Oil and Public Finance – June 2016
|By the end of June 2016, the first quarter of the current fiscal year 2016/2017 ended and average price for Kuwaiti oil for most of June scored US$ 44.3 per barrel, which is US$ 3 per barrel (7.3%) higher than the average of May which was at US$ 41.3 per barrel. It is also higher by US$ 19.3 per barrel, 77.2%, than the new hypothetical price per barrel estimated for the new budget at US$ 25 per barrel. It is however lower by US$ -0.7 only than the hypothetical price of the barrel for the past fiscal year which was at US$ 45 per barrel. It lost about -24.9% of its average price for June 2015 which was at US$ 59 per barrel. The past fiscal year 2015/2016 which ended by the end of last March scored an average of US$ 42.7 per Kuwaiti oil barrel. This means the average price for June 2016 is higher by about 3.7% than the average price of the barrel of oil for the past fiscal year, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.|
Kuwait is supposed to have achieved actual oil revenues in June in the amount of KD 1.2 billion. Assuming that production level and prices would continue as is — an assumption which may not be realized — Kuwait would achieve about KD 13.2 billion in oil revenues for the entire current fiscal year, which is KD 7.4 billion higher than the amount estimated in the entire current fiscal year budget at KD 5.8 billion. Adding an amount of KD 1.6 billion in non-oil revenues, projected budget total revenues would score KD 14.8 billion. Comparing this figure with expenditures allocations in the amount of KD 18.9 billion, it is likely the budget would achieve KD 4 billion deficit in the FY 2016/2017; however, this figure depends mainly on the average oil prices and its production in the remaining part of the year (9 months).
Britain’s Exit from the European Union
Britain’s exit from the European Union couldn’t rise such overwhelming negative reactions if it did not come post to a series of huge negative events in less than a decade starting from global financial crisis in 2008, then the Europe’s sovereign debts crisis, the geopolitical events in Ukraine and the Arab Spring, followed by the oil market crisis and recently the emerging markets crisis. The short-term damages resulting from Britain separation are endurable at any rate; the drop in the main European stocks in the next day of the referendum from 3.1% to 8%, the loss of global stocks value of about US$ 2 trillion (about 2.7% of the total world GDP for 2015), the drop in the sterling pound’s value against the US$ by about 8.1% in one day, the loss of Britain one degree of its credit rating and the loss of the GCC markets of about 0.6%-3.3% in the first work day after the referendum. These damages are still volatile and subject to compensation or loss.
What is unbearable is the medium to long term damages if the bad scenario for Britain’s separation took place, a scenario which would lead to losing hope in positive but fragile growth of global economy. Weak growth has become the most possible after the successive crisis since 2008. And the bad case scenario is the possibility of divisions or fragmentation of Great Britain so that it will lose being great and the European Union will lose its unity. Some indicators imply that though it is weak yet its chances still exist.
In Britain level, strong indicators refers to the return of Scotland to the separation referendum as in 2014 (55% chose to remain) but this time with semi-confirmed chances in support of the separation from Britain and remaining with Europe. It is not rule out for North Ireland to follow suit. On the level of GB’s four components, including England, divisions have never been worse. The two main parties are in confusion, and voting for the separation strongly varies among geographical components and varies even among age groups, indicating a probable instability with negative economic consequences. Unified Europe, including the United Monetary Europe, has enough internal problems and suffers from a long period of fragile growth, in addition to the risks coming from its five states who failed to repay their sovereign debts is still exist. This was further boosted by the French and Dutch Right referendum on separation similar to that of Britain. Even the scenario of harmless separation urged by John Kerry, i.e. Britain’s separation with the least possible costs, which will still be huge, is difficult under the current circumstances. Europe cannot act quietly with Britain because it might push others to repeat this experiment. Therefore, Britain will be subject to tough swap which might deprive it from its separation privileges. In conclusion, regardless of the possible scenario, the damage to Britain’s exit will extend to the entire global economy and the damages will be doubled in case worst scenario occurred and coincides with the winning of “Donald Trump” of the US Presidency — though still weak. Britain’s exit repercussions will increase problems of the GCC economies. The drop in financial and real estate assets’ value and the drop in the sterling pound and the euro value will deduct a margin of the value of public and private sectors’ savings value invested in their second and third largest markets, i.e. Britain and Europe respectively. Drop of assets value will affect the entire world though with a less degree. Affecting the fragile growth of global economy will be reflected adversely on the growth of demand on oil which will weaken prospects of the recovery of its already weak prices. Oil and foreign investments are the only sources of strength to our economies. The weakness of GCC needs revision. It has hardly exited from a crisis of severing relations of three of its members with a fourth member. Recently, one of its members officially welcomed the exit of Britain from Europe followed by a call from a former official for his country’s withdrawal from the GCC. If matters move badly and the worst case scenario is realized the exit of Britain. The European Union is an advanced discipline cooperation form. The GCC, despite its weak performance, prospects remain open for unpleasant surprises. In general, the best thing is to hedge against the worst case scenario and it does no harm to be optimistic.
Kuwait Stock Exchange Performance – First Half 2016
The weak performance of Kuwait stock exchange market continued in the first half of the current year, all performance indexes including general index, it’s within a logic result of lack confidence because of the piled negative events. Oil market began the year with its worst cases of weakness, and programs for financial and economic reform have not been applied, received the classification future sovereign negative, profit of listed companies continued with its decline, with the stock market liquidity, and later with the decline of real estate liquidity and prices. The first quarter performance of the year was better than the second quarter, giving an indication of the continued weakness over time, liquidity, volume traded shares, and general index, dropped in its levels in the second quarter compared to the first quarter.
AlShall index reading on the end of June 2016 scored 330.8 points with a 35 points drop, -9.6%, compared with the end of last year. To measure the total return in the domestic stock exchange during the period, we should add the cash yield during the first half of 2016 that was about 4%, which means that the total stock exchange decline, according to AlShall Index, that was -5.6%. It is worth mentioning that AlShall index scored its highest reading during the first half of the year, on January 4 at 362.4 points, i.e. the year started with a huge decline a drop by -0.9% in one day compared with the end of 2015 when it closed at 365.9 points, while the lowest reading was at 306.1 points on January 21.
Performance of main stock exchange indexes for the first half of the current year compared with the end of 2015 was negative. The weighted index dropped by -7.9% and scored 351.4 points (381.7 points). Kuwait 15 index dropped by -10.5%. Likewise, price index dropped by -4.5% and scored 5,364.6 points (5,615.1 points in the end of 2015). In fact, Kuwait stock exchange is one of the few global stock exchanges that did not recover since the global financial crisis on 2008.
For the first half, liquidity (127 working days) scored KD 1.585 billion (US$ 5.243 billion), KD 12.5 million daily trading average which is -35.3% lower than its counterpart value in 2015, that scored KD 19.3 million. March was the highest in liquidity during the first half of the year, trading value scored KD 328.7 million (20.7% of total trading value of the first half). February on the other hand scored the lowest trading value at KD 225.2 million, 14.2% of total trading value of the first half of the year. The banking sector took the lead in liquidity and captured KD 549.1 million, 34.6% of total market trading, but still the lowest contributor in total market capitalization by 47.4%, the financial services sector came second by 20.1%, the real estate by 13.6%, and the industrial by 9.7%. Value of traded shares during the first half scored 6.5% of market capitalization value with a turnover rate by 13.1% on annual basis.
The first half closed at a market capitalization value of all listed companies — 185 companies — after withdrawal of “City Group” of about KD 24.257 billion declining by KD 1.817 billion, -7%, compared between the end of June 2016 and the end of December 2015. It is worth mentioning that the number of gainers compared with the last trading day in 2015 was 58 companies out of 185 companies. 115 companies recorded varying losses in their value, while value of 12 companies did not change.
After excluding the companies which increased or reduced their capital, the “Kuwait National Cinema” scored the highest rise in value by 84.8% increase. “GFH Financial Group” came second by 79% rise. On the other hand, the “National Consumer Holding Co” recorded the highest loss in its value with a drop by -87.4% and “Taiba Kuwaiti Holding Co” came next in losses by -75% drop in value. Six sectors, out of 12 sectors, achieved drop in value. The banks sector scored the highest decline by -12.5% and the Oil and Gas sector scored the second highest drop by -11.4%. The technology sector went up by 19.2%. In general, the performance during the first half of the year does not seem positive. The resultant was the continuous weak liquidity that was already and the continuous justified or unjustified drop of the market’s indexes.
The following graph illustrated distribution of the market capitalization value according to sectors as of the end of the first half of 2016.
Warba Bank Financial Results – First Quarter 2016
Warba Bank announced results of its operations for the first quarter of the current year, which indicate that the Bank’s profits — after tax deduction — scored about KD 328 thousand (KD 77 thousand for the same period 2015). This means continued its positive performance and achieved growth in its profits by KD 251 thousand. The rise in net profits is attributed to the increase in total operating incomes by a higher value than the increase in total operational expenses.
In details, total operating incomes of the bank increased by KD 1.5 million and scored KD 4.8 million (KD 3.3 million for the same period 2015) as a result of the rise in all operating incomes components including rise in the item of net financing incomes by KD 788 thousand to KD 3.5 million (KD 2.7 million). That is because the rise in the item of placements and incomes financing is higher than the rise in the item of financing costs and distributions to depositors. Item of net investments incomes increased by KD 429 thousand and scored KD 928 thousand (KD 499 thousand). Likewise, item of foreign exchange gain/(loss) rise by KD 196 thousand achieving a profit by KD 141 thousand (loss by KD 55 thousand).
Total operating expenses increased by less value than the rise in total operating incomes, i.e. by about KD 535 thousand, to KD 3.6 million (KD 3.1 million). The rise included all items of operational expenses. Percentage of total operational expenses to total operational incomes scored 76% versus 94.8%. Total provisions for impairment increased by KD 711 thousand to KD 800 thousand versus KD 89 thousand. This explains the rise in the net profit margin to 6.9% (2.4% in the same period of last year).
The bank’s financial statements indicate that total assets increased by about KD 53.5 million, or by 6.9%, and scored KD 829.6 million (KD 776.1 million in the end of 2015). However, total rise in assets scored KD 202.6 million, 32.3%, if compared with the same period 2015 when it was at KD 626.9 million. Item of financing receivables increased by KD 48.4 million, or by 8.9%, to KD 592.2 million (71.4% of total assets) vis-à-vis KD 543.8 million (70.1% of total assets) in the end of 2015. It rose by 51%, KD 200.1 million, vis-à-vis KD 392.1 million (62.5% of total assets) in the same period of 2015. percentage of total financing receivables to item depositors’ accounts and the item of dues to banks and other financial institutions scored 81.1% versus 73.9%. Likewise, item of cash and balances with banks also rose by KD 2 million, or by 51.8%, to KD 5.8 million (0.7% of total assets), compared with KD 3.8 million (0.5% of total assets) in the end of 2015. It rose by 57.5%, KD 2.1 million vis-a-vis KD 3.7 million (0.6% of total assets) in the same period of 2015.
Figures indicate that the Bank’s liabilities (without calculating total equity) increased by KD 52.8 million, or by 7.7%, to about KD 736.7 million (KD 683.8 million in the end of 2015). They rose by KD 201.8 million, or by 37.7%, compared with the same period of last year. Percentage of total liabilities to total assets scored about 88.8% versus 85.3%.
Results of analyzing financial statements calculated on annual basis indicate that all bank’s profitability indexes rose compared with the same period of 2015. The return on average shareholders’ equity (ROE) increased to 1.4% (0.3%). Return on average capital (ROC) increased to 1.3% (0.3%). Likewise, the return on average assets (ROA) increased to 0.2% (0.1%). (EPS) scored 0.33 fils (0.08 fils). (P/B) scored 1.9 times (2.3 times).
The Weekly Performance of Kuwait Stock Exchange
The performance of Kuwait Stock Exchange (KSE) for last week was mixed compared to the previous one, where the traded value index, the traded volume index, and the general index, showed a decrease, while the number of transactions index showed an increase, AlShall Index (value weighted) closed at 330.8 points at the closing of last Thursday, showing an decrease of about 3.4 points or about 1.0% compared with its level last week and it decreased by 35.1 points or about 9.6% compared with the end of 2015.
The following tables summarize last week’s performance of KSE
Description Week 26 Week 25 Diff
30/06/2016 23/06/2016 %
Working days 5 5
AlShall index (38 Companies) 330.8 334.2 -1.0%
KSE index 5,364.6 5,408.0 -0.8%
Value Trade (KD) 52,932,404 69,307,766
Daily average (KD) 10,586,481 13,861,553 -23.6%
Volume Trade (Shares) 483,089,766 515,475,795
Daily average (Shares) 96,617,953 103,095,159 -6.3%
Transactions 12,068 11,585
Daily average (Transactions) 2,414 2,317 4.2%
Most Active Sectors & Companies
Value Traded % of Total
National Bank Of Kuwait 9,179,618 17.3%
Kuwait Food Co (Americana) 6,840,779 12.9%
Burgan Bank 3,554,170 6.7%
Kuwait Finance House 3,182,490 6.0%
Mobile Telecomms Co K.S.C (Zain) 2,901,687 5.5%
Total 25,658,745 48.5%
Description Value Traded % of Total
Sectors KD Market
Banks Sector 20,058,438 37.9%
Financial Services Sector 9,542,893 18.0%
Consumer Goods Sector 7,455,970 14.1%
Telecommunications Sector 4,861,700 9.2%
Real Estate Sector 3,761,482 7.1%
Al Shall Index Week 26 Week 25
Increased Value (# of Companies) 7 15
Decreased Value (# of Companies) 21 14
Unchanged Value (# of Companies) 10 9
Total Companies 38 38