Kuwait bourse ends July on further losses

A report prepared by KAMCO Research that analyzes the performance of the Kuwait Stock Exchange during July 2011 in addition to assessing the latest key economic and market developments and their effect on the performance of the stock market. — Editor


Market Briefing: The Kuwaiti bourse ended the month of July on further losses mainly due to poor market conditions, fears surrounding the European sovereign debt, deteriorating US fiscal and growth prospects, muted 1H-11 earnings, lack of new market catalysts and tight liquidity conditions along with continued unrest in the MENA region weighing down on investors’ sentiments as the KSE Weighted and KAMCO TRW Indices continued their losing trend to shed 4.24 per cent and 3.23 per cent, respectively. Market liquidity remained weak due to the absence of market makers, institutional investors and large government institutions from the market as the uncertainty surrounding the implications of applying the CMA bylaws and regulations have forced such investors to develop a wait and see approach. The average daily traded value retreated to nearly KWD 15 mn in July-11 as compared to KWD 28 mn recorded since the beginning of the year. Losses incurred during the month pushed the KSE Weighted Index and KAMCO TRW Index to extend their losses for the first seven months of the year to 14.16 per cent and 10.61 per cent, respectively. On the other hand, the number of shares exchanging hands during the month also plunged to 1.79 bn shares in comparison with an average monthly of 3.43 bn shares since the beginning of the year on the back of the unclear implications that the new CMA bylaws and regulations would have on the bourse.

Reflecting the performance of the market during July, the market breadth skewed towards the losers, with an advancer-to-decliner ratio 25-to-118, while 72 stocks remained unchanged from last month. Real Estate Trade Centers Co. ended as the month’s top gainer, advancing 41.7 per cent to close at KD 0.102 followed by Gulf Glass Manufacturing Co. and Jazeera Airways Co. which gained 17.65 per cent and 16.16 per cent to close at KWD 0.800 & KWD 0.230, respectively. On the other hand, Burgan Co. for Drilling, Trading & Maintenance was the top loser falling 42.2 per cent to close at KWD 0.240 followed by National Real Estate Co. and Gulf Finance House dipping 23.8 per cent and 23.6 per cent to close the month at KD 0.064 and KD 0.042, respectively.

Fitch’s Outlook on Kuwaiti banks: Fitch Ratings declared that its outlook for Kuwaiti banks is stable. The agency says it expects the operating environment for banks in Kuwait to improve in 2011 and profitability to continue to benefit from declining impairment charges. Although a significant deterioration in asset quality is not expected, it remains cautious on the banks’ large exposures to higher risk sectors such as real estate, investment companies and stock market lending. Despite Fitch’s confidence in the Kuwait banking sector, most banks retreated during the month of July on the back of tight credit conditions, deterioration in assets prices, European debt turmoil along with fears that the US debt ceiling would not be raised with NBK, KFH and Gulf Bank declining by 6.9 per cent, 12 per cent and 7.41 per cent to close the month at KWD 1.080, KWD 0.880 and KWD 0.500, respectively.

1H-11 Earnings: Earning announcements remained muted as only 67 companies announced its results for 1H-11, with aggregate earnings rising 17.3 per cent to KWD 656 mn (excluding a non-recurring gain of KWD 265.5 mn resulted from the revaluation of NMTC investment in Tunisiana) as compared to KWD 559.3 mn for 1H-10 (excluding a non-recurring gain of KWD 770.4 mn resulted from the sale of Zain Africa). All banks have announced their results for the period showing an aggregate increase of 13.9 per cent to record profits of KWD 294.7 mn in comparison with KWD 258.7 mn. The increase was backed by strong earnings from Gulf bank, Burgan Bank and Ahli United Bank where it registered increases in profitability of 823.9 per cent, 449.5 per cent and 50.1 per cent, respectively. National Bank of Kuwait (NBK), the largest Kuwaiti bank and the highest-rated in the Middle East, reported net profits of KWD 146.7 mn for the 1H-11 compared with KWD 145.2 mn for the same period last year. As of end of June 2011, NBK Group’s total assets stood at KWD 13.7 bn, total shareholders’ equity grew to KWD 2.2 bn. NBK Group’s net operating income grew at 6 per cent reaching KWD 265.9 mn. Asset quality indicators remained exceptionally strong by regional and international standards with NPLs/Gross loans ratio dropping to 1.61 per cent and coverage ratio reaching 221.6 per cent as of end of June 2011. In addition, Zain Group witnessed its net income increase to KWD 140.2 mn (USD 506.5 mn), indicating a 12.2 per cent increase on the same period in 1H-2010 after adjusting for its extra ordinary income from the sale of African operations. The company’s consolidated EBITDA reached KWD 293.1 mn (USD 1.06 bn) up 6 per cent on 1H-2010, reflecting an EBITDA Margin of 44 per cent with EBIT of KWD 210 mn (USD 758.3 mn), a 6 per cent increase on 1H-2010.

IMF Outlook on the Economy: According to the latest IMF report on the Kuwaiti Economy, the Fund expects stronger recovery in 2011 accompanied by larger fiscal and current account surpluses. The economy is expected to grow steadily in 2011 and over the medium term as the government implements the Development Plan and global recovery supports demand for oil. Real GDP is projected to increase by about 5 per cent, reflecting an increase in oil GDP of about 3.25 per cent and non-oil GDP of 6 per cent, spurred by government spending. On the other hand, despite a projected growth of 12 per cent in FY11/12 expenditure, the fiscal balance is expected to improve by almost 5.5 per cent to 26 per cent of GDP on account of higher oil revenue. In addition, the outlook is subject to domestic downside risks where the overarching risk would be associated with a significant shortfall in meeting the Development Plan spending targets. Red tape, bureaucratic hurdles, and political gridlock could delay project implementation, discourage private sector participation, and limit progress on necessary legislative reforms.

Inflation: Kuwait’s annual inflation slowed to a ten-month low of 5 per cent in June-2011 helped by a fall in food prices, but generous government spending is expected to keep levels above other GCC countries this year. Inflation has been hovering above 5 per cent since the beginning of this year, well below double-digit levels seen in 2008. It stood at 5.4 per cent year-on-year in May, after climbing to a nearly two-year peak of 6 per cent in December. On a monthly basis, consumer prices grew 0.2 per cent in June, which is below a 0.3 per cent rise in May. Food costs, which account for 18 per cent of the consumer basket, fell for the first time in four months by 0.6 per cent month-on-month.
Market Capitalization: Total market capitalization during the month shed 4.59 per cent to reach KWD 29.9 bn (USD 107.9 bn) at the end of July, down from KWD 31.4 bn (USD 113.1 bn) recorded at the end of June. The Banking sector dropped 5.34 per cent to end at KWD 13 bn (USD 46.7 bn) while the Investment sector incurred a loss of 5.06 per cent to record KWD 2.34 bn (USD 8.4 bn) at the end of the month. The Industrial sector recorded a loss of 4.21 per cent to record KWD 2.31 bn (USD 8.3 bn).



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