Oil price volatility hits stock markets

14 July 2015

Mixed results for GCC equity markets during first half

The GCC’s equity market saw a volatile first half of 2015 as oil markets stabilised, but continued to be a drag on indexes.

GCC stock markets overall outperformed US-based MSCI’s Emerging Markets Index.

Overall market capitalisation rose from $1 trillion at the end of 2014 to $1.1 trillion at the end of June 2015, driven by gains on the Saudi Stock Exchange (Tadawul), Saudi Arabia’s stock market, according to National Bank of Kuwait (NBK)’s GCC equity markets report.

Dubai Financial Market (DFM) recorded the largest gains, with its index rising 20.6 per cent over the first half, to 4086.8. It bounced back well from sudden falls in the index linked to oil prices halving in the second half of 2014.

The value of shares traded dropped from $18bn in the last quarter of 2014, to $10.4bn in the first quarter of 2015. As oil prices stabilised around $60 a barrel in 2015, trading volumes picked up to return to $17.8bn.

On Saudi Arabia’s stock market, the Tadawul All Shares Index (TASI) rose 9 per cent to reach 9086.89. This was still significantly below September 2014 highs of above 11,000, before oil prices fell from above $100 a barrel to around $50.

The Tadawul’s recovery was driven by the decision to open up to investment from qualified foreign investors (QFIs) in June. The TASI peaked at 9834 on 30 April, then fell slightly for Ramadan and summer lulls.

Foreign trading still accounted for less than 3 per cent of activity in June.

“The QFI law supported the market rally,” says an analyst at NBK. “It rallied for most of the year and so was due for a correction, and surely the bombings in Saudi Arabia and the Yemen crisis didn’t help sentiment”

The inclusion of the Tadawul on MSCI emerging markets index, expected in 2017, would give another major boost to regional markets.

Oman’s Muscat Securities Market recorded the worst first half in the GCC. The MSM 30 index fell 8.33 per cent in the first six months of 2015 to 6424.6. Trading volumes also fell 45.6 per cent to $1.8bn. Total market capitalisation rose by 0.7 per cent, thanks to the initial public offering of Phoenix Power Company, which added $418m.

The Kuwait Stock Exchange (KSE) also lost 5.1 per cent from its index, ending June at 6202.95. Trading volumes also fell 12 per cent to $8.1bn compared with the second half of 2014. This continues a steady downward trend.

However, if Kuwait’s new investment and public private partnership laws stimulate the projects market, the market could rally.

“Kuwait has had very low volumes for the last two years,” says the NBK analyst. “There is no catalyst to support the market. The projects are moving, but the market is not picking up on that yet.”

The Abu Dhabi Securities Exchange index gained 4.3 per cent over the first half, to reach 4723.23, although market capitalisation fell slightly from $126bn to $120bn.

Bahrain’s all share index lost 3.6 per cent over the six months to end June at 1376.83, as lower oil prices dragged on sentiment and the macro economy.

The Qatar Stock Exchange fell 0.7 per cent to 12,201.02 in the first half. It experienced some volatility in March due to the ongoing FIFA scandals which threatened its World Cup.

The outlook for the rest of 2015 remains volatile. Uncertainty over Greece’s future and China’s stock market crisis could be contagious, and affect both stock markets and oil prices.

Oil prices remain the main factor in GCC stock market performance.

“The fundamentals in regional stock markets won’t change much unless oil prices take another big hit,” says the analyst. “As long as oil prices remain around current levels, we shouldn’t see a change in the macro outlook.”

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