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KD 1bn inflow forecast into bourse

Upgrade seen boosting role of private sector

Kuwait’s Minister of Commerce and Industry Khaled Al-Roudhan

KUWAIT CITY, Dec 19, (Agencies): Minister of Commerce and Industry Khaled Al-Roudhan said on Thursday upgrading Boursa Kuwait by Morgan Stanley Capital International (MSCI) Index would help in creating a KD 1 billion ($3 billion) infl ow into the national stock market.

Speaking at a news conference held by the Capital Market Authority (CMA) marking the promotion, Minister Al-Roudhan congratulated Their Highnesses the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, the Crown Prince Sheikh Nawaf Al-Ahmad Al-Jaber Al- Sabah and Prime Minister Sheikh Sabah Khaled Al-Hamad Al-Sabah on enlisting Kuwait among emerging markets by the most renowned international capital index. Serious efforts by all concerned authorities and overhaul of the business environment “have begun to bear fruits,” he said alluding to placing Kuwait in the world’s top three indices, the Financial Times Stock Exchange (FTSE), Standard and Poor’s and MSCI. “Ceiling of the ambitions remains high and the work continues for further development,” he said, affirming determination to attain His Highness the Amir aspiration to transform Kuwait into an economic- financial hub. Dubbing the achievement “the making of hope,” Minister Al-Roudhan praised the CMA for the success although the body was established recently.

“The Kuwaiti market has been placed on the regional-international investment map,” he said, noting that he was proud that Kuwaiti personnel were behind the record stride. The CMA has made the achievement in cooperation with other national authorities, namely the Central Bank of Kuwait (CBK), the Ministry of Commerce and Industry, Kuwait Clearing Company and the Kuwaiti stock market. Morgan Stanley Capital International (MSCI), the world’s top equity indexing provider, announced Wednesday that it will reclassify the MSCI Kuwait Indexes to Emerging Markets status. In a press statement, the MSCI said the move comes as a part of the May 2020 Semi-Annual Index Review. It also noted that the Kuwaiti equity market now meets all the necessary requirements.

Diversification
“Kuwait’s addition adds further diversification to the MSCI Emerging Markets Index with an estimated weight of 0.69 percent,” Sebastien Lieblich, Global Head of Index Solutions and Chairman of the MSCI Equity Index Committee. He also welcomed the latest market accessibility enhancements introduced by the Kuwaiti authorities that now allow international institutional investor to benefit from omnibus account structures and same National Investor Number (NIN) cross trade capabilities.

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. The upgrade is intertwined with the ability to attract foreign capital, leading to further liquidity, increasing transparency and better corporate governance.

A report by NBK Capital predicted that in case of a positive announcement from MSCI in December, Kuwait’s weight in the MSCI EM index is likely to be around 0.60 percent, and is expected to result in passive infl ows of around $3 billion. This will be significantly higher than the $1 billion or so of passive infl ows from the FTSE EM upgrade event. The report also estimated the potential upgrade would result in additional active fl ows in addition to the passive fl ows. The updated provisional list for MSCI standard index comprises of seven constituents.

Upgraded
The confirmation by MSCI that Kuwait has now been upgraded to emerging markets status signals a new era for investment into the Gulf state. According to KMEFIC, a leading Kuwait asset management firm, this will generate increased interest in Kuwait single country ETFs and locally listed equities. “The upgrade could have very positive implications for Kuwait equities,” explains Abdullah Albusairi, Director of KMEFIC.

“The most likely effect will be passive infl ows into these stocks, especially as they will be included in the MSCI Emerging Markets Index when it is rebalanced in May 2020.” Regional markets Qatar and the United Arab Emirates went through the same process in 2013 and Saudi Arabia followed in 2019. Albusairi added: “Looking at Saudi Arabia for example, the market showed discernible positive price impacts on both the announcement of the inclusion as well as on implementation. Using the comparison, Kuwait might experience a large performance boost in the first half of 2020 due to buy side pressure.”

Saudi Arabian asset flows into ETFs started to pick up in early 2019 prior to the Saudi upgrade. They continued to rise from $250 million to nearly $5 billion, almost 20 times as compared to 2018. KMEFIC recently launched a Kuwait single country ETF that tracks the FTSE Kuwait All Cap Index (15 percent cap), an index of small, mid and large cap securities trading on the premier or main market of the Kuwait Stock Exchange. The KMEFIC FTSE Kuwait Equity UCITS ETF “KUW8” was launched in April 2019 in conjunction with European white label ETF platform HANetf. The fund is an Irish domiciled UCITS which is now available for distribution in six EU countries. Hector McNeil, co-founder of HANetf, commented: “The launch of our Kuwait ETF in April has tapped appetite for a single country play on a fast growing and wealthy Middle East economy.

There are many markets like Kuwait that are evolving rapidly and winning wider investor recognition. With an ETF such as ‘KUW8’, Investors can access a diverse basket of Kuwait securities across industry sectors and multiple capitalization bands which provides targeted exposure to Kuwait but is more diverse than buying single Kuwait stocks.”

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