MSCI emerging markets upgrade could bring $2.8bn to Kuwait's equity market

The global index provider will announce its decision on June 25

Kuwaiti banks are expected to see healthy income levels following the central bank's relaxation of precautionary provision requirements. AFP

Kuwait is expected to be upgraded to emerging market status by MSCI this week, which could potentially bring $2.8 billion (Dh10.2bn) to the country’s equity market, according to EFG-Hermes estimates.

The global index provider MSCI, whose Emerging Market Index is tracked by investors and has more than $1.8 trillion in assets under management, will announce its 2019 annual market classification review on Tuesday. Kuwait is the only country on the list for a potential upgrade.

“We expect MSCI to upgrade Kuwait to EM, and the current proposal is for the upgrade to be effective as of May 2020,” Mohamad Al Hajj, an EFG Hermes strategist, said in the latest report on Kuwait equities.

EFG Hermes’ estimates of equities inflow are in line with those of the Boursa Kuwait acting chief executive Mohammad Al Osaimi, who also predicted $2.8bn to flow into Kuwaiti equities should the market get the nod from MSCI.

“We have ticked all the boxes that are required by MSCI,” Mr Al Osaimi told Bloomberg. “We have also offered international investors additional services and products they were looking for and some changes in bylaws they requested. We have touched base with them on our roadshows. We saw a comfortable response.”

The MSCI, EFG Hermes said, may decide to split the inclusion of Kuwaiti equities into its emerging markets gauge over two tranches - potentially in May and August next year.

“Although this is not our base case as Kuwait’s trade [volume and value] is much smaller than Saudi Arabia and China-A shares, which were split over multiple tranches [for inclusion in the EM Index],” Mr Al Hajj noted.

Kuwait, if reclassified as an Emerging Market, will be the fourth country from the region after the UAE, Qatar and Saudi Arabia to be awarded the title. The country and its equities market, with a total capitalisation of the $98bn, was upgraded by FTSE Russell into its emerging markets gauge almost a year ago.