Kuwait is set to follow in the footsteps of Saudi Arabia after index provider MSCI announced it would upgrade Kuwait’s stocks to emerging market status.
As of May 2020, nine Kuwaiti stocks will be added to MSCI’s EM index with an index weighting of 0.5%, pending a number of trading infrastructure improvements.
The coveted upgrade is likely to be a significant boost for the country’s capital markets given that it will make its stocks eligible for the investment mandates of several international investors. The MSCI EM index is currently tracked by roughly $1.9 trillion of investment funds globally.
Local investment bank NBK Capital estimates that the move could add an additional $2.8 billion in passive investment flows as well as boosting liquidity, corporate governance and earnings.
The move was first floated back in March when MSCI issued a consultation paper on the issue. MSCI had launched the MSCI Kuwait Index in 2006 and it has since gone on to be the biggest member of MSCI’s Frontier Market index with the stock market’s value exceeding $98 billion.
MSCI cited a number of positive market reforms over the last two years which led to the decision, including the provision of delivery versus payment settlement, the implementation of a false trade mechanism to limit brokers’ access to investors’ custody accounts and a simplification of the registration process.
The news was welcomed by Boursa Kuwait, the Capital Market Authority and the Kuwait Clearing Company (KCC) whose chairman, Saleh Al Silmi, urged all relevant parties to adhere to the implementation of further reforms in line with international standards in order to place Kuwait prominently on the global investment map.
"Our aim is to continue on the same path in terms of developing an attractive capital market for international investors and investment funds alike, particularly because Kuwait enjoys all the necessary elements of success, from institutions and organisations that have historically proven to provide positive returns to the capital market", he stated.
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