Kuwait fund to invest $7.26bn in shares

Last month the cabinet asked its investment arm the Kuwait Investment Authority to set up a fund to invest in the bourse to shore up confidence.

Kuwait has set up a fund to invest in its stock market, which has fallen more than 40 per cent this year.

Kuwait has approved a Dh26.6 billion (US$7.26bn) fund to invest in shares on the Kuwait Stock Exchange in a move aimed at propping up the ailing market, local newspapers reported today. Five Kuwaiti newspapers said in unsourced reports that the country's Cabinet approved on Monday a 2bn dinar (Dh26.6bn) government portfolio to invest in the stock market, which has fallen by more than 40 per cent this year as the global financial crisis spread into the Gulf. The fund is the largest of its type yet to be announced in the GCC - Qatar and Oman have announced smaller injections into local exchanges - but is smaller than the sum many traders demanded last month, when protests broke out at the exchange and the bourse was shut down for two sessions, before a court order reopened it. In part to appease angry investors, Kuwait's Cabinet last month asked the Kuwait Investment Authority (KIA), the country's sovereign wealth fund, to set up a fund to invest in the bourse to shore up confidence. Government officials did not immediately reveal its size, however some local newspapers said it would be worth billions of dinars. The stock market's decline and the debate over the rescue fund have already had enormous political consequences in Kuwait, where activism and political infighting are constant features of the social landscape, a stark contrast with many of its Gulf neighbours. Kuwait's government resigned a week ago, partly because of its deadlock with the country's parliament over how to address the financial crisis. The turmoil is also leading to renewed calls for market reforms. Today, a long-stalled bill was submitted to parliament that would set up a financial markets regulator in Kuwait, which is the only Gulf state without a dedicated authority to supervise its bourse. The regulator would be the equivalent of the Emirates Securities and Commodities Authority. Ahmad Baqer, the commerce and industry minister, told the state news agency KUNA on Monday that the bill had been submitted to parliament. Yet its chances for approval appeared slim because of the ongoing political upheaval. Today, Kuwait's Gulf Bank, which became embroiled in the crisis after it revealed it lost more than $1bn on currency derivatives contracts that clients defaulted on, said it had made a net loss of 289.1 million dinars in the first 10 months of this year. Kuwait's fourth-largest lender by market value did not say if the figure included the currency derivatives losses that prompted the government to rescue it last month. The bank's shareholders are to meet on Tuesday to discuss whether to approve an emergency rights issue worth 375m dinars to cover those losses. Gulf Bank's troubles have sparked speculation that it might merge with another bank in a stronger financial position. And Kuwait's central bank governor, Sheikh Salem Abdul Aziz al Sabah, has encouraged companies of all stripes to consider mergers in order to better weather the financial crisis. Mr Sabah was quoted as saying on Monday by KUNA that mergers were "an option whose necessity has risen as a result of the aftermath of the global financial crisis". Yet the chairman of Gulf Bank, Kutayba al Ghanim, today told KUNA that the bank would not get a good price in the current conditions. "It is not the right time to discuss any such attempts for Gulf Bank, due to the fact that right now the bank will be the weaker rather than the stronger party," Mr Ghanim said. Mergers have been proposed across the region as the financial crisis continues to deepen and markets continue on a downwards slide. A merger was recently announced between the mortgage providers Amlak and Tamweel in the UAE, where the property and finance sectors have been hit hard by the growing difficulty of obtaining financing on international markets. * with Reuters [e-mail]