• York Investment & Finance

Global Markets Overview: Middle East

By Anna Webb, Analyst at the York IFS Global Market Telegraph

From 22 September to 6 October 2020

Kuwait’s main equity index (Boursa Kuwait Premier Market) was amongst the top Middle Eastern performers heading into the second half of September, having gained nearly 6% in the first three weeks of the month following increases in banking shares including Kuwait Finance House KSCP and National Bank of Kuwait SAKP[i]. However, this has been somewhat reversed in the last week finishing the month 2.2% up[ii]. Index provider MSCI Inc.’s review of its benchmarks coming in November is expected to be a key area of focus driving the Kuwaiti markets heading into Q4 2020, with Kuwait potentially on course for inclusion in the MSCI’s emerging markets index. Stock market indices in Abu Dhabi, Saudi Arabia and Bahrain made gains while those in Dubai, Egypt and Qatar traded lower1.

PwC Middle East’s research looking at the performance of the Gulf index’s in H1 2020 revealed how Covid-19 eradicated gains from positive IPOs in the first few months of the year[iii]. Liquidity was also highlighted as a key concern for Gulf CFOs, with the spotlight being shone on debt funding as equity funding remains an extremely vulnerable market and low interest rates increase debt affordability, although this is balanced with blanket credit rating downgrades. The US presidential election in November and the end of the Brexit transition period could both accelerate IPO issuances to get ahead of this volatility, although this is balanced with weak earnings in H1 2020 which could put the brakes on plans.

Khalifa Haftar, the renegade general and commander of the armed forces who is seeking to control Libya, has announced his forces will lift the blockade on oilfields and ports that has been in place for 18 months to allow the resumption of production and exports from the North African state which would lead to a much less frictional crude oil market[iv]. This follows a controversial agreement made with a senior member of the UN-recognised Governor of National Accord which Haftar has been attempting to overthrow.

Although this is a positive step in the proxy war that has emerged between the Middle East and Libya, analysts remain sceptical about how freely oil will move out of Libya following the agreement. Production rises will be dependent on the reopening of the key Sirte Basin oil area, however the National Oil Corporation (dominant Libyan state-owned oil company) refuse to restart operations until the Russian mercenary group, Wagner, leave the area[v] which seems highly unlikely and could halt the re-opening of oil production here. This leaves investors cautious and the impact of this is not expected to feed through to the markets until Libya provides reassurance this political move will result in increased crude oil production.

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 9.1 in early October 2020.

Reference List:

[i] https://www.bloomberg.com/news/articles/2020-09-20/kuwaiti-banks-push-index-higher-to-lead-mideast-gains-inside-em [ii] https://www.bloomberg.com/quote/KWSEPM:IND [iii] https://www.pwc.com/m1/en/publications/capital-markets-watch.html [iv] https://www.ft.com/content/6c179166-06ff-461d-a539-e74cfccdb5c7 [v] https://www.ft.com/content/d20b8fe9-f1f8-41b6-99dd-545143f205cf

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