Tailwinds for Kuwaiti ETF as S&P DJI reclassification takes effect

Sep 25th, 2019 | By | Category: Equities

The KMEFIC FTSE Kuwait Equity UCITS ETF (KUW8 LN), Europe’s first ETF to provide pure-play exposure to Kuwait, is expected to benefit from S&P Dow Jones Indices’ upgrade of the country to an emerging market which took effect on 23 September 2019.

Tailwinds for Kuwaiti ETF as S&P reclassification takes effect

The reclassification of Kuwait into S&P DJI’s Global and Emerging Benchmark indices is expected to generate roughly $2 billion of passive and active inflows.

HANetf, the issuer behind the fund, anticipates the reclassification of Kuwait into S&P DJI’s Global and Emerging Benchmark indices will generate roughly $2 billion of passive and active inflows, boosting investor appetite in the Gulf state.

While these are clearly sizable inflows, they are expected to be dwarfed by the roughly $10bn in inflows that are predicted to be triggered by MSCI’s reclassification of Kuwait to emerging status.

MSCI plans to include the MSCI Kuwait Index in the MSCI Emerging Markets Index in one step coinciding with the firm’s May 2020 Semi‐Annual Index Review.

FTSE Russell has already upgraded Kuwait by including 12 Kuwaiti stocks with a combined weighting of around 0.5% in its FTSE Emerging All Cap Index.

According to HANetf, Kuwait’s strong economic fundamentals along with the change in classification reflect improvements in the country’s capital market infrastructure, operations, and foreign investor accessibility which have been implemented by the Kuwaiti Stock Exchange and local regulators.

The country is currently in the middle of an extensive long-term economic diversification programme – dubbed “Vision 2035” – designed to encourage foreign investment and reduce dependency on oil revenues.

Hector McNeil, co-CEO of HANetf, said, “Kuwait is truly a frontier market success story. Economic reform, diversification of the economy, and massive investment has seen strong underlying fundamentals. The most recent upgrade by S&P will see further inflows into the local market quickly followed by the expected MSCI confirmation.”

The KMEFIC FTSE Kuwait Equity UCITS ETF was launched on the London Stock Exchange, Borsa Italiana, and Xetra in April 2019 and was developed in partnership with KMEFIC (Kuwait & Middle East Financial Investment Company), a Kuwait-headquartered provider of asset management, brokerage, and wealth management services.

The ETF provides exposure to the large, mid, and small-cap segments of Kuwait’s equity market by tracking the FTSE Kuwait All-Cap 15% Capped Index. The index currently includes 15 Kuwaiti companies that are weighted by free-float market capitalization subject to a 15% cap per security.

The index, which is reviewed and rebalanced semi-annually, currently has a strong tilt towards banking stocks with seven firms accounting for 63.9% of the weight. Telecommunications account for the next largest sector exposure (one firm; 14.6%), followed by industrials (three firms; 13.1%).

There are four stocks with weights near the 15% cap (Kuwait Finance House, Ahli United Banks, National Bank of Kuwait, and Mobile Telecommunications) with the next largest constituent being Agility Public Warehousing at 8.5%.

The ETF comes with an expense ratio of 0.80%.

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