According to our sources, the Kuwait Investment Authority (KIA) will double the seats available for its current MBA scholarship program from 10 seats to 20 seats. I hope this serves as great news for everyone planning to pursue their MBA degree! This is a fundamental step that we applaud especially since, last year, the KIA declined to send students admitted to top MBA programs because of budget restrictions.

On another related note, a group of students admitted to the current MBA scholarship program submitted a proposal for an increase in the scholarship’s monetary benefits. These benefits have not been raised since the onset of the program in 2002. Rising inflation in the United States, from 2002 until the time 2011 admittees graduated, accounts for 32.7%, thus, current students get 32.7% less than their 2002 peers. The group is also proposing married student benefits as is implemented by all other scholarship sources.

Oil prices have surged over 25% since the onset of the Libyan crisis on February 15th. The geopolitical risks in Middle East region warranted a risk premium to oil prices as protests from Bahrain to Libya increased oil supply uncertainty. Libyan rebels have been marching towards Tripoli with support of the Allied forces. They recently captured the oil port of Ras Lanuf and a resolution of the crisis seems closer.

Also, the risk of unrest spreading to Saudi has been diminished as King Abdullah proposed several economic reforms and Bahrain has stabilized. Couple these factors with a huge surplus of oil in the U.S. and a well-supplied oil market and the logicial conclusion would be an immenint sell-off in oil prices. Thus, I think oil prices will go down to around $90. What do you guys think?

The Capital Markets Authority (CMA) bylaws were published in Alkuwait Alyoum official government newspaper on March 13th and are now in effect. For some reason, we weren’t able to get the executive regulations of the CMA. My endless search paid off when I stumbled upon at this informative website (www.gcc-legal.org).  Listed below are Arabic and English copies of the CMA regulations. We hope those regulations would  transform into forceful laws, adding much needed transparency and trust to our financial system.

Executive Regulations of the Kuwait Capital Market Authority (English)

Exectuive Regulations of Kuwait Capital Market Authority Law (Arabic)

On March 13th, Kuwait’s Capital Market Authority (CMA) bylaws were published in Alkuwait Alyoum official government newspaper. This  action constituted the official declaration that the CMA bylaws are now in effect. Further, the CMA reminded of this in a statement posted on the Kuwait Stock Exchange (KSE) website today. Although most laws are in effect as of last Sunday, the law provides a time frame of between 6 – 12 months for the KSE, brokerages companies, and investment companies to fully comply. For example, according to the bylaws of the CMA, the KSE will have to transform into a private company equally owned by listed companies through an auction and Kuwaiti citizens through a free public offering. This process must be completed in the next 12 months.

All other laws, such as those pertaining to takeovers, are currently fully in effect. This deals a major blow to Zain, which can’t see its deal going thru anymore as new regulations force an acquirer of a stake of more than 35% to extend its offer to all other shareholders. The first takeover transaction compliant with CMA laws could be Injazat Real Estate’s takeover of Aqar Real Estate. The disclosures and other requirements for this deal will provide us with a valuable insight into the effectiveness of the CMA.

Congratulations to all Kuwaitis on this massive step that will hopefully instill more confidence in the KSE. We finally have an authority that will safeguard our stock market from major manipulations and the lack of transparency. According to Al-Qabas daily newspaper, investment companies committed 544 breaches to Central Bank regulations from 2004 to 2010. Most of those breaches faced minimal punishments. We hope this step will usher a new era of fairness, ethics, accountability, and transparency in Kuwait’s financial community.

Every year, the Kuwait Investment Authority (KIA) offers ten academic scholarships to Kuwaiti nationals seeking to earn an MBA degree at a top 20 university. The KIA updates its scholarship list on an annual basis, but the list is extremely predictable as it has always been identical to Financial Times ranking of MBA programs.

Not this year! This news may come as good news for some people, and bad for others. The list this year is comprised of the top 19 programs. Why not 20? KIA decided to take one university off the list: 8th ranked IE Business School (IE). The reason is simple: IE is the only school in the top 20 list that does not require its candidates to take the GMAT test, which is a major obstacle especially for Kuwaiti candidates. Of the ten available seats, KIA was used to sending around 3-4 Kuwaitis every year as not many candidates were able to secure admission into top schools. However, in the past couple of years the KIA scholarship seats were filled predominantlyby IE applicants. According to several sources, of the most recent 10 scholarship seats, 7 seats were taken by Kuwaitis admitted to IE. This resulted in the denial of scholarship for other candidates who were accepted to other reputable schools such as MIT, Chicago, NYU, Yale, Dartmouth, and Duke.

This is an unprecedented action by the KIA. There are definitely points for and against the exclusion of IE. However, I really there are other important issues that the KIA should revise such as having a clear schedule for the scholarship admissions process. The KIA should not decide on whether to send any candidate until the release of second round admissions decisions. This makes total sense because what if someone is admitted to Wharton, Harvard, or LBS (top three schools) in the second round only to realize that seats are already full? It would be devastating. If the KIA does not want to wait that long, then I believe that they should clearly communicate that students will only be considered if they were to apply in round 1.

So, what do you guys think? Are you against the exclusion of IE or not? I personally believe that the KIA has the financial power to support all Kuwaitis accepted to top 20 MBA programs. The government’s plan of transforming our economy by 2035 will only be realized if we invest in our human capital to the fullest. Instead of excluding IE, why not raise the scholarship seats to 20 or 30? These are my 2 cents. What are yours? 

Below is a link to a previous relevant article:

KIA cuts costs and its hands

Members of the Kuwaiti parliament are, yet again, working on a proposal that forces the government to pay all outstanding interest on consumer loans. Some even want the government to write-down the loans in their entirety. Another proposal, in the works, asks the government to write-off all outstanding utility bills. Mind you: utility bills already mostly subsidized by the government!

Both laws are unfair, unrealistic, unnecessary, reckless, destructive, and morally hazardous. Yet, regardless of all the scary adjectives describing the consequences of such proposals, both could actually pass.

Unfair: Some people simply did not take loans. Thus, a portion of Kuwaitis will benefit, while others get left out. What about future generations? Instead of wisely investing their depleting oil resources, we spend it on paying for perishable consumer goods.

Unrealistic and unnecessary: It just does not make sense! According to official figures, only 3.3% of consumers are defaulting on their loans and only 2.5% of all outstanding loans are in default. Is it a significant problem? No. However, it could definitely turn into one if we forgive loans since it will encourage reckless and morally hazardous behavior.

Reckless & morally hazardous: Forgiving loans now will set a precedent for the future. The first thing someone whose loan has been forgiven would do is take on more debt simply because they assume it will be forgiven yet again.

Destructive: It further enhances the consuming vs. producing mentality of citizens. Oil will eventually deplete and future Kuwaiti generations will suffer.

Instead of forgiving loans, Kuwait should invest in infrastructure and human resources. The well-articulated picture above is from a 2008 proposal for the “City of Silk”. More than three years have passed, and we did not hear of any updates whatsoever. If our government cannot wisely invest in infrastructure and human resources, then it would be more prudent to invest the additional portions of our surplus money through the Kuwait Investment Authority.

Oil is breaking new highs on a daily basis. This is worrisome indeed as it exacerbates the evolving inflation story. That mere inflation story may transform into a scary stagflation theme if oil stays high or surges higher, thus, prematurely ending our infant economic growth story.

It is a time of celebration in Kuwait. This may be part of my optimistic view. Yet, a bigger part is actually based on fundamentals. I do not believe oil will maintain the current $114 level or rise further. To support my view, please refer to the charts below which put the contagion risk in perspective. Comforting enough, Saudi’s spare capacity can easily cover production disruptions in Libya and Egypt! Saudi, with minor help from Kuwait and the U.A.E., can also make up for Algeria’s production if it faces issues in the future.

When one combines the above data points with lower demand from slowing emerging markets and ample oil reserves in the U.S., we can deduce that the current rise in oil prices is a temporary fear-driven dislocation in the market. That is why I would recommend shorting oil at these levels.

AlphaDinar.com would like to wish all Kuwaitis a happy independence and liberation day! Inshala when we celebrate our 100th independence day, Kuwait will have prospered even further through the hard work and collaboration of its youth.God bless Kuwait!

Enjoy the holidays!

It took more than a week, but the result of our two-year anniversary gift is finally here! We used Random.org for the draw and the winner is Sara Al-Ateeq! If Sara can’t make it then her substitute is Yousef Al-Munayes. Congratulations to Sara and better luck for the other participants in future draws. The winner will participate in a sponsored three-day intensive “Principles of Valuation” course conducted by Shehzad L. Mian- an Associate Professor of Finance at Goizueta Business School at Emory University. The course costs KD 780 and will be conducted in the Courtyard Hotel from 20-22 of March. Press here for further details. Thank you “3S Venture Alliance” for sponsoring this amazing gift and supporting the Kuwaiti youth!

Stay tuned because we will have another special gift soon! The feedback from the participants in the draw on areas to improve in AlphaDinar was invaluable. We will be working hard to incorporate the suggestions of our readers as soon as possible. Thank you all.

News is circulating that the Kuwait SE will roll its new index five months ahead of its scheduled November 2011 debut. This would be great news if confirmed. As stated in an earlier post, the new index will consist of 15 blue-chip companies, in collaboration with NASDAQ. Those will be “carefully” chosen from across all sectors of the exchange and will be placed on a bi-annual review to aid in updating the constituents of the index. The move will be a vital one because the current main index is price-weighted and fails to provide a relaible reading.

Below are links to previous articles related to the issues with the current price index:

http://www.alphadinar.com/2011/01/11/kuwait-ses-2011-reforms-start-with-the-index/

http://www.alphadinar.com/2010/12/29/difference-in-weights-of-the-price-and-weighted-kuwait-se-indices/http://www.alphadinar.com/2010/12/14/kuwait-se-weighted-index-should-be-the-main-index/http://www.alphadinar.com/2009/08/05/price-weighted-index-vs-market-weighted-index/