Prepared by Economic Research Unit I ALSHALL Consulting Co. I Tel: + 965 22451535 I Fax: +965 22422619

Volume 30 – Issue 24 – 21st June 2020ALSHALL Weekly Economic Report

1 2 3Foreign DirectInvestment

The WeeklyPerformanceof Boursa Kuwait

Crisis of Tradingin Banks’ Shares

1Foreign DirectInvestment

The United Nations Conference on Trade and Development (UNCTAD) issued its thirtieth annual report on direct invest-ment in the world for the year 2020 which predicts investment trends and expectations after the Corona pandemic and predicts a decrease in foreign direct investment because global foreign direct investment flows are expected to decrease by up to 40% in 2020 versus its 2019 value of US$ 1.54 trillion. This would make foreign direct investment less than one trillion dollars for the first time since 2005. FDI is expected to decrease by 5% to 10% in 2021 and that recovery will begin in 2022 with the return of FDI to the pre-pandemic state. The forecast depends on the long-term health crisis and on the efficacy of political interventions to mitigate its economic impacts. There is also uncertainty about the increase in geopo-litical and financial risks and the persistence of trade tensions. The pandemic represents a shock in the supply and demand policy concerning FDI as a result of the closure procedures of the existing investment projects.

The largest 5,000 companies worldwide, which account for most of the global FDI, have witnessed a drop in their profits byan average of about 40%. This drop-in profits will affect the reinvested profits which represent on average more than 50% of the FDI. Indicators confirm the fast impact as new invest-ment project announcements and mergers and acquisitions decreased by more than 50% in the early months of 2020 com-pared to last year. New deals in financing global projects have retreated by more than 40% though they are an important source of investment in infrastructure projects. Developing economies are expected to witness the biggest drop in foreign direct investment because they are more dependent on invest-ment in global industries as they are unable to provide the same economic support compared with the advanced economies.

Among developed countries, FDI inflows to Europe are expect-ed to drop by 30% to 45%, i.e. much more than North America and other advanced economies because the European Alliance has been affected more by the crisis due to their economies’ fragility. FDI inflows to Africa are expected to decrease by

25% to 40% in 2020. The negative trend will aggravate due to lower basic commodities’ prices. FDI inflows to Africa have indeed decreased by 10% and scored US$ 45 billion in 2019.

Inflows to developing Asia are expected to be severely affected due to its weakness in the supply chain. As such, FDI is expect-ed to drop by 30% to 45%. In 2019 FDI inflows to developing Asian countries decreased by 5% and scored US$ 474 billion despite gains achieved by emerging economies in Southeast Asia, China and India.

FDI is expected to decrease by about 50% in 2020 in Latin America and the Caribbean due to increased political distur-bances which negatively affect their economies. Besides, features of the FDI industry in the region also make it vulnera-ble to danger. Contrary to 2019 when foreign direct investment in Latin America and the Caribbean region grew by 10% and scored US$164 billion.

FDI inflows to the economies-in-transition are expected to decrease by 30% to 45% as the decline will largely nullify the FDI recovery noting that FDI grew by 59% in 2019 and scored US$55 billion after several years of low flows. Expectations for FDI in structurally weak and fragile economies is very nega-tive. Many of the least developed countries depend on FDI in the extractive industries; many states of the developing small island geography depend on investment in tourism. Land-locked developing countries are disproportionately affect-ed by the supply chain obstacles. In 2019, FDI inflows to the least developed countries decreased by 6% (US$ 21 billion). This represents 1.4% only of global FDI.

Despite the significant decline in global FDI inflows during the crisis, the international production system will continue to play an important role in economic growth and development. Global foreign direct investment inflows will remain positive and will continue to add to the existing FDI stock which scored US$ 36 trillion at the end of 2019.

1

2

2Crisis of Trading inBanks’ Shares

The Chairman of the Banks’ Union issued a statement during the working hours of the Stock exchange on June 10th 2020, warning that the banks will be unable to distrib-ute cash dividends for the year 2020. This statement caused a sharp and general drop in prices especially in banks’ prices knowing that banks usually contribute by more than 61.8% to the market value of all listed compa-nies as of the closing of June 9th 2020. The drop (in prices) created a crisis and all relevant involved parties were blamed. There were controversial views concerning the error cause. In our opinion, the error was not in the substance of justice in non-distribution but in the state-ment’s text, timing, and subsequent procedures.

The substance was in the inability of beneficiary banks from the subsidy/support whether by reducing their capital strength requirements’ fenders, or by the need for deposits with easy terms by distributing profits that violate fair com-petition rules with banks that do not benefit from the support (subsidy). Besides, the achieved revenues are supposed to be used to restore the banks’ fenders’ sound-ness and as the future is full of unprecedented risks that call upon affected banks to build new fenders. Non-benefi-ciary banks control their decision. All the foregoing remains logical and within justice and hedging principles. What the banks achieve will reinforce their capital posi-tion and non-distribution will increase the shareholders’ rights. In other words, it is a postponed benefit for share-holders.

In our opinion, the error lies in the direction process. The statement was not sufficient enough to distinguish between the beneficiary and non-beneficiary banks. It seemed as if it deprived general assemblies of their deci-sion. It was supposed to be phrased in a better and more professional manner. We believe that it was supposed to be phrased during the Central Bank’s leadership meeting with the banks’ CEOs on June 8th 2020, and it was supposed to be announced immediately after that day’s meeting to avoid its leakage. We also believe that the statement timing was supposed to be announced after the end and not during the Boursa trading. We also believe that coordina-tion about the content and the timing was supposed to be after consultation with the CMA. Even with the error in issuing the statement, CMA was not supposed to remedy it by canceling all of Wednesday’s June 15th 2020 trading while it could have stopped trading simultaneously with the statement’s issuance and could have punished all trad-ers who benefited from leaked information. The cancella-tion was unprecedented with an unjustifiable cost.

Certainly, the error occurred with substantial costs. Howev-er, there is some exaggeration in assessing the costs and their impact on the prospects of upgrading the Boursa and the foreign turn out of investing therein. Most of the nega-tive impact, if achieved, pertains to the major global crisis and its local repercussions. It also relates to the probable financial performance of listed companies and not to a one-day event. Having said that, we believe that we should benefit from the errors especially those of phrasing and timing which should not reoccur. Coordination between CBK and CMA should be permanent as their functions are closely interrelated.

The following tables summarize last week’s performance of Boursa Kuwait

Working days 5 4

AlShall index (33 Companies) 442.4 446.0 -0.8%

Boursa All Share Market Index 4,186.1 4,242.1 -1.3%

Value Trade (KD) 155,728,551 183,454,965

Daily average (KD) 31,145,710 45,863,741 -32.1%

Volume Trade (Shares) 757,779,983 945,745,606

Daily average (Shares) 151,555,997 236,436,402 -35.9%

Transactions 37,028 39,056

Daily average (Transactions) 7,406 9,764 -24.2%

DescriptionWeek 24

18/06/2020Week 23

11/06/2020Diff%

3The Weekly Performance of Boursa Kuwait

The performance of Boursa Kuwait for last week was less active, where the traded value, traded volume, number of transactions and the general index decreased (AlShall index). AlShall Index (value weighted) closed at 442.4

points as of last Thursday, showing a decrease by 3.6 points or by 0.8% compared with its level last week. It remained lower by 110.8 points or by 20% compared with the end of 2019.

3

Most Active Sectors & Companies

ALSHALL INDEX Week 2418/06/2020

Week 23 11/06/2020

Description

Sectors

Value Traded

KD

% of Total

Market

Kuwait Finance House

National Bank of Kuwait

Ahli United Bank Kuwait (B.S.C)

Agility Public Warehousing Company

Gulf Bank

Total

Description

Sectors

Banks Sector

Industrials Sector

Financial Services Sector

Telecommunications Sector

Real Estate Sector

33,017,757

25,834,559

14,369,162

9,361,201

9,167,307

91,749,985

Value Traded

KD

102,535,438

20,388,438

11,008,707

8,949,545

7,930,385

21.2%

16.6%

9.2%

6.0%

5.9%

58.9%

% of Total

Market

65.8%

13.1%

7.1%

5.7%

5.1%

Increased Value (# of Companies)

Decreased Value (# of Companies)

Unchanged Value (# of Companies)

Total Companies

10

15

8

33

16

10

7

33

4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

National Bank Of Kuwait

Gulf Bank

Commercial Bank Of Kuwait

Al-Ahli Bank Of Kuwait

Kuwait International Bank

Ahli United Bank

Burgan Bank

Kuwait Finance Bank

Banking Sector

Commercial Facilities Company

International Financial Advisors

National Investments Company

Kuwait Projects Company (Holding)

Coast Investment & Development Company

Investment Sector

Kuwait Insurance Company

Gulf Insurance Company

Al-Ahleia Insurance Company

Warba Insurance Company

Company Name Thu Thu Diff Close

18/06/2020 11/06/2020 % 2019

Diff

%

542.8

171.5

516.0

113.9

200.3

278.5

209.0

1,989.5

518.4

148.0

92.5

125.7

448.1

43.7

180.9

72.5

358.1

159.6

68.0

549.1

172.3

490.2

115.9

203.7

286.2

209.0

2,039.6

524.4

153.0

92.5

124.6

440.3

45.1

181.3

69.5

358.1

150.2

69.4

(1.1)

(0.5)

5.3

(1.7)

(1.7)

(2.7)

0.0

(2.5)

(1.1)

(3.3)

0.0

0.9

1.8

(3.1)

(0.2)

4.3

0.0

6.3

(2.0)

706.9

246.2

545.9

167.6

297.0

358.5

328.1

2,492.0

668.5

156.6

160.3

173.7

566.1

54.7

222.9

72.8

376.4

160.7

50.8

(23.2)

(30.3)

(5.5)

(32.0)

(32.6)

(22.3)

(36.3)

(20.2)

(22.5)

(5.5)

(42.3)

(27.6)

(20.8)

(20.1)

(18.8)

(0.4)

(4.9)

(0.7)

33.9

5

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

Insurance Sector

Kuwait Real Estate Company

United Realty Company

National Real Estate Company

Salhiaha Real Estate Company

Real Estate Sector

The National Industries

Refrigeration Industries Co

Gulf Cable & Electrical Industries

Industrial Sector

Kuwait National Cinemas

The Public Warehousing Co

Mobile Telecommunications Co (ZAIN)

Safat Energy Co

Services Sector

Livestock Transport & Trading Co

Danah Alsafat Foodstuff Company

Food Sector

Sharjah Cement Co

Gulf Cement Co

Umm Al-Qaiwain Cement Industries

Non Kuwaiti Companies

General Index

Company Name Thu Thu Diff Close

14/05/2020 07/05/2020 % 2019

Diff

%

138.7

145.0

112.2

193.1

1,433.4

180.9

151.0

275.9

200.6

151.2

471.4

3,510.6

1,018.8

18.0

1,256.1

152.5

10.9

451.8

175.8

152.8

490.8

169.7

446.0

2.7

3.7

0.0

1.9

(2.8)

0.1

(2.4)

8.2

4.0

2.0

0.0

(0.6)

(1.2)

(8.3)

(0.9)

2.8

(1.8)

0.2

0.0

0.0

0.0

0.0

(0.8)

144.7

189.1

125.0

253.6

1,683.8

221.8

215.3

370.8

195.0

190.3

657.8

4,198.3

1,134.3

21.3

1,460.6

145.8

14.5

450.6

175.8

221.4

490.8

181.7

553.2

(1.5)

(20.5)

(10.2)

(22.4)

(17.3)

(18.3)

(31.5)

(19.5)

7.0

(19.0)

(28.3)

(16.9)

(11.3)

(22.5)

(14.7)

7.5

(26.2)

0.5

0.0

(31.0)

0.0

(6.6)

(20.0)

142.5

150.4

112.2

196.7

1,393.1

181.1

147.4

298.5

208.6

154.2

471.4

3,490.1

1,006.3

16.5

1,245.4

156.7

10.7

452.8

175.8

152.8

490.8

169.7

442.4

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