Fund manager says Kuwait stocks may outperform in 2011, sees consolidation among Kuwaiti investment firms
Increased infrastructure spending fuelled by high oil prices, regulatory reforms and large-scale restructuring may provide a catalyst for beaten down Kuwaiti stocks to outperform Gulf markets in 2011, a fund manager said.
Kuwait's flagship index dropped 0.7 percent in 2010, one of the region's worst-performing indices as investors sold off amid worries over transparency and disclosure issues.
But that trend may change in 2011, according to Christian Shomber, chief investment officer for Kuwait and Middle East Financial Investment Co (KMEFIC).
"Kuwait has the potential to be the surprise and is really the dark horse investment for this year. We are watching the market very closely and are prepared to overweight as concerns ease on the political side," Shomber said in a telephone interview last week.
The fund manager said he currently had an "equal-weight" on Kuwait along with Qatar and the UAE. The asset manager has an "overweight" on Saudi Arabia, the top oil producer and the largest Gulf Arab market.
Kuwait has been beefing up spending on infrastructure and initiating regulatory reforms to bolster its image as an investment destination.
The world's fourth-largest oil exporter ramped up spending by more than 34 percent in its budget for 2010/11, which began in April last year, partly to diversify its oil-reliant economy and increase the role of the private sector.
Its cabinet appointed the director of the country's stock exchange as the head of the new stock market regulatory body in September last year.
The bourse also signed a deal with Nasdaq OMX Group Inc for a new trading system.
"There are some major developments happening here. The structural issues, the transparency, this is the market we are managing in," Shomber said.
Kuwait is home to a number of struggling investment companies largely due to a sharp fall in real estate values which led to massive erosion of their investment portfolios.
Shomber expects to see consolidation in this sector.
"I believe that this market will shrink and I do believe that there will be significant consolidation which actually will be good for business," he said.
Investment Dar , owner of half of luxury carmaker Aston Martin, reached an agreement to restructure $3.58 billion in debt, potentially ending a protracted battle with its creditors.
The asset manager is also advising its clients to reduce exposure to emerging markets after a two-year rally, Shomber said. Investors pulled out a net $3 billion from emerging market equities as well as $351 million from Pacific equity funds for the week ended Feb. 9, data from EPFR Global showed.
KMEFIC is one of the largest asset management firms in Kuwait, catering to high-net-worth and sovereign clients in the country and across the Gulf.
It declined to disclose current assets under management.