Panicked investors force Kuwaiti market to close

Trading on Kuwait's stock exchange was halted yesterday by court order in a measure meant to stop a months-long slide while authorities try to find ways to reinvigorate the market. The halt to trading is the first to be announced in the Gulf even though stock markets across the region have fallen steeply. "The traders are on holiday in the coffee shop enjoying their coffee," said M R Raghu, the head of research at the investment firm Markaz, which has offices across from the stock exchange. "Personally, I think it's the right thing to do. When all you can find is sellers and not a single buyer irrespective of the company involved, you have to find some solution before you start to allow the market to function again. It's a really crazy step, and it may not be the best thing to do, but under the circumstances it's the only thing to do." While trades executed yesterday morning will not be cancelled, the exchange will not reopen until at least Monday when the Administrative Court will sit again to look into the issue, according to Agence France-Presse. Angry traders have been demanding a stop to trading for several weeks, protesting outside the exchange and at Kuwait's parliament. They have even taken their grievances to the Emir's palace. The closure of the market appears to be an accession to their demands. The main problem in Kuwait appears to be illiquidity. Essentially, too many investors want to sell shares, but cannot find anyone who wants to buy them. That means that no trade takes place unless prices drop far enough for a willing buyer to step in. Unlike many major global bourses, Kuwait's lacks so-called "market makers", or institutional investors who agree to act as last-resort buyers of shares issued by blue-chip companies to help keep the market going. "I think they're going to be working something out during the weekend and trying to see how to prop up this market that only knows how to fall," Mr Raghu said. "We have blue-chip companies coming out with third-quarter results that can only be described as good, and all we need is a credible institutional buyer on the other side until liquidity needs are met." The government has already taken steps to prop up the ailing market, which has lost 44.5 per cent of its value since June. The Kuwait Investment Authority, the country's sovereign wealth fund, is rumoured to have spent hundreds of millions of dollars acting as a buyer of last resort in the market. Kuwait has also injected liquidity into stalled interbank lending markets and guaranteed bank deposits following the near-collapse three weeks ago of Gulf Bank, Kuwait's fourth-largest lender. Gulf Bank ran into trouble after large losses were revealed from bad bets that clients took on currency derivatives. The losses, estimated at about US$1 billion (Dh3.67bn), prompted a run on the bank and forced the government to establish a rescue plan that is still being worked out. Kuwait also said today it would set up a fund to buy assets from investment firms, making it the first Gulf government to announce such a move. There is no sign yet that Abu Dhabi's sovereign wealth fund, the Abu Dhabi Investment Authority, has intervened in the local markets. Analysts said this would not be in line with its strategy, which was to diversify the balance of the nation's investments. According to a report on the state news agency KUNA, the Kuwaiti fund would buy assets at a discount, taking them off a company's books. However, the company would be required to issue bonds to repurchase them. The report did not say how large the fund might be, what the discount would be or which companies would be eligible for a bailout. It is believed the fund is meant to give investment firms much-needed cash in exchange for assets they cannot easily sell, such as private equity stakes and property investments. The hope is that by moving more ready cash on to companies' books, they will be able to resume lending and investing activities that had ground to a halt because of declining stock prices and tightening lending markets. Three-month interbank lending rates, which measure the cost banks must pay to borrow from each other, stand at 3.69 per cent in Kuwait, down from a peak of 5.62 per cent this summer. The halt to trading in Kuwait and the announced fund also highlight the increasing stress that domestic banks and investment companies are coming under as the global financial turmoil spreads into the Gulf. While GCC governments have announced a spate of measures in recent months to shore up the financial system, until now, Gulf countries have not seen a need to buy up assets from local companies or halt trading in stocks. Kuwait's market declines are not much worse than they have been across the region. Stock values in Dubai have fallen 56 per cent in the past three months. The Abu Dhabi Securities Exchange index is down 45 per cent since June. Saudi Arabia's Tadawul market index is down 44 per cent since June, and markets in Qatar and Oman have taken a similar beating. afitch@thenational.ae