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Kuwait Stock Exchange stocks come under selling pressure

KUWAIT: Kuwait Stock Exchange (KSE) closed another week with loss and almost shedding all this years' gain. The Global General Index saw it lowest level since December 16, 2007 on August 12, 2008 as it reached 370.94 points before regaining back some of its loss to close at 378.24 points, a 1.51 percent decrease from last week's close. The YTD gains almost vanished reaching 0.10 percent.

Furthermore, the Kuwait Stock Exchange (KSE) price index was also down this week by 211.90 points (1.43 percent) and closed at 14,616.00 points. Market capitalization was KD60.19bn. Market breadth was highly skewed towards declining stocks with 112 losers against 31 advancers, while 27 stocks were not traded this week.

Trading activity was mixed this week with investors shifting their interests to larger companies. Volume of shares traded on the bourse was down by 7.89 percent, with 820.86mn shares changing hands.

Value of shares traded on the other hand rose by 10.59 percent, aggregating to KD479.91mn. The Investment sector took the spot-light in-terms of volume and value traded among all sectors accounting for 34.44 percent of the total volume traded this week with 282.72mn shares changing hands accounting for 24.65 percent (KD118.32mn) of the total market value.

Sector-wise, the Global Food Index was the only gainer this week. The Index added 0.55 percent. On the other side, all other sectoral indices retreated with Global Non-Kuwaiti Index being the biggest loser for the second week, shedding 3.53 percent, and dragged down by a retreat seen in most of the sector constituents. Global Real Estate Index followed, losing 2.74 percent. Arab Real Estate Company was the biggest loser in the sector and made it to the top losers list this week with 9.47 percent retreat to close at KD0.172. The Industrial sector follow as Global Industrial Index shed 2.63 percent.

Heavy Engineering Industries and Shipbuilding Company topped the losers list this week with 10.91 percent retreat in its share price. The scrip closed at KD0.490. Global special indices concluded the week with mixed performances. Global Large Cap. (Top10) was down by 0.97 percent, while Global Small Cap (Low 10) Index added 1.34 percent. The Sharia-compliant, Global Islamic Index was also down by 2.09 percent.

Burgan Group Holding Company was the biggest gainer for the third week, adding 25.27 percent to its share price. The scrip closed at KD1.140. Al-Safwa Holding Group, was the most traded stock this week with 56.60mn shares changing hands accounting for 6.90 percent of the total traded volume this week. The scrip closed flat at KD0.228.

Exchange rate policy
Kuwait has enacted a bill cutting taxes on the earnings of foreign firms to 15 percent from up to 55 percent and exempting gains of foreign investors from trading on the bourse. Under the law issued about half a century ago, foreign firms had to pay up to 55 percent tax, although this was rarely enforced in full. The law also stipulates that individuals, trading or working in Kuwait, will be exempt from paying tax except if they are representing an institution stated in a 48-article memorandum detailing how the new law will be implemented.

The Central Bank of Kuwait (CBK) is using exchange rate flexibility and interest rate policy to control liquidity in the banking sector as it tackles inflation, said CBK Governor Sheikh Salem Abdulaziz Al-Sabah on August 10. The Governor said that Kuwait would make interest rate decisions based on the needs of the local economy. "The central bank is using ... monetary policy tools, including exchange rate policy and levels of interest rates ... to organize liquidity levels inside the domestic banking and financial sector," Sheikh Salem said. He added, "The country is currently witnessing rising inflationary pressures from rising prices in markets for commodities, services and assets, accompanied by accelerating growth in local demand for credit." Kuwait's inflation rate hit record levels of about 11 percent in April and May. "The central bank's intervention is to define a ceiling for growth of banks' credit portfolios," he added.

The CBK-which set limits on consumer loans in late March-will also be open to issue bonds, Sheikh Salem said. He refused to comment on whether the central bank would modify its benchmark discount rate, which guides banks' retail lending rates, from the current 5.75 percent.

Interest rates ... are mainly linked to the local economic, monetary, and banking conditions, but also take into consideration the latest developments in interest rates of main currencies," Sheikh Salem said.

However, monetary policy is not enough to tackle inflation, he said, reiterating a call for the state to rein in public spending to ease inflationary pressures. "There are limits to the performance and effectiveness of the monetary policy tools of the central bank," Sheikh Salem said. "Other factors have a tangible impact in feeding inflationary pressures ... Perhaps the most important one is public spending policy." Kuwait should "avoid increases in public wages," he added, alluding to the basic salary increase which was introduced twice this year.

Inflation
Kuwait's cooperative supermarkets are starting to import basic goods directly from the source as part of efforts to curb soaring inflation in the country. Kuwait, the world's seventh-largest oil exporter, the only Gulf Arab state without a dollar peg, is fighting record inflation hitting 11 percent in April and May, driven by food and housing costs. Mohammad Al-Ansari, the head of the Union of Consumer Cooperative Societies, said that the organization was looking at importing seven basic goods to reduce prices after the government allowed them to cut out middleman importers.

In order to fight inflation, the government also welcomed the committee, which was assigned to prepare a strategy to fight inflation, proposals this week on how to curb inflation, which recommended more subsidies of goods, and said it would study them further.

The recommendations, from a committee assigned to prepare a strategy to fight inflation, were studied at the cabinet's weekly meeting. They include a wider range of subsidies and supporting some food firms in sectors such as livestock and flour mills to reduce prices for consumers. The plan also includes the creation of a consumer protection committee to prevent fraud and the export of subsidized products.

Oil Related News
The price of Kuwait's crude oil fell $6.02 as per the price in August 13, 2008 of $105.21, compared to last Wednesday, August 6 price of $111.23, stated Kuwait Petroleum Corporation (KPC). The price decrease of the Kuwaiti crude coincided with the general drop in prices in the global market and is one in a series of slips recorded recently.

The sharp drop in the oil prices followed a period of high prices due to non-technical factors including the depreciation of the US greenback, heated speculation in the world oil market, instability in the Middle East and other oil-producing regions of the world.

Fourth refinery
Construction on the site of Kuwait's fourth refinery will start within a few months. "The first phase, which aims at completing the administrative and financial work, has started and will be directly followed by the second phase which is contracting for raw material and equipment. Field work, which is the third phase, will start within a few months," according to sources familiar with the matter. Work is expected to last for about three and a half years, drawing the completion date it 2012. The project, estimated to be worth $15bn, involves the construction of a 615,000-barrel a day refinery at Al-Zour that will mainly produce low-sulfur fuel oil for the country's power plants.

Kuwait National Petroleum Corporation (KNPC), plans to embark on three industrial engineering projects of Jurassic age extracts to produce gas and associated gas by 2015 according to a new report. Most of the gas output will be used in Kuwait to provide energy to the industrial sector and to generate electrical power, according to an interview with Farrouk Al-Zanki, KNPC's Chairman and Managing Director with research firm Oxford Business Group.

This is part of plans to boost production capacity from existing sources and others under exploration, Zanki added. KNPC also plans to modernize and expand its infrastructure and production facilities and boost Kuwait's export capacity in addition to setting up a new refinery.

Kuwait has raised the official selling price (OSP) for its crude oil sales to Asian buyers for September by 85 cents per barrel to $3.25 a barrel below the average of Oman/Dubai quotes, a trader said. Kuwait set its OSP at $4.10 per barrel below the Oman/Dubai average for August loading. The September crude price was mostly in line with expectations as its price formula is loosely linked to that of Saudi Arabia's Arab Medium grade, which was raised by 75 cents a barrel.

Kuwait Oil Tanker Company (KOTC) has signed with South Korea's Daewoo Engineering & construction a letter of intent to build four very large crude carriers for $700mn, KOTC's chairman Nabil Bouresli said. The final contract will be signed on August 21, he added saying that the delivery would be in end 2011 as part of a fleet renewal plan.

Third mobile firm
The public registration for the third telecommunication company will set to start on August 24 and close on September 11. 250mn shares at a face value 105fils per share will be offered. Minister of Commerce and Minister of State for the National Assembly Affairs, Ahmed Al-Baqer announced this week that shares can be bought in batches of 500 and 1,000 only. Interested applicants can apply at all local banks; the registration is open only for Kuwaitis.

Kuwait Asia Holding Company (KAH), expects to list on the Kuwait bourse in mid-2009 and plans to enter a US$250mn real estate project in Vietnam in partnership with a property developer there. KAH has implemented seven projects valued at KD100mn since the beginning of the current year, said Meshaal Al-Musallam, the company's Chairman, who added that these projects are in different sectors inside and outside Kuwait. He also stated that KAH plans to set up a food company with an initial capital of KD1mn that will be raised to KD50mn later and a private placement will be launched for this company in the last quarter of the current year.

Kuwait witnessed the establishment of a new company, Load and Air Cargo, with a capital of KD2mn.

The shareholding company's capital is distributed among 20mn shares, each valued at 100fils. The new company is specialized in air purchase servicing, operational leasing services, finance of aircraft purchase and promotion. The company is also specialized in air cargo in and outside Kuwait.

Al-Khirah International Real Estate Company said it plans to launch projects worth more than KD35mn in the United Arab Emirates and Oman.

Global's recent publications
In continuation of Global Investment House coverage of the listed companies in Egypt, we have come out with an Initial Equity Research Report on the Egyptian Financial and Industrial Company (EFIC). EFIC has been the main local phosphate fertilizers producer for more than 70 years. EFIC was established in 1929 and started phosphate fertilizer production since 1935. EFIC produces different types of phosphate fertilizers, as well as the sulfuric acid, ammonium sulfate, and dicalcium phosphate (DCP). In 2002,EFIC established Suez Company for Fertilizer Production (SCFP), where EFIC holds a stake of 99.88% in SCFP.

SCFP started operations in late 2005, and it is expected to upsurge EFIC total production volume after being fully operational by 2009. SCFP is enjoying 10-year tax exemption, to end in 2015. EFIC's sales volume is projected to increase at a CAGR of 19 percent during the forecasted period from 2008 to 2011, driven mainly by the new capacity of SCFP. The sales value is also anticipated to increase massively by around 179 percent in 2008, reflecting the new sales of SCFP, coupled with the hike witnessed in the selling prices. On the other hand, the expected rise in the COGS/Sales ratio will cause a slight decline in the Net Profit Margin, to reach 21.1 percent in 2008. After that the Net Profit Margin is projected to rise in 2009 and to show stable performance during the projected period, to reach 28.2 percent in 2011.

© Kuwait Times 2008