A number of factors contributed to the disappointing first half performance, which saw the KSE index climb by a mere 9 per cent - compared with 95 per cent over the course of 2003. Among these were continuing instability in Iraq, investor fears of a bubble and a healthy flow of initial public offerings (IPOs) in Kuwait and elsewhere in the Gulf, sucking liquidity out of the secondary market. But July saw a rally chiefly on the back of strong six-month results from listed companies. 'Average profitability is up by more than 15 per cent, and that is even before all the listed firms have reported their results,' says Shailesh Dash, head of research at the local Global Investment House.
Banking stocks have led the revival, with prices up by 7 per cent in July and Burgan Bankshining after reporting a 70 per cent increase in first-half profitability. 'Burgan Bank stock had been undervalued for some time following earlier accounting problems, but with a new management team in place, investors are returning to the stock,' says Dash. 'Among the other banking equities, National Bank of Kuwaitis the safest bet in the market because the structure of its deposit base - with a large portion of non-interest bearing deposits - provides the biggest cushion in the sector against the effects of rising interest rates.' The Central Bank of Kuwait surprised the market in early August by raising the base rate by 50 basis points, but the expectation is of further rises, inevitably detracting from the appeal of equities investments. Also threatening the KSE's liquidity is the host of IPOs and private placements luring away surplus funds. Both the local IPOs in Bubiyan Bankand Al-Jazeera Airlineswere heavily oversubscribed and there is talk of the Kuwait Investment Authority selling off its 50 per cent stake in Kuwait Investment Companyin the near future. Elsewhere in the GCC, especially in Saudi Arabia and the UAE, heightened IPO activity is hogging the attention of regional investors. Non-Kuwaiti stocks listed on the KSE stood out among the sluggish first-half performances, led by Ras al-Khaimah-based Gulf Cement Company, which saw its share price more than double. 'Cement stocks continue to look a very good play since there is no slowing of the construction and real estate boom,' says Dash. However, it was a local investment firm, Al-Mal al-Kuwaiti Company, which recorded in July with the highest volume traded - again partly on the back of the booming local real estate sector, as its consortium won a contract to build and operate a resort on Failaka island. And the real estate sector is poised for further growth if a government plan, unveiled in mid-August, to allow GCC nationals to own freehold property comes to fruition. www.meed.com/companies