KUWAIT CITY, Oct 20: Kuwait Financial Center “Markaz” organized a seminar for its clients and investors titled “Investing in Kuwait Stock Market: The Latest Developments and Emerging Opportunities” on Monday, Oct 15, at the Four Seasons Hotel.
The seminar agenda addressed a number of significant developments within Kuwait Stock Market, including the upgrade of Kuwait market in international indices and the market segmentation on Boursa Kuwait, shedding light on potential investment opportunities arising from these developments. Asset Allocation and Latest Developments In his keynote speech, Manaf A. Alhajeri, CEO,
Markaz said: “The goal of this event is to fulfill our responsibility as an active institutional investor by launching a discussion platform with stakeholders aiming to assess the opportunities arising from the reforms undertaken by the Capital Market Authority and Boursa Kuwait, without ignoring the various types of risks that affect our region; particularly, geo-political risks. The in-depth understanding of these risks is no longer an option but a necessity. We believe that it is our duty to make optimal use of the market research and databases to acquire a deep and prudent understanding of business models and their vulnerability to risks, away from all exaggerated optimism. The market faces a number of challenges; perhaps the main ones being: the decline in the number of initial public offerings (IPOs), the low level of market liquidity and the modernity of debt markets and associated legislations. Markaz policy towards asset allocation, investment strategies development and seizing of opportunities is marked by its commitment to prudent management of investments amid volatile regional and global markets.”
Role of Investment Funds
Alhajeri added: “I would like to stress the importance of institutional investors like Markaz in modernizing Kuwait capital market. It is also important to note that local investment funds, as natural market makers and institutional investors, contribute signifi cantly in laying the appropriate ground to attract investors.” He continued, “Foreign investors’ attention has shifted to premier segment comprising 17 stocks, while the main market segment has 146 companies. This will allow the local investment funds to actively benefi t from investing in all listed companies. In that way, investment funds play a crucial role in attracting investment into domestic institutions, by companies with extensive and strong experience, knowledge and performance”.
Appeal of the Kuwaiti Market
Alhajeri stated: “The Kuwaiti Market is the home country of the Kuwaiti investors, their funds, savings and businesses. It is a market in which bank distributions amount to 3-4% annually and real estate distributions to 6-7%, making it a good market for investment. Even the global markets in which we invest are low in return owing to political stability”.
Mohamad Al Abdulqader, Assistant Vice-President, MENA Equities, gave a presentation on Kuwait Financial Market Outlook. The presentation provided insight into the Kuwaiti market index performance following the FTSE Russell promotion of Kuwait market to Emerging market status, the change in the liquidity levels, government spending on infrastructure and projects, improved levels of corporate profits and strong financial position of Kuwait.
Al Abdulqader emphasized the important role of qualified investment managers in addressing potential risks within an investment environment and seizing favorable opportunities arising from the market’s repercussions. The region continues to experience volatile environment as a result of oil prices continuing to fl uctuate and geopolitical risks, in addition to the challenges faced by the Kuwaiti market represented by the low profitability in the main market compared to the primary market, poor transparency in general and the absence of quality data, making it difficult to make an investment decision solely without the need to seek help from qualified institutional investment manager.
Promotion of Kuwaiti Markets
Al Abdulqader highlighted Kuwaiti market promotion to Emerging market status noting that: “The upgrade of the Kuwaiti market to FTSE Russell Emerging Markets Index is expected to boost liquidity levels to $800 million. On the other hand, liquidity levels are projected to continue to rise to as high as $2 billion as a result of the expected upgrade of MCSI Kuwait Index to Emerging Market status. The positive effects of this upgrade can be summarized by increased levels of liquidity in the stock market on the short term, improved visibility of the market and attraction of foreign investors, which increases their potential to engage in the market activities on the long-term.”
He added: “The upgrade will create favorable opportunities. It is expected that the focus on blue-chip stocks would mean neglecting many other companies that are not included in the index, especially those traded in the main market. In order to capitalize on the opportunities presented by these challenges, a number of key factors must be in place to succeed with investment management: Long experience and high degree of professionalism of the investment manager as well as availability of research and studies that support the decision-making process and facilitate seizing opportunities arising from challenges. “
The seminar included a panel session on the “Latest Developments and Emerging Opportunities”, moderated by Osama Rasheed, CNBC Arabia. Amani I. Al-Omani, Executive Vice-President, MENA Equities, stated: “Since the global financial crisis to date, investors have become more conscious of the importance of access to experienced and qualified investment managers to manage their investments and avoid associated risks. The establishment of the Capital Markets Authority and Boursa Kuwait has also contributed to changing the regulatory environment and thus changing the behavior of investors. With over 40 years of experience, Markaz has successfully overcome many challenges due to its strong foundations.
Markaz funds have outperformed the market indices and are characterized by lower risks, making them suitable for any investor. Markaz promotes professionalism, integrity, credibility and in-depth analysis in all its activities. However, our institution is part of an economic system and an investment environment that require cooperation between all stakeholders to achieve Kuwait’s vision 2035 and attract the local investor before the foreign investor to deepen the confidence and trust in the existing opportunities and institutions to achieve the best possible returns. We need to enforce the concept of investment rather than saving to contain inflation and encourage seeking prudent opportunities to achieve the investor’s interest.” With regard to existing risks, Al- Omani pointed out that: “Risks and loss are part of the nature of business and investment.
In our view, experienced investment managers provide a more accurate assessment of risk. Temporary and limited risks have shorter-term effect. Longer-term risks, on the other hand, must not be overlooked. The Kuwaiti market is characterized by the general policy of non-interference by the government in financial crises, unlike the other GCC countries where governments purchase the stock banks, instead, Kuwait came up with portfolio plan, leaving it to the market to correct itself without interference. In the end, the nature of the investment depends on calculated risks and chasing of returns.”
More regulated market
Ghazi Al-Osaimi, Senior Vice-President, MENA Equities, said: “After the establishment of the Capital Market Authority, the Kuwaiti market entered a new stage of transparency and compliance. In addition, with the establishment of Boursa Kuwait, the market has become more regulated. We have witnessed new listings for companies with high-value. The market segmentation mainly aimed at increasing the liquidity levels; however, this can only be achieved through extended investment tools that will lead to increasing liquidity gradually. We believe that the reforms and developments would need to evolve over time to create positive impact on the market in the long term, especially with the development of all segments of economy including the service and supporting sectors.”
About the emerging opportunities in the main market, he said: “The main market include many promising companies with high profits providing that doubled their prices by 100% and achieved good profits during 2018. These companies provide attractive opportunities for professional investment managers. We expect that the emphasis would be placed on those opportunities in the coming period, not only the premier market.”
Indices Periodic Reviews
Mohammad Al Ghannam, Assistant Vice-President, MENA Equities, said: “There are several conditions that need to achieved in order to be added to the periodic reviews. They include the minimum market value for shares ($253 million) and liquidity.
In previous reviews on some GCC markets, it was noted that some investors and expert houses focused on shares that satisfy all of the liquidity and market value conditions during a 10-month period from the last 12-months of review. This has resulted in unprecedented activity in those companies and significant increase in the share price prior to being included in a stock index. This could activate the role of market maker.
There is also another potential option during the review period, which is the change in shares weights in the indices between the reviews, due to the changes in the emerging markets performance, the shares percentage and the foreign ownership percentage during that period. An example for this would be the increment of foreign ownership percentage to 49% in some Qatari blue-chip companies this year, which increased the weights of these companies in FTSE and MSCI indices and in return attracted foreign inflows of $1.5 million.”
He added: “I believe that foreign inflows played a pivotal role in the performance of the region’s markets. This is evident when comparing Dubai market to Abu Dhabi market, as Dubai market has declined significantly as a result of the abundant supply of properties and high interest rates, leading the lowest valuations ever since the beginning of the oil crisis. Qatar index achieved the highest performance among its GCC peers due to the increased percentage of foreign ownership despite the political challenges.
On the other hand, the Saudi market inclusion in FTSE and MSCI indices and the increased oil prices contributed significantly to attracting foreign inflows estimated at $3 billion and the surge in the market by 11% since the beginning of the year. We believe that the positive performance will continue in the Saudi market with a higher revaluation of the multiples of profitability and book value as witnessed in the historical market evidence between the decisions to upgrade to the implementation.
In addition, foreign investment is still low in the expected inflows for the coming year. The current market is only 15% of the expected inactive flows and 5% of the total active and inactive funds. In our view, the Saudi market will not be isolated from sharp fluctuations due to geopolitical risks. However, based on those considerations, I strongly believe that Kuwait remains the safest haven and the least risky market of all the GCC countries due to its current attractive evaluations, improved earnings and anticipated upgrade in MSCI Index.”