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Banks and large caps drive KSE rally in Q1 on improved outlook Market capitalization reaches KD 32 bln by March end

The Kuwait Stock Exchange (KSE) got off to a strong start in 2014, with the value-weighted index gaining 6.7% during 1Q14. The rally was primarily driven by large caps and more precisely bank stocks. A more positive outlook for Kuwait helped push the market higher in addition to the imminent increase in Kuwait’s weight in a number of frontier indexes. The larger capitalizations and banks in particular are expected to benefit most from this pickup in activity. The market has already seen fresh liquidity in recent months including from foreign funds. The continued improvement in corporate profits in 2013 also supported stock prices.

Most regional markets also rallied in 1Q14, outperforming both developed and emerging markets. The region continues to benefit from solid macroeconomic fundamentals, including high oil prices and strong government finances. In addition, the coming upgrade of the UAE and Qatar by MSCI to emerging market status from frontier has boosted investor interest in the region in general.
Kuwait market capitalization reached KD 32 billion by the end of March, adding KD 2.5 billion in 1Q14. The rally was predominantly driven by blue chips with the K15 index outperforming the general market with a gain of 10% and recording an all-time high on 27 March. Meanwhile, small caps were almost flat following strong gains made in 2013. As a result, the much-quoted KSE price index, which has a small cap bias, was up a mere 0.3%.

On a sectorial level, bank stocks were the best performing with the sector’s value-weighted index up 10%. Banks are expected to be the primary beneficiary of Kuwait’s improved economic outlook, with their healthier balance sheets ensuring they are well positioned to support the additional growth. Telecommunication stocks also saw a strong performance with the sector index rising 6.4% following a poor performance in 2013. By contrast, consumer services underperformed the market, retreating by 2.2%.
Liquidity in the market remained modest. The value of traded shares recorded a daily average of KD 29 million, almost unchanged from 4Q13. Market activity remained well below 2008 levels when average daily activity topped KD 148 million.
Foreign money seems to be entering the market in recent months, the monthly volumes data reveals. The share of non-Kuwaiti buyers averaged 15% in the first two months of the year compared to a 9% average in 2013. Data for March is not yet available. Meanwhile, the share of investment funds from total buying volumes has also picked up averaging 9% in January and February compared to 5% in 2013.

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