I was going to leave Kuwait until the end of my GCC outlook marathon, but due to the new government-spending plan I decided to bump it in front of the UAE.
Kuwait’s GDP is expected to grow the least in the region, from a 1.3% contraction last year to a 2.5% growth in 2010. This year’s GDP is expected to be around KD32 billion.
Political conflicts remain the greatest concern not only for local investors, but also international ones. As a matter of fact, Kuwait is the only country in the MENA region that is expected to show FDI outflows.
Although Kuwait has the slowest growth in GDP, major political issues, and overall negative sentiment; it has the second highest fiscal surplus in the MENA region. This year is no different from any other year as there always has been a surplus, but the only difference this time is that a government-spending plan is going to be implemented.
We all heard the news that came out last week about the KD4.78 billion government spending plan that’s going to be implemented in the FY2010/11. The main content of this plan is to enrich the private sector by projects which include a warehousing company, health insurance company, low-cost building company, the famous Khairan City, and an electric utility company.
I hope I’m not too optimistic but this plan should at least improve the total macro outlook of the country.
Banking Sector
A major concern I have for Kuwait is the banking sector. Provisions will continue throughout the year as the quality of loans is still questionable. In 2009, more than 30% of the bank’s loan book is attributed to personal loans, whereas 54% of the personal loans are paid on installments. In addition to that, about 30% of the money borrowed is used to purchase securities in the market.
Another 30% of the loans are given to the constructions and real estate sector, a sector doesn’t look very promising right now with current conditions. The highly leveraged commercial real estate market in Kuwait grew much faster than the demand. This will affect the cash-flows expected from these projects sparking a potential default on loans outstanding. For more details on this subject read “Got-Tenants?”.
These risks are not reflected in the stock prices as Kuwait’s banking sector is trading at a premium to GCC banks in terms of P/E. Banks in Saudi Arabia, UAE and Qatar are all trading a discount to Kuwaiti ones by an average of 60%.
The aggregated losses of all listed companies in the Kuwait SE equalled USD 11.3 billion (KD 3.2 billion). This means that it will take us 2.8 normalized quarters of USD 4 billion each, or 8.3 quarters of USD 1.37 billion which were recorded in 2Q ’09 to recover the losses.For more details on this subject read “How bad was Q4 2008“
There are many negative catalysts on Kuwait’s story; nevertheless, this outlook can turn around if the spending plan was properly implemented. My verdict? Neutral on kuwait
(2 votes, average: 5.00 out of 5)
Loading ...Tags: 2010 outlook, KSE, Kuwait, Kuwait 2010 spending plan, Kuwait banking sector, Kuwait Banks, Kuwait Stock Exchange
This was a great summary. Wondering if you had anything on the recent discount rate cut… also if you could drop me an email i am interested in keeping in touch with you on other subjects
Thanks
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Hope government and parliament put hands together and get this country moving… although i doubt it, but ill keep an optimistic view and support your “Neutral” verdict
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Saud Reply:
February 10th, 2010 at 1:45 am
Lots of international houses were negative on Kuwait in 2009 and many funds underweighted it, so there is not much downside to kuwait’s outlook. However, if things start to improve and the outlook changes from “underweight” to “neutral” many funds will deploy cash in the market, hence we will see a pick up in prices.
Zain’s issue will still be a concern as the price volatility and the lack of disclosure might hinder the inflow of any new money.
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Salbader Reply:
February 10th, 2010 at 10:34 am
@ Saud
Zain is only one issue in Kuwait amongst many others, keeping in mind the performance of Zain directly affects many other organizations in the market.
in a nutshell:
KFH: in bad condition
Agility: Fate held in the hands of a Foreign Judge
Zain: Deal or no Deal Dilemma
these by themselves contribute to around a quarter of the Kuwaiti Market Cap, and the rest are highly correlated to them…
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One must ask how did NBK get these results? I have a feeling that they didn’t take much of provisions on their loans. They also have an exposure to Zain’s as they lent key owners big sums of money.
Zain and Agility were doomed even during 2008 – and agility in particular was a bad story even since 2006-2007.
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NBK does not have high exposure to either of the following:
- Sub prime mortgage
- Al- Ghosaibi group
- Saad group
- Derivatives lending
- Dubai world
and therefor has not been affected by the factors that hampered other banks financials
the Central Bank has place strict rules for banks to abide by and coerced harsh provisions on assets it believes to be doubtful to receive… it seems not alot of NBK’s assets have been effects by this which might indicate the bank may have effectively diversified their lendings into the correct sectors.
Bear in mind it was reported that NBK has high exposure to Al-Kharafi Group and although the group was successful in supporting their companies throughout this ordeal one cannot help but be concerned on how the group would perform if the Zain Deal did not go through or the companys does not perform as it did during Dr Saad’s time!
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