MARKETS Kuwait set for inflows of $7.5bn from upgrade

The upgrade of Kuwaiti equities to MSCI emerging markets status in 2020 is expected to attract an estimated $7.5 billion (Dh27.5bn) of inflows from active investors, according to a company that specialises in exchange-traded funds.

Allocations from active investors in the months leading up the reclassification announcement could give the Kuwaiti stock market an additional performance boost in the first half of next year, similar to Saudi Arabia’s experience ahead of its upgrade in May this year, according to HANetf, an independent ETF specialist.

“Looking at Saudi Arabia as a case study, the market showed discernible positive price impacts both in anticipation of the reclassification announcement as well as during the months leading up to the implementation,” the report said. “Kuwait might experience a similar performance boost in the first half of 2020 due to the ... buy-side pressure prompted by the MSCI implementation.”

The expected $7.5bn from active investors will be in addition to an estimated $2.6bn to $3bn of passive inflows forecast by Borsa Kuwait. Kuwait is expected to be upgraded to emerging markets status by MSCI during its May 2020 semi-annual review.

Kuwait is the biggest market by capitalisation in the lower-ranked Frontier Markets Index, with a weighting of above 30 per cent. If upgraded, it will be the fourth country from the region in the emerging markets index after the UAE, Qatar and Saudi Arabia.

When the UAE went through its own upgrade process in 2013, it registered a significant equity price rise ahead of the implementation, with the market rising 44 per cent.

In Saudi Arabia, asset flows into exchange-traded funds also rose before the market upgrade, and a similar pattern is expected in Kuwait, according to HANetf.

“Considering that assets in Kuwait ETFs currently stand at $90 million, there seems considerable room to grow, further supporting Kuwaiti stock prices,” the report said.

The Kuwait Premier Market Index, made up of the country’s biggest shares, has been the top performer of all Arabian Gulf markets this year and one of the best performers globally. It gained in value by 5 per cent in November, bringing the index’s total increase for the first 11 months of the year to 23.8 per cent, according to a Kamco Research report, as active investors buy stocks ahead of the potential MSCI upgrade.