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Kuwait is now stock investors' new darling in Gulf

Dubai

ONCE overshadowed by its bigger neighbors in the Gulf, Kuwait's market has emerged as the new darling of global investors.

Kuwaiti stocks have outperformed most of their Persian Gulf peers since MSCI said in June that it might announce the upgrade of the nation to emerging-market status next year, joining the ranks of Saudi Arabia, the United Arab Emirates and Qatar.

Money is already flowing in ahead of Kuwait's Sept. 24 accession to FTSE Russell's emerging-market benchmarks as efforts by the country's market regulator to boost liquidity and attract international interest pay off.

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"Overtaken by the UAE when it comes to economic freedom, and in the shadow of Saudi Arabia's now-accessible equity market, Kuwait capital markets have been long neglected by investors and Kuwaiti policy makers," said Marshall Stocker, a portfolio manager at Eaton Vance.

"We are invested in Kuwait for an incipient policy liberalisation story, one that is admittedly taking quite a while to unfold but is happening if you pull out your looking glass."

As of the end of 2017, Kuwait ranked 96 in the World Bank's index for the ease of doing business.

The UAE, which earned emerging-market status at MSCI in 2013, placed 21 on the World Bank list, while Saudi Arabia was at 92.

Authorities in Kuwait started a series of measures last year to update infrastructure for equities trading. The goal was to stir international interest in one of the region's oldest stock markets and jolt into life the large portion of shares that typically barely moved each day.

In April, the exchange segregated stocks based on criteria such as market value, and unveiled new indexes, including a premier market comprised of Kuwait's largest and most liquid companies.

Still, its US$85 billion market value amounts to less than one-fifth of Saudi Arabia's and is 65 per cent lower than Dubai and Abu Dhabi combined.

Kuwait's market offers a refuge for investors spooked by the roll-back of crisis-era stimulus policies and new global trade skirmishes. It has the "best financial position of any Middle East oil exporter", with the lowest crude-price break-even point for the state budget, said Stocker.

Kuwait's pegged currency also shields its assets, and consumers, from the recent emerging-market sell-off, he said.

The key Kuwaiti stock index has climbed 10 percent since MSCI's June 20 announcement, while the benchmark for Saudi Arabia, whose upgrade to emerging-market status MSCI announced that day, has dropped about 6 per cent in the period. Overall, developing-nation equities have fallen more than 6 per cent. The Kuwaiti gauge advanced 0.3 per cent on Sunday, while the Saudi benchmark fell 0.4 per cent.

Saudi Arabia's stock market was among the three best performers globally in the first half of this year, measured in US dollars, beating the Kuwaiti gain more than sixfold.

Investors from outside the region's Gulf Cooperation Council countries have been able to trade stocks in Kuwait for more than a decade, while those shareholders gained direct-trading access to Saudi equities in mid-2015.

"Given that only FTSE has announced Kuwait's inclusion into its emerging-market index so far, there is potential for a strong rally if MSCI confirms Kuwait's inclusion into its EM index," said M R Raghu, the head of research at Kuwait Financial Centre SAK, which manages more than US$3 billion.

A "sound banking system", in addition to its high oil reserves, should make Kuwait's equities attractive, he added. BLOOMBERG