After months of confusion and uncertainty on the trade front, China and the United States have finally reached a ‘phase one’ deal that defuses tensions between both sides. Given how this trade agreement reduces some U.S tariffs on Chinese goods and boosts Chinese purchases of U.S farm goods, there is certainly some light at the end of the long trade war tunnel. This positive development has come as a massive relief to global sentiment with investors heaving a collective sigh of relief. The improving market mood and easing concerns over slowing global growth should continue supporting not only stock markets but oil prices as the year comes to an end.
Appreciating Oil prices amid trade optimism and hopes over the world recovering should support GCC producers such as Saudi Arabia, UAE and Kuwait. WTI Crude and Brent have both gained 34% and 23%, respectively since the start of 2019. Gains have the potential to extend in 2020 as tensions ease between the United States and China. From a market perspective, UAE equities are still viewed as emerging markets which are influenced by global risk sentiment. The Dubai Financial Markets, Abu Securities Exchange and Saudi Arabia’s Tadawul may benefit from the risk-on mood and overall optimism.
The ‘phase one’ trade deal could be good news for Aramco which recently completed the largest initial public offering (IPO) in history by raising $25.6 billion. It is widely known that the Aramco deal will be significant to Gulf capital markets as the IPO is seen as the centerpiece of Crown Prince Mohammed bin Salman’s Vision 2030. Saudi Arabia plans to reduce its dependence on Oil, diversify the economy and improve public sector services. Given how revenues from the deal will be used to diversify the Saudi economy away from its dependence on Oil, this encouraging prospect should support capital markets in the region. Investor optimism over the IPO boosting government finances and supporting economic growth in Saudi Arabia should lift sentiment towards the Saudi economy while stimulating appetite for Gulf stocks.
As the year comes to an end, investors will be paying very close attention towards US-China trade developments and whether any fresh details on the agreement are revealed. Further signs of thawing tensions should support the positive mood across markets. However, should trade tensions make an unwelcome return, the market mood will most likely dampen ultimately hitting stock markets and Oil prices.
* Any opinions expressed in this article are the author’s own
© Opinion 2019