Global Investment House – Kuwait – KSE Monthly Performance for the month of October 2008 - If one thought September was one of the most volatile months the market has ever seen, then there was much more in store during October. The Kuwait market declined sharply during October taking cues from international and regional markets and also because developments at home. Kuwait market reported a decline of 19.8% in October-2008 as “Global” General Index ended the month at 265.83 points. This followed a decline of 10.25% in September-2008. No sector was spared during the month with Real Estate and Investment sectors bearing the maximum brunt. The market capitalization reached KD42.66bn at the end of the month, registering a decline of 19.7% as compared to the previous month. We believe that market has been oversold on the fears of financial crisis, liquidity crunch and global recession. Though there is no denying the fact that there might be a recession in developed world, the economic fundamentals of the region in general and Kuwait in particular remain strong which will enable it to weather any kind of crisis. Therefore in our opinion market has overreacted to the current situation which has resulted in stocks available at a ‘Great Bargain’.
The overall trading activity increased during October-2008 compared to the previous month. Volume of shares traded on the bourse witnessed a monthly gain of 42.2%, aggregating to 7.20bn shares in the month. Similarly, value of shares traded on the bourse witnessed a monthly gain of 21.8%, aggregating to KD3.07bn in the month. Zain was the top value leader for the month with 369.8mn shares changing hands at a value KD470.1mn. Al Safwa Group Company was the top volume leader for the month with 679.6mn shares changing hands at a value KD64.1mn.
The major gainers during the month were Villa-Moda Life Style (24.4%), The Transport & Warehousing Group (21.4%), Al-Enma'a Real Estate Company (15.0%), whereas major losers during the month were Abyaar Real Estate Development Co (-62.2%), First Dubai For Real Estate Development Co (-58.3%), Grand Real Estate Projects Company (-56.8%).
During the month of October-2008, Global Real Estate Index was down by 32.0% whereas Global Investment Index was down by 26.2%. Among Investment sector components, Global Investment House lost 37.0% during October-2008 to reach KD0.485. Global Investment House continued its good growth in earnings with net income for the nine-months of 2008 rising to KD102.9mn, an increase of 66% against the net income of KD61.9mn during 9M-2007. At 30 September 2008, Assets under Management (AUM) of Global Investment House crossed the US$10bn mark to reach US$10.2bn.
During the month of October-2008, Global Banking Index was down by 12.9%. Among Banking sector components, Gulf Bank lost 25.8% during October-2008 to reach KD0.950. Trading in Gulf Bank shares was suspended during the last week of the month as per the instructions of Central Bank of Kuwait. This step was taken after it was revealed that the Gulf Bank might incur losses on account of forex derivatives. Bank’s management clarified that the loss incurred by certain customers of the bank was a result of derivative transactions, and their abstention from settling their financial obligations, caused the Bank to meet such liabilities to international markets, so as to safeguard its image and credibility vis-à-vis foreign banks. Kuwait Government has extended all required support to Gulf Bank. Government plans to raise the capital of the troubled Gulf Bank if the bank's shareholders fail to secure the funds. As per Kuwait's Finance Minister Mr. Mustafa Al Shamali, the move aims to support Gulf Bank's financial status and to maintain its credit rating.
In a significant move, Kuwait Parliament approved passed a law to guarantee all forms of deposits, including savings and current accounts, at national and foreign banks operating in the country in a bid to infuse confidence in the financial system and protect it from the fallout of the global financial turmoil. The first article of the law stipulates that the state pledges to guarantee deposits at local banks, and the guarantee involves the original value of all forms of deposits including savings and current accounts. The second article stipulates that the finance ministry will provide the necessary funds from the state reserve to pay any deficit faced by any bank in paying the rights to depositors.
Central Bank of Kuwait (CBK) cut its discount, or lending, rate two times during October following rate cuts by the U.S. Federal Reserve. Although Kuwaiti Dinar is not pegged to U.S. Dollar but a basket of currencies, still CBK follows interest rate moves by Fed as U.S. Dollar constitutes a significant part of the currency basket. In the first move, CBK reduced the benchmark discount rate from 5.75% to 4.50% and on the last trading day of the month, CBK again reduced discount rate by 25 basis points to 4.25%. This will bring down the cost of funds which we believe will have a positive impact on economy as well as the market. CBK also reduced repo rate to 2%. Following the move by CBK, the Kuwait Stock Exchange informed that it will cut the interest rate on forward and futures contracts to 11.25% from 11.50%.
There have been comparisons between the current global situation and Great Depression of the 1930s. However one should realize the fact that this time around we have seen concerted efforts by Central Banks and Governments around the World to minimize the impacts of crisis which was not seen in 1930s. Central Banks and Governments have taken steps to infuse huge amount of capital and cut interest rates to revive the financial markets.
We have witnessed panic selling by some sections of investors during the current month. In fact some investors have been busy dumping shares like ‘there is no tomorrow’. However we believe this is one of the best times to buy shares. People who are currently focusing on preserving capital rather buying based on valuations will be the ones who will miss this opportunity the most. Let us not forget that markets do ‘rise and fall’ but it is always make sense to buy stocks which have long term growth potential and this is one the best times to do that. Also we have seen state institutions such as Central Bank of Kuwait and Kuwait Investment Authority extending their unwavering support to Kuwait market which will go a long way in boosting investors’ confidence in the market. However still a lot steps can be taken by Government institutions in terms of direct market intervention.
The decline in western markets was understandable on the basis of exposure to sub-prime mortgages and recession in economy. However many of such things are not applicable in this part of the World which is still riding high on macroeconomic factors. There have been concerns about falling oil prices which might slowdown the growth in the region. However we have seen such price levels (around US$60 per barrel) as recently as during March 2007. The fall in prices has been highlighted on the backdrop of its recent rise to more than US$140 per barrel (most of which was due to speculation rather than fundamental factors). Oil prices at US$60 per barrel still provide enough elbowroom for GCC countries to maintain the growth momentum.
To sum it up, we believe there has never been a better time to buy the shares in Kuwait market. The market is currently near the bottom and though we do not rule out possibility of a small decline from here, a recovery is overdue. So the message is clear: if you want to have equity in your portfolio, the time is ‘NOW’.
Value Leaders (KD)
Zain (MTC) 470,056,200
Kuwait Finance House 348,331,550
National Bank of Kuwait 291,460,150
Gulf Finance House 185,757,025
The Public Warehousing Company (Agility) 156,694,250
Al Safwa Group Company 679,640,000
Zain (MTC) 369,800,000
Al Safat Investment Company 308,210,000
Gulf Finance House 296,080,000
Ekttitab Holding Company 283,980,000
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