A report by the National Bank of Kuwait (NBK) stated that the Gulf markets outperformed their global peers in the second quarter of 2021, benefiting from the strong gains they achieved during the first quarter of the year, with the Morgan Stanley Gulf Index rising 8.7 percent, on a quarterly basis, Against the backdrop of high oil prices, the launch of vaccination programs, and an improvement in the outlook for public finances.
And he indicated that Abu Dhabi, Kuwait and Saudi Arabia took the lead, recording growth of 16 percent, 11 percent and 11 percent, respectively, in light of enhancing the confidence of Saudi investors thanks to improved macro data and the announcement of a series of major investment plans within the framework of a comprehensive plan to promote economic diversification. Dubai, Oman and Bahrain all gained strong (9-10 percent on a quarterly basis).
The report pointed out that despite the positive outlook of stock markets and the prospects for economic growth in general, the risks include record growth in stock prices and a significant rise in valuations, in addition to the possibility of an increase in the inflation rate in the United States, which may lead the Federal Reserve to reduce accommodative policies. This could in turn raise the risk-free rate of return and put pressure on the equity risk premium.
He indicated that the positive sentiment boosted the performance of global stocks in the second quarter of the year, as stock markets continued their upward journey and many indices reached their highest levels ever.
He pointed out that this upward trend was supported by the continued optimism about economic recovery in light of improving macroeconomic data, expanding the scope of vaccine distribution programs and lifting some restrictions, despite the increasing uncertainty regarding inflation, and the return of fears related to the “Covid-19” pandemic, in addition to At the end of the current quarter and early July, the Federal Reserve shifted towards adopting more restrictive policies (in line with the improved prospects for economic growth and higher inflation rates).
He stated that the state of uncertainty regarding the “Covid-19” virus is still one of the most important fundamental factors, which may lead to impeding economic recovery and undermining morale, especially in light of the spread of the new Delta strain, noting that, in July this year, data was disclosed. The US macro economy came in weaker than expected, raising fears of a slowdown in growth.
And he indicated that the slowdown in growth rates and the increase in inflation rates are among the most important factors that raise concerns, given the difficulties they cause for policy makers when making decisions (reducing the quantitative easing program / raising interest rates may lead to controlling inflation, but it will also affect growth). .
The report stated that expectations indicate the continuation of the accommodative federal policies and the expectations of economic recovery to provide the necessary support to the markets in the second half of 2021, and this upward trend is reflected in the performance of global stocks that continue to record their highest levels ever, in exchange for weak demand for some safe haven assets such as gold. and the dollar, which, despite its recent growth, is still relatively weaker.
He stated that, despite this, the market prospects in the short and medium term are subject to noticeable risks resulting from the pandemic, increasing inflation rates and the uncertainty associated with monetary policies (the possibility of reducing them soon and raising interest rates in the medium term), which are the factors that have led to weak market momentum in recent times. Last.
He noted that the high valuations, especially in the US markets, is one of the main reasons for the increasing fears faced by the markets, on the other hand, the possibility of higher bond yields in line with the reduction of stimulus measures as expected, high inflation rates, and raising interest rates in the United States. To be implemented in 2023, it is a burden on stock market sentiment. In addition, the markets of the Gulf Cooperation Council countries will continue to be affected by oil prices, the pace of structural reforms, geopolitical factors and developments related to the pandemic.
growth in Kuwait
The report attributed the strong growth witnessed by the Kuwaiti Stock Exchange again to the strong performance of the main market index (13.4 percent on a quarterly basis), as the technology, oil and gas, real estate and industry sectors contributed the highest percentage of gains.
He explained that the market value, in turn, rose to 37 billion dinars, which is the highest level recorded since 2010, while the average daily trading values increased to 59 million dinars, which reflects the prosperity, activity and liquidity of the market, and the general market index has increased by 15% since the beginning of the year. Until the end of last June, a slightly weaker performance compared to the Abu Dhabi and Saudi markets.