Taking stock - Market review May 2009

It was the second consecutive month of a double digit increase in returns for MSCI World.

This has pushed the YTD returns for the index to 10%. However, the US support in the global market rally is witnessing a reduction for the past few months.

From Jan 09 to May 09, the number of markets outperforming the MSCI US index in the world index has risen from 48% to 93% as of May 2009.

Also, on a weighted basis, the US markets has provided to only 2% of the 10% up move in the YTD period in the MSCI world index. Majority of it has come from the emerging markets. Some of the markets which are worth mentioning are India: +37%, Russia: +32% and Hungary: +27% in the month of May alone! The emerging markets pack on a whole has witnessed an increase of 36% in the YTD period and 16% in May alone.

The risk levels in markets are witnessing a marked reduction. Both the Ted spread and the Vix have witnessed a decline of 6% and 20% respectively in May. Both Ted spread and Vix touched a peak of 169 and 60 during October 2008 and are currently at 58 and 30, a decline of 65% and 50% respectively.

Apart from reducing risk levels, the perception of US consumers and home builders showed an increase in May. The National Association of Home builders index witnessed an increase by 2 points to 16 in May. Even though the index is at its historic low, this is the first such increase since September. However, most of the lagging indicators point to historic low figures. The US employment data at 9.4% is highest since 1983.

The commodities have also witnessed a strong rally in the YTD period. Crude prices have witnessed an increase of 74% and in May alone, the prices were up by 30%. The broader CRB commodity index also witnessed a 17% increase in the YTD period and in May alone, the index was up by 8%.

GCC Markets Review

GCC markets recorded a MoM gain of 13% in May following a 14% gain in April. The GCC gain was led by Qatar and Dubai (DFM) whose indices gained 25% and 17% respectively in May. Volume traded in the GCC also witnessed an increase of 11% to 38.2bn shares while value traded gained 47% to $76.6bn. In terms of contribution to overall volume traded in the GCC, Kuwait topped the chart with a contribution of 42%, while Saudi Arabia topped the chart in terms of contribution to value traded, with 72%.

For May, the total volume and value traded stood at approximately 9.1bn and $55bn, respectively, an MOM surge of 44% and 60%, respectively in Saudi Arabia. Concentration of the top five stocks in terms of volume and value traded to total market capitalization stood at 23%.

The concentration of top five stocks in terms of value traded witnessed a reduction as a percentage of total market capitalization in almost all the markets in May 2009 on a MoM basis. Saudi Arabia's top five value traded stocks and their aggregate market capitalization as a percentage to total market capitalization declined from 27% in April to 23% in May. Similarly for Kuwait the ratio declined from 24% to 18%.

Among the GCC blue chip stocks Emaar properties gained by 48%, Sabic: +37%, Industries Qatar: +35%, and Zain gained by 28%.

There were a few regulatory developments, S&P affirmed an "AA-/A-1" credit rating on Kuwait, with a Stable outlook, citing the country's strong fiscal balance sheet. Also, UAE announced its intent to pull out of the GCC unified currency project in protest of the chosen location for the GCC Monetary Authority. It was also announced in late May that Saudi Arabia was the chosen location for the GCC Monetary Authority; the creation of which is a precursor to the launching of a unified GCC currency.