Economic Update

Published 01 Aug 2018

Kuwait’s stock exchange is accelerating efforts to raise its profile both internationally and at home, expanding the range of products on offer and easing listing requirements, moves that could see it granted emerging market status by 2020.

On July 21 Boursa Kuwait announced it been granted membership of the Federation of Euro-Asian Stock Exchanges, an umbrella grouping of markets spanning Eastern Europe, the Middle East and Central Asia.

Joining the 35-member group will see Boursa Kuwait gain access to data, research and analysis from other exchanges, and is part of a campaign to increase its standing and deepen integration with global markets.

MSCI to consider upgrade to emerging market status

The development was followed a day later by the announcement that index operator MSCI will consider promoting Boursa Kuwait from frontier market to emerging markets status in its 2019 Annual Market Classification Review, to be concluded by June next year.

If successful, the exchange will be elevated to emerging market status in May 2020, with MSCI to monitor its criteria for liquidity, trading volume and regulatory compliance.

MSCI’s ratings wield significant influence, and it is estimated that an upgrade to emerging market status could attract up to $1.5bn into the Kuwaiti exchange.

The announcement had an immediate impact, with daily trading values jumping to an average of KD21m ($69.3) the following day, compared to the KD11m ($36.3) average for earlier in the year.

Meanwhile, the MSCI decision is the latest recognition of the growing maturity of the exchange.

Last year the FTSE Russell Governance Board announced it was including Boursa Kuwait on its Secondary Emerging Market Index. The entry is scheduled to take place in two stages, in September and December this year, having been on the FTSE’s watchlist since 2008.

“After years of working towards ticking the boxes of FTSE for the upgrade, we are thrilled to have achieved this milestone,” Khaled Abdulrazzaq Al Khaled, the exchange’s CEO, told OBG. “Typically, such upgrades trigger a significant increase in turnover and foreign investment into the respective market.”

The decision to include the exchange on the index is seen as an acknowledgement of efforts to boost transparency and align operating practices with international standards, and is expected to generate capital inflows of more than $800m, according to some analysts.

Reforms designed to attract greater investment

The reclassification of the exchange comes on the back of a series of reforms aimed at increasing the market’s appeal as a listing and trade destination.

Among these is a relaxation of listing requirements, allowing for dual listings – a measure officials hope will see companies already trading on the boards of other regional exchanges apply for inclusion on the local index.

Other recently enacted measures include the launch in April of a segmented index system that will divide the market into three parts – premier, main and auction – similar to practices adopted by other exchanges.

The premier segment represents the blue chip firms trading on the exchange, the main deals those companies that need to maintain minimum level of liquidity in accordance with basic requirements, while the auction segment will consist of low-liquidity firms, regardless of their market capitalisation, which will be traded through special mechanisms, rather than listed on the main indices.

Exchange expecting increase in IPOs

The market is also set to secure a longer-term boost thanks to reforms introduced in 2015 requiring operators of power and other infrastructure projects developed under the public-private partnership (PPP) model to conduct a public float of the vehicle.

In March Boursa Kuwait officials said the country’s infrastructure rollout could see up to six new initial public offerings (IPOs) on the exchange over the next four years.

However, it is not just the revised requirements of the PPP programme that could boost IPO activity, with local media reporting firms in other sectors – including logistics and equipment services firm Jassim Transport & Stevedoring Company, and diversified financials operator Amlak Capital Holding – are also considering listing on the exchange.

The exchange is itself set to go public with its own IPO by the first quarter of next year, with officials announcing plans to float between 26% and 44% of shares.

To further enhance its bid to gain MSCI emerging market status, the listing will be followed by more reforms and the delivery of a wider range of trading products, including derivatives and the launch of a central counterparty clearing platform.