Kuwait to attract up to $7.5b on MSCI upgrade
Kuwait's inclusion in the MSCI emerging markets index will give a big lift to investor confidence in the country's financial system.
MSCI, a leading provider of research-based indexes and analytics, announced on Thursday that it would reclassify the MSCI Kuwait Indexes to emerging market status as part of the May 2020 Semi-Annual Index Review in one step as the Kuwaiti equity market now meets all the necessary requirements.
"We welcome the latest market accessibility enhancements introduced by the Kuwaiti authorities that now allow international institutional investor to benefit from omnibus account structures and same NIN cross trade capabilities," said Sebastien Lieblich, global head of index solutions and chairman of the MSCI Equity Index Committee.
"Kuwait's addition adds further diversification to the MSCI Emerging Markets Index with an estimated weight of 0.69 per cent," said Lieblich.
According to Kamco Research's calculations and based on the recent inclusion of Aramco in the emerging market index and the related estimated flows, Kuwait could attract passive inflows of around $3.1 billion and a much larger pool of active inflows.
HANetf, an independent ETF specialist firm, said the upgrade of Kuwaiti equities is expected to attract an estimated $7.5 billion of inflows from active investors.
The company that specialises in exchange-traded funds said 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.
The expected $7.5 billion from active investors will be in addition to an estimated $2.6-$3 billion of inflows forecast by the exchange, Borsa Kuwait.
After the upgrade, Kuwait would now be a part of the Emerging Market universe defined by three largest global index compilers including MSCI, S&P Dow Jones and FTSE.
"This would help attract capital from foreign investors in the country's capital markets and enable it to reach global standards. The upgrade came as a result of consistent reforms implemented by the Kuwait Capital Market Authority in record time of less than three years targeting each aspect of the process and delivering on the reforms in a timely manner," Kamco said.
Kamco said that post the upgrade, investor focus would widen to fundamentally-sound stocks in the main market.
"The upgrade would also help get the overall stock market attention from international investors as corporate profitability and dividend trends in the listed company space has remained solid over the last few years. In addition, with government initiatives and reform announcements on a number of fronts, the overall impact would be positive for local and regional investors," it said.