x Abu Dhabi, UAESaturday 22 July 2017

Kuwait wealth fund asked to prop up bourse

The authorities have asked its investment arm to set up a fund to invest in the bourse to shore up confidence.

Kuwaiti investors follow the evolution of share prices at the trading hall of Kuwait Stock Exchange earlier this week. Kuwait's sovereign wealth fund has been asked to help prop up the ailing market.
Kuwaiti investors follow the evolution of share prices at the trading hall of Kuwait Stock Exchange earlier this week. Kuwait's sovereign wealth fund has been asked to help prop up the ailing market.

Kuwait may inject about US$12 billion (Dh44bn) into its stock market in an effort to reverse a string of declines that have left the bourse down 45 per cent from June, an official said yesterday. The Kuwait Investment Authority (KIA), the country's sovereign wealth fund, will spearhead a move to buy about 10 per cent of stocks on the market, according to Abulmajeed al Shatti,the chairman of thr Commercial Bank of Kuwait and a member of a task force formed to deal with the financial crisis. The KIA is already rumoured to have bought stocks on Kuwait's exchange after traders began protests about a month ago, demanding government intervention following the market's tumble. Yesterday's announcement appears to be a concession to the investors, who had also called for a halt in trading while the government worked out a plan to reinvigorate the market. Trading on the market was halted last Thursday by an administrative court, but was reopened on Monday after a successful appeal by the Kuwait Stock Exchange. Economists and several government officials expressed disappointment at the closure of the exchange, saying it set a bad precedent and would not to help the ailing market to recover. The share-buying plan involving the KIA is unlikely to win many fans in economic or institutional investment circles, either. Experts say direct share purchases by sovereign funds do little more than push stock prices upwards until money to prop up the market runs out. Yet the plan is not without supporters. "This is a step in the right direction," said Faisal Hasan, head of research at the Kuwaiti investment bank Global Investment House. "Government funds buying in listed companies will boost investor confidence, put an end to the negative sentiment in the market and infuse much needed liquidity." Mr Shatti told Zawya Dow Jones yesterday that the market bailout fund aimed to "stop the panic and boost the liquidity of investment companies". According to Mr Shatti, the new fund will buy assets in a broad range of Kuwaiti-listed companies. It will also take hard-to-sell assets such as property and private equity investments off the books of investment firms in exchange for cash. The firms will have the option to buy them back. "The government will keep these assets and will give investment firms the right to repurchase them at a later stage," Mr Shatti said. "Stocks at current value are a good investment opportunity." Shares traded on the Kuwait Stock Exchange All-Share Index closed up 2.7 per cent yesterday following Mr Shatti's comments on the bailout plan. In another move to address tight credit conditions, the Central Bank of Kuwait yesterday introduced repurchase agreements to pump more money into the banking system, Al Arabiya television reported. The new overnight repo rate, or the rate at which commercial banks can borrow directly from the central bank, was set at 1 per cent, while the one-week rate was set at 2 per cent and the one month rate at 3 per cent. Oil-rich sovereign wealth funds such as the KIA are increasingly being pulled into financial rescue schemes in Gulf states, where stock markets have lost about $500bn in value this year. The Qatar Investment Authority said last month it would buy up to 20 per cent of the capital of local banks if required to ease liquidity concerns in the emirate. Gulf Bank, Kuwait's fourth-largest lender, came close to collapse this month after significant trading losses emerged. The bank said this week it lost $1.4bn from derivatives trading, and a government plan to save it was still being worked out. Gulf states are increasingly turning to government intervention programmes similar to the US treasury's $700bn troubled assets relief programme to avoid an economic downturn as falling oil prices undermine the already fragile confidence of investors. The strain of cheap oil and the global financial crisis is already being reflected in Gulf budgets. Kuwait's budget surplus declined 85 per cent in September from a month earlier as revenue from oil more than halved, the central bank said yesterday. The surplus declined to 370.6 million dinars (Dh4.9bn) from 2.6bn dinars in August. Oil revenue decreased to 1.6bn dinars from 3.5bn dinars. At the same time, Kuwaiti public spending increased 33 per cent in September from August, the central bank said. afitch@thenational.ae *With Agencies