Kuwait to attract $7.5bn from active investors ahead of MSCI upgrade, analyst says

Passive inflows estimated at $2.6bn to $3bn, Boursa Kuwait says

The upgrade of Kuwaiti to MSCI emerging markets status is on track, according to a report by Arqaam. AFP.

The upgrade of Kuwaiti equities to MSCI emerging markets status in 2020 is expected to attract an estimated $7.5 billion (Dh27.5bn) of inflows from active investors, according to a company that specialises in exchange-traded funds.

Allocations from active investors in the months leading up the reclassification announcement could give the Kuwaiti stock market an additional performance boost in the first half of next year, similar to that which occurred in Saudi Arabia ahead of its upgrade in May this year, according to HANetf, an independent ETF specialist firm.

"Looking at Saudi Arabia as a case study, the market showed discernible positive price impacts both in anticipation of the reclassification announcement as well as during the months leading up to the implementation," the report said. "Kuwait might experience a similar performance boost in the first half of 2020 due to the ... buy-side pressure prompted by the MSCI implementation."

The expected $7.5bn from active investors will be in addition to an estimated $2.6bn-$3bn of inflows forecasted by the exchange, Borsa Kuwait. Investment firm Arqaam expects Kuwait to be upgraded to emerging market status by MSCI during its May 2020 semi-annual review. Kuwait is currently the biggest market by capitalisation in the lower-ranked Frontier Market Index, with a weighting of above 30 per cent. If upgraded, it will be the fourth country from the region in the emerging market index after the UAE, Qatar and Saudi Arabia.

When the UAE went through its own upgrade process in 2013, it saw a significant equity price rise ahead of the implementation, with the market rising 44 per cent.

In Saudi Arabia, asset flows into exchange-traded funds (ETFs) also rose ahead of the market upgrade, and a similar pattern is expected in Kuwait, according to HANetf.

"Considering that assets in Kuwait ETFs currently stand at $90 million, there seems considerable room to grow, further supporting Kuwaiti stock prices," the report said.

The Kuwait Premier Market Index, made up of the country's biggest shares, has been the top performer of all Arabian Gulf markets this year and one of the best performers globally. It gained in value by 5 per cent in November, bringing the index's total increase for the first 11 months of the year to 23.8 per cent, according to a Kamco Research report issued on Sunday, as active investors buy stocks ahead of the potential MSCI upgrade.