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Kuwait Monthly Report | August

  • The Kuwait equity space took a hit in line with the rest of the world due to the Covid-19 pandemic.
  • The MSCI Inclusion postponement was a blessing in disguise as it has allowed firms time to stabilise prior to the inclusion inflows.
  • The oil price war in Q1 coupled with the Covid-19 impact has created a buying opportunity ahead of the MSCI inclusion as most announcement and inclusion premiums have been wiped.

 

Performance Review

After witnessing gains for three consecutive months, Kuwait Indices marked the biggest decline in the Gulf Cooperation Council (GCC). This primarily led a broad-based decline with all four indices ending the month in a range of -2.5% to -3.5%. The key indices, the Premier Market index and the Main 50 index, had similar declines of -3.4% and -3.3% respectively. This resulted in a 3.2% decline in the All Share Index. The Basic Materials index was the biggest loser for the month, declining by -6.7%.

All four constituents of this index slipped, with Boubyan Petrochemicals marking the steepest decline of -12.4%. The company’s shares declined after news reports of an investigation in one of its investments in Kuwait.

 

July YTD*  12 Month** 
-2.19% -21.99% -20.43% 

Past performance is no guarantee of future performance.

Source: Bloomberg, HANetf *July figures based on 01.07.20 – 31.07.20 **YTD figures based on 01.01.20 - 31.07.20 ***12 Month figures based on 30.06.19 -31.07.20

The banking sector, biggest by market cap, marked an overall fall during the month of July.  Gulf Bank saw the biggest drop of -10.4%, while sector leaders NBK and KFH declined by -3.9% and -5.6% respectively. AUB Bahrain was the only stock in the Premier Market which gained 6.3% during the month, while all the other constituents witnessed a drop. Hit by the monthly downtrend, Kuwaiti benchmarks melted further in terms of YTD-2020 returns. The YTD-2020 decline of the Premier stood at -22.4%, whereas the Main Market index recorded a relatively lower decline of -16.8%. Within the Premier Market only Mezzan Holding, which belongs to the food segment, carried a YTD-2020 return of 16% whereas all the other constituents were in the red.

In terms of gainers, only two sectors ended the month on the green turf; namely the Healthcare index with a 2.2% gain and the Oil & Gas index with a 0.4% gain.

Past performance is no guarantee of future performance

Source of all data: KMEFIC, data as of 31.07.20

KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8) – 1 Year Performance (31/07/19 – 31/07/20)

 

Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/07/20

Industry News

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. There have been some budget cuts across the board to several government institutions, as well as an effort to reduce the workforce, which accounts for a large part of government spending as over 70% of the workforce works in the public sector [1]. These cuts will force institutions that had been running inefficiently to buckle down and stem the flows. In addition, there has been an active effort to finally implement a government taxation plan in the form of VAT on specific goods. Finally, there has been talk of cutting or reducing several citizen subsidies, such as the subsidy on electricity in light of the fact that the citizens pay no government tax.

Anti-Corruption

In response to two large corruption scandals breaking in the country, the government seems to have doubled its efforts to fight corruption. This effort has been gaining a lot of momentum in the past two to three years, with several high-profile cases found and investigated. Furthermore, anti-money laundering efforts have been gaining momentum as well.  

Stimulus Plan

Additionally, 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. Especially the burgeoning F&B space which has been heavily impacted by COVID-19.

Outlook

Looking forward, the major event will be the MSCI inclusion. While the pandemic has provided uncharted territory in terms of how this inclusion was implemented, the decision to postpone was correct. Kuwait has seemingly successfully controlled the situation and is now slowly opening the economy back up. As of June 28th, it has implemented phase 3 of its plan to open up the economy to 50%. [2] 

The equity markets have experienced several months of volatility, with performance fluctuating up and down. January saw a large increase in anticipation for the MSCI inclusion which was announced in December, however the Covid-19 situation in March shot the market way down, losing most of the MSCI premiums. April, May, and June saw weekly fluctuations but have managed to net out slight monthly gains before a small decrease in July. [3] 

However, compared to the start of the year and the MSCI premiums, prices are very attractive compared to post-announcement premiums in January. Buying pressure will slowly ramp up again prior to the inclusion date in November. As for the broad economic outlook, Kuwait will be hurt by COVID-19, as will the rest of the world. However, if the government recognises the wake-up call to implement budget reform, this will significantly benefit Kuwait down the line when combined with its efforts to boost its non-oil economy in the vision 2035 plan.

Constituent News

The major talking point for Kuwait ETF constituents will be looking at Kuwait Finance House and Ahli United Bank, who represent 14.43% and 13.27% respectively as of July 31st. These constituents are two major financial institutions in Kuwait who were slated for a merger prior to the inclusion in May. This would have led to a boost to the inclusion premiums the fund was expecting. However, due to the pandemic, both banks felt it necessary to postpone the merger. We have since heard little to no news on when this merger will happen. However, with the economy slowly opening back up it is expected that more news will follow.

 

Top 10 Constituents  Weight 
National Bank of Kuwait SAKP 15.10%
Mobile Telecommunications Co K 14.90% 
Kuwait Finance House KSCP 14.43% 
Ahli United Bank BSC 13.27%
Agility Public Warehousing Co  9.31%
Boubyan Bank KSCP 6.65% 
Gulf Bank KSCP 4.59% 
Mabanee Co SAK 4.44% 
Humansoft Holding Co KSC 3.70% 
Boubyan Petrochemicals Co KSCP 2.82% 

 

Sub-Theme Breakdown  Weight 
Banks 59.54% 
Telecommunications 14.90% 
Industrial Goods & Services 10.19% 
Financial Services  4.41% 
Real Estate 4.44%
Retail 3.70% 
Chemicals 2.82% 

Source: HANetf data as of 31/07/2020

Fund Details

KMEFIC FTSE Kuwait Equity UCITS ETF is a UCITS compliant Exchange Traded Fund domiciled in Ireland.  

The fund 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. The fund seeks to provide targeted exposure to an emerging market with significant growth potential.  

Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.

EXCHANGE BB CODE RIC ISIN SEDOL CCY
London Stock Exchange KUW8 LN KUW8.L  IE00BGPBVS44 BGY9KV5 USD
London Stock Exchange  KUWP LN KUWP.L IE00BGPBVS44 BGSXQZ9  GBP
Borsa Italiana   KUW8 IM KUW8.MI IE00BGPBVS44 BGSGKH8 EUR
Deutsche Boerse Xetra KUW8 GY KUW8.DE DE000A2PD3R9 BJ9ZLG1 EUR

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