For a while now I have been bearish on Kuwait, and I have posted a couple of articles before stating the different reasons. In this post I will restate my old reason and add a couple of new ones to explain my negative outlook on Kuwait.
1) The IMF expects Kuwait to report a negative real GDP of 1.5% in 2009 and show a growth of 3.3% in 2010, which is the lowest amongst its peers. (Click for details)
2) With all the political conflicts between the parliament and the government, Kuwait is not expected to show any increase in FDI (foreign direct investment). In fact, Credit Suisse economic team expects that Kuwait will be the only major MENA country to show negative FDI flows in 2010 (USD6 billion).
3) Even though peer markets have rallied while the Kuwaiti SE has lagged, Kuwait still trades at a relatively higher valuation than other markets. Kuwait currently trades at a 2009 P/E of 13.8x, while the GCC average is 13.1x which translates into a 5.8% premium. Despite the fact that Kuwait has an estimated EPS growth of 22% against a GCC average of 20.3%, Kuwait is believed to be skewed towards selected large cap stocks, which means that this number is not the mean for most companies.
4) The Kuwait stock exchange wrote off a huge loss in Q4 2008 of USD11.3 billion and it will take a long time to recover that loss; 8.3 quarters of USD1.37 billion (recorded Q2 2009) or 2.8 quarters on normalized earnings of USD4 billion. (Click for details)
5) Most listed companies are highly exposed to the stock market, either by operation or investments. Q3 2009 showed a negative return on the index of 3.3%, thus Q3 is not expected to show any spectacular results.
6) Historically, the Kuwaiti market showed the weakest performance in Q4 in terms of return on the index. Given the week fundamental story, this year is not expected to be an exception. (Click for details)
7) Kuwaiti banks, the main drivers behind the economic growth in the country, have the highest exposure to the real estate and construction sector. These two markets aren’t looking good at the moment. (Click for details)
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Saud don’t you think that all of your reasoning is already priced into the market?Currently every Kuwaiti investor is bearish..fearful..and pessimistic. We need hope! Once ZAIN deal is done, the whole Kuwaiti market will revive.
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Saud Reply:
October 14th, 2009 at 4:30 pm
Kuwait is trading at a premium to peers, so if as you say the market is pricing in all that bad news, peer markets sure isn’t pricing in all those positive news; thus showing more attractive opportunities elsewhere.
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Political conflicts did not only hinder FDI, the fall in local investments should also be considered
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Saud Reply:
October 14th, 2009 at 4:36 pm
i agree, the FDI outflows are just one out of many damages that occurred because of the political conflict.
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Great post. Quite thorough yet short and to the point.
Inshalla it gets revived. The inkling of hope you’re looking for may lie in the increasing oil price. Alla kareem.
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If I was a sell-side anaylst, I’d write a note on Kuwait titled “It the politics, stupid.”
Very unfortunate, but we will one day change the miserable status quo!
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[...] scene. In a previous post, I talked about the rationale of having a negative outlook on Kuwait (http://www.alphadinar.com/2009/10/14/why-the-negative-outlook-on-kuwait/). Nevertheless, markets are volatile and they tend to be oversold or overbought at times, and it [...]