Non-GCC institutions increase holdings of Kuwaiti stocks

January 21, 2025, 3:26 PM

Investors keep their eye on prices at Boursa Kuwait, which is the third-busiest GCC exhange in number of shares traded

69bn shares traded in 2024
Western investors stay away
Economic diversification lags

Non-GCC foreign institutions are net buyers of Kuwaiti equities – but active Western investors remain reluctant to hold its blue-chip stocks because of limited progress in diversifying the country’s economy.

Nearly 69 billion shares were traded on Kuwait’s bourse last year, a total only bettered by the Saudi and Abu Dhabi exchanges within the six-nation Gulf Co-operation Council.

Domestic individual and institutional investors accounted for nearly 90 percent of Kuwaiti trading volumes and were net sellers, Boursa Kuwait data shows.

In contrast, non-GCC foreign institutions represented only 4-5 percent of trading, yet were net buyers of KD228 million ($739 million) of Kuwaiti shares in 2024.

The bourse does not provide further details on these institutions, although active Western investors were not among them, says a senior executive at a Gulf-based brokerage.

“They’ve always been underweight on Kuwait because banking sector growth isn’t brilliant, there hasn’t been any real infrastructure development or any real economic growth,” he says.

“Institutional investors who want exposure to Gulf oil exporters have plenty of stocks to target in Saudi Arabia, the UAE and Qatar so it’s difficult to justify investing in Kuwait.”

The World Bank estimates that Kuwait’s real GDP shrank by 1 percent in 2024 following a 3.6 percent contraction in 2023. It attributes the drop to oil production cuts by Opec+ nations including Kuwait.

The agency expects Kuwait’s real GDP to rise by 1.7 percent this year and 2.1 percent in 2026. However, even after this rebound the economy would still be smaller than it was in 2022, AGBI calculates.

Kuwait economy at a glance

Oil and gas provide more than 90 percent of Kuwait’s exports and government revenue, according to the World Bank, which says the country lags in terms of diversifying its economy and attracting foreign direct investment.

“Historically, frequent governmental changes and tensions between Kuwait’s executive and legislative branches weighed on the investment environment and hindered the reform process,” a World Bank report states.

Kuwait’s parliament has been dissolved at least a dozen times since 2006, most recently in May 2024 when the emir also suspended parts of the constitution. Prolonged political uncertainty is another major deterrent to active Western investors, says the broker.

He highlights the dominance of the banking sector, which accounted for KD25.4 billion or 58 percent of the total market capitalisation as of December 31.

There are other stocks that might be of interest to active Western funds such as Boursa Kuwait Securities Co, education provider Human Soft and some industrial conglomerates but these often lack sufficient trading volumes, the trader says. Stocks must reach certain trading levels for institutions to consider them.

Kuwait has benefited from its inclusion in the MSCI and FTSE Russell emerging market indexes in 2020 and 2018 respectively. Funds that track these benchmarks must buy their constituent stocks.

In addition to passive fund inflows, “optimism on reform momentum and a pick-up in non-oil economic activity are supporting investor sentiment”, says MR Raghu, chief executive of Marmore Mena Intelligence, a research subsidiary of Kuwait Financial Center.

He predicts non-Gulf foreign institutions will again be net buyers of Kuwaiti equities this year due to a “positive economic outlook”. He cites increasing infrastructure project activity, rising real estate sales volumes and improved credit growth due to lower interest rates.

Kuwait’s premier market index, which encompasses its blue-chip listed companies, is up 1.5 percent over the past 12 months, while the wider all-share benchmark has risen 4.5 percent.

Over the same period, Dubai has gained 28 percent and Saudi Arabia is 3.1 percent higher, although Abu Dhabi has dropped 2.2 percent.

“Kuwaiti markets are likely to continue their positive performance” in 2025, adds Raghu.

“An unwinding of Opec+ cuts would be supportive for the economy. Delays in such cuts and geopolitical concerns present some downside risks. Interest rate cuts and taxation are other factors likely to impact equity markets.”