Kuwaiti market 2nd in volume of lost liquidity
Share of each listed company from liquidity weaker
Nominal Gross Domestic Product
2015
The Central Statistical Bureau published preliminary estimates for the nominal gross domestic product seven months after the end of 2015. One week from publishing this report, official statistics authorities in China — US$ 11 trillion economy — will publish real growth figures for the Chinese economy for the second quarter of 2016. The Central Statistics Bureau estimates that Kuwait’s GDP achieved negative nominal growth by -25.9% by KD 34.3 billion (US$ 114 billion) economy (KD 46.3 billion for 2014). This substantial nominal drop was reflected by slightly higher drop in the per capita income from KD 11,311 in 2014 to KD 8,095 — minus 28.4% — in 2015. The varying decline is due to the increase in the population number, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
The main change which affected the contribution of the components of the main GDP was in the exports of commodities and services side most of which are oil. Exports value dropped by -41% from KD 31.7 billion in 2014 to about KD 18.660 billion in 2015. They also lost -9.4% in 2014 compared with 2013. Nevertheless, imports of these commodities and services continued their rise by about 6.4% in 2015 vis-à-vis 2014 and scored KD 15.532 billion up from KD 14.594 billion in 2014 and KD 13.210 billion in 2013. The final consumption, public and private, increased also in the two years. This explains continued rise in the commodities and services imports. Therefore, continued dominance of public and private consumption on the GDP components is not a healthy phenomenon as in the United States and late on China because the domestic economy relies in all its needs of commodities and services on import as it does not make them.
Components of GDP act as diagnosis — by tests and x-rays — to the economy condition. After deteriorating oil prices for less than two years, it has transpired how unsustainable the economic growth is. It is still running due to accumulated fuel stock from the oil market prosperity era. Real reform means first the necessity of preserving that stock fixed, while it is being wearing out now and second starting a huge work that aims at adding to the stock to guarantee sustained economic growth neither of which is currently happening.
In any case, development is a very serious project. Its maps or foundations lie in its sound, precise and updated figures on which it relies in diagnosis to render successful remedies. Inaccurate and late nominal figures published about GDP after 7 months from the year end do not indicate that the Administration is taking the development issue seriously despite the serious repercussions of the oil market.
GCC Capital Markets’ Liquidity
Total variables including the collapse of oil prices and the geopolitical events in the neighborhood and the region affected negatively the investors’ appetite in the 7 region’s markets. Liquidity index is the most important weakness indicator. The 7 markets’ total liquidity dropped from US$ 340.4 billion in the first half of 2015 to about US$ 226.5 billion in the first half of the current year losing about one-third of its value, or -33.5%. Liquidity drop percentages vary from one market to another as in Table (1) and ranged between -11.1% for the lowest (Abu Dhabi market), and -38.8% for the highest (Qatar). Kuwait market was second in the volume of lost liquidity at -34.9% and the Saudi market, the biggest regional market, lost -34.1%. If we exclude Bahrain and Muscat markets, small ones, the Kuwaiti market was the least among the other markets in liquidity, by 2.4% of the 7 markets’ liquidity in the first half of 2015. This percentage dropped to 2.3% of the total in the first half of 2016.
Liquidity and its movement is the more important variable affecting these markets’ attractiveness. The justified liquidity rise means that total indicators of economy are positive and that the confidence in the capital market is high. Price indexes are just a variable subordinate to liquidity index. Therefore, and as a result of liquidity abatement, the 7 regional markets achieved varying losses in price indexes between the first half of 2015 and the first half of 2016. The least loss belonged to Abu Dhabi market which lost -4.8% with least liquidity loss. The highest losses, was for 3 from 4 markets with highest drop in liquidity, went to the Saudi market which lost -28.5% (third), Dubai (4th loser) and Qatar whose indexes lost -19% each. The reason why the Saudi market exceeded the Qatari market in losses is that it was the biggest winner until June 30, 2015 by its index adding about 9% gains due to the psychological impact of opening market trading to foreigners by that date. The Kuwaiti market’s situation is difficult; it is originally weak in liquidity as indicated earlier. The share of each listed company from liquidity is weaker as it excels in the number of listed companies. Therefore, it was the second bigger loser in liquidity and the fifth loser by its index losing about -16.3%.
The foregoing reiterates what we stated more than once in our report that direct reform by support or the national portfolio or funds, etc. means nothing more than injecting temporary liquidity that leads to undue loss of public funds and remains failing measures in restoring confidence in the market. Any solution should be compound and professional and medium to long term. The focus should be on sustaining the balance between supply and demand which includes the following elements: the market maker, the cut down of the number of listed companies, improved quality by adding heavy companies, directing funds to the market to reduce the supply and for the public fund to benefit, and finally there should be a fundamental reform of the public policies. Apart from these, there is no guarantee that the crisis of the financial assets will not transfer to other assets and primarily to the real estate assets, then to the banks and then to the real economy. The transfer remains a matter of time only.
Global Economy Anticipated Performance – IMF July 2016
In its July report, IMF continues its approach by reducing the projected growth of global economy after reducing growth rates by about -0.2% and -0.1% in last April’s report (-0.1%) for 2016 and 2017. According to the report, July report projections could have been adjusted upwards due to improved oil prices and improved performance of the European and the Japanese economies and even some of the emerging economies like Russia but Brexit referendum on June 23 with its unexpected results and the increased risks and the degree of uncertainty affected negatively the optimism wave.
Nevertheless, the IMF compared with the World Bank and other private research institutions remains more optimistic. It still expects 3.1% growth rate for 2016 and 3.4% for 2017. The Economist Information Unit anticipates 2.2% and 2.4% growth rate for the same periods. IMF even mentions that those projections are for the basic scenario, but if the dangers of Britain’s exit from the European Union are realized there is another negative scenario and another sharp one. Though they have fewer chances for achievement, they will drop the anticipated global growth rates for the two years to below 3%. The most dangerous probability is the disagreement between Britain and the European Union on the safe and quick exit principles, and perhaps an inclination to protectionism which would increase the negative repercussions on a global level.
To go back to the summary of what we stated in our previous reports about projections is no longer about the weak and fragile anticipated growth; that is generally agreed on. The difference is now about the extent of such weakness and fragility. The concern is supposed to focus on the advice received by the oil economies that the probable growth scenario is no longer capable of rescuing them from their structural problems of their economies and that their reform measurements are theoretical at best and cosmetic in their application. The said report anticipates the probable growth in 2016-2017 for KSA, the biggest economy in the region, — within 20 larger economies in the world — and the owner of the second largest oil reserve in the world, at 1.2% and 2% respectively. This level (of growth) is inadequate to remedy any of the structural disorders.
The weak global economy growth, even when the basic scenario is achieved, together with the weak growth of the regional economies and the rise in the volume of public debts and later commitment with paying their installments and interests, which are also increasing, make the time factor the most effective factor in the success or failure of reform efforts. To overcome this obstacle in Kuwait, the public administration need enough courage to acknowledge its futile reform efforts until this moment and that dangers cannot afford to bet on delaying reform until July 2017 elections.
National Bank of Kuwait Financial
Results – First Half 2016
NBK announced results of its operations for the first half of 2016, which indicate that the bank’s net profits, after deducting taxes, scored KD 158.5 million, a drop by KD 11.5 million, or by 6.8%, vis-a-vis KD 170 million in the first half of 2015. However, the Profits of the first half 2015 were contained non-recurring profits resulting from selling its share in Qatar International Bank during 2014. If we exclude them, the rise in profits will be at 7.5%. The bank achieved net profit for its shareholders in the amount of about KD 150.6 million (KD 163.4 million in the first half 2015), a drop by KD 12.8 million, while it rose by about 6.9% if we exclude the nonrecurring profits.
Net operations income decreased by KD 11 million, or by 2.9%, and scored KD 362.1 million (KD 373.1 million in the same period of last year). That resulted from decrease in the investments’ incomes items by KD 29.6 million to KD 4 million (1.1% of total operations incomes) versus KD 33.6 million (9% of total operations incomes) because they included exceptional provisional per-tax gain amounting to KD 27.9 million from selling of investment in an associate company.
It is worth mentioning that the bank’s interests’ incomes (except for incomes from Islamic financing) rose by KD 36.9 million. Likewise, interests’ expenses (except for murabaha costs) rose by KD 24.3 million. Thus, net interest’s incomes rose by KD 12.5 million. The bank achieved KD 45.8 million incomes from Islamic financ- ing (KD 39.4 million in the same period last year). This increased net interests’ incomes (Islamic and traditional) to KD 275.1 million net incomes (KD 256.2 million), a rise by KD 18.9 million. If we exclude non-recurring profits, total operations incomes will rise by 3.3%.
On the other hand, total operations expenditures increased by KD 9.4 million, or by 8.3%, and scored KD 122.8 million (KD 113.4 million in the first half 2015). This was achieved due to the rise in most operations items except for the item of amortizing of intangible assets which dropped by KD 174 thousand. According to Alshall estimates, assuming the exclusion of the impact of aggregating Boubyan Bank’s results on the operations expenses, the increase in operational expenses will be from KD 94.3 million to KD 101.3 million, i.e. increased by 7.4%. Total provision charge for credit losses and impairment losses scored KD 66.6 million, decreased by KD 3.5 million (KD 70.1 million).
Financial statements of the bank indicate the bank’s total assets increased by KD 469.7 million, or by 2%, to KD 24.067 billion compared with the end of 2015. It however rose by KD 1.116 billion, or by 4.9%, if compared with the total in the end of the first half 2015. If we exclude the impact of consolidating Boubyan Bank, the growth rate will score about 3%. Loans, advances and Islamic financing portfolio to customers, the largest component of the bank’s assets, increased by 1.1%, or by KD 151.9 million and scored KD 13.703 billion (56.9% of total assets) versus KD 13.551 billion (57.4% of total assets) in the end of 2015. It increased by KD 986.6 million, or by 7.8%, if compared with the first half 2015. If we exclude the impact of aggregating Boubyan Bank on the Islamic Financing side, the growth rate in the loans and advances portfolio will score 5.8%. Defaulting loans rate out of the total credit portfolio scored 1.4% in the end of June 2016 (1.6% a year ago). Their coverage percentage scored 330% versus 277%.
Figures indicate that the bank total liabilities (without including total equity) increased by KD 299.4 million, or by 1.5%, and scored KD 20.706 billion compared with the end of 2015. They increased by KD 851.8 million, or by 4.3% compared with the total in the end of the first half 2015. Excluding the impact of aggregating Boubyan Bank, the growth rate would score about 2.5%. Percentage of total liabilities to total assets scored 86% versus 86.5%.
Results of analyzing financial statements calculated on annual basis indicate that all bank’s profitability indexes decreased compared with the same period of 2015 and including the non-recurring profits. The return on assets index (ROA) decreased to 1.33% versus 1.52% (excluding the non-recurring profits, it would be increased slightly, compared with 1.32%). The return on average equities relevant to the bank shareholders (ROE) decreased to 10.8% versus 12.3% (excluding the non-recurring profits, it would be increased, compared with 10.6%). The return on average capital (ROC) decreased to about 59.4% versus 69.1% (while it decreased slightly, compared with 60%, if we exclude the non-recurring profits, due to the rise in total capital higher than the rise total net profit). Earnings per share (EPS) dropped to 27 fils versus 31 fils (excluding the non-recurring profits, it would be increased, compared with 26.5 fils). Price multiplier/share earnings (P/E) scored 10.9 times-improved- versus 13.9 times (and scored 16.2 times, if we exclude non-recurring profits). Price multiplier to the book value (P/B) scored 1 times versus 1.4 times.
The Weekly Performance of
Kuwait Stock Exchange
The performance of Kuwait Stock Exchange (KSE) for last week was mixed compared to the previous one, where the traded volume index, the number of transactions index and the general index, showed an increase, while the traded value index, showed a decrease, Alshall Index (value weighted) closed at 331.6 points at the closing of last Thursday, showing an increase of about 0.3 points or about 0.1% compared with its level last week, but it decreased by 34.3 points or about 9.4% compared with the end of 2015.
The following tables summarize last week’s performance of KSE