GCC Equities Review: Funds to allocate more weight to Kuwait

FTSE Russell upgrade later this year set to bring in over $800 million of investment into country's biggest stocks

  
Kuwaiti investor points to computer screen on trading floor of Kuwait Stock Exchange. Image for illustrative purposes.

Kuwaiti investor points to computer screen on trading floor of Kuwait Stock Exchange. Image for illustrative purposes.

REUTERS/Stephanie McGehee

It’s been a busy six months both for the Capital Markets Authority responsible for regulating Kuwait’s stock market, and for the bourse’s bosses themselves. A string of reforms took place during the first half of 2018, including the introduction of a new DVP (delivery versus payment) settlement system, changes in the settlement cycle and in the minimum size for transactions. The market was also segmented into three sections – Premier, Main and Auction – based on the size and liquidity of stocks.

The reforms are aimed at boosting the transparency and liquidity of Kuwait’s biggest firms in a bid to make them more attractive to international investors, which has already paid off following index compiler FTSE Russell’s decision to upgrade Kuwait to secondary emerging market status, with implementation taking place in two phases between September and December this year.

Morgan Stanley Capital International (MSCI) has also added Kuwait to a watch list, with a view to potentially announcing an upgrade next year that would then be implemented in 2020.

As with Saudi Arabia, these inclusions are likely to lead to inflows, which will be a boon to Boursa Kuwait bosses who are in the process of arranging their own IPO. Mohamad Al-Hajj, a vice-president and head of MENA strategy at EFG Hermes, argued that that Boursa Kuwait is likely to see inflows “of around $830 million at least from FTSE trackers and circa $1.5 billion from MSCI EM trackers”.

“That’s one of the reasons why Kuwait took off since June,” he told Zawya in a telephone interview. “It’s been the best-performing market in June in our universe, and turnover has increased substantially. I think Kuwait has the catalysts needed to continue to outperform for the second half of this year.”

Analysis published last week by NBK Capital showed that the value of stocks traded on Boursa Kuwait jumped dramatically following MSCI’s announcement in June that Boursa Kuwait would form part of its Annual Market Classification Review next year.

Prior to the announcement, average trading values this year had been just 11 million Kuwaiti dinars ($36.3 million) per day, but have since almost doubled to 21 million dinars ($69.3 million) per day.

“The positive market developments coincides with a push by Kuwait to continue spending on building up its oil and non-oil infrastructure,” said Husayn Sharur, managing director of MENA asset management for NBK Capital in response to questions from Zawya. He said Kuwait had taken a ‘counter-cyclical’ approach to growing its economy by boosting spending on non-oil projects as oil prices dropped in recent years. This has included a five-year investment of $114 billion by Kuwait Petroleum Company on domestic oil and gas projects.

The resurgence in oil prices has meant Boubyan Petrochemicals was the best performing stock on Kuwait’s Premier Market, increasing in value by 25 percent over the six-month period.

Faisal Hasan, head of investment research at Kuwait Asset Management Company (Kamco), said that as well as the rise in oil prices, “the market seems to be optimistic on Boubyan Petrochemicals’ main investment (petrochemicals company) Equate and its growth prospects, and inorganic growth strategy through diversification into other sectors, such as healthcare and education, through its investments.”

Gainers

1. BOUBYAN PETROCHEMICALS 25.22%

2. BOUBYAN BANK 19.32%

3. AGILITY 13.70%

Losers

3. MEZZAN HOLDING CO -7.99%

2. GFH FINANCIAL GROUP -12.30%

1. KUWAIT PROJECTS CO -20.29%

Click through the links below read how markets in each country fared.

Bahrain

Oman

Qatar

Saudi Arabia

United Arab Emirates

 (Reporting by Michael Fahy; Editing by Shane McGinley)

(michael.fahy@thomsonreuters.com)

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© ZAWYA 2018

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