| While global markets shuddered in March, many of them made a smart recovery in April, as governments across the world unleashed massive stimulus packages and strong measures to combat the coronavirus.
Globally, the Nasdaq Composite Index soared 15.4% in April, after falling 9.3% in March. The Dow Jones Industrial Average, which had fallen 14% in the previous month, rebounded 11.08% in April, while Standard & Poor’s 500 Index rose 12.68% after falling 11.1% in March.
The US Federal Reserve announced a new and more aggressive credit programme, authorising USD 2.3 trillion financing, and committed to remain active with credit and zero interest rates for as long as the economy needed it. According to the minutes of the March meeting of the Federal Open Market Committee, the Fed wanted to keep interest rates near zero until the economy “weathered” the COVID-19 storm.
As investors absorbed the coronavirus impact, and turned their thoughts to the reopening of economies, the global MSCI World Index rose 10.8%.
European markets were also broadly higher, with France’s CAC 40 (+4%), Germany’s DAX (+9.32%), and the UK’s FTSE 100 (+4%), posting gains.
Among major emerging markets, India’s Sensex was up 14.4%, South Korea’s KOSPI Index expanded 11%, and Brazil’s BOVESPA Stock Index rebounded 10.3%. China, epicentre of the coronavirus outbreak, saw the main SSE Composite Index jump 4%, while Hong Kong’s Hang Seng Index fared marginally better with 4.4% gains.
Despite their impressive gains in April, all the major global markets are down for the year, underscoring the severity of the market downturn in March.
REGIONAL MARKETS In the GCC, markets also made a smart recovery. The MSCI GCC Index grew 8% during the month, to reduce its declines for the year to 18.5%. Saudi Arabia’s Tadawul All Share Index reversed a three month-decline, with a spirited 9.3% rebound in April. The market had fallen 14.7% in March, as global and regional investors considered the dramatic drop in economic activity. The market remains down 15.2% for the year.
It was a broad-based recovery with software and services (up 20.7%), capital goods (16.8%), retailing (up 14.9%), insurance (up 14.3%), transportation (11.9%), materials (10.7%), banks (10.1%), consumer services (9.9%), food and beverages (9.9%), telecommunication services (9.5%), and real estate management and development indices (9.4%), outperforming the general index.
The value of shares traded in the month fell 18.4% to SAR 95.4 billion compared to the previous month, and volumes declined 10% during the period as many investors waited on the sidelines.
Saudi Arabian Oil Co., the world’s largest company by market cap, saw its stock price rise just under 5% during the month, as Brent crude jumped 11.1% to USD 25.27 per barrel, shrugging off a dramatic plunge earlier in the month.
Dubai’s DFM General Index led the gains in the region with a 14.4% rally in April, clawing back some of the gains from a dramatic 31.6% drop in March. The neighbouring market of Abu Dhabi also saw a 13.3% upsurge (compared to a 23.8% decline in the previous month). Kuwait’s Premier Market Index rose 3% in April, leaving it 23.2% in negative territory for the year.
Oman rose 2.6% during the month, making it the region’s most resilient market year-to-date, as it is down 11.1% – the least among its GCC peers.
Bahrain was the only Gulf market that declined during the month, falling 3% to add to its precipitous 18.7% contraction in March.
Analysts expect the next few months to be volatile. While Gulf stocks rebounded on strong corporate earnings in the first quarter, investors will be eyeing the second quarter, which would reveal the full impact of the virus and the effects of the lockdown.
Gulf economies remain resilient, however, with strong fiscal balances and monetary and fiscal levers to ride out the storm. S&P Global Ratings noted that the most rated GCC banks have relatively strong profitability and a conservative approach to calculating and setting aside loan-loss provisions.
With many oil producers reducing output, oil prices have also climbed steadily higher, which should boost investor sentiment.
"Overall, we estimate that rated GCC banks could absorb up to a USD 36 billion shock before starting to deplete their capital base," S&P credit analyst Mohamed Damak said.
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