Boursa Kuwait makes changes ahead of EM index upgrade

Inclusion into MSCI Emerging Market index will bring in $2.9bn from passive funds that track the index, according to Kamco Research

Boursa Kuwait's upgrade to emerging market status by MSCI will take place in five phases, starting from this month until November 2021. EPA.

Boursa Kuwait is introducing changes to some of its trading mechanisms from Sunday in preparation for some of the market's biggest shares being included in the MSCI Emerging Markets Index.

Boursa Kuwait and the Kuwait Clearing Company said new measures included the introduction of Allocation Consolidation Module accounts, which are ways for managers of large assets to aggregate orders made when settling trades at the end of a session. Some specific measures are being taken during the inclusion of the biggest shares, with a closing auction and a Trade At Last session being extended.

"The new measures will further enhance the efficiency, appeal and performance of the market to attract investments from local and international investors and is a testament to Boursa Kuwait’s commitment to bolster our reputation for providing issuers with efficient access to capital and investors with diverse return opportunities," said Noura Al-Abdulkareem, head of markets at Boursa Kuwait.

MSCI's Emerging Markets Index is passively tracked by exchange-traded funds containing billions of dollars. As of September 30, the index was made up of 1,392 constituents from 26 emerging markets, covering about 85 per cent of the free-floating market capitalisation of these markets.

Kuwait's ascent to emerging markets status by MSCI follows earlier upgrades of UAE and Qatar stock markets in 2014 and Saudi Arabia in 2019.

Kuwait currently accounts for the biggest share of MSCI's more junior Frontier Market, with a weight of 26.29 per cent of the entire index, according to a research note issued by Kamco Research on Thursday evening. As a result, the upgrade is taking place gradually, in five phases starting from this month and concluding in November 2021.

Kamco Research estimates that about $2.9bn in passive funds tracking the index will flow into the shares of the seven biggest Boursa Kuwait stocks that are being included in the index – National Bank of Kuwait, Kuwait Finance House, Zain, Agility, Boubyan Bank, developer Mabanee and Gulf Bank of Kuwait. However, it said that "the bulk of the funds have already been placed in the upgraded stocks" by active foreign investors who have taken positions since the decision to upgrade was announced last year.

Boursa Kuwait has already been upgraded to emerging market status by two other major index providers. It joined S&P Dow Jones Global Equity Indices as an emerging market in December 2018 and was added to FTSE Russell's Emerging Markets Index in September 2017.