In the GCC stock exchanges information about traders of securities identities at the stock exchange is available on a daily basis. That is the correct measure and is perhaps one of the requirements to benefit from the indirect flow of foreign capital. It saves a tool for early warning if necessary, i.e. knowing the direction of those investments. That is achieved by publishing daily trading data according to nationality. Foreigners, as we stated in our last week report, are the first to feel the risks of harmful speculation and the early information about the direction of those investments should be made available.
Figures of the first half of the current year indicate that the outcome of net trading of the domestic investor was most selling by KD 358.980 million while the outcome of net foreign investor’s trading was buying by KD 360.019 million. This means the local withdrawal has been completely compensated by the foreign investor. With continued gains of the stock market (Boursa Kuwait) particularly the companies that are included or that would be included in international indexes some change in the orientation of local investor in buying may occur within a short period which will increase stock market liquidity by more than needed. Then, foreign indirect investments might turn into harmful hot money and will
withdraw heavily within a short period of time. Availing the quick information about the beginning of withdrawal as we stated may mitigate the harm on the local investor and the domestic economy as well by limiting the foreigner’s benefit from withdrawal at the highest price level.
If we take one full year data as an example, i.e. foreign indirect investment volume from 1/7/2018 to 30/6/2019, not all of it was active. Value of foreign traders buying scored about KD 1.478 billion and their trading value, and selling about KD 843.207 million with a net buying value by about KD 634.921 million, which is commendable. That value despite its significance is not that big but its benefit is big because it is linked with a major improvement in the Boursa systems and the quality of its data and the prudence and competitiveness of its companies which restored some lost confidence in the Boursa since 2008 crisis and the subsequent ones. Foreigners’ equities most of which are focused mainly in the banking sector until the end of the first half of the year did not exceed 7.7% of the capital value of the banking sector*. That ownership percentage is still minor. The Boursa is promised of promotion on Morgan Stanley which is perhaps more important than the former one although its impact will be to a limited number of its companies but it might introduce foreign funds perhaps equal to the flows so far, which is all commendable; but we are in a country with abundant surplus of hesitant liquidity and when that liquidity participates heavily in supporting the demand side as frequently occurred in the history of Boursa Kuwait crises then trading turns into obsession and then into collapse. Intensive and up-to-date information in addition to being necessary for analysts to send early warning signals which would limit the risks yet benefiting from it and keeping up with the foreigners’ decision in selling might reduce the extent of harm on local investor and economy though it will not prevent it.
*Note: We mentioned in our last week report that the foreigners’ share in the equity of Boursa companies is about 14.9%. In fact, their share from trading value in the first half was 14.9%. We apologize for that.