Reforms aim to open Kuwaiti market to foreign investors

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Activity in Kuwait’s capital market picked up in 2017, as authorities accelerated plans to reform the country’s exchange in advance of its planned initial public offering (IPO).

After hitting a low of 4911.5 points one year earlier, the Kuwait Stock Exchange (KSE) outperformed all other stock markets globally in January 2017, rising 12% over December 2016 and more than doubling the growth recorded on the MSCI Frontier Emerging Markets Index during the same month.

Growth continued into the year, with the KSE reaching a peak of 7091 points in April 2017. As of mid-August the main market had eased to around 6885, but was nonetheless up nearly 20% year-to-date.

Reforms to boost liquidity, promote emerging market status

The KSE’s strong performance is being supported by a series of reforms aimed at modernising the market and attracting increased liquidity, including new management of the exchange.

In mid-August Boursa Kuwait – the entity that took over operational management of the KSE in April of last year, replacing the previous KSE Committee – rolled out a new Companies Information Portal. The platform allows listed companies to directly upload financial disclosures and statements, which can then be accessed by all stakeholders.

This followed the launch of an Interim Post-Trade Model (IPTM1) in May, which has reformed price limits and tick size movements, unified the settlement cycle to T+3 and established a randomised closing auction to minimise price manipulation.

The interim model is the first in a two-step process by Boursa Kuwait and the Capital Markets Authority (CMA) to develop an enhanced Post-Trade Model. Improving the processes that follow the execution of a trade is a key plank of the KSE’s aim of upgrading itself from frontier to emerging market status with indexes such as the MSCI and FTSE.

The authorities are now working to develop the second phase (IPTM2) ahead of the planned launch in the first quarter of 2018. Following the rollout, the bourse plans to expand into derivative products and exchange-traded funds for local and foreign investors.

The coming year should also see the introduction of a new equities benchmark, according to Khaled Al Khaled, vice-chairman and CEO of Boursa Kuwait. Speaking to international media in March, Al Khaled said Boursa Kuwait will be reorganising listed companies into new categories based on market capitalisation and average daily traded volumes. The move, slated to take place in the first quarter of next year, should give investors much greater visibility of the market. A recent data provision agreement with Thomson Reuters should also help in this respect.

Another notable reform adopted in the last year is the introduction of market making regulations, which were first put out for consultation in October 2016.

The new framework allows financial institutions to hold a portfolio of stock for which they offer both buy and sell prices, thereby acting as an easily accessible market for investors to trade in.

Post-trade model to boost investment inflows, prep for IPO

In addition to advancing the bourse’s goal of attaining emerging market status, the raft of recent reforms should help support the exchange’s planned IPO.

Demutualisation was first announced in 2010 with the promulgation of the Capital Market Law, which included a provision that 50% of the exchange be sold in an IPO and the remaining 50% offered to listed companies.

Although the Kuwaiti government signed an agreement with HSBC in 2012 to establish a private company that would oversee operations of the KSE, the process was stalled until recently.

However, progress towards an eventual IPO has accelerated in recent months, as Boursa Kuwait assumed control of the KSE. Speaking to local media early last year, Yousef Mohammaed Al Ali, then-minister of commerce and industry, described the shift as an integral part of the march towards the privatisation of the exchange.

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