Despite global economic volatility and uncertainty in recent years, Kuwait’s capital markets have demonstrated continued resilience and adaptation. Innovative products are set for launch, along with a new central counterparty (CCP) system. The system should put Kuwait more firmly on global investors’ maps, and it will launch alongside a new platform for trading bonds, sukuk (Islamic bonds) and exchange-traded funds.
At the same time, Boursa Kuwait, the country’s stock exchange, continues to provide investors with the expertise of the region’s oldest market, and companies with access to funding in an economy in which investors have deep pockets and policymakers are looking to push forwards with diversification efforts.
Oversight & Regulation
Following the 1982 Souk Al Manakh crisis, which saw the country’s unofficial stock exchange crash, the need to regulate the market led to major organisational and structural changes, resulting in the establishment of the Kuwait Stock Exchange (KSE) in August 1983 and the appointment of Kuwait Clearing Company (KCC) in 1986 to be the clearing and settlement agency. KCC continues to this day to provide clearing, settlement and depository services to all securities, as well as for unlisted equity securities and debt instruments.
In 2010 Kuwait’s Parliament passed Law No. 7 establishing the Capital Markets Authority (CMA) as an independent body and setting out a clear legal framework for its function. In November 2013 the CMA Commissioners’ Council founded Boursa Kuwait, which then started operations in April 2014. The following year Law No. 7 of 2010 was amended to bring the regulatory regime in line with that of the International Organisation of Securities Commissions (IOSCO). The CMA is currently an ordinary member of IOSCO, while Boursa Kuwait and KCC are affiliate members.
In October 2016 Boursa Kuwait was officially licensed and began taking a leading role in promoting the exchange overseas. The CMA’s Market Development Project (MDP) is a multi-phase framework for developing the country’s capital markets. The MDP aims to diversify investment products and instruments, with new market sectors being supported by new circuit breakers and enhanced processes for holding, transferring and settling rights over securities.
Long-Term Planning
These developments in the capital markets space are in line with New Kuwait 2035, the country’s long-term strategy for socio-economic development. The plan makes the development of strong and diverse capital markets a primary goal in the country’s economic diversification. In this, a return to Kuwait’s historical role as a regional financial centre is envisioned. Boursa Kuwait is also seen as an important pillar of private sector development in the country.
The results of the MDP’s efforts could be seen in September 2018 when FTSE Russell reclassified Kuwait from a frontier market to a secondary emerging market. That year also saw the exchange reclassified as an emerging market by Standard & Poor’s (S&P) Dow Jones Indices. In December 2019 the MSCI announced that Kuwait would be reclassified as an emerging market, which was then followed in November 2020 by the listing of seven Kuwaiti securities on the benchmark MSCI Emerging Markets Index.
The year 2018 saw Boursa Kuwait issue a comprehensive rulebook covering every aspect of the exchange’s operations, from listing to disaster recovery, and obligations to exemptions. Further amendments to Law No. 7 of 2010 have also been highlighted for future phases of the MDP, including the establishment of a new CCP system (see analysis). Boursa Kuwait was privatised in two stages concluding in December 2019 and listed on the exchange’s Premier Market in September 2020.
While the CMA is the primary regulator and supervisor of capital markets, the authority and the companies listed on it remain under the wider regulatory frameworks set by the Central Bank of Kuwait (CBK), the Ministry of Finance, and the Ministry of Commerce and Industry. In January 2024 local media reported that these bodies were collaborating closely with the CMA on a new framework for dealing in derivatives, along with new standardisation rules for companies. Under the framework, which follows an earlier CMA ruling on derivatives in November 2021, brokerages and services companies dealing in derivatives are allotted one year to officially register their status.
In April 2023 the CMA announced that the following four years would see systems embedded to help Kuwait’s capital markets qualify for the FTSE Russell Index. A new automated system for reporting electronic trading accounts was also implemented, improving supervision and daily income reporting.
Among other international and regional capital markets bodies, the CMA is a member of the Union of Arab Securities Authorities, and Boursa Kuwait is a partner in the UN Sustainable Stock Exchanges Initiative. In September 2021 Boursa Kuwait launched its environmental, social and governance (ESG) reporting guide, which encourages listed companies to follow best practices in ESG principles and reporting. The CMA also has a clear focus in this area, with 2022 seeing it make changes to the law establishing the authority to further regulate the issuance, listing and subscription of green bonds, green sukuk and other sustainable debt instruments. A heightened focus on ESG is also part of efforts by Boursa Kuwait – and many of the country’s brokerages and asset managers – to be ready to handle large global funds that have significant requirements in this matter. Boursa Kuwait and KCC have also signed agreements to facilitate trading procedures and develop new technologies with other exchanges in the GCC region, including the Abu Dhabi Stock Exchange in February 2022 and the Saudi Exchange in December 2022.
Bonds & Sukuk
Kuwait has active corporate bond and sukuk issuance, although sovereign debt instruments have not been issued since March 2017. Participants in Kuwait’s capital markets hope that the new government will make headway in 2024 on enacting a new public debt law. Meanwhile, banks and the CBK have continued to be key issuers of bonds, with the central bank offering three-month, six-month and oneyear issuances, as well as tawarruq (reverse cost-plus financing). Corporate bonds and sukuk can be issued either directly by shareholding companies, or via a special purpose vehicle (SPV). International markets tend to be favoured to the domestic one for launching such SPVs, with the segregated portfolio company format often preferred. The April 2015 amendments to Law No. 7 of 2010 establishing the CMA made provisions for the development of a sukuk market in Kuwait.
Indeed, the establishment of a secondary market for bonds and sukuk has long been a goal of the CMA and Boursa Kuwait, with 2023 seeing further progress on this front (see analysis). “Regulations must constantly adapt to keep pace with the rapidly changing financial landscape,” Talal Al Ajmi, CEO of online trader VI Markets, told OBG. “This adaptation involves regularly reviewing and updating rules to align with current market conditions, technologies and investor behaviours.”
Market Structure
The securities market has four indices: the Main Market, which consists of entities that meet the minimum liquidity requirements; the Premier Market, which features companies with high liquidity, and medium to high capitalisation; the Boursa Kuwait Main Market 50 (BK Main 50), which constitutes the top-50 listings on the Main Market in terms of liquidity; and the All-Share Index, which lists all of the companies active on the exchange.
Companies that are listed on the Premier Market are required to have a free float of at least KD45m ($146m), a seven-year operating history and a minimum of 450 shareholders holding at least KD10,000 ($32,500) in shares. They are also required to maintain a capitalisation of at least KD78m ($254m) to remain on the Premier Market. In contrast, the free float requirement drops to KD15m ($49m) to list on the Main Market, while the value of shares held should be at least KD5000 ($16,300) each if there are 450 shareholders or more, and KD10,000 ($32,500) if there are at least 225 shareholders. The operating history requirement for Main Market companies is three years in comparison to seven for entities listed on the Premier Market. As of February 2024 there were 33 companies listed on the Premier Market and 116 on the Main Market.
In February 2024 Boursa Kuwait had a single real estate investment trust (REIT) listed, Kuwait Finance House (KFH) Capital REIT, as well as 10 registered brokerage firms, 14 registered data vendors and 50 mutual funds. In addition, eight companies – Kuwait & Middle East Financial Investment, Tharwa Investment Company, KFH Capital, Kuwait Financial Centre (Markaz), National Investments Company, Kuwait Investment Company, Wafra International Investment Company and KAMCO Investment Company – were listed as market makers, meaning that they provide liquidity to their clients in order for them to trade securities. Kuwait is also home to several online brokerages, the largest of which is investment service VI Markets located in Kuwait City.
Thirteen sectors were listed on Boursa Kuwait as of January 2024, with financial services at the forefront with 44 entities, followed by real estate with 32, industrials with 22, consumer discretionary with 13 and banking with 10. In terms of value of shares traded, financial services were number one, with KD519m ($1.7bn), while banking was second at KD415m ($1.4bn), real estate third at roughly KD241m ($784m) and industrials fourth at KD119m ($387m). At the end of 2023, despite accounting for only 10 of the 149 listed companies, banking was by far the largest sector in terms of market capitalisation, responsible for some 60.3%, followed by financial services at 9.4%.
Index Performance
Recent years have seen some global volatility in securities. The impact of the Covid-19 pandemic and measures to combat the virus were followed by the conflict in Ukraine. The latter caused major supply chain disruptions and boosted inflationary pressures, spiking interest rates and leaving global economic growth sluggish and uncertain. Regional security risks spiked again in late 2023 due to the conflict in Gaza. All of these events impacted Kuwait and its economy, with capital markets proving a hedge against uncertainty, as well as a place for raising financing.
For the All-Share Index, the pandemic led to a significant drop in the early part of 2020, followed by a steady rise through the rest of the year and into May 2022. Indeed, after starting 2020 at 6048.64, the year closed at 5549.92 following a historic low of 4443.69 in mid-March. Helping the recovery was the listing of Boursa Kuwait itself on the Premier Market in September 2020, along with the first REIT, while the MSCI Emerging Markets Index listing also saw significant inflows. The recovery continued into 2021, exceeding pre-pandemic levels by the end of the first half of 2021, with the All-Share Index reaching 7043.16 by the end of the year. Recovering global economic activity and oil prices were widely seen as behind this boost, as securities indices rose in anticipation of future growth.
In May 2022 the All-Share Index hit 8460.04, with rising discount rates implemented by the CBK strengthening the banking and finance sectors. By August 2022 the exchange was reported by Bloomberg as among the world’s top-10 performing markets in US dollar terms, while in May 2022 The Economist Intelligence Unit noted the exchange had recorded gains of more than 25% over the preceding 12 months, the second-best performance among the global exchanges surveyed. There was some downward pressure observed during the second half of 2022, although the All-Share Index still closed the year at 7292.12. A key factor behind the buoyancy seen in the market was the strength of the Kuwaiti banking sector and the major advantage that banks obtained from the increase observed in the CBK’s discount rates.
Fluctuations
While most GCC countries peg their currencies to the US dollar and are therefore tied to US Federal Reserve decisions when it comes to deciding interest rates, the Kuwaiti dinar is tied to a basket of undisclosed currencies. However, as rates increased in 2022 banks’ interest incomes rose, making them particularly attractive to investors. In 2023 the currency basket also gave Kuwait the flexibility to keep its rates relatively low, increasing them by 0.75 percentage points over 12 months, from 3.50% to 4.25%. Rates could drop in 2024, as inflation is projected to ease.
The year 2023 also saw some fluctuation in the AllShare Index, although it remained within the 6500-7500 band throughout, and mostly within the higher end of that spread. At the end of 2023 the All-Share Index was at 6817.29, down 6.5% compared to the end of 2022. Similarly, market capitalisation also fell by 6.7%, from roughly KD43.8bn ($143bn) in 2022 to KD40.9bn ($133bn) in 2023. The average daily trading value declined by 28.9% to KD42.9m ($139.6m), reflecting a fall in the turnover rate of shares from 33.6% at the end of 2022 to 25.4% at the end of 2023. As of mid-February 2024 the index had recovered to over 7300.
In terms of sector performance, 2023 saw insurance record the largest relative increase in value – roughly KD299m ($973m) – followed by consumer discretionary at nearly KD106m ($345m). Indeed, the highest corporate gainer during the year was Gulf Insurance Group, which saw its capital value up KD246.2m ($801m) over the year, while IFA Hotels and Resorts was up KD128.7m ($418.7m). During the first nine months of 2023 Boursa Kuwait – which saw its net profit down 16.5% yearon-year (y-o-y) due to slower trading – noted the year’s global volatility. In this context, the exchange performed well, displaying resilience and adaptability, while continuing to fulfil its strategic plans and goals.
Indeed, the year was characterised by continuing stress tests of brokerage firms ahead of the introduction of the new CCP system, while KCC introduced a range of new features. These included an updated design for custodian migration and movement, and same-day national identification number account opening for foreign clients. KCC also submitted a securities and lending borrowing study to the CMA, while Boursa Kuwait held a number of roadshows and events to highlight the advantages of the Kuwaiti market.
These changes are expected to lead to an uptick in securities market activity, as there has been a lack of initial public offering (IPO) activity on Boursa Kuwait since the listing of Ali Alghanim Sons Automotive Company in June 2022. Indeed, as Markaz reported in October 2023 the GCC as a whole saw a major decline in IPO activity during the year, down 56% y-o-y in value during the first nine months. A trading platform for bonds and sukuk, as well as exchange-traded funds, is expected to launch in 2024, contributing to existing demand and providing a step forward for debt market growth.
As evidence of demand, in July 2023 Kuwait Projects Company (KIPCO) launched the first ever dinar-denominated sukuk by a Kuwait-incorporated institution for more than KD103.1m ($335m) via an SPV incorporated in the Cayman Islands. The sukuk were listed on the London Stock Exchange. In January 2023 KIPCO launched the largest-ever dinar-denominated corporate bond, a two-tranche, KD165m ($537m) offering jointly managed by KAMCO Investment Company and Gulf Bank. In April 2023 Global Finance magazine named KAMCO the best debt bank in the Middle East, as in 2022 the Kuwait-based outfit was the joint lead manager and joint bookrunner for three bond and sukuk issuances in Kuwait and the UAE worth a combined $1.2bn.
The country also maintained a robust credit rating profile throughout 2023, providing stability to the currency and the fixed income market. S&P had Kuwait as an “A+”, Moody’s an “A1” and Fitch an “AA-”, making it one of the most resilient economies in the GCC.
Asset & Wealth Management
Kuwait’s asset managers and investment companies are some of the strongest in the Gulf, with leading companies including Arzan Financial Group, KAMCO Investment Company, KFH Capital, Kuwait Investment Company, Markaz, National Bank of Kuwait (NBK) Capital, National Investments Company and Wafra International Investment. The Kuwait Investment Authority (KIA), the country’s $800bn sovereign wealth fund, is among the world’s largest. It manages the Future Generations Fund and the General Reserve Fund; the latter was used to fund budget gaps during the pandemic, while the former cannot be accessed by the government unless sanctioned by law. In July 2023 Kuwait announced it was setting up a third sovereign fund, the Ciyada Development Fund, to lend to domestic projects.
Meanwhile, Kuwait’s asset managers were nominated for several awards in 2023. In addition to KAMCO Investment Company’s honours, NBK Capital was nominated for Citywire Middle East’s asset management awards in the GCC Equities category, while Markaz was nominated for the same award for the wider MENA region.
Outlook
With 2024 likely to feature further regional and global uncertainty, caution among investors is expected to impact GCC markets. At the same time, Kuwait is following an ambitious programme of government projects, with some 107 included in the programme that was unveiled by Parliament in July 2023. Much will depend on how the new government approaches these and other long-standing issues – notably the debt law – with many investors both locally and internationally keen to see tangible progress.
At the same time, many forecast higher-than-expected global growth in 2024. While oil prices may fluctuate, they remain at a level high enough for Kuwait to generate significant revenue, even if the national budget requires higher-than-current oil prices and income continues to be restrained by production cuts. Meanwhile, Boursa Kuwait, KCC and the CMA are set to continue the rollout of the MDP, with 2024 likely to see new debt market developments, derivatives, exchangetraded funds and a host of new digitised systems.
These market improvements are expected to come at an opportune time, given the expected global economic uptick and a new dynamism in the government. Large-scale projects require financing, while new products and opportunities in capital markets will draw in pent-up demand and bring back much of the trade and investment that is currently conducted overseas.
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