Despite a government decision to allow foreign investment, economic sources in Kuwait say they do not expect a jump in the Kuwaiti stock market. Kuwaiti economists say the government decision is not enough to get the stock market out of its current slump. The stock market has been in a prolonged state of weakness with falling share prices and slow exchange.
In an immediate reaction to the decision, exchange rose from 23.2 million shares to about 39 million. Stocks on the exchange increased in value from 5.3 million Kuwaiti Dinars ($18 million) to 13.1 million dinars ($42 million.). However, the bulk of exchange was limited to stocks with a market value over 6 billion dinars - equivalent to $20 billion. Economists attribute the slim chances for a stock market jump to impartial circumstance, most important being the general situation of stocks in the region. Stocks in most Gulf countries have been in decline due to incorrect price speculation that led to a sharp decline in prices at the end of 1998 and prices are still dropping.
Another factor contributing to the decline of Gulf stocks is the improvement in price of international stocks, specially the stock prices of American Tech companies that attract huge investments from the Gulf on the expense of the local exchange market. Economic sources said a rise in bank interest rates is another factor keeping investors away. With high interest rates, investors won't benefit from the new decision. The government decision allows foreigners to invest 49 percent of the local market at a maximum. Finance sources say that percentage is not appealing to foreigners and the exchange volume would be controlled at that rate.
A Gulf banking official, speaking on condition of anonymity said foreign investors are not concerned with legislation as much as they are with the political situation of the region since the 1990 Iraqi invasion.
Foreigners have been investing in Kuwait long before any laws allowing such investment were drafted. The Kuwaiti stock market crisis of the 1980's revealed that hundreds of foreigners were involved in the stock market under the cover of Kuwaiti investors and through channels that help them avoid legislation.
The 1980 crisis dealt a blow to the Kuwaiti stock market the affects of which it is still experiencing. During that crisis the government stepped in and restructured the stock market and paid off some of the debt.
Officials say Kuwait's decision comes at a time when other Gulf countries are opening the door to foreign investment. Oman, Qatar and Bahrain do not limit foreign investment and Saudi Arabia and the Emirates have eased restrictions on foreign investors allowing the purchase of property and stocks. They even allow investment in petroleum that until recently was a monopoly for government companies.
The banking official said Kuwait's decision to allow foreigners to invest in the stock market is an attempt by the sheikdom to go with the general flow in the region more than an attempt to solve the financial dilemma of stock market. For that, the official said, government would need to offer many things none of which are currently available. – (Albawaba-MEBG).
© 2000 Mena Report (www.menareport.com )