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"Kuwait's story will be pretty similar to what goes on in the other GCC markets," says Syed Saqlain, research analyst, Mena Equities, at Kuwait Financial Centre.
"In 2008 the economy plunged significantly, predominantly because of a decline in oil revenues, and also a decline in oil production, because of Opec quota constraints," he continues. "We have already seen that this has changed: the kind of activity we have seen is because of the increase in oil production, but there will be a spillover effect in terms of non-oil GDP too."
Moody's upgrades sovereign rating
Credit agency Moody's Investors Service has forecast that Kuwait's economy will grow by 2.1% this year and 4.5% in 2011, after shrinking 4.4% last year. Its sovereign rating was upgraded by the same agency in August to 'Aa2' with a stable outlook.
"Given its high level of oil exports and its limited absorption capacity, Kuwait has historically run wide fiscal and external current account surpluses, which has enabled both the public and private sectors to accumulate substantial net foreign assets," Moody's said in a report issued last week.
The agency added that Kuwait's foreign and local currency government bond ratings are 'Aa2', supported by the country's very high levels of economic and government financial strength. The government's financial assets, mainly managed by the Kuwait Investment Authority, are reported to be worth well in excess of the country's GDP, Moody's noted.
Kuwait Stock Exchange to see lag in growth
Kuwait remains the world's fourth-biggest Opec producer, possesses roughly 8% of the world's total oil reserves, and produces around 2.3 million barrels of oil a day - each of which has averaged at around $79 so far this year. And those revenues will be crucial, especially as most analysts predict a long, slow recovery for the Kuwait Stock Exchange and those equities listed on it.
"There's going to be a lag on the stock market," suggests Saqlain. "We've seen it already: whereas most government authorities took action earlier in the crisis, Kuwait was late, in terms of injecting funds. We weren't quick enough and we will see the cost of that in 2011."
He points out that the majority of Kuwaiti listed companies are either operating in the financial or services sectors. And while the substantial provisions taken by Kuwaiti banks in 2008 and 2009 have declined in 2010, this change is likely to be reflected in improved earnings rather than soaring stock.
"The banks have not really started taking on more risks, the private sector is still in the process of deleveraging and credit hasn't really picked up," he says. "The bottom lines will see a substantial appreciation because of declining provisions, but in terms of top line we will not see much of an increase. We're not going to see the real benefits in 2011."
Three companies - telecoms operators Zain and National Mobile and logistics firm Agility - account for close to 75% of the earnings of the services sector in Kuwait. And two of those firms face a difficult immediate future, which is set to impact hard upon stock prices.
"In terms of profitability Zain is fine, but they have just sold their African operation and so unadjusted earnings are going to decline substantially in 2011," notes Saqlain.
Staff
