Focus: Stock splits, drilling down on the S&P 500, and the MSCI Emerging Markets Index

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Updated 14 August 2020

Focus: Stock splits, drilling down on the S&P 500, and the MSCI Emerging Markets Index

The week that was:

On Thursday the S&P 500 came into 13 points range of its February all-time high.

US first-time jobless numbers came in at 963,000 for the week of August 7 - below one million for the first time since mid-March. According to the US Department of Labor, more than 28 million (slightly below 20 percent of the US workforce) were collecting unemployment insurance during the week ending July 25.

Democrats and Republicans could not reach an agreement on a follow-up stimulus package before the Senate went into recess. On Aug. 8, US President Donald Trump stepped into the breach by signing executive orders on $400 unemployment benefit, a payroll tax holiday, student loan relief and an eviction moratorium.

Q2 Japanese gross domestic product (GDP) came in at an annualised minus 27 percent, the worst since records began. It was the third consecutive quarterly decline because, even before the pandemic, Japan had been hit by an increase in sales tax as well as the US-China trade war.  

The UK’s Q2 GDP came in at the bottom compared to its European peers with a decline of 20.4 percent - the worst performance since 1955. The economy grew 8.7 percent in June but is still 17.3 percent lower than February.

China’s recovery was led by industrial output outperforming retail sales. July industrial output was up 4.8 percent on an annualised basis and retail sales fell - 1.1 percent during the same period with fixed asset investment down – 1.6 percent.

The UK added France, the Netherlands and Malta to its quarantine list, which affected the share price of airlines (particularly low-cost carriers) and leisure stocks.

Highlights from the earnings season:

On Sunday, Saudi Aramco reported a Q2 net income of $6.6 billion. While this represented a 73 percent annualised quarterly decline and 50 percent for the first half, the company compares well to its peer group with positive net income and free cash flow during the worst quarter in the history of oil. Aramco will maintain its $75 billion dividend ($18.75 billion for Q2), which it had pledged during the IPO. Gearing was up at 20.1 percent reflecting the acquisition of a 70 percent share of SABIC. Capital expenditure will come in at the lower end of its $25-20 billion range, if not slightly below. All major oil companies slashed capital expenditure considerably due to the grim oil price and demand environment. Aramco’s considerable debt capacity, combined with lower expenditure, means it can afford its dividend. Aramco results, combined with the company’s positive demand outlook, lifted both oil company stocks and the oil price. The latter made gains for two consecutive weeks, despite marginal demand downgrades by the International Energy Agency.

Maersk Drilling reported H1 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $168 million before special items and a non-cash impairment charge of $1.5 billion, reflecting the difficult environment in the sector. The company has an optimistic outlook for 2021 and leaves its full-year guidance as revised in May unchanged. This compares well to Schlumberger and Haliburton, which operate in a bigger segment but both reported losses for Q2.

German power company RWE generated a H1 EBITDA of $2.1 billion, representing an increase of 10 percent over the same period last year. The company expects to benefit from energy transition-related funding. The company intends to “vigorously” expand RWE’s core business and increase the dividend.


This week saw stock splits of Tesla 5:1 and Apple 4:1. Tesla’s stock price has quadrupled since March and Apple’s has doubled meaning that the companies, valued at $1,441 and $452 respectively, became too expensive for many retail investors. The split opens a new segment of investors. CNBC’s Jim Kramer called on 10 more companies to split their stock. All of them benefitted from the pandemic and most of them are in the technology sector. They include Alphabet, Microsoft, Netflix, Facebook and Home Depot.

In the same vein the S&P 500 was driven by a few stocks since its March low. The differential between leaders and laggards amounts to $14 trillion. Earlier in the week, value stocks caught up with their growth counterpart of the technology space. The trend was reversed toward the end of the week. However, the question remains how long the spread between growth and value stocks can be maintained and when we will see a more permanent adjustment.

When investing in index-related instruments like exchange-traded funds it makes sense to drill down into the underlying components of the index. The S&P 500 is just one example, the MSCI Emerging Markets Index is another. While Brazil made up more than 16 percent of the latter in 2010 and Mexico 13.2 percent in 1997, they now stand at 5.1 and 1.9 percent respectively. South Africa has also lost much ground, with a current 3.8 percent in the index. This stands in stark contrast to Asian stocks, which account for 78.3 percent of the index – China, Taiwan and Korea coming in at 63.5 percent. China gained 29.1 percentage points between 2006 and 2020.

If diversification is the aim, it is worthwhile to understand the composition of the underlying index or asset classes.

Where we go from here:

US and Chinese officials will meet on Aug. 15 to review the US-China trade deal.

Implications for investors of the new UAE-Is.


— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources

Al-Nassr on target for first Asian crown

Updated 11 min 52 sec ago

Al-Nassr on target for first Asian crown

  • The Riyadh giants defeated compatriots Al-Taawoun 1-0 on Sunday in the second round to be rewarded with another all-Saudi clash in the quarter-final
  • Now only Al-Ahli, who finished third in the SPL season, a full 14 points behind Al-Nassr, stand between Rui Vitoria’s men and a place in the last four

RIYADH: Al-Nassr may have missed out on the 2020 Saudi Pro League (SPL) title but they are now regarded as favorites to win a first continental crown after rivals Al-Hilal and Al-Sadd both fell by the wayside in the AFC Champions League.

The Riyadh giants defeated compatriots Al-Taawoun 1-0 on Sunday in the second round to be rewarded with another all-Saudi clash in the quarter-final. Now only Al-Ahli, who finished third in the SPL season, a full 14 points behind Al-Nassr, stand between Rui Vitoria’s men and a place in the last four.

“When you get to this stage of a major competition like this then you don’t mind who you play as every team is a strong one,” the Portuguese coach said.

“The game against Al-Taawoun was tough and the game against Al-Ahli will be tough. We will have to be at our best.”

Al-Nassr are looking strong at both ends of the field. Moroccan goal-machine Abderrazak Hamdallah finally broke the deadlock on Sunday evening with 15 minutes remaining, firing home a low shot from close range.

The striker, who won the 2019 SPL golden boot while propelling Al-Nassr to the title, has now equaled the tournament record set by Shanghai SIPG’s Hulk, of scoring in nine consecutive Champions League appearances.

“We know that if he gets a chance then he will score. Whether the chance comes in the first or last minute, it doesn’t matter but, of course, this is a team effort,” added Vitoria.

As clinical as Al-Nassr are in front of goal, they are solid at the back, conceding just two goals in the five games that have taken place since the tournament restarted in mid-September.

Both Al-Nassr and Al-Ahli won their respective groups but the Jeddah club did not look as convincing as their Riyadh rivals, losing two of the four games they had to play after Al-Wahda of Abu Dhabi had to withdraw over positive test results at the club for the coronavirus disease (COVID-19).

The second-round win over Shabab Al-Ahli was as tight as could be as the Saudi team triumphed in a penalty shootout over the Dubai club after the game had finished 1-1.

“We had no preference as to whether we would play Al-Nassr or Al-Taawoun,” said Al-Ahli coach Vladan Milojevic on Monday. “It is exciting to play another team from the same country in the quarter-final. We know each other well and it will be good for the fans too. Any team at this stage is strong.”

Should Al-Nassr progress, the semi-final should hold no fears. Defending Asian champions Al-Hilal were regarded as the favorites from the West Zone (the tournament is divided into two geographic halves until the final) but after topping their group, the title-holders were forced to withdraw by the Asian Football Confederation last Wednesday after the squad was hit by a COVID-19 outbreak.

While much of Asia sympathized with Al-Hilal, the absence of the current Asian and Saudi Arabian champions will not be mourned too much at Al-Nassr.

On Sunday, another strong favorite was eliminated. Al-Sadd of Qatar are coached by former Barcelona and Spain legend Xavi and boast former Arsenal striker Santi Cazorla, South Korean internationals Nam Tae-hee and Jung Woo-yung and a number of Qatar’s 2019 Asian Cup-winning squad in their ranks. The 2011 champions, who finished just behind Al-Nassr in the group stage, were expected to go far.

Instead, they lost 1-0 to Persepolis. The Iranians will take on Pakhtakor of Uzbekistan, who defeated Esteghlal 2-1, another team from Tehran, in the other quarter final. Both teams have plenty of Asian experience and knowhow but neither have the star power of Al-Hilal and Al-Sadd.

Should Al-Nassr get to the final then they will face what could be a very tired East Asian opponent. The group stage resumes in mid-November on the opposite side of the continent and that means teams from Japan, China, Australia, or South Korea would arrive for the final after playing as many as nine games in the space on the back of domestic commitments.

The route to a first Asian crown for Al-Nassr is looking clearer than it has ever done though Al-Ahli will have something to say about that on Wednesday.