THE KUWAIT STOCK EXCHANGE

The Kuwait Stock Exchange (KSE) is the national stock market of The State of Kuwait. Although several shareholding companies (such as NBK in 1952) existed in Kuwait prior to the creation of the KSE, it was not until October 1962 that a law was passed to organize the country's stock market.  Initially, the Kuwait Clearing Company (KCC) was established in 1982 and the Kuwait Stock Exchange was established in 1984 in a formal way. Kuwait Clearing Company S.A.K. (KCC), is the central clearing, settlement and depository entity for the Kuwaiti securities market, and provides clearing, settlement and depository services for all securities and derivatives in the market.  The Exchange is open for trading from Sunday to Thursday between 9.00 am to 12.30 pm. The Exchange also has a forward market which starts at 12.55 pm and closes at 13.15 pm. The Kuwait Stock Exchange currently operates a (T+0) settlement period. This process facilitates KCC to debit and credit investors accounts on settlement (T+0), and to implement delivery versus payment process. According to the Kuwaiti law, prior to placing an order in the market, an investor is required to have sufficient securities for a sell trade and cash for a buy trade in the account to cover obligations. In the event of late payments, investor may deposit his shares or cash without penalty by 11:00 a.m. on T+1.

Companies desiring to get listed on the Kuwait Stock Exchange should meet the following key conditions:-

1.      The company’s paid-up capital shall not be less than KD 10 million or any equivalent amount in foreign currency, and the shareholders’ equity shall not be less than 115% of the paid-up capital in each of the last three years, according to the audited financial reports prior to the listing request.

2.      The company shall have achieved net profit in the last two years, and the yearly net profit shall not be less than 7.5% of the paid-up capital.

3.      If the listing request is from a closed company which had increased its capital more than 50%, a period of one year should have passed from the date of notice in the commercial registry.

4.      Not less than 30% of the company’s capital shall be offered for private placement by a specialized company independent from the company that requested listing according to the procedures set by the Market management in this regard.

Currently, there are 184 Kuwaiti, 16 non-Kuwaiti companies and 1 mutual fund listed on the Kuwait Stock Exchange.  Besides the above, there are 14 companies listed on the Parallel Market. There are 14 brokerage companies operating in the Kuwait Stock Exchange. Share prices are not allowed to fluctuate more than 5% in a single trading session. If this limit is reached, dealings in the share are suspended until the next day. The minimum value to be traded per transaction is K.D.2,000/- and the average commission is 0.1125% but this can be lower for large value transactions. Shares are grouped into 8 sectors i.e., Banking, Investment, Insurance, Real Estate, Industry, Services, Foodstuff and Non-Kuwaiti.

 

MARKET CAPITALIZATION AND GDP

The total market capitalization of the Kuwait Stock Exchange increased consistently from US$ 59.5 billion in 2003 to US$ 123.8 billion in 2005. However, as the market witnessed some downward price corrections during 2006, the market capitalization declined to US$ 105.9 billion.  During 2007, the market capitalization reached an all time high of US$ 135.6 billion. During the current year, until the end of September 30, 2008, the market capitalization has declined to US$ 103.23 billion. On the other hand, Gross Domestic Product at current prices witnessed consistent increase over the past few years from US$ 47.8 billion in 2003 to an estimated US$ 139.3 billion in 2008. The market capitalization to GDP ratio of Kuwait Stock Exchange was around 124% in 2003 and improved to 153% by 2005. However, subsequently this ratio has fallen to 104%, 121% and 74% during 2006, 2007 and 2008 (QIII).

 

Listed Companies and Market Capitalization

Number of listed companies on the Kuwait 108 in 2003 to 201 in 2008(QIII). Over the same period, the market capitalization of listed companies witnessed an increase of 73.5% only, mainly on account of the decline in prices during 2006 and in the current year.  The increase in new company listings could not bring the market out of the gloom resulting from the decline in stock prices particularly during the current year.

 

Price Appreciation and Turnover

The Kuwait Stock Exchange witnessed strong price appreciation particularly in 2003 when the Kuwait Stock Exchange Index appreciated by 104.9%. During 2004 and 2005, the market appreciated by 33.8% and 79.9% but declined 12% during 2006. The market index witnessed a gain of 24.7% in 2007. However, during the current year, on account of the global credit crunch and the looming recession, the market started correcting since May and until the end of September 2008, the market had a year-to-date yield of 2.23% only. The Kuwait Stock Exchange’s turnover was US$ 55.14 billion in 2003, but declined marginally to US$ 51.84 billion in 2004. The next year recorded significant increase in turnover to US$ 97.34 billion but again turnover fell to US$ 59.6 billion in 2006. During the year 2007, Kuwait Stock Exchange achieved the highest turnover of US$ 130.14 billion. Despite the uncertainties caused by the credit crisis and inflation, the market turnover for the 9 month ended September 2008 was US$ 110.9 billion.

 

Market Volatility

Being one of the most developed stock markets in the Gulf region, the Kuwait Stock Exchange  had less speculative activities and low daily volatility of less than 1% during the past five years. During 2008, the daily volatility remained less than 1% until September and October, when it increased to 1.7% and 1.9%, respectively.  Similarly, intra-month variations remained low within the range of 3.24% (April) and 13.62% (January) but increased sharply to 28.5% and 38.5% during September and October, respectively.

 

Current Valuation Levels and Future Outlook

The Kuwait Stock Exchange being one of the oldest stock markets in the Gulf has better liquidity and trading history compared to many of its counter parts. Currently, the valuation levels in this market are very attractive following the current year’s market decline on account of the recent global market turmoil.  In addition to the above, we are expecting more and more new companies being listed in the coming years as Kuwait is expected to raise fiscal spending and the government will cautiously seek to encourage some additional foreign direct investment.