Abu Dhabi, UAEFriday 20 September 2019

Kuwait gets MSCI nod for 2020 upgrade to emerging markets status

The move could bring $2.8bn in investment flows to Boursa Kuwaiti

The Boursa Kuwait plans an IPO on October 1, 2019. Reuters
The Boursa Kuwait plans an IPO on October 1, 2019. Reuters

MSCI said it will upgrade Kuwaiti equities to its emerging market gauge in 2020, a move that is estimated to inject billions of dollars of foreign investment into the country’s stock market.

MSCI, one of the world’s biggest index compilers, whose Emerging Markets Index is tracked by investors with more than $1.8 trillion in assets under management, is promoting MSCI Kuwait Index to emerging market status conditionally, it said in its 2019 market classification review on Tuesday.

MSCI will announce its final decision on Kuwait's upgrade before the end of this year, once it reviews omni-business account structures and National Investor Number (NIN) cross trades made available to international institutions, the compiler said.

“Kuwait’s Market Development Project has set the path for the seamless implementation of numerous regulatory and operational enhancements in the Kuwaiti equity market,” said Sebastien Lieblich, global head of equity solutions and chairman of the MSCI Equity Index Committee.

“These enhancements have significantly increased the accessibility level of the Kuwaiti equity market for international institutional investors and resulted in broad positive feedback from these investors on our reclassification proposal.”

During the consultation process for Kuwait’s upgrade to the coveted emerging market status, international institutional investors mentioned “criticality” of omnibus account structures, where two or more investors operate through the same account. They also highlighted the availability of the same NIN cross-trade capabilities to avoid frictions in their investment, MSCI said.

The index provider will monitor the Capital Market Authority's commitment to provide these market features by November 2019 before it announces its final decision.

If the regulator delivers on its promises, MSCI Kuwait Index will be included in the MSCI’s Emerging Markets Index in one step by May 2020. The inclusion will give nine Kuwaiti equities, which will become the constituents of emerging market gauge, a pro forma weight of approximately 0.5 per cent.

Kuwait’s reclassification as an emerging market was widely expected. The Egyptian investment Bank EFG Hermes expects the equity market to attract $2.8 billion (Dh10.2bn) in passive investments, as investors tracking the index readjust their portfolios to reflect investments in Kuwaiti stocks, Mohamad Al Hajj, an EFG Hermes strategist, said earlier this week.

His estimate is in line with that of the Boursa Kuwait acting chief executive Mohammad Al Osaimi, who projected the same inflow to the index.

Kuwait will be the fourth country from the region after the UAE, Qatar and Saudi Arabia to be reclassified as an emerging market. The country and its equities market, with a total capitalisation of $98bn, were upgraded by FTSE Russell into its emerging markets gauge almost a year ago.

Kuwait, along with Saudi Arabia, which is in the process of phased inclusion into MSCI EM Index, are among the best performing bourses in the region this year.

Boursa Kuwait has risen about 15 per cent this year, while Saudi Arabia’s Tadawul all share index has climbed more than 10 per cent in the same period.

MSCI Kuwait Index has outperformed MSCI GCC, MSCI World and S&P 500 indexes consistently since 2018, said U Capital based in Muscat.

EFG Hermes’ Mr Al Hajj said “history suggests Kuwait will deliver positive results”, beating financial markets.

Updated: June 26, 2019 02:57 PM

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