Markaz: Kuwait market sustain positive momentum driven by robust corporate earnings

Kuwait Financial Centre “Markaz” released its Monthly Market Review report for the month of February 2024. Kuwait market ended positive during the month as the pickup in the pace of legislative reforms, continued expansion of non-oil activity and robust corporate earnings of major blue-chip stocks supported investor sentiment. Kuwait All Share index rose 2.4% in February, supported by the gains in the banking sector. The Banking index rose 3.1% during the month with Burgan Bank and KFH being the top gainers, rising by 7.8% and 4.9% respectively on the back of positive earnings results for FY 2023. Burgan Bank’s announcement to offer private banking and wealth management services to its high-net-worth individuals drove the stock prices up during the month. KFH recorded net profit of KD 584.5 million for the year ended 2023, an increase of 63.4% y/y. Among Premier Market stocks, Kuwait Projects Company Holding gained the most at 15.6% as the acceptance of a joint bid made by its subsidiary Jordan Kuwait Bank (and Basata Holding) to acquire a 30% stake in Madfoatcom, a leading bill processing and payment provider in Jordan was received well by the company’s shareholders.

Kuwait’s inflation (CPI) rose by 3.3% y/y in January, compared to 3.4% in the previous month. The inflation was primarily driven by the food and beverages prices, which rose 4.8% y/y during the month. Domestic credit growth eased to 1.7% in 2023, down from 7.7% in 2022. However, business and household credit growth are expected to pick up in 2024 following an uptick in project awards in 2023 and expected interest rates cuts in the second half of 2024. Kuwait’s real estate sales gathered pace in January, rising 38% m/m to KD 262 million. However, it has continued to decline, albeit at a softer pace of 5.4% on a y/y basis. Residential sales jumped 46% m/m, while investment sales fell 10% m/m despite an increase in transactions volumes.

GCC equity indices, except Abu Dhabi, Oman and Bahrain, were positive as strong corporate earnings lent support to the markets’ performance. The S&P GCC composite index witnessed an increase of 4.3% for the month. However, escalating regional geopolitical tensions and dampened hopes of early rate cuts by the U.S. Fed weighed down on the investor sentiment. Saudi Arabia and Dubai equity indices gained 7.1% and 3.4% respectively during the month. IMF estimates a 5.5% growth rate for Saudi Arabia in 2025, marking an increase from 4.5% rate projected in October 2023 on the back of the economy’s robustness. Saudi National Bank (SNB) share prices increased by 4.3% during the month following the upbeat 2023 earnings. SNB recorded a net profit of SAR 20.01 billion in 2023, rising 7.7% y/y and higher than average analyst estimates of SAR 19.5 billion. Alinma Bank’s share prices rose by 6.0% during the month driven by strong 2023 earnings and acquisition of Arabian Shield Cooperative Insurance Company’s shares. Alinma Bank purchased 4.58 million shares in Arabian Shield Cooperative Insurance Company from Tokio Marine and Nichido Fire Insurance (TMNF) at a value of SAR 81.02 million. Dubai equity index gains were driven by the strong performance of the real estate sector stocks following their earnings announcements for FY 2023. Emaar Development and Emaar Properties recorded returns of 13.6% and 9.3% respectively during the month. Emaar Development reported a 74% y/y increase in net profit to AED 6.6 billion in 2023 amid strong property sales in Dubai. Emaar Properties reported a 70% y/y surge in net profit to AED 11.6 billion for the year 2023. The Abu Dhabi equity index declined 2.7% driven by the fall in the performance of major blue-chip stocks. First Abu Dhabi Bank’s stock price fell by 6.8% despite 2023 earnings beating market estimates.

The IMF, in its January 2024 regional outlook, has downgraded the projected economic growth in the GCC region for 2024 to 2.7% y/y from 3.7% y/y previously projected in October 2023. The revision reflects voluntary production cuts and the adverse implications of rising geopolitical risks.  Inflation in the GCC region is expected to moderate below 3% in 2024.

Global and U.S. markets ended positive despite sticky inflation and indications from the U.S Fed Chair Jerome Powell that interest a rate cut in March is unlikely. The MSCI World index and S&P 500 indices rose 4.1% and 5.2% respectively in February. U.S inflation increased 3.1% y/y and 0.3% m/m in January owing to higher costs of shelter and healthcare. Technology stocks continued to drive global equity markets during the month as Q4 2023 earnings from Amazon, Meta Platforms, and Apple surprised on the upside. NVIDIA continued to rally as its earnings beat market expectations, with a 769% y/y surge in net profits during the quarter ending December 2023. The MSCI EM index rose by 4.6% for the month, reversing the losses recorded in January. Chinese equities index gained 8.1% on policy support measures, regulatory curb on short selling and quant trading, and state investors’ plans to expand their stock buying.

The yield on the 10-year U.S. Treasury note surged during the month and closed at 4.25%. Yields rose as comments from the U.S Fed Chair that the central bank is not ready to cut rates yet and sticky U.S inflation data caused investors to lower their expectations for potential rate cuts considerably. However, the lower borrowing needs from the U.S. Treasury department placed a cap on the yields and prevented it from rising any further.

Oil price settled at USD 83.62 per barrel, recording a monthly gain of 2.3%. The rise in European diesel demand, tighter oil supply due to ongoing geopolitical conflicts in the Middle East, and OPEC+ decision to keep the production levels unchanged supported oil prices. A slump in U.S. refining activity and disruptions to global trade have tightened diesel supplies in Europe causing the surge in oil prices. However, oil price gains were stunted by the expectations of delayed rate cuts by the U.S Fed and concerns over global oil demand. IEA revised downwards its forecast for oil demand growth in 2024 to 1.2 million barrels per day (bpd), about half of the 2.3 million bpd registered in 2023. The agency has attributed this to muted economic growth in major economies, energy efficiency improvements, growing electric vehicle fleet and fading impact of post pandemic recovery as it nears its closure. Gold prices recorded a marginal gain of 0.3% closing at USD 2,043.2/oz. Natural gas prices plunged by 11.4% during the month owing to warmer U.S. weather lowering the demand for heating fuel.

The indication from the U.S Fed during its scheduled meeting in March regarding the timing of pivot is expected to drive investor sentiment during the month. Additionally, oil price movement and any further escalation in geopolitical tensions is likely to shape GCC markets performance in the next month.