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Abu Dhabi, UAEThursday 21 June 2018

Emerging Market inclusion would be cherry on the cake for Kuwait

Transparent reform process has seen equities surge

Stocks in Kuwait fell. Phil Weymouth / Bloomberg News
Stocks in Kuwait fell. Phil Weymouth / Bloomberg News

Much has been written about Saudi Arabia’s quest for emerging market status, with the kingdom having taken several steps towards liberalizing its stock market in line with international best practices.

Less attention has been paid however to similar efforts by Kuwait, which, like Saudi Arabia, looks set to be included in index provider FTSE’s widely tracked EM indices from next month, according to guidance yesterday from Egyptian investment bank EFG-Hermes. And while Kuwaiti listed firms’ market capitalization is dwarfed by those of Saudi Arabia, the country’s efforts to open itself up to the outside world are no less impressive.

Boursa Kuwait last year announced a partnership with Thomson Reuters to enhance market transparency, a theme carried over into its other reform processes. Fresh regulations on market-making and new trading rules have been developed with unprecedented input from the private sector.

The exchange’s fresh approach has not only attracted attention from FTSE. After losing 25 per cent of its value between 2014-15, investor confidence has returned to the country’s market with a vengeance. Kuwaiti stocks have been the success story of the Arabian Gulf in 2017, gaining 19 per cent in value since the start of the year, more than double the return of the next best performer Bahrain.

It shouldn’t come as any surprise then that EFG is particularly bullish on the country’s prospects should an upgrade come from FTSE next month, even as Kuwaiti returns are gradually attracting attention around the region and beyond.

“We see a strong chance of an upgrade for Kuwait and Saudi Arabia. We believe Kuwait returns could be stronger as it is the least anticipated of the two,” the analysts commented yesterday, with Kuwaiti stocks including National Bank of Kuwait (NBK), the country's largest lender, and Kuwait Finance House likely to attract around $740 million worth of investment flows if given the nod by FTSE.

Such flows are dwarfed by the projected $3.75bn worth of flows Saudi Arabia is likely to attract. Neither country is guaranteed inclusion, EFG stresses, with any upgrade likely to be staggered over time.

Such an inclusion however, would cap a stellar 2017 for Boursa Kuwait, and offer attractive returns for those willing to look beyond Saudi Arabia for investment opportunities.