MENA MARKETS REVIEW: JUNE 2017

Kuwait: July 10, 2017

HIGHLIGHTS

• The Fed hikes rates by 25bps and US equities continue to post gains despite political uncertainty
• French President Macron secures a parliamentary majority while UK’s PM May loses her party’s parliament majority
• Emerging markets continue to perform well, with MSCI EM Index returning 17.4% in H1 2017
• Brent hits lowest level since start of year
• The Qatar Exchange Index suffered major losses amid its dispute with its GCC peers
• Saudi, Qatar & UAE raise rates by 25 bps following the Fed’s decision

JUNE 2017: MAJOR CENTRAL BANKS FINALLY NUDGE THEIR POSITIONS, IMPACTING INTEREST RATES AND FX RATES Midyear, things are proceeding more or less as expected back in January. Economic growth is holding up well in most economies. Politics are not much of an impediment, though risk factors remain in the background and may be rising. Brexit negotiations are still a question mark, primarily for the UK. Qatar’s dispute with its neighbors is a factor certainly for some GCC equities. More importantly, the Trump agenda on tax cuts and economic stimulus remains an expected plus for US equities, even if not for this year. However, as we approach the US Congressional mid-term elections of November 2018, the markets will want to see concrete action, for reasons economic but also to avoid a Republican setback in the election. The latter would likely be seen as delaying, or even derailing, the current pro-business agenda. US politics are bound also to loom larger, because the above will be taking place against a backdrop of a US Federal Reserve raising interest rates further and embarking on the next leg of undoing years of quantitative easing. The Fed has recently signaled strongly that it intends to start reducing the size of the massive portfolio, which amassed over several bouts of quantitative easing since 2008. The portfolio today stands at $ 4.3 trillion (Treasuries, Agencies and mortgage-backed securities) versus under $ 1 trillion prior to 2008. The wind-down will be very slow and gradual, starting probably in September 2017 and in amount of $ 10 billion per month initially. Still the Fed and the markets will want to see and reassure themselves that the unwinding of the unprecedented QE(s) will not cause undue market or other disruptions. Global Equities Global equities posted a gain of 1.0% as measured by the MSCI All Country World Index in June. For Q2 2017 the index is up 3.6% bringing its H1 2017 return to 10.3%. US equity markets continue their positive performance for the third month straight posting gains of 0.5% and 1.6% for the S&P 500 and the Dow Jones, respectively. Both indices are in the green for the Q2 2017 and H1 2017. The S&P 500 for the first 6 months of 2017 is up 8.2% while the Dow Jones for the same period is up 8.0%. The equity markets reached new highs throughout the month despite the political uncertainty surrounding President Trump and Washington and geopolitical tensions across the globe. Economic data out of the US continues to depict stability, further supported by the Fed hiking rates by an additional 25 bps. This is the second hike in 2017 and the fourth hike overall since the Fed began tightening its monetary policy.

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