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Tareq Al-Mizrem

Stocks may receive $5bn of inflows – MSCI to reclassify Kuwait Index to Emerging Market status in 2020

KUWAIT CITY, June 26, (Agencies): Kuwaiti stocks could attract inflows of around $5 billion after global index-providers such as MSCI decided to upgrade the market to Emerging Market status, said Othman Al- Essa, vice-chairman of Kuwait’s Capital Market Authority’s Board.

MSCI has said it would upgrade Kuwaiti equities to its main emerging markets index in 2020, a move that could trigger billions of dollars of inflows from passive funds. Kuwait’s stock market joined the FTSE Russell Emerging Market index last year and this year will be added to S&P Dow Jones Indices’ Global Benchmark Indices with an emerging market classification.

Morgan Stanely (MSCI) said Tuesday it would reclassify the MSCI Kuwait Index to Emerging Markets status in May 2020. It added in a statement this upgrade was subject to omnibus account structures and same National Investor Number (NIN) cross trades being made available for international institutional investors before the end of November 2019. MSCI will communicate its final decision by Dec 31, 2019.

“Kuwait’s Market Development Project has set the path for the seamless implementation of numerous regulatory and operational enhancements in the Kuwaiti equity market,” said Sebastien Lieblich, Global Head of Equity Solutions and Chairman of the MSCI Equity Index Committee. “These enhancements have significantly increased the accessibility level of the Kuwaiti equity market for international institutional investors and resulted in broad positive feedback from these investors on our reclassification proposal,” Lieblich added. Lieblich added, “During the consultation, international institutional investors highlighted the criticality of omnibus account structures and same NIN cross trade capabilities to avoid frictions in their investment process. We welcome the Capital Market Authority’s (CMA) public commitment to deliver these market features by November 2019. We will closely monitor their implementation before making the final decision.”

On June 12, 2019, CMA publicly announced that omnibus structures, as well as same NIN cross trading would be made available to international institutional investors no later than November 2019. Currently, only local licensed entities are allowed to trade using omnibus accounts and same NIN trading is available for only certain exempt ‘non-discretionary’ local accounts.

Assuming the above-mentioned market features are delivered by November 2019, MSCI would include the MSCI Kuwait Index in the MSCI Emerging Markets Index in one step coinciding with the May 2020 Semi-Annual Index Review. This would lead to an inclusion of nine stocks in the MSCI Emerging Market Index having a pro forma index weight of approximately 0.5 percent. The constituent list of the pro forma MSCI Kuwait Index as of April 17, 2019, based on the MSCI Emerging Markets Index thresholds. Minister of Commerce and Industry and Minister of State for Services Affairs Khaled Al-Roudhan said on Wednesday that promotion of the Kuwaiti bourse to the level of an emerging market on the MSCI index backs up His Highness the Amir vision to establish Kuwait as a financial hub.

Speaking at a news conference at the Capital Markets Authority (CMA), marking the occasion, the minister said classifying Boursa Kuwait as an emerging market is an achievement that underscores success of efforts, spearheaded by the CMA, to be compatible with international standards; also in adherence to His Highness the Amir guidelines.

This grand move is the result of great efforts and diligent work by the authority, the Kuwaiti Clearing Company and the Kuwaiti stock exchange company, and is complementary to the Government effort at various levels to overhaul businesses and enhance the luring of external investments, he added. The CMA, since its inception, has sought to regulate the stocks and develop the financial market according to the best international criteria, Minister Al-Roudhan elaborated. The head of the CMA commissioners, Othman Al-Issa, said during the news conference that the authority is also involved in the technicalities of the market promotion. These arrangements will be enforced by November 2019, in coordination with the bourse and the clearance companies.

For his part, the acting CEO of the bourse company, Mohammad Al-Osaimi, affirmed the approach to make local criteria compatible with international ones The CEO of the clearing company, Khaldoun Al-Tabtabaei, said the market promotion would be an incentive to overhaul the market infrastructure.

MSCI expects Kuwait to introduce more reforms before the end of 2019, such as introducing omnibus accounts that would allow foreign investors to trade while remaining anonymous, offering the same privileges that local investors now have.

The Kuwaiti capital market regulator has already announced plans for such facilities to be available to the wider market by November, Arqaam Capital said in a note. “These enhancements have significantly increased the accessibility level of the Kuwaiti equity market for international institutional investors,” Lieblich said.

The Kuwaiti market has outperformed markets in the Middle East this year in anticipation of the MSCI move. The benchmark premier index is up about 20 percent so far this year. It was down 0.5 percent in early trade on Wednesday. “MSCI EM inclusion could represent the biggest ever liquidity event for Kuwait’s stock market,” said Salah Shamma, head of investment MENA at Franklin Templeton Emerging Markets Equity, adding that a 0.5 percent representation in the MSCI EM index could attract investor fl ows of about $10 billion.

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