Reforms put Kuwaiti stocks on investors' radars - World -

Kuwait has fortified its capital markets, with strong supervision, the privatisation of its stock exchange and the introduction of the BK Main 50 Index. However, the coronavirus outbreak may have put a brake on developments. John Everington reports.

Kuwait stock exchange

The evolution of Kuwait’s capital markets has illustrated the country’s economic transformation of the past 10 years. The country’s stock exchange – the oldest in the Gulf region – received a boost in 2010 with the formation of supervisory and regulatory body, the Capital Markets Authority (CMA), which introduced standards for securities trading more in line with international norms.

A further key step came in 2014, when the CMA established a private company, Boursa Kuwait, to manage exchange operations at the stock exchange. The company gained full operational control of the Kuwait Stock Exchange in 2016, renaming it Boursa Kuwait, and went on to upgrade its infrastructure and business procedures to meet international standards.

Key initiatives included changes to the settlement cycle, improvements to trading efficiency and the introduction of new service offerings, such as block trades. In 2018, the CMA introduced the requirement that the country’s largest and most liquid listed entities host quarterly analyst conference calls within five days of their financial disclosures.

Reforms bear fruit

“The Kuwaiti stock market has developed significantly over the past three years,” says Mazin Saad Al-Nahedh, group CEO of Kuwait Finance House. “[The emphasis on transparency] is a big step in comparison to what was happening before, where you’d just talk about your annual results. Now things are much more robust.”

The past two years have seen Kuwait reap the benefits of such reforms. Kuwaiti stocks were included in global index provider FTSE Russell’s Emerging Markets Index, boosting the bourse’s liquidity and putting the country’s stocks on the radar of foreign investors.

An even bigger prize awaits in June 2020, when Kuwaiti stocks are included in the Emerging Markets Index of MSCI, the world’s largest indexes provider. The inclusion, which will see Kuwaiti stocks have a weight of about 0.69% in the widely tracked index, is expected to generate about $2.7bn in net passive inflows, according to Dubai-based Arqaam Capital.

Thanks in part to the MSCI inclusion, Kuwaiti stocks were the best performers in the Gulf Co-operation Council (GCC) during 2019. Boursa Kuwait’s All Share Index gained 23.7% during the year, with its Premier Market Index – which tracks the country’s largest and most liquid stocks – gaining 32.4%. This compares with a gain of just 8.3% by S&P’s GCC Index that tracks regional stocks as a whole.

Stock exchange sale

The icing on the cake has been the successful privatisation of Boursa Kuwait itself, which started in February 2019 with the sale of a 44% stake in the company to an international consortium including the Athens Stock Exchange, with Kuwait’s Public Institution for Social Security taking a 6% stake.

In October, the CMA launched a subscription offer for the remaining 50% of Boursa Kuwait’s share capital to Kuwaiti citizens at 100 fils per share. The offer was 8.5 times oversubscribed, with about 83,000 Kuwaitis participating.

The end of the year also saw an offering of a 50% stake in Shamal Az-Zour Al-Oula, the operator of the Az-Zour North One power and water plant, the first offering of its kind in the country. It was 127% subscribed, with 127,000 Kuwaitis applying.

“The offering of a 50% share in Shamal Az-Zour Al-Oula by KAPP was the first Kuwait public-private partnership project to be listed in the market and was received positively by investors,” says M R Raghu, research head at Markaz, a Kuwait-based asset manager. “Moving ahead, with the improvement in economic activity and further push from the regulatory side, we could expect more projects of this kind.”

Brake on progress

The prospect of additional companies listing in 2020 remains mixed, however, especially given the turmoil experienced by markets following the global spread of the coronavirus. “There isn’t a private company that I think is right to [issue an initial public offering] at the moment,” KFH’s Mr Al-Nahedh said in late February.

In February 2020, Boursa Kuwait announced the creation of its BK Main 50 Index, consisting of the exchange’s 50 most liquid shares, weighed by market capitalisation. 

“The launch of the BK Main 50 Index represents a significant step further in Boursa Kuwait’s market segmentation and forms part of our ongoing endeavours aimed at creating a robust capital markets ecosystem in Kuwait,” says Boursa Kuwait acting head of markets Noura Al Abdulkareem.

“This development, helping enhance the appeal of the equity market to foreign investors and encourage higher participation of local retail investors, will further strengthen the company’s position as a leading stock exchange in the region.”

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