In a landmark development that comes as a global recognition for Boursa Kuwait, the Capital Market Authority (CMA) and the Kuwait Clearing Company’s (KCC) sweeping market development efforts, MSCI Inc., a leading provider of critical decision support tools and services for the global investment community, today announced the reclassification of Kuwait to ‘Emerging Market’ from its previous ‘Frontier Market’ status in its 2019 Annual Market Classification Review.
The reclassification is subject to omnibus account structures and same National Investor Number (NIN) cross trades being made available for international institutional investors before the end of November 2019.
The reclassification, which is expected to lead to significant foreign capital flows to country’s equities, will take effect in one step coinciding with MSCI’s May 2020 Semi‐Annual Index Review. This would lead to an inclusion of nine stocks in the MSCI Emerging Market Index having a pro forma index weight of approximately 0.5%.
The MSCI status upgrade follows Kuwait’s inclusion in S&P Dow Jones Indices’ (S&P DJI), Global Equity Indices, with Emerging Markets classification in December 2018 and in the FTSE Russell Emerging Markets Index in September 2017.
The global index compiler’s decision to include Kuwait in its Emerging Markets benchmarks comes in response to the country results in the 2019 Annual Market Classification Review. Announcing the reclassification, MSCI noted that Kuwait’s Market Development Project has set the path for the seamless implementation of numerous regulatory and operational enhancements in the Kuwaiti equity market. These enhancements have significantly increased the accessibility level of the Kuwaiti equity market for international institutional investors and resulted in broad positive feedback from these investors on the MSCI reclassification proposal.
Mr. Othman Al-Issa, CMA Vice Chairman and Acting Managing Director stated “First, we would like extend our sincere congratulations to his Highness the Emir and the Crown Prince on this historic milestone. In addition, we would like to congratulate all the staff at Capital Markets Authority, Boursa Kuwait and Kuwait Clearing Company on this great achievement, which is a result of their determined national contributions and distinguished efforts and planning in coordination with market participants in the financial sector. In its early days, the CMA put forward the master plan for the market development program by aligning with international best practices, specifically after it successfully joined the IOSCO. Al-Issa confirmed that all arrangements necessary to be addressed for the completion of this decision are being addressed since the CMA, KCC and Boursa Kuwait became aware of it. “We are very confident that it will go into effect in the upcoming period, and no later than November 2019.”
Commenting on the status upgrade, Mr. Hamad Al-Humaidhi, Chairman, Boursa Kuwait, said: “MSCI’s reclassification of Kuwait in its Emerging Markets Index represents an important milestone in the history of our capital markets and will bolster the country’s standing on the global investment map. This development will not only provide a boost to our economy but also propel the transformation of the country into a regional and global centre of commerce and finance as envisaged by the Kuwait Vision 2035. The MSCI Emerging Markets upgrade will be a gamechanger for the domestic capital markets as it will lead to substantial inflows of foreign investment, improved liquidity, and a significant enhancement in the investing environment in the country.”
Mr. Saleh Al Silmi, Chairman at KCC, also commented on the reclassification of Kuwait, where he stated that Kuwait's upgrade to emerging markets status prominently places it on the global investment map, and urges all involved parties to commit to the implementation of further reforms in line with international standards in all relevant areas. “Our aim is to continue on the same path in terms of developing an attractive Capital Market for international investors and investment funds alike, particularly because Kuwait enjoys all the necessary elements of success, from institutions and organizations that have historically proven to provide positive returns to the Capital Market. In light of this reclassification, we look forward to the upcoming phase and all developments associated to it”, he added.
From his end, Mr. Muthanna Al-Saleh, Head of Markets Sector at CMA said, “Today, we witness another historic achievement that is a result of the collaborative and unwavering efforts of the CMA, Boursa Kuwait and KCC, which were initiated since the second half of 2013, bringing the vision of the successive board of commissioners into fruition. The coordinated and collective work has been validated by the upgrade of Kuwait to emerging market status, by the three global index providers. He added, “These upgrades contribute to the national market by attracting more international investments and diversifying investment and job opportunities in Kuwait. The MSCI upgrade paves the way for further coordinated and collective work with market participants, in an effort to further develop the capital markets in line with global standards. This milestone will only generate a deeper sense of commitment to sustain this current status and enhance the position of the nation on a global front”. Al-Saleh confirmed that all three relevant parties, the CMA, Boursa Kuwait and Kuwait Clearing Company are putting the application of this issue as high priority, specially that it is already currently being applied to licensed local entities based on CMA regulations.
Mr. Mohammad Al-Osaimi, Acting Chief Executive Officer, Boursa Kuwait, said: “MSCI’s reclassification of Kuwait to Emerging Markets represents a recognition of the instrumental role Boursa Kuwait played in improving market access and efficiency, enhancing transparency and governance, increasing liquidity and strengthening investor confidence over the last two years. We have always remained at the forefront of efforts to improve infrastructure, enhance accessibility, simplify processes, and align market practices with global standards, to create and sustain an advanced and robust capital market ecosystem in the country. We remain committed to continue working closely with CMA and our customers and partners to explore new avenues to further strengthen our reputation as an attractive investment platform that offers tremendous opportunities to issuers, investors, and other market participants alike.”
As part of its market development plans, Boursa Kuwait has launched several far-reaching market reforms, including a new rulebook, which helped the company to specify new three-tiered market segmentation, consisting of the premier market, the main market, and the auction market. In addition, the company has introduced the Over-the-Counter (OTC) trading platform to enable investors to trade unlisted securities with greater transparency. Furthermore, it has recently launched part 1 of its Phase Three market development plans, which included the launch of Real Estate Investment Trusts (REITs), Tender Offers, Trade at Last and Stock Swaps, with plans to introduce further services and tools over the coming months.
Further elaborating on this achievement, Mr. Khaldoun Al Tabtibai, KCC CEO said: “It is a very proud moment for us, as this announcement is testament to the diligence and relentless efforts of all involved parties, who have contributed to make this upgrade a reality. This announcement will only fuel us to continue with our plans to further develop the market infrastructure, which entails all post trading operations, including settlements and central securities depositories. KCC played a pivotal role in the reclassification of Kuwait to an emerging market status, which was one of its primary strategic objectives. Accordingly; we invested heavily in market developments, in line with the CMA’s vision; which has now been validated with a series of prominent achievements.”
Over the past few years, KCC in collaboration with Boursa Kuwait and the CMA, took on a leading role in applying numerous changes in relation to post trading systems, such as adjusting the settlement period to T+3, adopting the DvP principle and introducing Custodian Rejection. KCC also took the initiative to apply a new mechanism that allows for the execution of decisions taken at general assemblies, according to international standards of the same. Moreover; KCC has also facilitated the account opening process for foreign custodians, and has also reduced the accompanied documentary collection requirement, to support the Kuwait Capital Market position as an attractive investment platform.