The Kuwait Stock Exchange (KSE) is one of the worst performing exchanges in the GCC this year, suffering from domestic economic and political woes, while facing the challenges brought about by the Arab Spring.
The KSE declined 14 per cent in the first half of the year, with $17.7bn wiped from its stocks.The value of shares traded during this period reached KD3.7bn ($13.7bn), and 19 June saw the lowest trading value in 10 years at just KD 8.1m.
Comments made by Central Bank governor Sheikh Salem Abdul Aziz al-Sabah earlier this month rocked investor sentiment. He warned of an overly dominant public sector, a state budget that is heavily dependent on oil revenues with the burden of rising expenditures across the country. All of these problems are creating imbalance in the economy, he told reporters on 18 July.
Political upheaval in the country has not helped matters. In April, the government was forced to resign and parliamentary bickering has only stopped as a result of the recess.
“The common theme in Kuwait is political uncertainty, which has been ongoing for many years and has killed off foreign direct investment (FDI),” says Annous, analyst at Al-Mal Capital.
The KSE has struggled to bounce back since the global financial crisis in 2008, mainly because of the dominance of the finance sector. Out of the top 10 listed companies with the highest market capitalisation, only two are not in the finance sector. This lack of diversity is troubling.
“The banks are out of favour and a stock market dominated by banks is not exactly the place to be,” says Annous.
It also makes the bourse more susceptible to the global financial problems, particularly in the US and Europe. “The Kuwait Stock Exchange was one of the first markets in the GCC to adopt the Western financial model so it has a lot of exposure to the West,” he adds.
Yet strong performance from the banking sector helped the KSE rebound in April gaining 3.59 per cent since the previous month, the first gain since December 2010. Market capitalisation increased by 5 per cent to KD32.95bn.
This rebound was short-lived as the market declined 5.12 per cent in May, continuing its downward trend in to June and July on the back of further political strains, lack of catalysts, with tight liquidity choking any fruitful activity.
The recently appointed Capital Market Authority (CAM) has made steps to implement new regulations to open up the KSE and make it more attractive to investors. The impact of the CMA Law, which will now be implemented in March 2012 instead of September this year, remains unclear.
Concerns over the plan to privatise the bourse, in which 50 per cent will be offered to citizens, with the remaining to be distributed in 5 per cent stakes to 10 of the listed companies, have been raised. The head of the KSE has stated that floating the bourse will conflict its independence.