Kuwait’s World-Beating Stock Rally May Just Be Getting Started

  • Benchmark index is on longest winning streak since 2014
  • Investors betting on market-boosting regulatory changes

Kuwaiti stocks have started the year with a charge, performing better than any other market in the world in January. Investors expect the positive momentum to continue.

The Kuwait Stock Exchange Index has risen 12 percent this year, more than double the advance in the MSCI Frontier Emerging Markets Index. There could be a further 20 percent to climb, according to Ali Adou, a money manager at the National Investor in Abu Dhabi, who oversees the firm’s $20 million fund focused on the Middle East and North Africa.

Kuwaiti stocks advanced for a 12th day Thursday, the longest winning streak since September 2014. The volume of stocks traded surged to the highest in more than 3 1/2 years. Here are the main reasons investors are so bullish:

Market Reforms

As Saudi Arabia and the United Arab Emirates ready measures to make their markets more attractive, investors are betting that 2017 will see Kuwait’s Capital Markets Authority and the local bourse implement steps to boost inflows. “Initiatives targeted at improving market liquidity and reducing trading costs should help support local and foreign interest in the Kuwaiti market,” said Husayn Shahrur, a managing director at NBK Capital in Kuwait City, which oversees about $1 billion in Middle East and North African equities.

World Equity Indices

Rising Oil

Kuwait, home to about 6 percent of the world’s oil reserves, and its companies are set to benefit from higher crude prices, which should enable the government to step up spending. “The market is perhaps factoring in that the country can continue its capital spending with the roll-out of more projects such as the metro and airport,” said Chiradeep Ghosh, manager for equities research at Securities & Investment Co. in Manama, Bahrain. “Kuwait may not struggle with its budget as much as other GCC countries.”

Sovereign Wealth

Local stocks could get an extra boost from the Kuwait Investment Authority, as the country’s sovereign wealth fund is known, as it expands holdings in domestic equities. The KIA wants to increase the allocation of funds managed in-house to as much as 8 percent from 1 percent or 2 percent now, Managing Director Bader Al Saad said in an interview with Bloomberg Television on Wednesday.

Frontier Funds

Starting in May, Kuwait will face less competition for frontier-market investments from Pakistan, the country in the asset class most-owned by money managers, as the latter takes on emerging-market status. “While frontier-markets funds are not benchmark strict, they are unlikely to keep Pakistan as their top allocation after it migrates to EM," strategists Mohamad Al Hajj and Simon Kitchen wrote in a Jan. 19 report.

Switch Out of Real Estate

A drop in oil to the lowest in more than a decade last year depressed real estate prices in the Gulf country, the International Monetary Fund said in November. The market has yet to recover, with some local investors preferring to put their money in stocks instead. Kuwait City property sales slumped 30 percent in December from a year earlier, the Ministry of Justice said Jan. 15. “Weak real-estate prices are pushing money into other assets,” said Dubai-based Al Hajj at EFG-Hermes.

M&A

About $1.1 billion in proceeds stemming from the sale of Kuwait Food Co., known as Americana, to a U.A.E.-based investor group, should flow back into the local market, said Al Hajj and Kitchen of EFG-Hermes. “The rotation out of Americana is pushing investors to invest in the remaining names,” said Adou at the National Investor in Abu Dhabi.

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