KUWAIT STOCK EXCHANGE; A REVIEW

Before the inception of Kuwait Stock Exchange (KSE), a few partner shareholding companies were serving as a pivotal point for the country’s investment platform, but the real progress towards becoming one of the best emerging SE started with KSE.

The idea of a national exchange market was legislated in October 1962, and it was achieved in 1977, and named as Kuwait Stock Exchange (KSE) in 1983. KSE was among the very first and foremost stock exchange market in the Gulf, named as the second largest and strongest exchange market after Saudi Arabia. The Kuwait’s National Exchange has been regulated by the combine efforts of Ministry of Finance, the Central Bank of Kuwait, the Ministry of Commerce and Industry and Kuwait Stock Exchange.

The KSE was a first step to make Kuwait a safe haven for investors, with the only goal of strengthening country’s economy, with a clear and concise code of conduct for secure entities and securities transactions. With the introduction of Kuwaiti Cooperation Council, foreign capital investors were allowed to take control of up to 40 % of holdings. Currently US investors hold the stacks of about 11 Billion ever increasing constantly.

The KSE came this far by adopting to change with the changing market, and accepting the need of change. About 18 months earlier, KSE was handed over to Boursa Kuwait Securities Company (BKSC), after an extensive planning and control strategy evaluation. Since it privatization and management take over by Boursa Kuwait Securities Company (BKSC), as of September 2017, the KSE is experiencing one of the largest inflow of funds and foreign investment after its inclusion to Financial Times Stock Exchange list of Secondary Emerging Market.

Importance of Capital Market

The Capital markets are the backbone of economy because they are medium for buying and selling equity and debt instruments. Capital markets are responsible for paving the pathway for channeling investment between investors, institutions and users of the capital. The capital market is consisted of;

a)    A primary market, which deals in stock and bonds

b)    A secondary market, which deals in trading securities

The Capital Market is based on IPOs, Bonds and outlooks. It is basically a lonr-term investment that exceeds a time frame of more than a year. The capital markets are invested in, to generate more capital gains.

According to the US Securities and Exchange commission, a nation is only as strong as its economy. The more stable and enriched the capital market is, the more money is on hand for organizations, creating a productive environment for people, generating jobs and opportunities on ground.

The capital market however has its flaws as well. A sinking investment in one part of the world creates a ripple throughout the world, effecting a lot of economies. The wars in one part of the country, tanked economy all around the globe. The 1990-91 invasion of invasion of US brought a dry patch of investments in Kuwait and many other countries, owing the country was in state of distress.

Capital Market of Kuwait; The Capital Market Authority

 The steady climb of Kuwait Stock Exchange has not been easy. It took a lot of efforts and legislations to pave the way for the progress seen today. One of the major growth factor of KSE’s souring rise was to acknowledge the importance of capital markets.

The turning point was the Capital Market Law, that came to pass in 2010, with the goal of shifting overall performance and market value, creating the regulatory institution of Capital Market Authority (CMA).

History of Kuwait Capital market

The Kuwait has one of the oldest capital market in Gulf region. The concept of share issuance was developed in early 1950, when business came together to lay the foundation of National Bank of Kuwait (NBK). With the early brush of share creation started the journey of NBK that has seen fruits of about 77 years now.

The capital market at that time was loosely held accountable and was solely governed by the businessmen that started the endeavor. However, with time, the legislation was put in place to protect the investors.

In early 1970, the capital market of Kuwait started to rise due to influx of return on the investment in oil sector. But the lack of a clear set of instruction to lead capital market resulted in a sudden crash of the market in 1977. The government stepped in to bail out the investors but the incident started a chain of legislation directed to hold the market together.

Rise of the Souk Al Manak

Out of the ashes of 1977 market crash, rose the Souk Al Manak (Camel Market), a new market that attracted investors in bulk around 1978. However, the market was again shorted due to a grave mistake of accepting cheques by the investors. In 1982, when the cheques started to bounce, the market came down tumbling again.  Only this time, Souk Al Manak took down all the financial institutes of Kuwait, with the sole exception of National Bank of Kuwait.

First Step towards the Inception of KSE

With the fall of Souk Al Manak, the government once again bailed out the investors, but taking serious notice of the failure, instated formal institute of Kuwait Stock Exchange with close consultation with financial sector, the goal was to build a system that can with stand its own weight and help ensure the safety of the investment and strengthen the economy. After 1983 KSE ensured a steady growth for nearly 7 years, but the Iraqi invasion in 1990-91 tanked the capital market once again.

When the dust of the war settled the KSE listed the financial instated and set to rebuild again. Only this time, the rates of the regional property and equities were stories too high, which cause a more uplift for capital market. The baking sector issued one of the highest rate of return of the decade. However, in 2007-08 market experience a fall again.

Technological Adoption

From early 90s to the start of 2000, KSE worked towards the adoption of electronic trading (1995), a forward market (1998), a future market (2003) and online trading (2003). These advancements earned Kuwait five star ratings in innovation and master of new practices. They also knew that the market has an affinity to fluctuation, which led them to development of technological tools that can help predict the market trends.

Crisis Aversion and Control

To say that Kuwaiti government has a reputation in crisis aversion, would be the understatement of the year. Out of all the market crashes, the government never once failed to compensate the investors. So when the 2007 crisis started to show, government stepped in and announced compensation, utmost importantly it came up with Financial Stability Law (FSL) that promised emergency assistance to the people who took most heat of the downturn and suffered major loses.  

In the following year, the international customers took advantage of Financial Stability Law (FSL) and an imbursement scheme was put in place.

The CMA has led by example, like in 2011 an investment company Aayan Leasing and Investment requested to restructure loan, after bad debt. The company was approved for 66 % restructuring of its debt outstanding at the time. 

The Capital Market Authority

In 2010, the government introduced the Capital Market Law, aimed to standardized the capital; investment channels, procedures, and financial educational aspects of the investors. The Legislation was implemented by a regulatory institution of Capital Market Authority (CMA). With the mark of CMA, the country wholly qualified the primary and secondary investment institutions.

CMA’s mission is listed as;

“The CMA is committed to setting supervisory and controlling regulations which support an attractive and competitive investment environment in the State of Kuwait; based on the principles of fairness, transparency, and integrity according to the best international practice.”

CMA’s vision states;

“To be a leading regulatory authority which works on developing and supervising the activities of capital markets in the State of Kuwait, and creating an attractive investment environment that obtains investors' trust.”

Objectives of CMA are:

1)    Fair and transparent regulation of securities, which is efficient in working

2)    Growth of capital market that leads to diversify investment instruments

3)    Standardization of investment procedures to match the international practices

4)    Enhancement of investor protection in times of market crashes

5)    Reduction of ever rising risk of securities investment

6)    To prevent the conflict of interest

7)    To prevent the insider trading and discourage the practice

8)    Ensure that the rules and regulations re met

9)    The enhancement of awareness of general public towards the risks associated with investment

10)                       To encourage the concept of development for investors

The Central Market Authority targets the potential client at The educational field of the intermediary and secondary stages. It also works in close relationship with university education in its multiple majors with emphasis on specific majors; Law, Business Administration.

Achievements of Capital Market Authority

CMA has been working to educate their investors and create a fairly certain environment, that has attraction not only to local investors, but also has the potential to draw international crowd to the capital markets. CMA has offered a 44 % of stock to international investors, which attracted billions of dollars of investment form US alone. 

The best thing of Central Market Authority is the pro-active stance; it has taken since 2010. The quality if the work done by Central Market Authority shows how much though has been put into creating this efficient institution.

CMA has introduced milestone technologies to the investment scene, such as NASDAQ OMX’s X-Stream Trading software (2009). The technological advancement has given capital market a new sense of self. Now financial services like margin calculation, stack calculations, derivatives and predictions can be done easily and effectively.

Under Central Market Authority the regional markets have grown by leaps and bounds. The regional prices have driven the capital markets to a soaring high level. Also the Central Market Authority has led a co-dependent share lending between different regions, creating more investing opportunities.

The biggest achievement of CMA so far

The Central Market Authority has achieved much but its biggest achievement till date, would definitely be the establishment of Boursa Kuwait Securities Company (BKSC), the management that is now leading the Kuwait Stock Exchange (KSE).

After its first day trading as the official operator of the market, Chairman of the Central Market Authority Board of Commissioners, Dr Nayef Falah Al-Hajraf, said: “Today we have taken the first step on the road to privatizing the Kuwait Stock Exchange and we are looking forward to working closely with Boursa Kuwait’s management on making further progress. This will include the development of investment tools, restructuring the market to increase its competitiveness, working to increase liquidity and attract investments, collaborating with other government stakeholders and determining a stake for an international operator.”

It is only due to the efforts of BKSC that Kuwait, now hold the title of Secondary Emerging market, named by the Financial Times of Landon.

Conclusion

The Boursa Kuwait Securities Company (BKSC) was created to introduced a flexible operational environment for international investors, so that they can enter the market on their leisure. The BKSC protects the investors so that they tend to stay as long as possible.

The Central Market Authority spares no effort to create more and more sense of ease for the investors to make them feel at home.  

Under CML, the government made it pubic that with Boursa Kuwait Securities Company (BKSC), the way forward is privatization. The BKSC has already drafted a 2020 strategy that has a promising potential of transforming the horizon of the investment strategies.

For a new institute that has been establish recently, Central Market Authority has been an absolute worker. From organizing within the ranks to organizing all the investment procedure, laws, bylaws and regulations, it has signed more treaties and IPO that there ever were signed before.  The Central Market Authority (CMA) has seen many ups and downs along the road but the fact remains the same, under the supervision of Central Market Authority, the Kuwait Stock Exchange has been extra vigilant, more target oriented and achieved far more that it has ever had in the history of nations stock exchange.

The 2015-2016 overhaul of the regulatory framework has shifted the paradigm to more collaboration, consultation, and fairness. All in all, the economic growth Kuwait has seen under BKSC and Central Market Authority (CMA), it is safe to say that the investors find Kuwait a safe haven for investment and stability all over the world.

Last Word

The Kuwait Stock Exchange lost about twenty-five per cent of its stacks between 2014 and 2015. But after the Boursa Kuwait Securities Company (BKSC) take over, confidence of investor in the stock market has once more returned with a huge swing. The Boursa Kuwait Securities Company (BKSC) has once again made the country a soaring economical tycoon, creating a more compelling and die hard success story of the Arabian Gulf in 2017.

The country has gained Nineteen per cent of investment value since the start of the 2017, even more than double as compare to Bahrain that has one of the highest returns on the investment in the region.