The KSE index is down by about 14 per cent year to date. However, in regional terms, the decline appears modest while valuations are reasonable and the profits outlook for the majority of blue chips is positive.

The main pieces of news exercising investors were that the government had cancelled several major contracts for the local Agility formerly known as PWC Logistics and that Kharafi Group, also local, had been barred from selling shares in 10 affiliated companies due to violations of disclosure rules. Agility's contracts were cancelled by the Commerce Ministry, on the grounds of 'irregularities'. Kharafi was penalised for breaching rules requiring companies to declare the acquisition of stakes of more than 5 per cent in listed firms. A judicial appeal was rejected on 11 December. The ministry is investigating at least 50 firms for similar violations. Both companies' shares plummeted in value on the actions.

The local bourse has also suffered from the general malaise affecting GCC stock markets, most marked in Saudi Arabia and the UAE. But the state's more mature investor base was always less carried away than others in the region and the market correction on KSE has therefore been less extreme than elsewhere. The KSE Index closed at 9,673 points on 13 December.

'The Kuwaiti market is affected by the same trend affecting all regional markets,' says Shailesh Dash, head of research at Global Investment House. 'Trading is not governed by fundamentals investor confidence is very low. But liquidity is high, oil prices are set to remain strong and valuations are good. Now is the time for institutional investors to buy.' The average price-earnings (PE) ratio is about 11.5.

Banking stocks are particularly attractive and have performed the best of any sector over the past 11 months. 'Bank shares are becoming a dividend play,' says Dash. Local financial institutions also have the advantage of being less exposed to the stock market downturn than counterparts elsewhere in the Gulf, due to strict rules on stock market-related lending. And the state's biggest banks are on an expansionist drive: Commercial Bank of Kuwait is in the process of buying a majority stake in Bank of Bahrain & Kuwait and has a share in a greenfield bank in Syria, while National Bank of Kuwait is planning to acquire banks in Egypt and Jordan.

Local initial public offerings are few and far between, but one is finally approaching. All the regulatory approvals are understood to have been received for the flotation of a district cooling company, to be arranged by NBK Capital. Showtime Arabia, a subsidiary of Kuwait Projects Company (Kipco), has however decided to postpone for the time being its long-planned international flotation on the grounds of the regional stock market slump a decision also recently taken by Dubai-based Oger Telecom. Morgan Stanley and Goldman Sachs are advising.