Boursa Kuwait’s performance mixed for last week

Total liquidity of 7 GCC stock markets up by 4.3 pc in first Q3 of 2019

Stock Prices and Pricing Fairness

WE have repeatedly stated that the most important stock market’s index is its liquidity index. After its reorganization, Boursa Kuwait managed to raise its liquidity fundamentally. Its liquidity during the first six months of the current year rose by 166.2% vis-a-vis liquidity of the first six months of 2018 and increased by 105% for the first nine months of this year compared with the same period of 2018. This is a good development that supported the general market index which gained 10.7% during the same period. However, there remained a disorder that should be fixed, i.e. that the rise in liquidity and capital gains that followed remained deviant and it was reflected positively on liquid companies’ prices and perhaps negatively on non-liquid companies which are much more in number, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.

A look at the margins of market price differences and their book values might be enough to initiate a professional and systematic effort to reduce them in favor of non-liquid companies. That could be achieved by marketing investment feasibility therein through the support of their liquidity. Figures from actual financial statements published until 302019/06/ indicate that the stock prices of 14 listed companies, or about 8% of the total number of listed companies, exceeded by twice their book value and about 25 other companies whose stocks prices in the market exceeded their book value in the market by 1%-99%. This means that only 39 companies or 22.3% of listed companies number whose market prices for their stocks exceeded their book value.

On the other hand, there are 75 companies or about 42.9% of the listed companies number which are sold at 50% discount of the book value of shares and more, 42 companies or about 24% of the listed companies number are sold at a discount of between 30% -49% on the share book value. This means that about 67% or two-thirds of the listed companies are sold at a discount to their book value by 30% and more. In addition, there are 19 other companies whose stocks are being sold at a discount of about 1% to 29%. The situation will not be any different if the comparison is done on the status of listed companies at the end of September, but the financial statements of the companies are not yet available then.

It remains fair to say that some of the negative margin between the market price and the book value is justified. The global and regional troubled conditions favor liquidity. Besides, some doubt about the accuracy of book values is acceptable and justified. But when the difference affects this large number and with those wide margins of discount, no doubt that it is a phenomenon in need of cure. This cure will not be more than an effort to limit the unnecessary supply, i.e. filtering the listed companies and boosting the demand side by completing stock market reforms by more transparency and support to the market making, and then raising awareness of the good companies’ conditions.

Sectors’ Liquidity January

(September 2019)

What applies to the liquidity deviation of boursa Kuwaiti markets in general also applies to its sectors’ liquidity deviation. There are five sectors whose liquidity accuracy can be judged, while there are seven sectors whose liquidity, i.e. value of their trading, is very low. The five liquid sectors reaped 96.77% of the boursa liquidity in the first nine months of the current year and increased their liquidity from their liquidity share in the first nine months of 2018 to about 92.85%, while the share of non-liquid sectors decreased from 7.15% for the same period in 2018 to about 3.23% this year.

The banking sector took the lead among active sectors in terms of liquidity volume and its growth rate between the first three quarters of 2018 and 2019. It collected 63.19% of boursa liquidity for the past part of this year compared with 51.99% for the same period of 2018. In terms of its trading value, its liquidity increased from KD 1.538 billion until the end of September 2018 to KD 3.833 billion until the end of September 2019 -more than doubledor increased by 149.2%. The increase in its liquidity contributed to the rise in its market capitalization value between the two periods by about 21.7% for this sector to achieve the highest gains of Boursa Kuwait. Its share of boursa liquidity exceeded its contribution to its value of about 58.97%.

The second-largest sector in liquidity which shares the banking sector in its high rise in its absolute liquidity and its contribution to liquidity exceeds its contribution to the market capitalization value is the telecom sector. It gained about 12.89% of the boursa liquidity for the past part of this year (10.08% for the same period of 2018), and its absolute liquidity between the two periods increased from KD 298.4 million to KD 782 million with growth in absolute liquidity by 162.1%.

The other three liquid sectors, all of which achieved an absolute increase in their liquidity, all lost in their relative contribution to them. Their contribution to the market capitalization value of bourse was higher than their contribution to their share from liquidity.

Quite to the contrary, five other sectors whose contribution to the boursa liquidity since the beginning of the year did not exceed 0.88% , i.e. less than 1%; the highest was the Consumer Goods Sector scored KD 21.3 million liquidity. The lowest was the Technology Sector which scored only KD 65,000. The contribution of the five sectors to the value of the market capitalization value scored about 3.9%. Two other sectors, namely, the Basic Materials Sector and the Consumer Services Sector, share the five non-liquid sectors by 1.65% and 0.70% respectively of the total boursa liquidity since the beginning of this year; we believe that filtering that sector and reducing the number of its nonliquid companies is a deserved goal.

Listed Companies’ Liquidity January – September 2019

The severe deviation in the boursa liquidity and its twelve sectors will naturally apply to its companies. The most liquid companies (five) captured 57.73% of total boursa Kuwait liquidity since the beginning of this year until the end of September. 11 companies, next to them in liquidity level, captured 25.71% of total liquidity of boursa. This means that 16 listed companies captured 83.44% of the total market liquidity with only 16.56% of liquidity left to the other 159 listed companies. Kuwait Finance House (KFH), the highest liquid company in the first nine months of this year, accounted for 16.2% of total liquidity of the boursa. NBK shared it with about 13.94% of liquidity. The two combined accounted for about 30.13% of liquidity in the boursa. Al Ahli United Bank (Bahrain) accounted for 10.79% of liquidity and the Gulf Bank accounted for 10.11% of total liquidity.

On the contrary, there are 5 listed companies with the least liquidity and got only KD 1,000 of liquidity: three of which are without trading at all, one is with KD 15 trading and the last one is KD 795. Eleven companies with the least liquidity following them got KD 1,058 liquidity for the least one and KD 23,082 liquidity for the highest one. The total liquidity for the eleven companies scored KD 121.8 thousand. There are other 54 listed companies whose absolute liquidity ranged between KD 28.3 thousand for the lowest and less than one million dinars or about KD 964,000 for the highest. Their combined share of liquidity was KD 22.8 million, or about 0.39% of total boursa liquidity, i.e. 31% of the total number of listed companies.

We assume that a company’s liquidity, its trading value, is the most important purpose for its listing. Certainly, these companies include good ones and for reasons including the monopoly of ownership and its unawareness of its status, its liquidity recedes. They also include a large number of them whose listing is unwarranted with their continued liquidity scarcity and so as not to affect the confidence in the rest of the companies, and consequently in the boursa trading. They must be encouraged to cancel their listing.

By reviewing the good liquidity of the local boursa compared to the region’s stock markets, that good liquidity has deviated at the boursa level and consequently at the level of its sectors and its companies, we believe it is time to have a thorough diagnosis and designing policies that preserve confidence in the local boursa.

GGC Stock Markets Liquidity January – September 2019

Total liquidity of the seven stock markets of the GCC in the first three quarters of this year increased by 4.3% compared to the first three quarters of 2018. Total liquidity scored about $230 billion until the end of last September. Rise in liquidity was not comprehensive but it was achieved due to increase in the liquidity of only three exchanges, the rise in two of them was high, while the other four exchanges achieved varied decline in their liquidity and two of them achieved slight decline.

Boursa Kuwait achieved the highest liquidity growth by 103.5% until the end of September; its general index gained 11.8%, the second highest gain among the seven stock exchanges. The second stock market in high liquidity growth was Abu Dhabi Stock Exchange by 50.1% though its general index gains did not exceed 2.9% and came fifth in gains. Bahrain Stock Exchange was the third-highest in liquidity growth by 13.7% since the beginning of this year. This increase in liquidity was enough to push its stock index gains up to 13.4% to outperform its seven colleagues in terms of gains.

The biggest loser in liquidity level was Dubai Stock Exchange which fell by -19.4%, but, and contrary to the proportional relationship between liquidity and gains, its index achieved the third highest gains in the region by 9.9%. The second biggest loser in liquidity level was the Muscat Market whose liquidity lost -13% and thus it was the biggest stock market in the region in loss since the beginning of this year; its index lost about -7.1%. Loss of both Qatar Stock Exchange and the Saudi Stock Exchange was less than 1% each. With these, the Qatar Stock Exchange gained only 0.7% for its index while the Saudi market gained 3.4%.

While the Saudi market is still the dominant market in its share of the region’s liquidity despite the decline in its share of total liquidity from 78.9% for the first nine months of 2018 to 75% since the beginning of this year, Boursa Kuwait has achieved an increase in its share of total liquidity from 4.5% in the first three quarters of 2018 to 8.7%, becoming the second-highest stock exchange in liquidity in the region.

The liquidity index is the most important index as we have mentioned repeatedly. It is a proof or evidence of the rise of confidence in the performance of the stock market management and the integrity of the information of its listed companies. Maintaining the attractiveness of the stock market to liquidity is a vital factor. We believe that there is a need for an effort to support the confidence of the local investor in the “Boursa Kuwait” as selling still prevails over buying. There should also be an eort to adjust the deviation in the boursa liquidity as half of its companies still have less than 1% of it, and some are sold at half of their book value as we will try to address in subsequent paragraphs of our report.

The Weekly Performance of

Boursa Kuwait

The performance of Boursa Kuwait for last week was mixed. Where the traded value, traded volume, number of transactions showed a decrease, while the general index (AlShall index) showed an increase. AlShall Index (value weighted) closed at 501.5 points as of last Thursday, showing an increase by 5.0 points or by 1.0% compared with its level last week. It remained higher by 72.5 points or by 16.9% compared with the end of 2018.