Low liquidity levels dog Kuwaiti funds

Kuwaiti funds witnessed a 6.55% drop in AUM in the first three quarters of 2011 as outflows outpaced inflows, writes Zawya researcher Celine Salloum.

By Celine Salloum, Research Associate, Zawya

Year 2011 has been tough on investors. The nuclear disaster in Japan and the ongoing Eurozone debt crisis have sent markets reeling, but perhaps the most long-term impact will come from the Arab Spring.

In response to the turmoil, Gulf countries have announced USD 150 billion worth of social welfare spending in the region since the unrest began, according to an economic note by Jean-Michel Saliba of Bank of America Merrill Lynch, who estimates that “the extra GCC spending pledges of intra-regional fiscal transfers to less endowed members total … 12.8% of GDP, while 2011 appropriations could reach 4.9% of GDP, supporting growth.”

Investment funds in the GCC region are characterized by an evolving market. Until the global crisis, the GCC markets had registered robust growth driven by record commodity prices and liquidity in the market. However, the financial crisis resulted in a reversal of fortunes with declining oil prices, a liquidity crunch and a free-falling stock market, further accentuated by the Dubai debt crisis.

Covering a geographic area of about 17,820 square meters, Kuwait, the second largest regional market in terms of market capitalization after Saudi Arabia, remains the subject of debate.

According to Zawya Funds Monitor, there are 112 funds domiciled in Kuwait with assets under management of approximately USD 8,537 million (as of Q3-2011), invested across various asset classes. This is a 6.55% decrease over Q4-2010 (USD 9,460 million). Equity funds constitute the majority of Kuwait-domiciled funds.

Zawya’s statistics show a net funds outflow of USD 2.62 million between Q4-2010 and Q1-2011. The trend accelerated and ended Q2-2011 with a massive outflow of USD 56.53 million.

Across the MENA region, 50 funds were launched in the year till the end of November, but none in Kuwait. According to a Capital Standards report, Kuwaiti funds have very low liquidity levels with almost negligible allocation for cash in a significant number of funds.

Kuwait

Stock Exchange

November 30, 2010 to November 30, 2011

Source: Zawya Funds Monitor

The Kuwait Stock Exchange’s price index concluded November 2011 at 5,811.60 points, down by 15.66% from 6,891 points registered in the same period last year.

For more information about MENA funds, please visit Zawya Funds Monitor.

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