KUWAIT CITY, Oct 06: Kuwait Financial Centre “Markaz” released its Monthly Market Review report for September 2024. Kuwait continues to be one of the best performing markets in the GCC on a year-to-date basis in 2024, only behind Dubai. GCC and Global equity indices ended positive for the month, supported by investor optimism following the interest rate cut by U.S Fed. However, escalating geopolitical tensions in the Middle East and weak oil prices limited the upside for GCC markets.

Kuwait’s main market index continued to outperform the Premier market index, registering a year-to-date gain of 12.7%. Kuwait’s All Share index posted a 4.7% increase on a year-to-date basis, despite a monthly decline of 0.6% in September. The 25-bps reduction of discount rate to 4% by Central Bank of Kuwait (CBK) following U.S Fed’s 50 bps rate cut in September lent support to the markets. Since Kuwait Dinar is pegged to a basket of currencies that includes U.S. dollars, the Central Bank of Kuwait could deviate from the rate cut trajectory of U.S Fed. The Kuwait banking index recorded a decline of 1.4% for the month. All banking stocks, except NBK ended the month in red while NBK registered a marginal gain of 0.6%. Gulf Bank has signed an agreement with Boubyan Bank on the potential merger that will create a single Shariah-compliant entity and has obtained the Central Bank’s approval to hire consultants for feasibility study. Among Premier market stocks, Arzan Financial Group for Financing and Investment gained the most at 14.4% for the month. The company received additional shares from a related party’s capital increase, which will reflect in its Q3 2024 financial results.

Kuwait’s domestic credit grew at 2.8% y/y (1.8% YTD) in July, a notch lower when compared to 2.9% y/y in the previous month, weighed down by the plunge in lending to banks/financial institutions. Household credit growth remained strong at 2.5% y/y and business credit grew 1.9% y/y.  Kuwait real estate sales in August declined 12% y/y to KD 257 million. The decline was driven by the residential segment, which fell 32% y/y to KD 88 million. The investment segment sales ticked up slightly to KD 108 million despite a decline in transaction volumes. Commercial sector sales amounted to KD 61 million, continuing to register growth on a yearly basis.

GCC markets except Oman ended positive during the month, with S&P GCC composite index registering an increase of 1.3% in September. GCC equity indices rose after the central banks in the region cut their key interest rates mirroring the moves of U.S. Fed. However, equity market gains were stunted by rising geopolitical tensions in the Middle East. Dubai and Abu Dhabi equity indices gained 4.1% and 1.5% respectively during the month. The CBUAE projects UAE economy to grow at 6% in 2025 as momentum in the non-hydrocarbon sector is likely to continue, while hydrocarbon production is forecast to pick up. ADNOC Drilling Company rose 7.5% during the month after the announcement of interim dividend of AED 1.285 billion (USD 350 million) for the first half of 2024 following strong financial results. Real estate stocks Emaar Properties and Aldar Properties rose 3.3% and 2.5% during the month driven by the positive sentiment following interest rate cuts. The GCC real estate index has surged 18.4% in the first nine months of 2024 compared to 1.3% rise in the S&P GCC composite index during the period. Saudi equity index gained 0.7% during September driven by the mixed performance of blue-chip stocks. ACWA Power posted a gain of 17.4% in September driven by China stimulus-led optimism as well as being shortlisted for five large-scale wind energy projects in Oman. Qatar equity index gained 4.0% for the month, driven by sharp surge in natural gas prices.

Global and U.S. markets were positive for the month, with MSCI World and S&P 500 indices increasing by 1.7% and 2.0% respectively. The start of the U.S Fed monetary policy easing cycle coupled with reports of softening inflation supported the gains in global equity markets. The U.S Fed reduced the target range for the federal funds rate by 50 bps, from 5.25 - 5.5% earlier to 4.75 - 5.00% in its September FOMC meeting, the first time since 2020. The U.S core (less food and energy) personal consumer expenditures (PCE) price index, rose only 0.1% m/m in August, following a 0.2% m/m rise in July. The index climbed 2.2% y/y, close to the Fed’s 2.0% long-term inflation target and the lowest since February 2021. The Bank of England (BOE) held its key interest rate steady at 5.0% in its September meeting following its initial rate cut in August. The policymakers insisted on gradual easing of monetary policy given persistent inflation pressures. The MSCI EM index gained 6.4% for the month driven by the 17.4% surge in Chinese equity markets. Chinese stocks rose after Beijing unveiled a slew of measures to aid the economy. The People’s Bank of China (PBOC) cut its reserve requirement ratio by 50 bps for most banks and reduced its seven-day reverse repo rate by 20 bps to 1.5%. According to Reuters, China plans to issue special sovereign bonds worth about 2 trillion yuan (USD 284.43 billion) this year as part of fresh fiscal stimulus.

The 10-year U.S. Treasury yield stood at 3.81% at the end of September, 10 bps lower than the close of previous month. During the month, the 10-year treasury yield touched a low of 3.63% on Sep 16th, before the Fed meeting. However, yields have mildly increased since then as Fed’s shift in focus to protecting the labor market from beating inflation has instilled worries of a rebound in price pressures in the U.S. bond market. The yield on the 2-year U.S. Treasury note declined by 25 bps during the month closing at 3.66%.  

Oil price settled at USD 71.8 per barrel, registering a decline of 8.9% during the month of September. Oil prices were weighed by concerns about weaker global demand coupled with prospects of growing oil supplies from Saudi Arabia. The OPEC revised its world oil demand forecast to 2.03 million barrels per day (bpd) in 2024, down from previous forecast for growth of 2.11 million bpd. A report by FT suggested that Saudi Arabia is committed to increasing oil production later this year, even if it results in lower prices for a prolonged period to regain the market share.

Markets are expected to focus on key data releases such as inflation and employment payroll to price in their expectations of the size of interest rate cut in the upcoming FOMC meeting to be held on Nov 6-7th.  The Fed has projected further cuts amounting to 50 bps by the end of 2024, but it is unclear whether the cuts will be front-loaded in November with a single 50 bps cut or if it would be split into two 25 bps cuts each in the November and December meetings.  Additionally, the start of Q3 earnings season for GCC blue chips, oil price and developments on geopolitical front could influence further market movements in the GCC.