Sept liquidity scores KD 523.8 mln, totals KD 1,514m for Q3
Boursa Kuwait ranks third in index gains among 12 Mideast markets
It would be beneficial to monitor and document the boursa performance by comparing its liquidity volume and its trends before and after dividing its markets and its upgrading procedures. Dividing markets is a key factor but is not the only one to interpret its developments as there are additional important variables that play a major role. Accepting the boursa within global indexes and upgrading it are important factors though dividing the market between acceptance and promotion incentives and general variables like geopolitical events, oil prices movement, etc, are important as well, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
In this report we are going to present performance developments from three perspectives.
First is the general development of liquidity performance between the first half year after division (April 2018-September 2018) and the similar preceding half year of 2017. The second is to make comparison between half years before and after division but in terms of their impact on the boursa sectors liquidity. We do this to monitor liquidity trends as a result of foreign dealers’ preferences. Third is to follow up the impact of said variables on dealers’ preferences for listed stocks in the three markets to feel if there is a justification for reviewing the general policies underlying the markets division.
Boursa liquidity figures indicate in general that preliminary results of division and upgrade increase liquidity volume, although not big but is positive despite the natural refrain accompanying any substantial change. This is what happened in the first three post – segmentation months. In April 2018 , liquidity scored KD 240.1 million, dropped to KD 204.8 million in May and then scored KD 242.1 million in June. The total in the three months was KD 687.7 million which is weak liquidity that reflects normal hesitation out of fear and lack of adaptation to a substantial change from a system that they are used to. The situation changed in the subsequent three months. In July, liquidity scored KD 633.4 million, 92.1% of the entire second quarter liquidity; in August, that involved a long ‘Eid’ vacation, liquidity scored KD 356.5 million and in September liquidity scored KD 523.8 million, totalling KD 1,514 million for the third quarter, or 2.2 times the liquidity of the second quarter or the first three post-division months. Liquidity also rose in the first six months after the division and the talk about its upgrading exceeded the liquidity of the preceding six months as mentioned and also the liquidity in the counter period in the preceding year. Liquidity of the six months after division scored KD 2.2 billion, up by 26.3% from the liquidity of the preceding half year (October 2017-March 2018), and rising by 9.2% from the liquidity of its counterpart period last year (April 2017-September 2017) despite the exceptional liquidity of last year. Boursa’s liquidity is its most important index, the lack of it is weakness and its dominance is hazard. Its gradual rising until now is a healthy indicator and would give an impression, though very early, of its management’s sound procedures relevant to dividing its markets.
File photo shows traders on Boursa Kuwait floor. The market’s performance was mixed during the week.
to 53.5% of boursa liquidity since the split. Kuwait Finance House “KFH” took the lead in absolute increase in liquidity by KD 135 million, or 55.8%. The National Bank of Kuwait “NBK” came next by and absolute increase by KD 110.8 million or 48.8%. Kuwait International Bank “KIB” came third by an absolute increase of KD 49 million, or by 156.9%. The three are within “FTSE Russel” index. “Ahli United Bank” – Kuwait – took the lead in the relative increase of liquidity by 258%, then to “Burgan Bank” by 166.5%, then “KIB”. The only decrease in liquidity went to “Ithmaar Holding” by 71%.
The second largest absolute increase went to the industry sector which scored approximately KD 137.9 million. Its liquidity share rose from KD 207.8 million before the split to KD 345.7 million after the split. The third largest absolute increase went to the basic materials sector, by KD 32.2 million or 76.4%; but its contribution to the boursa liquidity after the split did not exceed KD 74.3 million.
There are sectors whose relative liquidity rose dramatically, while their liquidity contribution was weak and ineffective. Relative increase in the insurance sector’s liquidity scored 521.2%, but its absolute liquidity was KD 5.6 million. This applies to the healthcare sector with relative gains by 1,062%, but with KD 1.2 million absolute contribution. The consumer services sector is excluded with weak liquidity at KD 47.3 million but by absolute rise at KD 14.3 million and relative gains by 43.2% .
The losing sectors usually include two speculative sectors: the financial services sector and the real estate sector. The financial services sector lost 79.9 million in liquidity, or about 28.5% in the post segmentation period, and the real estate sector lost KD 26.1 million liquidity, or about 19.5%. The two sectors’ cash losses were bigger in the period from March 2017 and October 2017 versus liquidity in the half year before the division. Their weak liquidity should create pressure that threatens their companies to remain in their positions in the Main Market. There would likely be some withdrawals if some of them transfer to the Auctions Market. In addition, the telecommunications sector lost about KD 46.2 million of its liquidity after the division, by approximately 17.8% drop. But it is not a speculative sector. Therefore, its companies are not subject to the threat of being degraded to lower markets.
Generally, 6 months’ period is insufficient to make judgments; however, it is always desirable to read preliminary indicators as they might assist in adopting proactive policies and decisions to limit what might be undesirable, both on the listed companies’ level and on regulators’ level.
Liquidity was the main criterion in categorizing markets; so, the dominance of liquidity direction to the first market was expectable. It was also natural that most companies listed on global indices are also listed on the premier market (10 companies out of 12). The outcome of liquidity trends in the first 6 months after splitting the market is quite reflective of what is expected. The premier market took KD 1,730 million liquidity out of KD 2,201 million, ie 78.6% of the total, although it has only 17 companies out of 175 companies in the three markets, ie 9.7% of the total number of listed companies.
There are 10 companies from the premier market 10 listed on “FTSE Russell”. Those ten companies have received about 60.9% of all stock market liquidity in the first six months of the split, while 66.7% of the Premier Market liquidity went to five of its companies leaving approximately 33.3% of its liquidity to 12 other companies. That means deviation in liquidity distribution even among liquid companies in the premier market. There is a similar deviation even at the level of 12 companies listed on “FTSE Russell” index. Two of these companies are in the main market. The two companies in the “FTSE Russell” index and are within the main market secured 5.3% liquidity of the index companies, and the contribution of 12 companies listed on the above index obtained 64.3% of the boursa liquidity. This is strong evidence on the impact of listing on that index in strengthening the company liquidity.
Although the main market includes 146 companies, its liquidity is weak. It received 21.4% of boursa Kuwait liquidity, or about KD 471.3 million after market division. Among 20% of its companies obtained about 75.1% of liquidity leaving the remaining 24.9% to the rest (80%). Whereas 73 of its companies (half) obtained only 4.6% of its market liquidity, and 3 of its companies didn’t secure any trades. This means this case needs some review if it continues for two successive periods. The auction market is a non-liquid market; in 6 months it received KD 209 thousand only for 12 companies, KD 17 thousand per company, or about KD 2,800 per company per month. Nevertheless, it remains an important market in our view because offers an open opportunity in need for active trading or even the acquisition of a company within it.
The foregoing is just preliminary indicators which suggest that dividing markets is a successful experience. Whether it is as we believe or not, preliminary indicators offer a chance to build on good developments, and correct what is not. Good conclusion needs solid assessment and following up developments over a longer term. What consequences we should be aware of is that the flow of foreign funds into the stock exchange is good to a certain extent, but their flow in high rates is danger. It is a risky cash flow, most of which come in at an inappropriate timing and when withdrawn, they cause serious risks at an inappropriate time too.
Performance of most indicators of global markets fluctuated in the end of September 2018 compared to improved performance of most indicators. Morgan Stanley Capital International Index “MSCI” rose by about 3.8% by the end of September 2018 (9 months) compared to a rise in the same index in 2017 by about 20.1%. The rise included “MSCI” index for the United States, which rose by about 9.1%. The weight of the US market is so big that it reversed the negative direction of the global index. Likewise, the overall index of the two Americas also rose by almost 7.9%. The indicator “MSCI”, which includes Europe, has dropped by approximately -4.9%. The same index dropped – excluding the United Kingdom – by -4.5%. Asia’s position was similar to that of most of the European markets. “MSCI” for Asia/Pacific dropped to -4.9% compared to approximately 28.7% rise in 2017; the Japanese index dropped by about -0.2%. The bottom line is that the world market index dropped by about -3.8% if we excluded the United States from it. His reflects the American market’s weight in forming the index as mentioned above .
The below graph shows the continents’ performance, according to “MSCI” indexes, until the end of September 2018, and comparing this performance with it was in the end of 2017.
The upcoming graph displays the comparative performance of growth (or decline) of indicators to a selected group of main financial markets, (16 financial market), during September 2018, including Boursa Kuwait, without taking the exchange rate movements into account. Compared with 2017, it refers to a drop in most indicators of the financial markets. Index of Boursa Kuwait, according to Al Shall index, rose and occupied the first position by 10.7% rise compared with position 13 and 6.6% rise among these markets in 2017. It should be noted that the average drop for the markets as a whole, including in the graph, scored approximately -1.8% in the end of September 2018 versus 14.7% increase in 2017.
The last graph displays performance of 12 selected financial markets in the Middle East: 6 markets achieved positive growth and 6 markets retreated. Boursa Kuwait ranked third in its index gains among 12 Middle East markets, according to Al Shall index, without adjusting the impact of currency exchange rate against the US dollar. The growth rate to these markets indicators scored about 0.4% after a rise by around 1.1% in 2017. This means that Middle East markets performance was better in 2017.
The Tunisian market came first in the end of September 2018, up by about 24.2%, followed by the Qatari market rising by around 15.1%, then the Kuwaiti market and the Saudi market rising by about 10.7% each. Then the Pakistani market rose by about 1.3% and the Bahrain market rising by 0.5%.
The performance of Boursa Kuwait for last week was mixed compared to the previous one where the traded value, traded volume, and the number of transactions increased, while the general index showed a decrease. Al Shall Index (value weighted) closed at 417.8 points at the closing of last Thursday, showing a decrease by 5.9 point or by 1.4% compared with its level last week. While it increased by 30.8 points or by 8% compared with the end of 2017.