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IdentifierCreatedClassificationOrigin
06KUWAIT850 2006-03-13 14:13:00 UNCLASSIFIED Embassy Kuwait
Cable title:  

KUWAIT STOCK EXCHANGE: A BUBBLE BURSTING OR MARKET

Tags:   PGOV ECON ETRD EFIN KU 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

131413Z Mar 06
					  UNCLAS KUWAIT 000850 

SIPDIS

SIPDIS

STATE FOR NEA/ARP AND EB, LONDON FOR TSOU

E.O. 12958: N/A
TAGS: PGOV ECON ETRD EFIN KU
SUBJECT: KUWAIT STOCK EXCHANGE: A BUBBLE BURSTING OR MARKET
CORRECTION?

REF: A. KUWAIT 000226


B. 05 KUWAIT 4644

C. 05 KUWAIT 4552



1. (U) The Kuwait Stock Exchange (KSE) Price Index appears
to be experiencing a long-anticipated correction (see ref B)
after unprecedented growth over the past five years. KSE
experienced its heaviest loss on March 8, dropping 450 points
at one point before closing the trading week at 10,705
points, down 2% for the day and 6.6% for the week. The drop
sparked fears of a market crash similar to the infamous 1982
Souk Al-Manakh crash.



2. (U) The Index has been generally declining since February
21, and has shed 11.4% of its value from the historical high
of 12,100 points, reached in early February shortly after the
selection of the new Amir (see ref A). All five major GCC
bourses have now dipped below their 2005 closing figures,
losing approximately $200 billion in market capitalization
since the start of the year.



3. (U) Local newspaper reports and Post interlocutors
attribute the recent losses to three main factors: Saudi and
other Gulf investors pulling their money out in order to
recover from losses in the Saudi and other GCC markets;
investors selling shares and hoarding cash in anticipation of
a few upcoming IPOs; and a number of companies choosing to
distribute dividends in shares rather than in cash.



4. (U) The unanticipated KES drop prompted disgruntled
Kuwaiti investors to demonstrate peacefully outside KSE
headquarters to protest their losses and to demand GOK
intervention in the market. GOK reluctance to intervene was
short-lived as the government's main investment arm, the
Kuwait Investment Authority (KIA), announced at the end of
trading on March 8 that it would inject $200 million into the
market. According to a KSE official, the KIA cash injection
will be gradual and will help bolster investor confidence.
In addition to KIA's anticipated intervention, the Kuwait
Fund for Arab Economic Development (KFAED), another prominent
GOK entity, also announced its intention on March 11 to
inject approximately $341 million to bolster the market.



5. (U) Wednesday's losses have also prompted the National
Assembly to seek a special parliamentary session to discuss
the recent developments, including possible market reforms
(see ref C). Local press reports note that NA Speaker Jassim
Al-Khorafi has agreed to hold a session on Tuesday, March 15.
The GOK, in an effort to downplay the recent events, has
declined to attend the special session.

Comment


--------------------------





6. (U) The market's decline, although a loss for investors,
was not unexpected given the much anticipated (and long
overdue) market correction as forecasted by Embassy
interlocutors and financial analysts. Perhaps more
importantly, the recent public outcry and demands for
government intervention point to an underlying expectation
among Kuwaiti investors that the government is ultimately
responsible for ensuring the continued profitability of the
stock market as another pillar of the country's welfare
system. This sentiment was evident in the calls for
government intervention made by protestors and their
supporters in parliament. Some opposition groups in
parliament could stand to benefit politically from any
perceived negligence by the GOK in ensuring financial
returns.

********************************************* *
For more reporting from Embassy Kuwait, visit:
http://www.state.sgov.gov/p/nea/kuwait/?cable s

Visit Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/

********************************************* *
LEBARON