This Week 1. Kuwait Airways Corporation 2. Monetary & Economic Indicators (January March 2012) 3. Liquidity and Prices in the 7 GCC Stock Markets 4. Foreign Direct Investment Inflows 5. The Weekly Performance of Kuwait Stock Exchange Prepared by Economic Research Unit ALSHALL Consulting Co. Salhiya Sahab Tower Floor 9 Kuwait Tel: + 96522451535 Fax: +96522422619 Email: email@example.com Web site: www.alshall.com Twitter: @ALSHALL_Con
1. Kuwait Airways Corporation "KAC" decided last week to stop 5 aircraft of its small and aging fleet from flights to save lives a matter which we cautioned against earlier in our reports, the latest published on 01/05/2011. "KAC" affair is no longer of much concern to us. We discussed it at length when repair possibilities were available. However, its significance stems from the fact that it is a miniature to what is happening to Kuwait where every project oscillates between the no-decision and the wrong decision until reconstruction or reform becomes futile. "KAC" privatization projects began some 20 years ago in November 1993 when "KAC" was an advanced aviation company. It was alone and monopolizing the domestic aviation market; its high value was reflective of its quality and monopolizing status. During all this period, the entire Socialist bloc shifted to the market economy and some of its members through positive indexes became eligible to join the European Union -27 states- some became qualified to join the Euro Zone -17 states-, and China became the second largest global economy with its economy doubling 15 times in 20 years. Turkey has become one of European/Asian tigers through the growth of its economy by 3.3 times in 8 years. During this period
in Kuwait, many committees were set up to discuss privatizing "KAC". Number of its operating aircraft dropped below 10 and became the example for delay and breakdowns. Law No. (6) for 2008 was issued on 02/02/2008 to fix two-year term to expedite "KAC" privatization. The final implementation deadline has now been exceeded by two and half years during which "KAC" lost KD 76 million in FY 2010/2011 and KD 74 million in FY 2011/2012. Time factor is still acting to wear away the "KAC" remains and leaving the dope open for doing nothing. "KAC" sabotage reached the noncompensable extent. Service companies rely on the management prudence and the reputation stock, which have been used up. The talk about "KAC" re-repair under the same management will lead to nothing but more losses. After 20 years of experience, it is obvious that you can't give what you lack. What is required is to expedite as quickly as possible its privatization project. As we stated in an earlier report that comparing "KAC" with the Emirates or the Qatari to pass the renovation process is out of place as they did not reach this level of non-repairable performance. More importantly, they are part of a bigger project, i.e. transforming their countries to
a main travel hub between East and West while Kuwait does not adopt such a project. We still believe that management in Kuwait needs to create a success story, albeit minor, to build on and to deal decisively with "KAC", which though coming late, it could be an example to be followed if it yielded a success story. 2. Monetary & Economic Indicators (January March 2012) The periodical Quarterly Statistical Bulletin of the Central Bank of Kuwait (January March 2012) as published on its website, provides some economic and monetary indexes which are worthy to follow up and documentation. An example is the total number of population which scored 3.743 million in the end of the first quarter of the current year, which increases by 46 thousand over the figure recorded in the end of 2011. This means the quarterly growth rate is about 1.24% (about 5% on annual basis). The bulletin also states that balance of trade -commodity exports minus commodity imports- achieved surplus in the first quarter of 2012 by KD 7.257 billion reflecting a rise by 26.1% over those of fourth quarter of 2011. Total value of Kuwait's exports during this quarter scored KD 9.079 billion, 93.5% of which were in oil exports.Value of its commodity imports, excluding military, scored KD 1.822 billion. Kuwait achieved surplus in the first quarter of 2011 an amount of KD 4.610 billion, increased to KD 5.552 billion in the second quarter, KD 5.667 billion in the third quarter and KD 5.755
billion in the fourth quarter due to the rise in oil prices and production rates. This means the balance of trade achieved a surplus of KD 21.584 billion for the entire 2011. This record surplus is 122.1% higher than its counterpart achieved in 2010 (KD 9.716 billion). Value of commodity imports however decreased by -32.5% below its value in 2010. The current year's surplus is projected to score KD 29 billion if the first quarter surplus is repeated. This achieved surplus will be higher by 34% than its achieved counterpart last year. Our estimate however is based on a preliminary figure that mainly depends on oil price and production movement. But indexes of the second quarter indicate a major decline and a pressure on lowering production. Therefore, our forecasts will not be realized. Consumer price index achieved positive growth during the first quarter by 0.9% and scored an average of 151.7 (2000=100) up from 150.4 in the fourth quarter of 2011, which is within endurable limits. This growth is due to the dominating effect of food prices from 183.6 to 187.6 for the same period (+2.2%). Weighted interest rate on deposits continued its drop from 2.152% in the fourth quarter of last year to 2.115% in the first quarter of this year, a quarterly drop by -1.7%. Weighted interest rate on loans continued its drop from 5.123% to 5.055%
for the same period, a quarterly drop by 1.3%. The bulletin also stated that total volume of private sector's deposits at local banks scored about KD 27.965 billion (KD 26.799 billion in the end of 2011), a quarterly increase by 4.35%. Finally, local banks' claims on the private sector went up slightly to KD 28.630 billion up from KD 28.237 billion in the end of 2011, a quarterly increase by 1.4%. This reflects the banking sector's sustained hesitation in lending if we take into consideration that most of the increase came from rescheduling of old loans.
3. Liquidity and Prices in the 7 GCC Stock Markets We emphasize that monitoring the market performance begins with watching its liquidity evolution, i.e. its trading value. The change in price indexes is a variable relying on changes in liquidity after a grace period. If liquidity goes up for some time, prices will likewise go up and vice versa. What needs some checking and which affects liquidity relationship with prices is the liquidity quality as in the case of liquidity as a result of artificial trading as in Kuwait. During the first half of the current year, liquidity of most regional markets moved in the two directions. During the first quarter, liquidity of most of them (5 out of 7) went up at high rates vis-avis the first quarter of 2011 and was associated with rises in most indexes of those markets (6 out of 7 indices), though with noticeable variation as displayed in Table (1).
Table (1) Liquidity & Indices of the Regional Markets
Country 1 2 3 4 5 6 7 Dubai KSA Kuwait Bahrain Oman Abu Dhabi Qatar Total Change in Liquidity Change in Index 1st Quarter 2012 / 4th Quarter 2011 351.6% 21.8% 108.2% 22.1% 93.5% 3.6% -54.6% 0.8% 46.8% -0.1% 77.5% 6.3% -16.2% 0.1% 102.3%
Liquidity rises means -except in the stated exception cases- traders overcoming hesitation cases as a result of fear from risks and hence their sacrifices to liquidity hoping to achieve higher return rates than deposits return rates at banks. The rise begins gradually with investors who are more prepared to gamble; it soon gains momentum utilized, here we should start monitoring before entering the harmful speculation, , after a grace period, to rise. That's the first quarter's scenario. During the second quarter of the current year, liquidity of most markets decreased (5 out of 7) vis-à-vis the first quarter. Consequently, indexes of all markets dropped as displayed in Table (2). Our warning against unhealthy risks stems from the harm impact on prices at the first signal of declining liquidity. In Table (2) we measure the weighted index movement for KSE (-4.3%) while the drop achieved
by the price index, the more sensitive to harmful speculation, places Kuwait in the position of the heaviest loser in the region with a drop by -6.1%. Although it is a wrong measure for Kuwait market's performance to measure it with the price index, it reflects the sharp fluctuation resulting from the independence of health development of liquidity level and its consequences of high losses sustained by the involved persons in purchasing from holders of the speculated shares. It is perceived that there is a drop in Kuwait market liquidity since the beginning of current July mainly due to the psychological impact of artificial daily trading. There should be no tolerance at all with a new round of artificial trading with the first signs of liquidity improvement and an intervention is necessary before it is followed by rising prices. Tolerance might mean more unwarranted costs.
Table (2) Liquidity & Indices of the Regional Markets
Country 1 2 3 4 5 6 7 KSA Bahrain Dubai Kuwait Oman Qatar Abu Dhabi Total Change in Liquidity Change in Index 2nd Quarter 2012 / 1st Quarter 2012 -18.6% -14.4% 273.6% -2.4% -42.9% -11.9% -25.8% -4.3% -2.8% 0.0% 9% -7.6% -32.2% -4.1% -18.8%
4. Foreign Direct Investment Inflows On July 05, 2012 the "UNCTAD" issued a report reviewing foreign direct investment trends (incoming flows) and relies on 2011 as a base and then the first five months of 2012 to build forecasts for the future flows. It is worth noting that the bad global economy conditions in 2011 did not affect the flows of foreign direct investments which increased by 16.5% over 2010 level but they affect adversely 2012 forecasts. That is evidence that direct investment decisions are made a long time ahead of actual their realization. While flows of foreign direct investments in 2011 exceeded for the first time rates of the three years before the global financial crunch (2005-2007) by scoring US$ 1.524 trillion versus US$ 1.473 trillion the average for the three years. The "UNCTAD" anticipates a drop in the flows momentum in 2012. It supports that projection by a real drop of their value during the first five months until the end of May 2012. It anticipates the flows will score between US$ 1.5 trillion to US$ 1.7 trillion in the entire 2012. It also expects the momentum return to score about US$ 1.6 trillion to US$ 1.9 trillion in 2013, and US$ 1.7 trillion to US$ 2.1 trillion in 2014. That is however conditioned by the nonoccurrence of total economic shocks.
Though the report states that the developing countries share from the incoming foreign investment increased from 45% in 2010 to about 50% in 2011, tables and figures show that share of the developed countries increased from US$ 619 billion in 2010 to about US$ 748 billion in 2011, i.e. from 47.3% of the total in 2010 to about 49.1% of the total in 2011 while share of the developing countries declined from 47.1% of the total in 2010 to about 44.9% of the total in 2011, unless we add to them all countries which are not among the developed countries. Honk Kong-China is still the first in receiving foreign investment flows, followed by Belgium, then Singapore. Within the top ten countries comes Lebanon, as the only Arab country in the 10th position, for the flows averages from 2009-2011. Outbound flows in 2011scored about US$ 1.694 trillion of which 73% (US$ 1.237 trillion) originated from the developed countries which received 49.1% of the incoming flows (about US$ 747.9 billion). Perhaps this phenomenon is worth monitoring because it, though indirectly, emphasizes and supports the gradual shift of the economic weight from the advanced Western countries to the East including South. It also supports financing this transfer by the advanced Western countries which means that globalization is not evil in its entirety.
5. The Weekly Performance of Kuwait Stock Exchange The performance of Kuwait Stock Exchange (KSE) for the last week was mixed compared to the previous one, where the traded volume, Volume, and number of the transactions showed a decrease while the general index showed an increase. AlShall Index (value weighted) closed at 429.2 points at the closing of last Thursday, showing an increase of 4.6 points or about 1.1% compared to previous week's closing, and a decrease of 21 points or about 1.1% compared to the end of 2011.
The following tables summarize last week's performance of KSE
Description Working days AlShall index (41 Companies) KSE index Value Trade (KD) Daily average (KD) Volume Trade (Shares) Daily average (Shares) Transactions Daily average Most Active Sectors & Companies Description Sectors FINANCIAL SERVICES SECTOR BANKS SECTOR INDUSTRIALS SECTOR REAL ESTATE SECTOR TELECOMMUNICATIONS SECTOR Description Companies SHUAIBA INDUSTRIAL CO. (K.S.C.C) ALSALAM GROUP HOLDING CO. K.S.C.C MOBILE TELECOMMUNICATIONS COMPANY K.S.C KUWAIT FINANCE HOUSE AGILITY PUBLIC WAREHOUSING COMPANY Total Week 28 12/07/2012 5 429.2 5,860.7 60,917,228 12,183,446 706,267,926 141,253,585 16,595 3,319 Week 27 05/07/2012 5 424.6 5,861.2 88,592,398 17,718,480 1,245,534,686 249,106,937 22,146 4,429 Diff % 1.1% 0.0% -31.2% -43.3% -25.1%