Kuwait bourse needs con­fi­dence-build­ing

AL-SHALL WEEKLY ECO­NOMIC RE­PORT

Kuwait Times - - BUSINESS -

KUWAIT: A para­graph in our last week re­port called for start­ing a process of con­fi­dence-build­ing in Kuwait Stock Ex­change (KSE). This process cer­tainly war­rants leg­is­la­tion and de­ci­sions that cope with the es­sen­tial changes in the global and do­mes­tic in­vest­ment cli­mate. For those de­ci­sions and leg­is­la­tions to be fruit­ful, they need quick re­form to some ba­sics, namely, the sup­ply of stocks and the de­mand for them. As the Chi­nese did in the quick re­form mea­sures last sum­mer when they started first by lim­it­ing the sup­ply sur­plus co­in­cid­ing with de­mand stim­u­lat­ing mea­sures. And it seems un­til now at least that the plan suc­ceeded.

Most re­ac­tions fo­cused on the sec­tion of the para­graph in which we men­tioned that 75 per­cent of the listed com­pa­nies are sold at less than their book value. They stressed two points which we value.

First is the call for gov­ern­ment in­ter­ven­tion to pur­chase from the 103 small com­pa­nies cat­e­gory. Is this a new ori­en­ta­tion to AlShall? The an­swer is that the call is doc­u­mented in our re­ports more than 10 times since 2008 and is ir­rel­e­vant of course to the fail­ing sup­port/sub­sidy. It is a call for pur­chase for the ben­e­fit of the pub­lic funds.

Sec­ond, is the gov­ern­ment ad­min­is­tra­tion ca­pa­ble of study­ing, buy­ing and re­struc­tur­ing this huge num­ber of com­pa­nies with­out cor­rup­tion. Though we can­not guar­an­tee that but spec­i­fy­ing buy­ing cri­te­ria, price lev­els and leav­ing the sell­ing as an op­tion to share­hold­ers and con­di­tion­ing the con­sent of the ab­so­lute ma­jor­ity of share­hold­ers in each com­pany are con­trols that will help re­strict cor­rup­tion prospects and de­vi­a­tion in the de­ci­sion. Ben­e­fits out­weigh losses.

The pur­pose of the pro­posal was to re­duce or with­hold stocks from the sup­ply side and stim­u­late the de­mand side by saving liq­uid­ity and in­creas­ing con­fi­dence in the re­main­ing com­pa­nies af­ter fil­ter­ing the listed com­pa­nies. It jus­ti­fies the drop in the liq­uid­ity of the first ten months of the cur­rent year by -32.5 per­cent vis-a-vis 2014, the drop in the sec­ond quar­ter liq­uid­ity by -18.7 per­cent com­pared with the first quar­ter, the third quar­ter’s liq­uid­ity by - 29.1 per­cent be­low the sec­ond quar­ter and the drop in last Oc­to­ber liq­uid­ity by -39.7 per­cent com­pared with Oc­to­ber 2014. The pro­posal also is a pre­ven­ta­tive mea­sure or hedg­ing be­fore liq­uid­ity shrink­age con­tin­ues or even ac­cel­er­ates as­so­ci­ated with pres­sure on prices which threat­ens to trans­form the cri­sis from one of as­sets price to a deficit cri­sis in mort­gages.

Un­til the im­pact of re­duced sup­ply clar­i­fies, we no­tice that Abu Dhabi’s liq­uid­ity in the first 10 months of 2015 was at $12.82 bil­lion, and the Kuwaiti liq­uid­ity was close to it at $11.33 bil­lion. But the share from liq­uid­ity of a com­pany listed at Abu Dhabi mar­ket in the same pe­riod was $237 mil­lion per com­pany (54 listed com­pa­nies only), $59 mil­lion for a Kuwaiti listed com­pany (192 com­pa­nies most of which are dor­mant), $ 519 mil­lion for Qatar (43 listed com­pa­nies), $611 mil­lion for Dubai (62 listed com­pa­nies), $2.29 bil­lion for Saudi mar­ket (166 listed com­pa­nies), and $40 mil­lion for the Omani, which is close to the Kuwaiti mar­ket though its cap­i­tal value is no more than 22.3 per­cent of the Kuwaiti stock mar­ket’s cap­i­tal value.

The bot­tom line is that di­ag­no­sis im­plies that there is an un­healthy and un­jus­ti­fied case in the Kuwait stock ex­change with open and strong ex­ac­er­ba­tion prospects. The best poli­cies are the pre­emp­tive or pre­ven­tive ones like our pro­posal here or be­fore. But sit­ting idle and mo­tion­less to watch while the con­di­tions con­tinue their de­te­ri­o­ra­tion is no op­tion.

Lo­cal real es­tate mar­ket

The lat­est avail­able data at the Min­istry of Jus­tice -the Real Es­tate Reg­is­tra­tion and Au­then­ti­ca­tions Depart­ment- ex­clud­ing crafts ac­tiv­ity, park­ing lots, restau­rants and the coastal strip in­di­cate drop in the real es­tate mar­ket liq­uid­ity dur­ing Oc­to­ber 2015 by -8.4 per­cent vis-a-vis Septem­ber 2015 liq­uid­ity. To­tal value of con­tracts and agen­cies trad­ing scored KD 187.2 mil­lion ver­sus KD 204.3 mil­lion but it dropped by - 50.4 per­cent com­pared with Oc­to­ber 2014 trad­ing.

Oc­to­ber 2015 trad­ing was di­vided be­tween KD 179.5 mil­lion for con­tracts and about KD 7.7 mil­lion for agen­cies. Num­ber of real es­tate struck deals in the month was 351 deals dis­trib­uted be­tween 334 con­tracts and 17 agen­cies. The high­est share went to Al-Ah­madi Gov­er­norate which cap­tured the high­est per­cent­age in the num­ber of real es­tate deals (119 deals) rep­re­sent­ing about 33.9 per­cent of the to­tal num­ber of deals, fol­lowed by Hawally Gov­er­norate by 68 deals, rep­re­sent­ing ap­prox­i­mately 19.4 per­cent, while the low­est share went to Jahra Gov­er­norate by 18 deals rep­re­sent­ing about 5.1 per­cent.

Value of pri­vate res­i­den­tial trad­ing scored KD 76.3 mil­lion, down by about - 14.2 per­cent, com­pared with KD 88.9 mil­lion for Septem­ber 2015. Its con­tri­bu­tion dropped to 40.7 per­cent of to­tal value of real es­tate trad­ing com­pared with 43.5 per­cent in Septem­ber 2015. The monthly av­er­age value for pri­vate res­i­dence trad­ing in 12 months scored about KD 137.2 mil­lion. This means that trad­ing value in this month is lower by -44.4 per­cent com­pared with the av­er­age. Num­ber of deals for this ac­tiv­ity rose to 245 deals (226 deals in Septem­ber 2015). There­fore, the av­er­age value per deal of pri­vate res­i­dence ac­tiv­ity scored about KD 311.4 thou­sand.

Value of in­vest­ment res­i­dence ac­tiv­ity in­creased to KD 71.2 mil­lion, an in­crease by 5 per­cent, com­pared with KD 67.5 mil­lion in Septem­ber 2015. Its per­cent­age share out of to­tal liq­uid­ity rose to about 38 per­cent ver­sus 33.1 per­cent in Septem­ber 2015. The av­er­age value for in­vest­ment res­i­dence ac­tiv­ity trad­ing dur­ing 12 months scored KD 114.8 mil­lion, making value of this month trad­ing lower by -38 per­cent than the 12 months av­er­age. Its deals scored 94 deals (91 deals in Septem­ber 2015). As such, the av­er­age value per deal for the in­vest­ment res­i­dence was about KD 757.3 thou­sand, higher by 2.1 per­cent than Septem­ber 2015 av­er­age.

Com­mer­cial ac­tiv­ity trad­ing value dropped to about KD 34.5 mil­lion, a drop by -25.2 per­cent com­pared with KD 46.1 mil­lion for Septem­ber 2015. Its per­cent­age share out of to­tal real es­tate trad­ing value dropped to about 18.4 per­cent (22.6 per­cent in Septem­ber 2015). Av­er­age value of com­mer­cial ac­tiv­ity trans­ac­tions in 12 months scored KD 42 mil­lion which means that trad­ing value dur­ing this month was lower by about -17.9 per­cent than the 12 months’ av­er­age. Its trans­ac­tions were 9 deals (11 deals in Septem­ber 2015). There­fore, the av­er­age value of the com­mer­cial deal was at ap­prox­i­mately KD 3.829 mil­lion. Value of ware­hous­ing trad­ing ac­tiv­ity was at ap­prox­i­mately KD 5.3 mil­lion (3 deals).

When we com­pare Oc­to­ber 2015 trad­ing with Oc­to­ber 2014, we note de­cline in the real es­tate mar­ket liq­uid­ity from about KD 377.5 mil­lion to KD 187.2 mil­lion, i.e. -50.4 per­cent, as we men­tioned. The drop in­volved the pri­vate res­i­den­tial ac­tiv­ity by - 49.5 per­cent, the in­vest­ment res­i­dence ac­tiv­ity by -51.1 per­cent and the com­mer­cial ac­tiv­ity liq­uid­ity de­clined by -56.7 per­cent. If liq­uid­ity av­er­age con­tin­ues at the same av­er­age in the past 10 months of the year, to­tal real es­tate mar­ket liq­uid­ity in 2015 will score about KD 3.27 bil­lion, less by -34.6 per­cent than 2014. This means in­di­ca­tors hint at a drop in the real es­tate mar­ket’s liq­uid­ity cou­pled with de­cline in the stock ex­change liq­uid­ity this year.

Mon­e­tary and eco­nomic in­di­ca­tors

The pe­ri­od­i­cal Quar­terly Sta­tis­ti­cal Bul­letin (April – June 2015) of the Cen­tral Bank of Kuwait (CBK) as pub­lished on its web­site, pro­vided some eco­nomic and mon­e­tary in­di­ca­tors whose devel­op­ments are worth fol­low up and doc­u­men­ta­tion. The bal­ance of trade (com­mod­ity ex­ports mi­nus com­mod­ity im­ports), for in­stance, achieved in the sec­ond quar­ter this year a sur­plus by KD 2.424 bil­lion, up by 37.4 per­cent com­pared with the first quar­ter. Kuwait’s com­mod­ity ex­ports dur­ing the sec­ond quar­ter scored KD 4.866 bil­lion, 89.2 per­cent of which were oil ex­ports. Kuwait’s com­mod­ity im­ports (ex­clud­ing the mil­i­tary) reached about KD 2.442 bil­lion, a rise of 4.3 per­cent as com­pared to that of the first quar­ter. The sur­plus in the first quar­ter was KD 1.746 bil­lion, which means that the bal­ance of trade sur­plus for the first half this year reached about KD 4.188 bil­lion or KD 8.376 bil­lion if cal­cu­lated to the en­tire 2015 year. The sur­plus might be less due to the con­tin­ued de­crease in oil prices in the third quar­ter and the past part of the fourth quar­ter. The sur­plus will be less by -59.5 per­cent than its coun­ter­part value in 2014 which was about KD 20.677 bil­lion due to the sharp drop in oil prices.

The bul­letin points to con­tin­u­ing drop in the weighted in­ter­est rates of bal­ances on de­posits from 1.494 per­cent in the first quar­ter of this year to about 1.485 per­cent in the sec­ond quar­ter, a quar­terly drop by - 0.6 per­cent. The weighted in­ter­est rates of bal­ances on loans con­tin­ued its drop from 4.394 per­cent to 4.379 per­cent, a quar­terly drop by -0.3 per­cent for the same pe­riod.

The bul­letin also in­di­cated that to­tal de­posits of the pri­vate sec­tor at lo­cal banks scored about KD 34.166 bil­lion, up from KD 33.544 bil­lion in the end of the first quar­ter this year, a quar­terly in­crease by 1.9 per­cent. Fi­nally, the lo­cal banks claims on pri­vate sec­tor rose to about KD 33.753 bil­lion from KD 33.046 bil­lion in the end of the first quar­ter, a quar­terly rise by 2.1 per­cent.

The CBK fi­nan­cial re­sults

The Com­mer­cial Bank of Kuwait an­nounced re­sults of its oper­a­tions for the first nine months end­ing 30, Septem­ber 2015 which in­di­cate that the bank achieved net prof­its, af­ter tax de­duc­tions, by KD 25.39 mil­lion (KD 25.34 mil­lion in the same pe­riod of 2014). This means the bank achieved a slight in­crease in its prof­its by KD 49 thou­sands, or by 0.2 per­cent. The slight rise in net prof­its level is due to the rise in to­tal oper­a­tions in­comes by a higher value than the rise in to­tal ex­pen­di­tures.

In de­tails, to­tal op­er­a­tional in­comes in­creased to KD 102.9 mil­lion (KD 100.5 mil­lion in the same pe­riod of 2014). In other words, th­ese in­comes in­creased by KD 2.4 mil­lion, or by 2.4 per­cent, as a re­sult of in­crease in net gain on dis­posal of as­sets pend­ing sale by KD 5.1 mil­lion to KD 5.7 mil­lion com­pared to KD 613 thou­sands in Septem­ber 2014. Item of net gain from in­vest­ment se­cu­ri­ties in­creased by KD 2.3 mil­lion to KD 4 mil­lion (KD 1.8 mil­lion). Item of fees and com­mis­sions in­creased by KD 2.2 mil­lion to KD 25.5 mil­lion (KD 23.3 mil­lion). While item of net gains from deal­ing in for­eign cur­ren­cies de­clined by KD 5 mil­lion to KD 1.6 mil­lion (KD 6.6 mil­lion in the same pe­riod 2014).

To­tal op­er­at­ing ex­penses went up by less value than the in­crease in to­tal oper­a­tions in­comes and rose by KD 1.9 mil­lion, i.e. 7 per­cent, to KD 28.9 mil­lion (KD 27 mil­lion in the same pe­riod of 2014). To­tal pro­vi­sions in­creased by KD 506 thou­sand, or by 1.1 per­cent, and scored KD 47.48 mil­lion (KD 46.97 mil­lion in the same pe­riod 2014). This in­creased slightly the net profit mar­gin to 31.3 per­cent (31.2 per­cent in the same pe­riod 2014).

To­tal bank as­sets scored KD 4.035 bil­lion, down by 4.2 per­cent, (KD 4.213 bil­lion in the end of 2014) and in­creased by 3.6 per­cent if com­pared with as­sets in the same pe­riod 2014 in the amount of KD 3.893 bil­lion. Per­for­mance of cus­tomers loans and ad­vances port­fo­lio dropped by KD 84.2 mil­lion, or by 3.6 per­cent, to KD 2.236 bil­lion (55.4 per­cent of to­tal as­sets), vis-a-vis KD 2.320 bil­lion (55.1 per­cent of to­tal as­sets) in the end of De­cem­ber 2014. They also dropped by KD 103.9 mil­lion, or by 4.4 per­cent, when com­pared with KD 2.339 bil­lion (60.1 per­cent of to­tal as­sets) in the same pe­riod of 2014. Item of cash and short term funds bal­ances in­creased by KD 161.1 mil­lion, or by 30.7 per­cent, to KD 686.4 mil­lion (17 per­cent of to­tal as­sets) vis-a-vis KD 525.3 mil­lion (12.5 per­cent of to­tal as­sets) in the end of 2014, and in­creased by KD 243.4 mil­lion, 54.9 per­cent, when com­pared with its value in the same pe­riod of last year at KD 443 mil­lion (11.4 per­cent of to­tal as­sets), due to the rise in the item of bal­ances de­posits at banks due within seven days by 72.8 per­cent.

Fig­ures in­di­cate that the bank’s li­a­bil­i­ties (with­out in­clud­ing to­tal eq­uity) dropped by KD 176.3 mil­lion, or by 4.8 per­cent, to KD 3.483 bil­lion (KD 3.659 bil­lion in the end of 2014). While they in­creased by KD 168.7 mil­lion, or by 5.1 per­cent, when com­pared with the to­tal in the same pe­riod 2014. Per­cent­age of loans and ad­vances to de­posits scored 66.5 per­cent down from 73.2 per­cent in the same pe­riod of last year.

Anal­y­sis of fi­nan­cial state­ments, cal­cu­lated on an­nual ba­sis, in­di­cates that most bank prof­itabil­ity in­dexes recorded rise com­pared with the same pe­riod of 2014. Re­turn on av­er­age eq­ui­ties rel­e­vant to the bank share­hold­ers (ROE) rose to 6.1 per­cent (5.9 per­cent). Like­wise, the re­turn on bank cap­i­tal (ROC) in­creased to 24 per­cent com­pared with 23.9 per­cent in the same pe­riod last year. While re­turn on av­er­age bank as­sets (ROA) de­creased slightly to 0.8 per­cent (0.9 per­cent). EPS re­mained con­stant at 18 fils for the two pe­ri­ods. (P/E) scored 25 times in 30 Septem­ber 2015 (im­proved) com­pared with 27.9 times in the same pe­riod 2014. (P/B) scored 1.5 times (1.6 times in the same pe­riod last year).

The weekly per­for­mance of KSE

The per­for­mance of Kuwait Stock Ex­change (KSE) for the last week was mixed com­pared to the pre­vi­ous one, where the in­dices of the trade value and the gen­eral in­dex, show an in­crease, while the trade vol­ume in­dex and num­ber of trans­ac­tions in­dex show a de­crease. AlShall In­dex (value in­dex) closed at 392.5 points at the clos­ing of last Thurs­day, show­ing an in­crease of about 12.1 points or about 3.2 per­cent com­pared with its level last week, while it de­creased by 51.5 points or about 11.6 per­cent com­pared with the end of 2014.

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