai Gold and Commodities Exchange, the region’s first commodity derivatives exchange and the leading derivatives exchange in the Middle East, issued 340,817 contracts in January against 363,660 contracts in December.
Several factors impacted this, mainly the instability of stock prices, and expectations of a significant increase in interest rates, in addition to high oil prices, which prompted market participants to search for safe investments that protect them from adverse global economic trends.
The MENA bonds and Sukuk markets remained under downward price pressures, mainly tracking US Treasuries move after the US Federal Reserve flagged in its latest FOMC meeting interest rate hike in March to curb inflation that hit in December its highest level since 1982.
More pressure came as a result of the unemployment rate falling below 4% and wages jumping in December 2021, adding to the evidence of a tight labor market that many expect to help spur US Fed interest-rate liftoff, while stoking speculation about the possibility of unexpectedly aggressive monetary policy tightening, with the 10-year US Treasury yield topping the 1.90% level for the first time since July 2019.