Kuwait equities attractively priced as the country embarks on structural changes and awaits the MSCI reclassification to emerging market status
- Delay in MSCI’s upgrade to
emerging market status was a blessing in disguise as it allowed Kuwaiti
companies to make changes prior to the inclusion of new investor inflows
- Budget reform, a growing focus
on anti-corruption measures, and a stimulus plan should also benefit Kuwait
stocks
20 August, 2020
The
decision by MSCI to postpone the reclassification of Kuwait indices from
frontier market status to emerging market, and developments in the country
since the Coronavirus crisis started, means Kuwaiti equities are attractively
priced. This is the view of the
KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8), a UCITS compliant Exchange Traded
Fund domiciled in Ireland which tracks the FTSE Kuwait All Cap 15% Capped
Index, an index of large, mid and small cap securities trading on the premier
or main market of Kuwait Stock Exchange.
Abdullah
Al-Busairi, the Director of KMEFIC who is partnered with HANetf for the KUW8 Kuwait ETF, commented: “The postponement of MSCI’s upgrade for Kuwait
to emerging market status was a blessing in disguise as it has allowed Kuwaiti
firms time to stabilize prior to the inclusion of major new investor inflows. This,
combined with the fact that Kuwait has seemingly been successful so far
in controlling the pandemic and is now slowly opening the economy back up,
means Kuwait equity prices are very competitively priced. Even so, buying pressure will slowly
ramp up again prior to the emerging market status upgrade in November.”
As for the
broader economic outlook, in addition to the country’s efforts to boost its
non-oil economy through its vision 2035 plan, the KUW8 Kuwait ETF spokesperson says several other factors support a more positive
outlook for Kuwait. These include:
Budget Reform
While budget reform has been a constant talking point in Kuwait
for several years, it has never been spoken about with urgency, and limited
action has been taken. However, there have now been some budget cuts across the
board to several government institutions, as well as a growing effort to reduce
the workforce, which accounts for a large part of government spending because over
70% of it is employed in the public sector. These cuts will force many institutions
to run more efficiently. In addition, there has been an active effort to finally
implement a government taxation plan in the form of VAT on specific goods. Finally, parliamentary debate regarding the public debt law which would allow the Kuwait
Government to borrow up to 65 billion USD[1]
from local and international sources over the next 30 years has reached
critical phases with the finance minister pushing hard for parliament to
approve and pass the law.
Anti-Corruption
In light of two large recent corruption scandals in the country,
the government seems to have re-doubled its efforts to fight corruption, an
effort which has been gaining a lot of momentum in the past two to three years
with several high-profile cases identified and investigated. Anti-money
laundering efforts have also been gaining momentum as well.
Stimulus Plan
There has been talk of a stimulus plan, the first of which saw
government support for the private sector to prevent the collapse of the
non-oil sector due to COVID-19.
When you trade Kuwait ETFs your capital is at risk.
Investing in Kuwait
The
KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8) was the first UCITS ETF to
provide targeted exposure to Kuwaiti securities. It is also the only UCITS ETF
to be sponsored by a Kuwait asset manager, (Kuwait & Middle East Financial
Investment Company).
Priced at 80bps, KUW8 includes 17 of the largest and most
liquid securities trading on Borsa Kuwait and uniquely is focused away from the
declining energy sector and towards sectors that stand to benefit most from
‘Vision 2030’ spending.
As such, KUW8 offers investors an efficient, liquid and
diversified tool for investors who want to benefit from the potential impact of
the upgrade.
For more information on the ETF, visit the KMEFIC FTSE Kuwait Equity ETF (KUW8) fund page.