Boursa Kuwait said that passive flows are expected to reach $2.9 billion, slightly lower than the previous estimate of $3.1 billion by Kamco Invest, a Kuwait-based investment group which is fully regulated by the Capital Markets Authority.
This revision mainly reflects the broad decline in the Kuwaiti indices as well as decline in share price of five out of the seven stocks to be included in the MSCI Emerging Market index.
The anticipated addition of Kuwait to the MSCI Emerging Market index at the end of
November is expected to positively affect the flow of foreign capital in Boursa
The estimate of flows are also consistent with the consensus estimated flows in Indian equities after the increase in weights announced recently.
Nevertheless, despite the revision in expected flows, a gradual reclassification of Kuwait
from MSCI’s Frontier Market index should offset this decline over time, stated Kamco Invest, a Kuwait-based group fully regulated by the Capital Markets Authority.
According to consultation papers from MSCI published in October-2020, a decision would be made this week on whether Kuwaiti stocks would be reclassified gradually from the MSCI Frontier Market Index in five stages.
As per the document, the reclassification is proposed to be done in five successive index reviews starting from November-2020 Semi-Annual Index Review until the November-2021 Review.
Currently, Kuwait accounts for the biggest share of the MSCI Frontier Markets 100 index with a weight of 26.29%.
This would be lowered to 21.14% on 30-November-2020 which will be Phase 1 of the reclassification process and the date on which Kuwait would be upgraded to Emerging Market status, said the report.
In terms of actual flows, Kamco Invest said it believed that the bulk of the funds have already been placed in the upgraded stocks by foreign investors.
According to data from Boursa Kuwait, the exchange has seen net foreign flows of KD600 million ($1.97 billion) during 2019.
This trend continued in 2020 during the first two months, however, the spread of Covid-19 globally and in the region reversed the flow as investors were seeking safe haven markets and assets.
This resulted in a general flight of capital from emerging markets to advanced markets. As a result, a net outflow of KD173.1 million ($569.5 million) was seen during March-2020 until May-2020.
The month of March witnessed the first net outflow of foreign capital from Kuwaiti market in 17 months and at KD111.92 million it was also the biggest monthly outflow of foreign capital on record, according to monthly data since December-2009.