Fiscal, economic policies ‘unsustainable’
Boursa Kuwait performance during week less active
We said repeatedly in our previous reports that reading any economic report by foreign institutions, public or private, about Kuwait, should be aware of that report’s aim. They are important reports if we can derive conclude their useful content. But giving them more than they deserve or stripping them of any significance is our problem and an inherent weakness in our abilities. Three weeks ago, “Moody’s” Credit Rating issued a report on Kuwait which is good report within its purposes. It fixed Kuwait’s sovereign rating at Aa2, with a changed future outlook from negative to stable, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
The audience of that report is Kuwait’s current and, more importantly, the potential lenders. The report’s content advises the potential creditor to lend Kuwait because it is capable of meeting its obligations towards it. This means a better negotiating position for Kuwait from the perspective of lowering the borrowing cost. Most of the established classification bases depend on two variables. The first is the holding of oil prices after their collapse in early 2016 and the second is the volume of Kuwait’s sovereign fund. With rising oil prices the fiscal deficit declined and the sovereign fund is able to cover longer years. In other words, that credit rating, true to its name, means Kuwait is secured if it is lent according to credit terms it required so far, and is able to fulfill its obligations.
We believe that any reading beyond that understanding is misleading. The report is not a testament to the efficiency of Kuwait’s financial and economic policies whose quality is governed by their sustainability over the long term; nor is it a vote of confidence on the sagacity of its reform policy as stated in the Government’s statement. An example of the accuracy such conclusion is that Kuwait’s rating report coincided with issuing lowering the Chinese credit rating although China has achieved real economic growth for the first quarter of this year by 6.9%. The official growth data was issued after only 17 days of the end of that quarter despite its mammoth economy of about US$ 11.2 trillion. That is an evidence of awareness and efficiency. It is worth mentioning that China does not need a certificate of its prudent economic performance. And downgrading its credit rating came due to its high debts in an economy with centralized administration. In other words, its classification came contrary to its economic performance. China didn’t care much for that rating because most of its credit needs are met by the local market and to procure local goods and services. Its US$ 3 trillion sovereign fund remains as contingency reserve.
Our purpose is to emphasize that the Kuwait’s fiscal policy is unsustainable and that increasing public spending by about 5.3% for the current fiscal year compared with the preceding year, despite all promises of restraining public spending, means that its size will exceed KD 35 billion by 2030 when the oil market will be unable to provide its one third. Likewise, Kuwait’s economic policy is unsustainable. It is currently unable to accommodate indigenous workforce while the economy is supposed to provide some 400,000 jobs for Kuwaitis by 2030 which is almost impossible if its economic policy continues as is.
Feeling satisfied by a false reading of a credit rating report followed by a devastating deluge of populist laws and decrees, parliamentary or governmental, serves only to accelerate the collusion speed with the wall, i.e. expediting the dangerous consequences of reaching the inability stage to meet the basic needs of the people.
Trading Features at Boursa
Kuwait – May 2017
Kuwait Clearing Company issued its report titled “Trading Volume According to Nationality and Category” from 01/01/2017 to 31/05/2017 published on Boursa Kuwait official website. The report indicated that individuals are still the largest group, their share started to increase and they captured 52.3% of total value of sold shares (48.6% for the first five months of 2016) and 51.8% of total value of purchased shares (44.3% for the first five months of 2016). Individual investors sold shares worth KD 1.848 billion and purchased shares worth KD 1.829 billion with a net trading, selling, by KD 19.455 million.
The second largest contributor to market liquidity is the clients’ accounts (portfolios) which captured 22.2% of total value of sold shares (17.4% in the same period of 2016) and 21.2% of total value of purchased shares (15.4% in the same period of 2016). The sector sold shares worth KD 782.561 million and purchased shares worth KD 749.177 million, thus making its net trading, more selling, by KD 33.384 million.
The third contributor, is the corporations and companies sector which captured 19.8% of total value of purchased shares (31.3% in the same period of 2016) and 18.8% of total value of sold shares (25.1% in the same period of 2016). The sector purchased shares worth KD 700.400 million and sold shares worth KD 665.362 million with a net trading, more purchasing, by KD 35.038 million.
The last contributor to liquidity is the investment funds sector which captured 7.2% of total value of purchased shares (9% in the same period of 2016) and 6.7% of total value of sold shares (8.9% in the same period of 2016). This sector purchased shares worth KD 254.390 million and sold shares worth KD 236.589 million, with a net trading, purchasing, by KD 17.801 million.
Boursa Kuwait continues to be a domestic Boursa with the Kuwaiti investors forming the biggest trading group and sold shares worth KD 3.181 billion capturing 90% of total value of sold shares (86.7% in the same period of 2016) and purchased shares worth KD 3.115 billion, capturing 88.2% of total value of purchased shares (86.5% in the same period of 2016). Thus, their net trading, the only one selling, scored KD 66.017 million, which is an indicator of a receding confidence of local traders.
Other investors’ share, out of total value of purchased shares, scored 8.3% (9.8% in the same period of 2016), and purchased shares worth KD 294.642 million, while their value of sold shares worth KD 245.021 million, 6.9% of total value of sold shares (10.2% in the same period of 2016). As a result, their net trading, more purchasing, scored KD 49.620 million.
Share of GCC investors, out of total value of purchased shares, formed 3.5% (3.7% in the same period of 2016), worth KD 123.383 million, while value of sold shares formed 3% (3.1% in the same period of 2016), worth KD 106.986 million, their net trading, purchasing, by about KD 16.397 million.
Relative distribution among nationalities changed from its previous one and became as follows: 89.1% for Kuwaitis, 7.6% for traders from other nationalities, and 3.3% for GCC traders vis-à-vis 86.6%, 10% and 3.4% for Kuwaitis, other nationalities and GCC traders respectively in the same period of 2016. This means that Boursa Kuwait remained a local one with the rise in the share of its investors from local traders. However, the turnout is still higher from investors mainly outside the GCC region than from the inside of the GCC region in which an overtrading of individuals is a dominant factor.
Number of active accounts between the end of December 2016 and the end of May 2017 rose by 31% (compared to a decrease by -12.3% between the end of December 2015 and the end of May 2016). Number of active accounts in the end of May 2017 scored 20,445 accounts, 5.4% of total accounts, versus 20,208 accounts in the end of April 2017, 5.4% of total accounts for the same month, with a rise of 1.2% during May 2017.
The Future of Oil – A Different
Perspective
In an article by “Jessica Shankleman” and “Hayley Warren”, to “Bloomberg News Agency” on May 31, 2017, they presents a different look for the future demand on oil contrary to the main scenario for “OPEC”, “Exxon Mobil”, “British Petroleum” and “International Energy Agency (IEA)”. The basic scenario for “OPEC” and the big oil companies expect growth in demand for oil from its current level of about 93 million barrels per day to about 109-110 million barrels per day by 2040 while (IEA) estimates it in a basic scenario by about 103.5 million barrels per day for the same period. However, there are three new factors they believe that will reduce the total demand by 2040 and conclude that a major dilemma will hit large government oil companies in oil-exporting countries.
The three factors, according to the article, are efficiency in energy utilization,
the technological progress in the transport sector which is responsible for 60% of oil consumption, and the switching from oil to clean and alternative sources. In details, (IEA) believes that technological progress in the efficiency of fuel burning for all transport means will reduce demand for oil by about 11.6 million barrels a day. This means that this factor will make the overall demand for oil at about 92 million barrels per day by 2040, i.e. to its current level. The second factor or the widespread use of electric cars and even the auto-driven vehicles – without a driver – reduce demand by about 5.2 million barrels per day bringing the total demand by 2040 to about 87 million barrels per day, less by about 6.5% than its current level. And the major negative impact would be to the third factor, or switching to alternative energy sources, including natural gas. This factor may cause the loss of overall demand on oil by about 13.5 million barrels per day by 2040 cutting down about 30 million barrels per day from (IEA’s) expected level of demand in its basic scenario. The bottom line is that there are some who believe that the overall demand on oil, even if it increased in the next few years, would lose about 20 million barrels per day from its level this year and would range between about 73 million barrels per day by 2040. This means that growth in oil demand will be negative.
The foregoing shows that the development model adopted by Kuwait over 70 years of oil age which always aims at diversifying income sources has failed. Kuwait is currently more reliant on oil than any other former time. The essential difference between the past and the future is that demand on oil scenarios in the past were in cycles only to end by dominating the positive growth on the negative while future scenarios began betting on the end of an era when oil took the lead for energy sources, i.e. the end of the oil age. This may take decades but the level of demand and its low prices will not yield income that guarantees political, economic and financial stability.
We mentioned in a paragraph of this report risks of uncontrolled fiscal policy supported by the two decisionmaking authorities: the Executive and the legislature. Continuing financial chaos puts the future of most citizens at stake. Their future is in the hands of these two authorities and the past few weeks proved that that responsibility is beyond their concern.
The Commercial Bank of Kuwait (CBK) Financial Results
– First Quarter 2017
The Commercial Bank of Kuwait (CBK) announced results of its operations for the first quarter of the current year, which indicate that the bank’s net profits, – after tax deductions –, scored about KD 813 thousand, compared with KD 7.8 million in the same period 2016, reflecting a drop in profits by about KD 7 million, or by 89.5%. This drop in the net profits is due to the rise in total provisions by 36.7%. Nevertheless, the bank achieved profits prior to deducting provision in the amount of KD 28.95 million, rising by KD 401 thousand, or by 1.4%, compared with KD 28.55 million. Therefore, the dominating influence is the rise in provisions.
Total operational incomes increased by KD 1 million, or by 2.7%, and scored KD 39.3 million compared with KD 38.2 million in the same period 2016. This resulted from a rise in the item of net gain from investment securities by KD 2.4 million and scored KD 2.6 million, (representing 6.5% of total operational incomes) versus KD 204 thousand (0.5% of the total). Item of net interests income rose by KD 761 thousand and scored KD 22.2 million, compared with KD 21.4 million. While item of net gain from dealing in foreign currencies decreased by KD 1.8 million and scored KD 463 thousand compared with KD 2.3 million.
Total operational expenses of the bank increased lower value than the rise in total operational income, with KD 621 thousand and scored KD 10.3 million, compared with KD 9.7 million in the same period of 2016. Total provisions increased by KD 7.6 million, or by 36.7%, and scored KD 28.1 million, compared with KD 20.6 million. Therefore, the net profit margin dropped to 2.6%, compared with 26.3% in the same period 2016.
Total bank assets scored KD 4.268 billion, a rise by 3.5%, compared with KD 4.125 billion in the end of 2016. It increased by 2.9% if compared with the total assets in the first quarter of 2016, that scored KD 4.147 billion. Item of cash and short term funds increased by KD 135.7 million or by 24.4% and scored KD 692.6 million (16.2% of total assets) versus KD 556.9 million (13.5% of total assets) in the end of December 2016, it also increased by 10.8% when compared with the same period of 2016, when it scored KD 625.4 million (15.1% of total assets). While loans and advances portfolio dropped by KD 16.5 million, or by 0.7%, and scored KD 2.234 billion (52.3% of total assets) compared with KD 2.250 billion (54.6% of total assets in the end of December 2016). It however decreased by 2.7% if compared with the same period of 2016, when it scored KD 2.296 billion (55.4% of total assets). Percentage of total loans and advances to the total deposits scored 64% compared with 66.9%.
Figures indicate that the bank’s liabilities (without calculating total equity) increased by KD 129.7 million, or by 3.7%, and scored KD 3.651 billion, compared with KD 3.521 billion in the end of 2016. It rose by KD 63.3 million, or by 1.8%, if compared with the total in the end of the first quarter of last year. Percentage of total liabilities to total assets scored 85.5% compared with 86.5%.
Results of analyzing the bank’s financial statements calculated on annual basis indicates that all profitability indexes dropped compared with the same period 2016. Average return on equities relevant to the bank shareholders (ROE) dropped to 0.5% compared with 5.5%. Likewise, the average return on the bank’s assets (ROA) decreased to 0.1% versus 0.8%. The average return on the bank’s capital (ROC) decreased to 2.2% versus 22%. (EPS) dropped to 0.5 fils, compared with 4.7 fils for the same period of 2016. (P/B) scored 1 times compared with 1.1 times.
The Weekly Performance of
Boursa Kuwait
The performance of Boursa Kuwait for last week was less active compared to the previous one, where all indexes showed a decrease, the traded value index, the traded volume index, number of transactions index, and the general index. AlShall Index (value weighted) closed at 378 points at the closing of last Thursday, showing a decrease of about 5.9 points or about 1.5% compared with its level last week, while it increased by 15 points or about 4.1% compared with the end of 2016.
The following tables summarize last week’s performance of Boursa Kuwait
KUWAIT CITY, June 8: Kuwait stocks headed south on Thursday to wind up the week on a dour note. The price index dipped 36.28 points in a tame session weighed by selling in some of the mid and low caps even as the heavyweights closed narrowly mixed.
The KSX 15 benchmark climbed 4.01 points to 906.77 pts trimming month’s losses to 8 points while weighted index eased 0.19 pts. The volume turnover meanwhile dipped to week’s lowest level. 25.5 million shares changed hands — a 20.46 pct drop from the previous session.
The sectors closed mostly in the red. Parallel market outperformed the rest with 0.58 percent gain whereas technology tanked 6.3 pct, the biggest loser of the day. Volume wise, real estate mustered the highest market share of 32.64 percent while banks followed with 26 pct contribution.
In the individual shares, National Bank of Kuwait rose 10 fils to 675 fils while Commercial Bank of Kuwait was down 13 fils at 331 fils. Kuwait Financial Centre (Markaz) fell 4 fils to 110 fils and Gulf Insurance Co tumbled 50 fils.
Zain inched 1 fils up to 417 fils and Ooredoo dropped 10 fils to KD 1.200 taking the month’s losses to 60 fils. Kuwait Telecommunications Co (VIVA) dropped 8 fils to 830 fils and Agility gave up 5 fils extending Wednesday’s losses.
Kuwait Finance House was flat at 483 fils and Warba Bank clipped 2 fils. The bank has posted a 296.3% jump in its profits to KD 1..3 million for the first quarter of 2017 as compared to the same period last year.
The market opened on tame note and edged higher in early trade. The price index hit the day’s highest level of 6,819.89 pts and retreated thereafter. It slipped below the red ahead of the mid-session as sentiment turned weak and plumbed the day’s lowest level of 6,770.11 points. It however pared back some of the losses at close.
Top gainer of the day, Gulf Finance Co rallied 19.85 pct to 62.2 fils and the counters also topped the volume with over 3 million shares, Safat Energy Holding Co climbed 7.57 pct to stand next whereas Automated Systems Co tumbled 18.4 percent, the steepest decliner of the day.
Reflecting the day’s downswing, the losers outnumbered the winners. 40 stocks advanced whereas 52 closed lower. Of the 109 counters active on Thursday, 17 closed flat. 1279 deals worth KD 5.2 million were transacted — a 20.8 pct dip in value from the day before.
National Industries Group was unchanged at 108 fils and Gulf Cable gave up 1 fils before settling at 419 fils. Heavy Engineering Industries and Shipbuilding Co took in 1 fils while Contracting and Marine Services Co inched 1 fils into red.
Jazeera Airways fell 1 fils to 469 fils and NICBM was down 10 fils at 190 fils. Boubyan Petrochemical Co was unchanged at 580 fils and Al Qurain Petrochemical Co too did not budge from its earlier close of 340 fils.
UPAC shed 20 fils and NAPESCO dipped 11 fils to KD 1.499 after logging strong gains in the day before. The company’s first quarter profit surged 62.7% yearon-year to KD 2.31 million as compared to KD 1.42 million in same period last year.
Climbed
Independent Petroleum Group gave up 5 fils to end at 345 fils and Shuaiba Industrial climbed 9 fils. The company has logged a Q1 profit of KD 632,050 up 0.4% from KD 629,560 in the same period a year ago.
Humansoft Holding stood pat at KD 3.900 and Kuwait Cement Co dived 38 fils to 430 fils. KPPC added 1.8 fils and Combined Group Contracting Co dipped 10 fils to 580 fils. Equipment Holding Co eased 1.4 fils to 48.2 fils.
Kuwait and Gulf Link Transport Co slipped 7 fils to 60 fils and KGL Logistics Co closed 1 fils lower. Mezzan Holding gained 13 fils and Zimah Holding clipped 0.9 fils. AWJ Holding fell 3 fils to 74 fils.
In the banking sector, Gulf Bank took in 1 fils and Al Ahli Bank held ground at 310 fils. AlMutahed eased 1 fils to 435 fils extending Wednesday’s downtick.
Burgan Bank dialed up 2 fils and Kuwait International Bank stood pat at 245 fils. Boubyan Bank closed 1 fils in the red at 408 fils. Kuwait Investment Co edged 0.1 fils higher whereas National Investment Co and International Financial Advisors paused at 104 fils and 37.8 fils respectively.
KIPCO tripped 1 fils and Osoul Investment Co slipped 4 fils to 55 fils. Sokouk Holding took in 0.7 fils and KFIC was unchanged at 40 fils. Noor Financial Investment Co clipped 2.2 fils and Tamdeen Investment Co paused at 310 fils.
Bayan Investment Co fell 1.4 fils to 50 fils and Al Imtiaz inched 1 fils higher to 150 fils. Securities House Co added 0.6 fils and Arzan gave up 0.5 fils to settle at 33.5 fils.
United Real Estate Co and Tamdeen Real Estate Co were flat at 84.5 fils and 360 fils respectively whereas Mabanee Co climbed 6 fils to 779 fils. Kuwait Real Estate Co dialed up 1 fils and National Real Estate Co was down 4 fils at 110 fils. The market was mixed during the week.
The main index closed lower in three of the five sessions and has shed 30 points week-on-week. It had slumped 60 points during whole of May and is trading 18 pct higher year-to-date. KSE, with 188 listed companies, is the second largest bourse in the region.
In the bourse related news, Kuwait Finance and Investment (KFIC) rebounded to post a net profit of KD 146,350 in the first three months of 2017, from KD 255,510 loss in first quarter of 2016. Operating income grew 76% year-on-year to reach KD 1.65 million.
Aayan Real Estate has recorded a 164.7 percent jump in its profits to KD 536,890 for the first quarter of 2017 from same period in the year before. During 2016, the profit saw a 1.5% uptick to KD 2.75 million in 2016 from the previous year.
Ooredoo Kuwait has posted 26.6 pct jump in profits during the first quarter of 2017 to KD 12.93 million from KD 10.21 million in same period last year. It had recorded a growth of 75% in profits to KD 46.67 million during 2016.
Mowasat Healthcare has registered a 40.2% increase in net profits in the first quarter of 2017, to reach KD 1.92 million as compared to KD 1.37 million in the year before period.
Al Ahleia Insurance’s first quarter net profit dropped by 14.5% in the first to KD 2.88 million from KD 3.37 million in Q1 of 2016. Operational income dipped 39.6 pct to KD 1.58 million National Ranges Company’s (Mayadeen) losses shrank by 18.2 pct in the first quarter of 2017 to KD 642,620 from about KD 785,610 in same period of 2016