Boursa Kuwait faces challenges amid ‘global financial recovery’

Blue-chip companies suffer from ownership saturation

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KUWAIT CITY, Dec 19: In contrast to the global recovery in financial markets since the 2008 financial crisis, Boursa Kuwait faces numerous challenges as it enters the New Year 2024. Despite various attempts and opportunities associated with the market, it has struggled to absorb investor liquidity, necessitating an effective and radical approach to address these challenges. The market’s significance in the equation demands corrective measures, reports Al-Jarida daily.

The market is witnessing a gradual decline in attractiveness for both investment and speculation. The pool of companies suitable for speculation is diminishing due to associated risks leading to delisting or suspension. Blue-chip companies, targeted by a substantial amount of liquidity, are also narrowing down, with many saturated in ownership. Larger, stagnant companies experience unsatisfactory turnover rates due to stable ownership and a limited capital base compared to substantial liquidity-seeking opportunities. Yearly, substantial liquidity migrates in search of opportunities across the Gulf, regional, and global markets.

As the stock market approaches 2024, investment managers, as described by Al-Jarida, highlight a multitude of serious challenges. The market’s stagnation and lack of renewal and modernization have turned it into a reservoir freezing funds. Upon closer inspection, it becomes evident that certain companies in the market, existing for 15 years, have not distributed profits to shareholders, relying solely on rumors or kinship relationships. Some of these companies report profits in the tens of thousands, a discrepancy not suitable for a listed company with millions in capital. The challenges prompting concern among investors and institutions require swift solutions, considering the fast-paced development of legislation, instructions, and regulatory laws.

The challenges that require attention and solutions can be outlined as follows:

Listing File
The current market situation is unsatisfactory, with one active company unable to lead or absorb the entire market. Urgent renewal and replacement operations are needed to prevent market suffocation. A plan should be developed to list at least 10 companies annually, establishing a timetable for listing a company each month. Investment Instruments — The file of investment instruments has become complex.

While other markets offer dozens of investment instruments, the Kuwait Stock Exchange, being the oldest and most prestigious, only provides instant cash trading. There is a need to address this disparity and introduce a variety of investment instruments.

Inactive Trading Accounts
Ninety-five percent of trading accounts, totaling 403.5 thousand, remain stagnant and inactive due to serious issues affecting small investors. Companies exiting the listing booth led to a loss of 90 percent of their value. The Over-the-Counter (OTC) platform is complex, requiring flexible procedures. Simplifying processes, reducing fees, and linking the “stagnant” market to the shareholder registry through brokerage company applications can revive market activity.

Decline in IPO Market
The Initial Public Offering (IPO) market has declined, losing its leadership position to more attractive markets. Local companies are now acting as investment and sales agents for Gulf, regional, and global opportunities. To regain competitiveness, the Kuwait market should rejuvenate its IPO market.

Disappearance of Bond Market
The bond market, once active, has nearly disappeared. Major companies used it for expansion and long-term liquidity. Efforts should be made to revitalize the bond market, providing opportunities for liquidity diversification. Lack of Sukuk Activity — Despite global demand for Sukuk, there is a lack of interest, opportunities, and activity in the Kuwaiti market. Encouraging local participation and creating opportunities for Sukuk issuance can stimulate market activity.

Timidity in Investment Funds
Investment funds have become timid, experiencing weak demand among individuals. Restoring investor confidence and promoting the benefits of investment funds can reinvigorate this essential market tool. Decline in Acquisitions Market: The acquisitions market witnessed a sharp decline due to economic weakness, project decline, and group lethargy. Identifying and promoting convincing opportunities, despite economic challenges, can revitalize the acquisition market.

Inactivity in Investment Companies
Investment companies have become inactive, with some becoming dependent on specific investments or seeking roles in exit or management deals. Encouraging diversification and fostering an active role for investment companies can enhance market dynamics.

Disappearance of Capital Increases
Capital increases, once a profitable channel for subscribers and companies, have disappeared. Their absence poses a threat to the banking sector. Encouraging controlled and beneficial capital increases can ensure sustainable profits. The suitability of companies for speculation or investment, especially those not distributing profits or achieving positive performance for 15 years, raises questions. Current private sector deposits in the banking sector amount to 37.72 billion dinars ($117 billion), reflecting limited opportunities in the existing financial tools and stock market. Addressing these challenges is crucial for the market’s rejuvenation and sustained growth.

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