‘Bridge structural gaps in economy’
Al-Shall Report KSE performance during week mixed
IOil Prices and Budget Balance
n the countries which depend in financing their general budgets mainly on the oil sale revenues, the difference between the budget surplus and deficit is determined by barrel of oil price in the market, which is called parity price for a barrel that a achieves balance between income and expenditure in the budget. During oil boom, the higher surpluses were achieved when oil market price goes higher than the parity price and vice versa. During weak oil market price, their deficits increase if the gap widens due to oil price drop. In recent weeks, where Brent price ranged around US$ 40 per barrel and then it dropped last week toward the middle of thirties, all OPEC countries are experiencing major deficit gaps in the parity prices of their budgets, says Al-Shall economic report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
When OPEC Ministers went to December 4 meeting, they all knew that their failure would drop prices and increase prospects of their budgets deficit, but their bet was on the one among them who screams first. In order to assess the financial position of the key OPEC countries, we review the level of parity price to the budgets of key states and their production quota and estimate of the size of the sovereign funds. We divided them into two groups: the first is for the GCC within OPEC, and the second is for major producers outside it as in table No (1).
Despite the wide discrepancy in parity prices among the four countries, they are distinct in the abundance of the balances of their socalled financial absorbers — the sovereign funds — as a result of surpluses during oil markets boom when the difference from the parity price was positive in favor of market prices.
Therefore, the size of their funds inflated which grants them in the short term longer time than others to absorb the impact of the shock.
The gap between the parity price and market price for the other group is generally bigger. The size of their sovereign funds is small, but the economies in most of them are more diverse. They did not lose much of their economies competitiveness because their affliction by the Dutch Disease is not serious like the GCC states. The summary of their conditions are in table No (2).
In brief, all OPEC countries are harmed. The first group GCC states members in OPEC would suffer less financially, but they might lose forever the opportunity to achieve longterm economic awakening by what remains of their financial assets if oil market conditions would continue like today. Their political and social stability would face real harm. The harm would be greater on the two other members of the GCC, Oman with its small US$ 19 billion sovereign fund and Bahrain with US$ 11.1 billion sovereign fund. The other group on the other hand will suffer extremely financially and would scream successively at first but they will remain, despite great losses, capable in the long term to compensate economically. Certainly, the conflict within OPEC with Russia is very harmful to its both parties. all oil production as revenue. For the same reason, it does not include investment income within the budget income items. On the other hand, IMF does not care about the fact that oil production is a consumption of an exhaustible asset; neither does it care about the fact that investments are the result of replacing unsustainable oil asset by money. Therefore, it calculates all oil revenues plus the investments income within the general revenues because its concerns are financial and not economic, though this contradicts everyone’s admiration by the Norwegian definition of the concept of public finance which excludes 96% of the proceeds from oil sale and directs it to the sovereign Fund.
In fact, the definition of the Ministry of Finance is wrong but the IMF definition is more erroneous. Norway alone adopts the economic definition. Therefore, all oil States, including Kuwait, will suffer as is evident from the position of its parity price for its budget in another paragraph of this report. Repetition is no longer meaningful, and the economic definition is the correct one and is the key to economic reform without which all reforms are just failing cosmetic surgery. The principle of income sustainability and not the asset consumption in financing of public finance should be adopted. Reform is possible by adopting investments income only as a major source of budget financing because it is the only source which achieves the principle of sustainability. It will increase the deficit level in the start but that is fine and it can be filled partly by revenues from sale of oil, but within a binding policy to reduce the need for oil sale proceeds, i.e. adopting a genuine economic which is work to reform to bridge the deficit or
KSA
UAE
73 9.2% ***956
File photo shows trading in progress. KSE ends Thursday’s session in red.
the structural gaps in the economy including the financial gap.
Kuwait Clearing Company issued its report titled “Trading Volume According to Nationality and Category” for the period 01/01/2015 to 30/11/2015 published on KSE official website. The report indicated that individuals are still the largest group though their share is declining and they captured 49.3% of total value of sold shares (about 52.4% for the first eleven months from January to November 2014) and about 45.9% of total value of purchased shares (47.1% for the same period 2014). Individual investors sold shares worth KD 1.858 billion and purchased shares worth KD 1.728 billion with a net trading, more selling, by KD 130.110 million.
Corporations and companies sector captured 29.7% of total value of purchased shares (27.1% for the same period 2014) and 26.7% of total value of sold shares (about 20.6% for the same period last year). The sector purchased shares worth KD 1.118 billion and sold shares worth KD 1.007 billion with a net trading, more purchasing, by KD 110.870 million.
The third contributor to market liquidity is the clients’ accounts (portfolios) which captured 15.2% of total value of sold shares (about 19.3% for the same period 2014) and 14.8% of total value of purchased shares (15.6% for the same period 2014). The sector sold shares worth KD 571.349 million and purchased shares worth KD 556.196 million, thus making its net trading, selling, by about KD 15.153 million.
The last contributor to liquidity is the investment funds sector which
Table No. (1) GCC OPEC Members Production Quota, Parity Price and the Sovereign Funds
Kuwait
37 8.7%
592
Qatar
Parity Price (US$) 106 Share in OPEC Production (%) 32% *Sovereign Fund Volume (Billion US$) **669 Source: Bloomberg Business – 4 December 2015 * Source: Sovereign Wealth Fund Institute. **Abu Dhabi owns other funds worth around US$ 243 billion, and KSA also owns other funds of about US$ 5.3 billion.
***Total funds of Abu Dhabi and Dubai are 773 and 183 respectively. 55.5 2% 256
51.9%
captured 9.7% of total value of purchased shares (about 10.2% for the same period 2014) and 8.8% of total value of sold shares (about 7.8% for the same period 2014). This sector purchased shares worth KD 364.778 million and sold shares worth KD 330.385 million, with a net trading, purchasing, by KD 34.393 million.
KSE continues to be a domestic stock exchange; Kuwaiti investors formed the biggest trading group and sold shares worth KD 3.239 billion, capturing 86% of total value of sold shares, (88.4% for the same period 2014), and purchased shares worth KD 3.199 billion, capturing 84.9% of the total value of purchased shares (84.7% for the same period 2014). Thus, their net trading, the only one selling, scored KD 40.276 million. Thus indicating that the Kuwaiti investors has the lowest confidence in his market.
Other investors’ share, out of the total purchased shares, scored 10.7% (12.1% for the same period 2014), worth KD 403.838 million, while value of their sold shares scored KD 387.215 million, capturing 10.3% of total value of sold shares (8.6% for the same period 2014). As a result, their net trading value, purchasing, scored KD 16.623 million.
Share of GCC investors, out of total purchased shares, scored 4.4% (3.2% for the same period 2014), worth KD 164.290 million while value of sold shares scored 3.7% (3% in the same period 2014), worth KD 140.637 million. Their net trading value, more purchasing, by about KD 23.653 million.
Relative distribution among nationalities from its previous ones: 85.5% for Kuwaitis, 10.5% for traders from other nationalities, and 4% for GCC traders vis-à-vis 86.5%, 10.4% and 3.1% for Kuwaitis, other nationalities and GCC traders respectively in the end of the first eleven months of 2014. This means Kuwait stock exchange remained domestic with more turn out for investors from outside the GCC region than their GCC counterparts and dominance of individuals over trading.
Number of active accounts between the end of December 2014 and November 2015 dropped by -56.7% (-79.5% drop between December 2013 and November 2014). Number of active accounts in the end of November 2015 scored 26,384, 7.3% of total accounts, versus 27,362 accounts in the end of November 2014, 8% of total accounts a drop by -3.6% only during the end of November 2014 and the end of November 2015. It dropped by -6% from the end of October 2015 within one month period.
— See Page 35
Kuwait Finance House (KFH) announced results of its financial operations for the first nine months of the current fiscal year, which indicate the bank’s net profits, after deducting taxes, scored about KD 139.3 million, up by KD 28.8 million, or by 26%, versus KD 110.5 million for the same period 2014. Most of the rise in net profits is due to the rise in total operations incomes by 6.3% versus decline in total operations expenditures by 0.4%. The bank achieved profit to its shareholders by KD 105.7 million, up by KD 15.6 million, or by 17.3%, compared with KD 90.1 million.
In details total operations incomes increased by KD 29.8 million, or by 6.3%, to KD 505.2 million vis-à-vis KD 475.4 million in the same period last year due to the increase in the item of net financing incomes by KD 27.4 million to KD 289.1 million (KD 261.7 million). Item of other incomes increased by KD 4.3 million to KD 64 million (KD 59.7 million). While the item of investment incomes dropped by KD 9.1 million to KD 66.1 million (KD 75.2 million).
On the other hand, total operations expenditures decreased by KD 1.2 million, or by 0.4%, from KD 271 million in September 2014 to KD 269.8 million. Item of general and administrative expenses decreased by KD 8.8 million, or by 11.4%, and scored KD 68.5 million (KD 77.3 million). While the item of depreciation and amortization rose by KD 5.9 million and scored KD 62.5 million (KD 56.6 million). Percentage of total operations expenses to the total operations incomes scored 53.4% (57% in the same period 2014). Total provisions rose by KD 4.9 million, or by 6.6% and scored KD 79.3 million vis-àvis KD 74.3 million. This explains the rise in the net profit margin to 27.6% versus 23.3% in the same period last year.
The bank’s total assets dropped by KD 381.1 million, or by 2.2%, to KD 16.801 billion (KD 17.182 billion in the end of 2014). But if total assets were compared with their value in the same period of 2014, they would decline by less amount, i.e. by KD 298.1 million, or by 1.7%, when they scored KD 17.099 billion. Item of financing receivables decreased by KD 150.6 million, or by 1.9%, to KD 7.968 billion (47.4% of total assets) vis-à-vis KD 8.119 billion in the end of 2014, (47.3% of total assets). It decreased by KD 148.1 million compared with the same period last year when it scored KD 8.116 billion (47.5% of total assets).
Figures indicate that the bank’s liabilities (excluding total equity) dropped by KD 380.5 million, or by 2.5%, and scored KD 14.704 billion (KD 15.085 billion in the end of 2014). These fig- ures would be less if we compared total liabilities with the same period last year. The decline then would score KD 343.6 million, or by 2.3%, when it scored KD 15.048 billion. Percentage of financing receivable to total deposits scored 57.4% versus 56.7%.
Analysis of profitability indexes calculated on annual basis indicates they all rose compared with the same period in 2014. The return on average equities relevant to the bank shareholder (ROE) increased to 8.1% (7.1%). The return on average assets (ROA) increased to 1.1% (0.9%). Likewise, the return on the average capital (ROC) rose to 40.8% (36.1%). (EPS) rose to about 22.5 fils (19.2 fils). (P/E) scored 19 times, improved, versus 32.4 times as a result of the rise in EPS by 17.2% in addition to the drop in the market price of the share by 31.3% compared with its price on 30 September 2014. (P/B) index scored 1.3 times (1.8 times).
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, the trade volume index and the general index, show a decrease, while the number of transactions index show an increase. AlShall Index (value index) closed at 366.6 points at the closing of last Thursday, showing a decrease of about 4.8 points or about 1.3% compared with its level last week and it decreased by 77.4 points or about 17.4% compared with the end of 2014.
The following tables summarize last week’s performance of KSE