MENA MARKETS REVIEW: MARCH 2017
Kuwait: April 6, 2017
HIGHLIGHTS
- S&P and Dow Jones close the month in the negative for the first time this year
- The Fed raise interest rates by 25 bps, and indicated two more hikes in 2017
- Oil prices struggle to remain above $50/bbl as US crude inventories and shale production rise
- Fitch downgrades Saudi Arabia to A+
- Kuwait issues first international dollar bond
MARCH 2017: MARKETS GET A SMALL DOSE OF REALISM
The first quarter of the year saw the January inauguration of a new US president, the unconventional Donald Trump, and the advent of a more “normal” or perhaps more “aggressive” Federal Reserve. The Fed raised its target rates in March when the earlier expectation had been for June 2017. These events and others (including the disappointing performance of anti-establishment voices in the Dutch election) were taken in stride by most markets, and were in line with expectations. The markets were looking for rising equity markets, a rising USD, and higher US interest rates. That is more or less what they got, except for the USD, which continues to baffle many, and especially against major currencies.
REGIONAL EQUITIES
MENA equities remain in negative territory with the S&P Pan Arab Composite losing 1.6% in March and 0.4% for the quarter. Regional equity performance appears to have followed international markets along with falling oil prices. Following the Fed rate hike, the GCC nations Saudi Arabia, Kuwait, United Arab Emirates and Bahrain, proceeded to do the same raising key rates by a quarter of a percentage point, followed soon after by Qatar.
The Saudi Tadawul All Share Index recovered slightly in March following last month’s poor performance, up 0.4%; however, the index was down 2.9% for the quarter. In addition, Fitch downgraded the sovereign by one notch to A+ due to a greater than expected budget deficit in 2016, which was -17.3% of GDP. Following the 2017 budget announcement, however, Saudi Arabia expects to achieve a budget surplus by 2019. Details of the budget include rationalizing government expenditure, cost savings from energy and water-price reform, new non-oil revenue sources and enabling private sector growth.
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