The current stock market crisis is one of the worst in the Kuwait’s financial history. The bourse lost more than 40% of its value last year, and stocks’ prices are still falling in the year 2009. The decline of Kuwaiti stocks, including blue-chip companies, negatively affected the wealth of many Kuwaiti citizens and other investors alike. Of the thirteen trading days (from January, 1th 2009 until January 20th, 2009), Global General Index ended trading positively only twice. The anticipation of major downturn in Kuwait has sent stock prices in a downward spiral, causing market capitalization of almost all stocks to decline, resulting in further wealth decline.
The beginning of 2008 for the Kuwaiti Stock Market was spectacular, up until it reached its peak in June. After that, the market started its spiral downward, and the collapse of major global financial institutions in September accelerated the downward spiral movement. The quick fall in stock prices resulted in a rapid drop in market capitalization of the bourse as well. Collectively, companies listed in the Kuwaiti Stock Exchange were worth approximately KD57.5bn at the end of 2007. These companies lost KD24bn of market cap during 2008 to reach KD33.4bn, representing a decline of 41.8% in wealth. In 2009, the market sentiment became more pessimistic, and the disease of large daily losses was transmitted to all sectors. The freefall of the stock market was faster in 2009. The total loss in value for the stock market was KD6.4bn in only thirteen days, or 19.0% YTD losses on January 20, 2009.
At the end of 2007, Kuwaiti companies’ market cap constituted 89.1%, of the total market cap in KSE, while non-Kuwaiti companies’ market cap constituted 10.9%. This distribution did not change significantly at the end of 2008. However, Kuwaiti stocks started to move downward faster than non-Kuwaiti stocks. Market cap for Kuwaiti companies lost KD21.4bn (41.8% of its value) to reach KD29.8bn at the end of 2008. The market cap for non-Kuwaiti companies lost KD2.6bn in the same period, or 42.1%. Since the start of 2009, both types of companies continued their path downward, but Kuwaiti companies was lost value faster than non-Kuwaiti. By the end of January 20, 2009, Kuwaiti companies dropped KD6.1bn in value YTD, a drop of more than 20%. Non-Kuwait lost KD0.3bn (8.6%) in market cap during the same period. Therefore, the Kuwaiti companies constituted 87.8% of the value of KSE, while non-Kuwaiti companies constituted 12.2% of KSE market cap.
In terms of sectors, the banking sector’s market cap dropped the most in terms of dinar amount. Collectively, banks lost KD6.3bn of their market cap in 2008, and they lost another KD2.5bn of their market cap in the first thirteen trading days. The market capitalization for the banking sector stood at KD9.1bn in January 20, 2009, down from KD17.9bn at the end of 2007. In terms of percentage decline in 2008, Investment, industrial, and food sectors were the largest losers with more than a 52% decline in market cap.
Among these three sectors, the investment sector was the biggest loser in term of dinar amount. The investment sector dropped KD4.9bn in value during 2008, and it continued its freefall with another one billion Kuwaiti dinar in market cap losses in 2009. The investment sector was specifically under fire because of the crisis that shrunk the credit market for the investment companies. In fact, the size of the investment sector relative to the market size shrunk because of this crisis. The investment sector’s market cap constituted 16.2% of total market cap at the end of 2007, and its size was 12.8% of total market size on January, 20 2009.
The real estate sector was also under fire, and it dropped KD1.7bn (42.7%), in value last year, and another KD0.5bn (22%) in the first thirteen days of trading in 2009 to reach KD1.8bn. The insurance sector was the least to be hit by the crisis. The market cap of the insurance sector dropped 9.8% in 2008, and 1.3% YTD in 2009.
Table 01: Sectoral Wealth Decline
Kuwait Stock Market Market Capitalization Investor Wealth Decline
(in KD bn) 12/31/2007 12/31/2008 1/20/2009 2008 Decline YTD Decline
Banking Index 17.9 11.6 9.1 (6.31) (2.48)
Investment Index 9.3 4.4 3.5 (4.90) (0.97)
Insurance Index 0.5 0.4 0.4 (0.05) (0.01)
Real Estate Index 4.0 2.3 1.8 (1.73) (0.51)
Industrial Index 5.4 2.5 2.1 (2.82) (0.47)
Services Index 12.8 7.9 6.5 (4.92) (1.44)
Food Index 1.3 0.6 0.4 (0.69) (0.18)
KW only Index 51.2 29.8 23.8 (21.41) (6.05)
Non-Kw Index 6.2 3.6 3.3 (2.62) (0.31)
Market Cap - Kuwait Stock Exchange 57.5 33.4 27.1 (24.0) (6.4)
Percentage Decline - KSE -41.8% -19.0%
Source: Global Research
Large cap stocks are also being tortured by the turbulent market conditions, especially this year. The hurricane that has hit the investment and real estate sectors has moved towards the rest of the market. In our study, we sampled the ten largest capitalized companies that are listed in the Kuwaiti Stock Exchange, as of the end of January 20, 2009.
The decline in market cap for these ten companies was at KD9.8bn in 2008, down from KD25.3bn at the end of 2007, or 38.9% of its market capitalization. Mobile Telecommunication Company (Zain) was the hardest to be hit, both in term of percentage decline and dinar amount, in 2008. Zain’s market capitalization was halved, losing KD3.4bn last year. Following Zain, both Kuwait Finance House (KFH) and National Bank of Kuwait (NBK) witnessed a falling value in billions of Kuwaiti dinars. Shareholders of these two banks lost KD2.1bn and KD1.9bn; respectively in 2008.
The bleeding of these ten companies did not stop or slow down in the new year of 2009. As a matter of fact, the market cap decline accelerated this year in anticipation of a major recession. The ten largest publicly traded companies in Kuwait, at the end of 1/20/2009 collectively, lost KD3.35bn of their market capitalization, or 21.7% of their value YTD. The total market capitalization of the ten largest companies in Kuwait stood at KD12.1bn in January, 20 2009. Kuwait Finance House value declined the most with KD823mn in market cap losses in only thirteen trading days. The company to be least hit was National Investment Company YTD, which witnessed a decline in value by KD48.8mn (10.8%).
Table 2: Investor Wealth Decline
Kuwait Stock Exchange Market Capitalization Investor Wealth Decline
(in KD bn) 12/31/2007 12/31/2008 1/20/2009 2008 Decline YTD Decline
Mobile Telecommunication Co. (ZAIN) 7.24 3.60 2.95 (3.65) (0.64)
National Bank of Kuwait 5.06 3.19 2.46 (1.87) (0.73)
Kuwait Finance House 4.94 2.80 1.98 (2.14) (0.82)
Commercial Bank of Kuwait 1.82 1.50 1.32 (0.32) (0.18)
Al-Ahli Bank of Kuwait 1.33 0.96 0.84 (0.37) (0.12)
National Mobile Telecommunications Co (NMTC) 1.21 0.95 0.73 (0.26) (0.22)
Public Warehousing Company (AGILITY) 1.31 0.66 0.52 (0.65) (0.14)
Kuwait Projects Company (Holding) 0.91 0.57 0.50 (0.35) (0.06)
Burgan Bank 0.86 0.80 0.41 (0.06) (0.39)
National Investment Company 0.64 0.45 0.40 (0.18) (0.05)
Market Cap of 10 largest KSE stocks 25.3 15.5 12.1 (9.8) (3.4)
Percentage Decline - 10 largest KSE stock -38.9% -21.7%
Source: Global Research
Kuwait market has been the worst in terms of decline in market capitalization this year. This trend could continue unabated unless there is institutional intervention as retail investors are not expected to enter the market in this carnage. It remains to be seen how much the government and other institutional investors take advantage of the low valuations prevailing in the market and try to stem the huge losses witnessed on the bourse which is shaking the confidence of the investors in the capital market. These is an event of an unprecedented nature and we expect unprecedented steps to be taken as we have seen in the international markets.
