Kuwait's bull run to continue (page 1 of 4)

The change of regime in Iraq and the new economic policies underlined by the new government would mean that not only the risk premium attached with Kuwait has seen permanent reduction but also the business environment is all set to record steady growth rates in the next couple of years.

Therefore the confidence shown by the investment community in the last couple of years is going to last for a longer time than it has in the past. With the expectations that oil prices are not going to come down substantially in the current year and with interest rate expectations continuing to remain low we believe the stock market activity will further grow in the current year, though achieving the returns it had last year will be difficult to replicate.

Despite having recorded substantial gains in the last three years, the KSE still looks cheap in valuation terms compared to its other GCC neighbours. The KSE also scores over its neighbouring bourses in terms of liquidity of stocks, expected profitability, depth of the stock market, etc.

As a result of its fundamental strengths the KSE is poised to attract more institutional and retail investors in the current year also despite the growth recorded by it in the last few years. Moving away from sentiments, we will try and examine the current fundamentals of the economy and various other factors, which might impact the performance of KSE in the next few months.

Investors all around the world have always got attracted to stable political and economic environments and we have already seen how the removal of the old regime in Baghdad has made a difference to Kuwait's economy and its stock markets.

A more stable political environment in Iraq will certainly further drive Kuwait's economy through increased trading and business which will lead to added purchasing power in the hands of the residents of Kuwait. All this will lead to increased prosperity for Kuwaiti economy for the times to come.

But this feel good factor can only be sustained if the government continues with the pending economic reforms which would make the current positive environment more conducive for private sector investments and doing business in Kuwait. The momentum created through the direction provided by the new government will have to be continued so that the investors continue to repose their faith in the economy and the capital markets.

The initial steps taken to solve issues like foreign investment, privatization, development of northern oil field and unemployment needs to be followed by bolder moves like reduction in subsidies, diversification of government revenues, rationalization of taxes, capital market reforms, etc. Policies which would help the private sector investment grow would certainly help the capital markets in Kuwait.

Even though the world economic recovery remains fragile, there are indications that we might very soon see a sustained economic growth in USA and Asia from where most of the growth in demand for oil is going to come from. The oil prices have continued to remain high as inventories are tight and so is OPEC spare capacity.

While politics in Venezuela, Nigeria and the Middle East has been comparatively cooler, the pre-emptive action being taken by OPEC has kept up the speculative influence so as to have a premium on oil prices. There are also suggestions that while there is an upside to demand growth at the same time there is also a downside to the non-OPEC supply.