The Kuwait Stock Exchange (KSE) got off to a strong start in 2014, with the value-weighted index gaining 6.7 per cent during the first quarter of 2014.

The rally was primarily driven by large caps and more precisely bank stocks, stated the National Bank of Kuwait in its review.

A more positive outlook for Kuwait helped push the market higher in addition to the imminent increase in Kuwait’s weight in a number of frontier indexes.

The larger capitalizations and banks in particular are expected to benefit most from this pickup in activity. The market has already seen fresh liquidity in recent months including from foreign funds. The continued improvement in corporate profits in 2013 also supported stock prices, it stated.

Most regional markets also rallied in the first quarter, outperforming both developed and emerging markets. The region continues to benefit from solid macroeconomic fundamentals, including high oil prices and strong government finances.

In addition, the coming upgrade of the UAE and Qatar by MSCI to emerging market status from frontier has boosted investor interest in the region in general.

Kuwait market capitalization reached KD32 billion by the end of March, adding KD2.5 billion in the first quarter predominantly driven by blue chips with the K15 index outperforming the general market with a gain of 10 per cent and recording an all-time high on March 27, stated the NBK report.

Meanwhile, small caps were almost flat following strong gains made in 2013. As a result, the much-quoted KSE price index, which has a small cap bias, was up a mere 0.3 per cent.

Sector-wise, the bank stocks were the best performers with its value-weighted index going up 10 per cent. "Banks are expected to be the primary beneficiary of Kuwait’s improved economic outlook, with their healthier balance sheets ensuring they are well positioned to support the additional growth," the country's top lender said in the review.

Telecommunication stocks also saw a strong performance with the sector index rising 6.4 per cent following a poor performance in 2013. By contrast, consumer services underperformed the market, retreating by 2.2 per cent, it said.

According to NBK, there as been a rise in foreign funds entering the market in recent months. The share of non-Kuwaiti buyers averaged 15 per cent in the first two months of the year compared to a nine per cent average in 2013, it added.-TradeArabia News Service