Liquidity is one of the most important indicator in any stock markets. In the aftermath of its reorganization, Boursa Kuwait managed to raise its liquidity level substantially. The corona pandemic did not affect its liquidity during the first four months of this year as its liquidity increased by 21.7% compared to the first four months of 2019. Compared with the same period of 2018, liquidity increased by 213.1% in the first four months of this year. However, it negatively affected the All-Share Market Index which declined by -11.6% during the same period. This means that the liquidity increase and the resulting market capitalization losses negatively affected liquid companies’ prices and perhaps non-liquid companies which are substantially much more in number.
Looking at the margins between stock prices and their book values might be sufficient to start an organized and professional effort to reduce that in favor of non-liquid companies. That may be achieved by marketing the feasibility of investing in them through supporting their liquidity. Figures of published financial statements as of 31/12/2019 indicate that stock prices of 10 listed companies or 5.8% out of total listed companies, exceed twice their book value (13 companies or 7.4% of the listed companies at the end of April 2019) and 21 other companies whose market stocks prices exceed their book value by 1%-99%. (26 companies or 14.9% of listed companies in the end of April 2019). This means that stock prices of only 31 companies or 17.9% of listed companies’ market prices for its shares exceed the stock book value (39 companies or 22.3% of the number of companies at the end of April 2019).
On the other hand, there are 93 companies or 53.8% out of total listed companies, whose stocks are sold at a discount to the share’s book value by 50% and more (82 companies or 46.9% of listed companies at the end of April 2019); 32 companies or 18.5% of listed companies are sold at a 30%-49% discount on the book value of the stock (30 companies or 17.1% of listed companies at the end of April 2019). This means that 72.3% of listed companies are sold at a discount on the share’s book value by 30% or much more (64% of companies at the end of April 2019). In addition, there are 17 other companies sold at a discount on the shares; book value by 1% -29% (24 companies at the end of April 2019).
We believe that some negative margin between the market share price and the book value is justifiable because the unstable and troubled conditions in the world and in the region give preference to liquidity. Besides, the doubt regarding the book value precision is acceptable and justifiable. Thus, when the difference affects this large number and the wide discount margins, it is undeniable that the situation needs remedy. The treatment will not be more than an effort to limit unwarranted supply, i.e. filtering listed companies and strengthening the demand side. Truly, filtering at the present time does not represent a priority and truly as well the book value under a comprehensive crisis that still in full swing and still needs to be reassessed according to the extent of damage to each company, but it is a period of proactive policy-making, not a rigidity and waiting one.