Global Investment House – <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Kuwait Stock Exchange Performance – May 2006 – Kuwait stock market further subsided in the month of May-2006, with the benchmark Global General Index registering a monthly loss of 4.53% to end the month at 277.7 points. The market recovered some ground in the last week of the month to offset some of the losses registered during the month. The market cap weighted index reported overall YTD loss of 13.28% at the end of May-2006. The market cap. of the stock exchange reached KD38.22bn, a monthly drop of 1.95% compared to the previous month. Kuwait Stock Exchange Price Index once again dropped below the psychological 10,000-point mark in the month of May. The index ended the month at 9,920.7 points, reporting a monthly drop of 3.07%.

On the macro economic front, the Ministry of Finance unveiled budget for 2006/2007, that forecasted a deficit of US$8.1bn, mainly due to a US$7bn payment to the state pension agency. Kuwait has projected a deficit in each of the past seven fiscal years, where as the actual figures resulted in a huge surplus. We expect the same this year looking at the current prevailing oil prices in the market.

Table 1:  1Q-2006 Earnings

Source: “Global” Research

The corporates earnings reported a drop of 31.1% in 1Q-2006 (136 companies whose results was available till the 31st May, 2006) as compared to the corresponding period of the previous year. Banking and services sectors have been among the sectors that produced positive earnings growth for the 1Q-2006, where as all the remaining sectors have shown disappointing performances. This drop in the earnings by various sectors could be directly linked to the drop in capital markets, especially the Investment and Real Estate sector that have witnessed steep decline in earnings in 1Q-2006.

The broad-based selling sentiments was accompanied with subdued trading activity during the month. The volume of shares traded saw a substantial drop of  21.5% as compared to the previous month amounting to 3.07bn shares. On the other hand, value of shares traded also witnessed a substantial drop of 22.3% as compared to the previous month, aggregating to KD1.29bn.

Among the sectoral indices, the banking sector has hogged the limelight so far in 2006, and is the only sector to report YTD gains of 5.76%. This can be attributed to the strong performance shown by the banking sector in the 1Q-2006 results, reporting an aggregate earning of 35.1%. Recent entrant in the KSE, Boubyan Bank led the market both in terms of volume and value leaders during the month. It was listed during the month of May as the second Islamic bank listed under the banking sector. In other corporate news, Al-Ahli Bank of Kuwait (ABK) and Commercial Bank of Kuwait (CBK) sold their stakes in Bank of Bahrain and Kuwait (BBK) at a combined value of KD33.47mn (US$115.2mn). Kuwait Investment Company (KIC) also sold its stake in the Bank of Bahrain and Kuwait (BBK), roughly amounting to 24mn shares for KD12.3mn (US$42.31mn).

The Real Estate Sector index saw a monthly decline of 1.44% in the month of May. The sector has witnessed consolidation activity during the month of May. Firstly, Al Mazaya Holding Company (Mazaya) acquired a 51 percent stake in First Dubai Real Estate Company. Mazaya will raise its capital through a rights issue, and the proceeds of the issue will be used to fund the acquisition deal. Despite of the positive news flow, the stock price of Mazaya declined marginally by 1.9% to reach 510fils. On the other hand, Grand Real Estate Projects (Grand) acquired a 90.16% stake in Kuwaiti Lebanese Real Estate Development Company (Kuwait Lebanese). Grand will also boost Kuwait Lebanese capital to KD100mn (US$344mn) by July 2006. As a result of this acquisition, the stock price of Grand reported a monthly gain of 20.5% to reach 530fils and the stock price of Kuwait Lebanese registered the highest gain of 47.2% during the month.

The strong sell-off can be seen from the fact that only 35 stocks out of 168 listed stocks reported monthly gains, where as 110 stocks reported monthly decline, while prices of 23 stocks remained unchanged during the month. The other gainers during the month were National Ranges Company (+30.3%) and International Finance Company (+23.9%). The biggest losers during the month were Egypt Kuwait Holding Company (-37.8%), National Industries Group (Holding) (-30.5%), and Coast Investment & Development Company (-26.9%).

The market added five new companies during the month, further improving the depth of the market. Boubyan Bank was listed under the banking sector, Al-Alamiah Technology Group and Mushrif Trading Co. under the service sector, while Tamdeen Investment Co. and Al-Noor Financial Investment Company under the  Investment sector. So far, 10 new companies have been added to the market in 2006, which has increased the total number of listed companies to 168.

We believe that the there will be vigilant buoyancy as market players are still in the mood of “wait and watch” strategy. Also after the bearish sentiments prevailing in the market, investors are likely to adopt stock-specific approach, focusing on beaten down stocks, which now might be an attractive investment options for both institutional and retail investors.

Value Leaders  (in KD)

Volume Leaders