The Kuwait Stock Exchange was established in 1983 with the issuance of an Amiri Decree. After a long process of reforms and a large number of laws were passed, the […]
The Kuwait Stock Exchange was established in 1983 with the issuance of an Amiri Decree. After a long process of reforms and a large number of laws were passed, the Kuwaiti government reformed the National Bank of Kuwait, which from 1952 up to that moment had been the country’s shareholding company.
As one of the oldest stock exchanges in the Gulf, the KSE has been a leader in introducing innovative solutions and implementing new products and services for traders. In November 1995, KSE put into force its first electronic trading system and in 2003 traders could start trading Futures and the online platform was launched. Thanks to its ability to anticipate traders’ needs, the KSE has historically been one of the major Arab markets, reaching a market value of over $100 billion with more than 200 companies listed.
During the last decade, the KSE has been losing its appeal to traders, which have been reducing their trading activity in Kuwait. The KSE currently trails behind other stock exchanges in the Gulf. The liquidity of the KSE has in fact dramatically dropped over the last few years. In 2007, the total value traded had hit $112 billion but in 2014, the KSE registered a 10-year record low of $19.52 billion. As a percentage of market capitalization, the value traded dropped from 37% in 2007 to 19% in 2014. Furthermore, the KSE’s traded value as a percentage of GDP shrunk from 36% to 11% between 2010 and 2014 contrarily to other stock markets in the Gulf that witnessed positive growth and expansions rates, some as high as 2.5%. With attractive, neighboring bourses in Saudi Arabia and the UAE leading the region in terms of investor appeal, the Kuwait exchange’s outdated infrastructure along with a lack of certain financial products and services have led to the market’s poor performances as they no longer meet investor requirements nor international best standards in trading. A testament to investor frustration is the worrying trend of companies delisting from the KSE as it no longer makes sense to them economically due to relative high costs of maintaining the listing and the falling market liquidity. As of September 2015, Kuwait’s stock index showed a decline of 24% since beginning-2014, double Saudi Arabia’s 12% decline, and further widening the competitive gap between Kuwait and the UAE, given Dubai’s 8% rise over the same period.
Legislators have taken notice of all this, enacting policies to begin the privatization process of the KSE in an effort to turn things around. The Capital Markets Authority (CMA) established the Boursa Kuwait Securities Company (BKSC) in April 2014 with an authorized capital of $198.5 million. This newborn entity is set to take over as the operator and owner of the Kuwait Stock Exchange come 2016.
BKSC is already implementing a four-phase program, which aims, in its initial operational stage, at upgrading the exchange’s infrastructure, its trading rules, and its price discovery mechanisms. BKSC will then focus on the preparation and execution of the takeover. The goal of the last phase is to propel the exchange’s growth, pursued by increasing the depth and breadth of its products and broadening both securities issuers and investors’ bases.
BKSC’s ambition is to transform the KSE so that it may meet the international standards required by Middle East investors and reflect the solidity of Kuwait’s private sector. This result will be achieved by providing securities issuers with efficient access to capital and investors and by developing a sound, liquid, and reliable exchange market in Kuwait.
The privatization of the KSE will benefit both investors and listed companies by enhancing the transparency of the capital market and is a much-needed prerequisite towards upgrading the Kuwaiti market to emerging market status, furthering Kuwait’s ambition to become a leading financial hub in the Gulf region by 2020.