The managers of the KMEFIC FTSE Kuwait Equity UCITS ETF (LON:KUW8) estimate that the reclassification of Kuwait indices from ‘frontier market’ status to ’emerging market’ at the end of this month will give a US$10bn boost to stocks in the Gulf state.
MSCI is expected to make the change on November 30, which Boursa Kuwait recently predicted could result in US$2.9bn of further investment from passive investment funds.
On top of this, research has estimated that around US$8bn of new investment could come from active strategies.
In total, seven large cap and 14 small cap Kuwaiti stocks will be included in the MSCI’s new Emerging Market Standard Index.
This will effect 15 out of the 17 stocks in the Kuwait ETF, which is a result of a partnership between local specialists Kuwait & Middle East Financial Investment Company (KMEFIC) and ETF platform developer HANetf.
The ETF, which provides 98.4% correlation to the MSCI Kuwait 20/35 Index and 96.8% to the MSCI All Kuwait Select Size Liquidity Capped index, avoids concentration in larger stocks by capping constituent weights at 15% during a semi-annual rebalance.
Abdullah Al-Busairi, director of the ETF, commented: “The MSCI inclusion is expected to drive up the Kuwaiti stock market leading up to the event at the end of this month through buy side pressure.
“We could see around $3bn of passive flows into companies listed on Borsa Kuwait and this expectation is likely to attract active investors looking to profit from this event.”
KUW8 was the first ETF globally to offer exposure to Kuwaiti equities, noted HANetf’s co-chief executive, Hector McNeil.
“It was designed specifically with this upgrade in mind,” McNeil said.
“International investors often find it difficult to trade emerging markets locally due to complex custody arrangements, currency issues, and different trading times and days.
“Rather than trade 15 individual companies in Kuwaiti Dinars, investors can invest in one ETF, in USD, GBP or EUR. There is no need for currency conversion and local custody.”