Kuwait Economic Brief - Amazon S3 · 2017-12-10 · Kuwait Economic Brief - December 2017 Contents...

Kuwait Economic Brief

December 2017

Government spending accelerates in November...Credit growth to close 2012 at 5.5%...KD 12 billion budget surplus expected for FY 2012/13

An update of recent developments in select sectors in Kuwait published byEconomic Research at NBK

Oil prices hold on to recent gains; inflation bounced up to 1.4% in October; improved corporate earnings still signaling some softness

Kuwait Economic Brief - December 2017

Contents Oil markets 1Oil prices hold on to recent gains but markets uneasy ahead of OPEC meeting

Monetary developments 4Steady credit growth at 3.1% in September; 3Q17 closed weaker

Consumer price inflation 6Inflation bounced up to 1.4% in October supported by the retail sector

Balance of payment 8Current account surplus improves in 2Q17

Real estate 10Real estate activity picks up in October, amid stable prices

Corporate earnings 12Improved corporate earnings still signaling some softness

Stock market 17 Government’s resignation weighs on Boursa in November

1NBK Economic Research, T: (+965) 22595500, F: (+965) 22246973, [email protected], © 2017 NBK, www.nbk.com


Chart 1: Crude oil prices($/bbl)

Source: Thomson Reuters Datastream

Chart 2: OECD commercial crude & product stocks(billion barrels)

Source: International Energy Agency (IEA)

Chart 3: US crude oil production & rig counts

Source: US Energy Information Administration (EIA), Baker Hughes

Highlights

• Brent continues to hold above $60 and looks on course to notch up a third consecutive month of gains; prices boosted last week by closure of Keystone pipeline in the US after an oil leak.

• Market sentiment had turned more negative recently as US crude output surged to a shale-era high (9.66 mb/d) and uncertainty surrounded Russia’s commitment to extend the OPEC/non-OPEC production cut agreement.

• OPEC to meet on 30 November to discuss agreement extension after crude production fell in October to 32.59 mb/d (103% compliance).

• The US will become the largest crude and petroleum liquids supplier by 2025, the IEA estimates in its World Energy Outlook 2017.

• Markets are likely to be over-supplied in 2018, leading to an increase in OECD stocks.

Brent holds above $60 in anticipation of OPEC/non-OPEC meeting

With major oil markers, Brent crude and West Texas Intermediate (WTI), currently ranging around the $63 and $58 levels, respectively, oil prices look on course to notch up a third consecutive month of gains. (Chart 1.) Last week, prices were given an unexpected boost by the closure, after an oil leak, of the Keystone pipeline in the US which transports Canadian crude to refineries on the US Gulf Coast.

Since their 2017-low in June, Brent and WTI are up by at least 38%, a four-and-a-half month bull run that has been driven by a combination of better-than-expected global demand growth, tighter crude supplies and heightened geopolitical risk.

OPEC, for its part, has commendably stuck to its task of cutting crude output, averaging 97% compliance over the ten months of the agreement so far. OPEC has also achieved some success in its other key performance yardstick: drawing down OECD commercial crude and petroleum product stocks to the five-year average. The most recent data from the International Energy Agency (IEA) shows inventories falling in September to below 3 billion barrels for the first time in two years. (Chart 2.) Admittedly, Hurricane Harvey was a factor in this, with its negative impact on US petroleum product stocks, but the trend has been generally downward for most of the year.

And markets have, by and large, been receptive to the data supporting OPEC’s efforts. They have also been reassured by OPEC and its non-OPEC partners’ willingness to do “whatever it takes” to drain the supply glut and rebalance the market.

But lately, having priced in the likelihood that the oil producers would announce a nine-month extension of their production cut agreement when they meet on the 30 November, markets became a little less certain that such an outcome will materialize. In fact, hedge funds appear to have pulled back on the record net long positions (the difference between bets on a price increase and bets on a price fall) that they had

Oil markets

Oil prices hold on to recent gains but markets uneasy ahead of OPEC meeting

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> Omar Al-NakibSenior Economist

+965 2259 5360, [email protected]

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Crude oil production (mb/d, LHS)

Oil rig count (no. of oil rigs, RHS)



Chart 4: World demand & supply growth(mb/d)

Source: IEA, NBK estimates; *assumes OPEC output stays at current level

Chart 5: OPEC crude oil production(mb/d)

Source: OPEC (secondary sources)

Chart 6: Balance of supply & demand(mb/d)

Source: IEA, NBK estimates; *assumes OPEC output stays at current level

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"Call"on OPEC crude in 2018

been building over the last couple of months.

The trigger has been Russia, whose oil producers appear to be wavering in their appetite to roll over their output cuts until the end of 2018, so soon before the agreement expires in March 2018. Indeed, echoing Saudi Arabia’s official stance when Ali Al-Naimi was at the helm of the oil ministry, Russia’s oil men are unwilling to pull back on production only to cede further market share to competitors such as the US, whose crude exports are indeed making inroads in Russia’s largest export market: China. (40-year old restrictions on US crude exports were lifted by the Obama Administration in December 2015.)

OPEC’s prospects face difficult headwinds from US shale’s resurgence

To be sure, Brent is holding above $60. While this is a level that is being viewed in some quarters, perhaps optimistically, as oil’s new price ‘floor’, markets are, nevertheless, anxious. This unease has been further fuelled by the resurgence of US shale; just last week US crude output posted another shale-era high, reaching 9.66 mb/d (of which shale comprises 64%) and shows every sign of continuing to increase. (Chart. 3)

For every barrel of crude taken off the market by OPEC/non-OPEC in 2017, the US has managed to resupply almost half a barrel. So OPEC is left to grapple with an especially challenging conundrum: the more successful the group is in reducing global oil balances as a means to raise the price of oil—their ultimate objective—the more likely US crude producers ramp up output. US shale is highly price-responsive and, with a large backlog of drilled but uncompleted wells (DUCs), production could respond very quickly.

The IEA’s recently released World Energy Outlook 2017 weighs in on the potential for US shale growth in the medium to long-term. And it does not make for comfortable reading for the established oil producers. According to the IEA, not only have the technically recoverable reserves of US shale been revised upwards, by 30%, but shale oil production itself is expected to more than double by 2025 (from the current 6.0 mb/d to 13.0 mb/d). More than 80% of the 4.9 mb/d of non-OPEC oil production that is expected on stream by 2025 will be sourced from the US. Thus the US will become, in the words of IEA Executive Director Fatih Birol, the “undisputed leader of global oil and gas markets for decades to come”.

Therefore, as a result of shale’s gains, the IEA predicts that OPEC’s share of the global oil market will most likely fall, from 43% in 2016 to 41% in 2025. The good news for OPEC, however, is that the IEA also expects US growth to plateau by the end of the next decade and then reverse in the 2030s, with a concomitant rise in OPEC’s market share to 46% by 2040.

Sobering as this may sound, prices could still reach $85/bbl in 2025, the IEA noted in its base case, New Policies Scenario. The reason: the dearth of investment in conventional oil projects since oil prices collapsed in 2014. This could amount to a loss of 2.5 mb/d (2.6% of global supplies) from global oil balances every year—a volume that even burgeoning US oil will not be able to entirely offset.

Oil demand growth to slow in the medium-to-long term due to improved fuel efficiency and increased use of electric vehicles

Global oil demand growth is expected to slow markedly from 1.5 mb/d this year to an average of 0.9 mb/d over the next five years. As we move into the next decade, increased fuel efficiency and energy pricing policies as well as substitution by alternative fuels will begin to significantly

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impact oil consumption. Casting a shadow over the outlook for oil in the transportation sector, which is by far the largest consumer of oil, will be the electric car. The IEA reckons that by 2040, the global electric car fleet could expand to 280 million from 2 million today. Moves to phase out conventional gas and diesel vehicles have already started, as evidenced by France and Britain’s plans to ban their sale by 2040.

Back to you OPEC to manage global supply

Despite the recent elevation of the US to swing producer status, it will still be left to OPEC, which supplies more than 30% of the crude oil market, to manage global crude balances. With demand growth expected to slow in 2018 to 1.3 mb/d—a downward revision of 0.1 mb/d that the IEA states is due to relatively mild early winter temperatures—and non-OPEC supply expected to increase by 1.4 mb/d next year thanks to US shale, OPEC’s first order of business is to confirm the production cut extension. (Chart 4.) Anything less than nine months, however, could spark a market sell-off.

Second, OPEC may need to tie down wayward producers, Iraq and the UAE, who have yet to fulfil their obligations eleven months into the agreement. Nigeria and Libya, whose production is not subject to quotas, will also need to be co-opted. These two combined have supplied an additional 620,000 b/d of oil this year, which has negated around half of the 1.2 mb/d of production withdrawn by the twelve other OPEC members.

Therefore, as well as extending the production cuts, OPEC may also need to deepen them. The IEA puts the “call” on OPEC’s crude in 2018 at 32.4 mb/d, which is almost 200,000 b/d below current OPEC output of 32.6 mb/d, according to OPEC secondary source figures. (Chart 5.) Clearly, despite compliance of 103% among the twelve OPEC agreement signatories in October, production is above what the IEA expects the market to be able to absorb next year. In consequence, OECD inventory levels are expected to increase rather than decrease, in at least two quarters in 2018. (Chart 6.)

At the end of the day, OPEC and its partners may need to come to terms with the fact that, thanks to US shale and advances in unconventional crude production, the structure of the oil market appears to have irreversibly shifted. However, with the lowest costs in the business, OPEC and especially the GCC oil producers can still put up the stiffest fight. The game is most certainly on.



Chart 1: Credit growth(% y/y)

Source: Central Bank of Kuwait

Chart 2: Credit growth by component(% y/y)


Chart 3: Money supply growth(% y/y)


A solid gain in credit was recorded in September, though 3Q17’s overall performance was visibly weaker. Credit saw a net gain of KD 231 million on the month, with the number boosted by usual end-of-quarter gains. Growth, however, slipped to 3.1% year-on-year (y/y). Credit’s performance for 3Q17 as a whole was underwhelming, registering at a quarterly annualized pace of 3.2%, compared to 7.3% for the first half of 2017. The bulk of September’s gains came from lending for the purchase of securities. Private deposits saw a second month of strong gains, while interest rates held steady.

Household lending was subdued in September, though growth was steady at 7.4% y/y. Personal facilities excluding securities lending added a net KD 27 million during the month, well below its year-to-date average of KD 69 million. This followed a strong performance the previous month.

All remaining credit (excluding nonbanks) saw a relatively modest gain in September, though this was largely from the regular end-of-quarter jump in lending for the purchase of securities. Credit gained KD 206 million, with growth slipping to 1.3% y/y. Outside securities lending, there were some gains in trade and “other sectors”, but these were offset by declines in real estate and construction.

While “productive” business sectors saw only a small gain during the month, growth in this segment remained relatively robust. Productive business credit, which excludes real estate and financial sector lending (i.e. lending to nonbanks and lending for securities), ticked up to 5.1% y/y. This figure continues to be held back by the large settlements made in 4Q16. Nonetheless, growth in “productive” sector credit thus far in 2017 averaged an annualized 10% compared to 5.9% for total credit.

Private deposits saw a second month of solid gains in September. Deposits rose by KD 358 million largely on the back of gains in KD time and KD sight deposits. Yet despite the pick-up, money supply (M2) growth slipped slightly to 2.5% y/y. Meanwhile, government deposits declined by KD 51 million, with growth easing further to 3.4% y/y.

The banking system’s liquid reserves, or “excess liquidity”, edged lower in September to 6.6% of bank assets. Bank reserves (cash, deposits with the CBK, and CBK bonds) decreased by KD 273 million to KD 4.2 billion (Chart 4). This coincided with KD 400 million in net issuance of public debt in September. This increased outstanding domestic public debt instruments (PDIs) to KD 4.97 billion, or an estimated 13% of GDP.

Domestic interest rates in September were little changed from August. The 3-month interbank rate edged up 2 basis points to settle at 1.76% (Chart 5), though rates have moved slightly higher since. Customer deposit rates were unchanged on the month.

Monetary developments

Steady credit growth at 3.1% in September; 3Q17 closed weaker

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Household debtBusiness credit (all remaining)Non-bank financials

> Nemr KanafaniSenior Economist


> Chaker El MostafaEconomist


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Chart 4: Bank reserves(% of bank assets)


Chart 5: Interbank rates(%, 3-month rates, daily)


Chart 6: Exchange rates


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USD / KD (LHS)Euro / KD (RHS)

Table 1: Monetary indicators1-month 3-month 12-month

Sept-17 change change change

KD mn KD mn % KD mn % KD mn %

Total system liquidity (M2) 36,563 250 0.7 62 0.2 904 2.5

Currency in circulation 1,618 -108 -6.2 -284 -14.9 89 5.8

Private sector deposits 34,945 358 1.0 346 1.0 815 2.4

KD deposits 32,422 323 1.0 282 0.9 1,435 4.6

Sight deposits 8,325 89 1.1 -117 -1.4 222 2.7

Savings deposits 4,787 -35 -0.7 -85 -1.7 168 3.6

Time deposits & CDs 19,310 269 1.4 484 2.6 1,044 5.7

Foreign currency deposits 2,524 34 1.4 64 2.6 -620 -19.7


Table 2: Consolidated bank balance sheets1-month 3-month 12-month

Sept-17 change change change

KD mn KD mn % KD mn % KD mn %

Total bank assets 63,131 346 0.6 543 0.9 2,517 4.2

Core liquid assets 4,169 -273 -6.2 -456 -9.9 -610 -12.8

Cash and CBK deposits 797 7 0.9 -26 -3.1 -194 -19.6

CBK bonds 2,582 -401 -13.4 -540 -17.3 -506 -16.4

Time deposits with CBK 790 120 17.9 110 16.2 90 12.8

Public debt instruments 5,224 415 8.6 1,022 24.3 2,442 87.8

Interbank deposits 1,355 -182 -11.8 -377 -21.8 -360 -21.0

Credit facilities 35,823 231 0.6 282 0.8 1,072 3.1

Foreign assets 12,588 -32 -0.3 -218 -1.7 -391 -3.0

Other assets 3,972 187 4.9 291 7.9 364 10.1

Total bank liabilities 54,830 356 0.7 514 0.9 2,238 4.3

Total deposits 43,308 112 0.3 63 0.1 739 1.7

Private sector deposits 34,945 358 1.0 346 1.0 815 2.4

Government deposits 7,050 -51 -0.7 58 0.8 235 3.4

Interbank deposits 1,313 -195 -12.9 -340 -20.6 -311 -19.1

Foreign liabilities 5,260 170 3.3 114 2.2 1,058 25.2

Other liabilities 6,262 74 1.2 338 5.7 1,788 40.0

Shareholder equity 8,301 -10 -0.1 29 0.4 280 3.5




Consumer price inflation bounced to a multi-month high of 1.4% in October, as inflation in the retail sector provided a healthy boost to the general index. (Chart 1.) Inflation excluding housing rent, food costs and energy prices, rose from 2.5% y/y in September to 3.3% y/y in October, highlighting some upward inflationary pressures from retail goods and services, which coincided with the improving momentum in the consumer sector.

The annual average inflation rate for 2017 is likely to ease to 1.6%, from the 3.5% annual average recorded in 2016. While there are some upward pressures from the retail goods segment and some services, these pressures are likely to be offset by continued softness in housing rent and food prices.

Housing inflation remains subdued during the third quarter of 2017. The slowdown in the real estate sector sales in 2015 and 2016 has led to an orderly and slow correction in property prices and rents. Housing inflation trended down from 2Q16 to reach deflationary territory in 1Q17. Housing inflation witnessed an uptick in October to -0.3% y/y, due to basis effects.

Local food price inflation remained soft in tandem with weaker inflation in global food prices. Inflation in local food prices advanced slightly in October to 0.4% y/y, following a flat month. (Chart 3). According to the Commodity Research Bureau, inflation in international food prices contracted slightly. This weakness is likely to limit any significant increases in local food costs in at least the near-to-medium term.

Inflationary pressures in the retail sector rose in October, just as consumer spending continued to see improvement. (Chart 4.) Consumer spending improved in 3Q17 with growth in card spending (POS) accelerating to 12.5% y/y, following a systematic moderation in 2016. Card spending has bounced back as the sector stabilized. At the same time, inflation in the three major retail goods related components accelerated to near multi-month highs, with inflation in clothing and footwear accelerating to 2.9% y/y in October from 1.9% y/y the previous month.

Inflation in services excluding housing services continues to trend downward in October on the back of fading price growth in transportation costs due to base effects. (Charts 5 and 6.) Despite the downward pressures from transportation prices, inflation in services excluding housing services remained supported by continued gains in inflation in the recreation & culture segment and steady inflation in restaurants & hotels. Inflation in restaurants & hotels was steady at its multi-month high of 3.0% y/y in October, while inflation in recreation & culture rose from 5.4% y/y to 5.7% y/y during the same period.

Consumer price inflation

Inflation bounced up to 1.4% in October supported by the retail sector

Chart 1: Consumer price inflation(% y/y)

Source: Central Statistical Bureau, NBK estimates

Chart 2: Inflation in housing services(% y/y)

Source: Central Statistical Bureau

Chart 3: Inflation in food & beverages(% y/y)


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> Hiba KoraytemSenior Economist






Table 1: Consumer price inflation

(% change) Year-on-year Annual Avg.

Sept-17 Oct-17 2015 2016

Food & beverages 0.0 0.4 3.0 1.7Tobacco & cigarettes 2.1 2.1 5.6 0.3Clothing & footwear 1.9 2.9 0.3 0.8Housing services* -1.8 0.3- 6.1 6.1Furnishing & household maintenance 3.7 3.8 3.7 2.3

Healthcare 0.4 0.9 1.7 1.2Transportation 1.7 1.7 0.9 4.1Communication -0.1 0.8 0.6 2.0Recreation & culture 5.4 5.7 -0.3 -1.8Education 1.9 1.8 4.8 3.6Restaurants & hotels 3.0 3.0 6.3 6.9Other goods & services 2.8 3.8 2.4 0.8

Core** 0.6 1.6 3.8 3.9

Durable goods 0.9 1.3 2.4 2.5Semi-durable goods 1.8 2.4 1.4 1.1Non-durable goods 3.6 4.6 0.0 0.4Services -0.2 0.8 5.4 4.9

Services ex-housing 3.3 3.0 3.9 2.4

General Index 0.5 1.4 3.7 3.5


* Updated once every quarter

** Excludes food & beverages; estimated by NBK

Chart 4: Inflation in other sectors(% y/y)


Chart 5: Inflation in services ex. housing(% y/y)


Chart 6: Inflation in transportation(% y/y)


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The Kuwait’s current account surplus improved slightly in 2Q17 on lower remittances, a decline in imports, and some gain in investment income during the quarter. The surplus improved to KD 0.62 billion, up from KD 0.44 billion in 1Q17 (Chart 1), rising to an annualized 6.9% of GDP. The balance continues to show broad improvement from a year ago, thanks in large part to the higher oil price during the first half of 2017 compared to the year before.

We expect the improvement in the current account over the last year to continue given the increase in oil prices witnessed in 3Q17 and thus far in 4Q17. The current account balance during the first half of 2017 improved to a KD 1.1 billion surplus, compared to a KD 0.7 billion deficit the year before. We expect this trend to continue for the remainder of 2017, with the current account balance rising to around 4-5% of GDP for the full year. This is due largely to higher oil prices. The price of Kuwait export crude averaged $50 per barrel during the first half of 2017, up from $34 the year before. Prices moved higher still after that, reaching $59.4 in November, a 35% increase from June’s average.

Oil exports have seen healthy growth on the back of higher oil prices, even as production declined due to OPEC cuts. Oil export receipts rose by 17% year-on-year (y/y) in 2Q17, as Kuwait oil price rose by 18%. Non-oil exports, which are dominated by petrochemicals, also rose in tandem, rising by 15% y/y.

Imports have also continued to see solid growth, putting some pressure on the trade balance. Imports grew by 7% y/y, boosted in part by strong demand for capital goods imports. This strong growth follows some weakness in 2016, which is possibly linked to weaker consumer demand. This growth offset some of the gains from oil exports, though the trade balance still managed to increase by KD 0.5 billion y/y during the second quarter.

The services deficit widened slightly, reflecting a jump in Kuwaiti travel spending, though this is likely a one-off. The net services outflow rose by 9.5% y/y to KD 1.7 billion on a 21% y/y increase in travel expenses. Despite this increase, spending on travel services has eased notably over the last year. Spending was flat in 2016, after seeing double-digit growth in prior years. It has eased further in 2017, with spending shrinking by 3% y/y during the first half of the year.

Investment income was largely flat, though it did provide some support to the current account versus 1Q17. Investment income rose 3.1% quarter-on-quarter (q/q) to KD 1.5 billion in 2Q17. The trend in this item has generally been quite supportive over the last year, with investment income during the first half of 2017 up 2.9% y/y. This reflects the continued accumulation of assets in Kuwait’s sovereign wealth fund despite the lower price environment and the fiscal deficits being recorded, as well as rising rates globally.

Another source of support to the current account has come from easing worker remittances. Worker remittances declined by 18% y/y in 2Q17. Remittance outflows had already eased notably from the double-

Balance of payments

Current account surplus improves in 2Q17

Chart 1: Current account(KD billion)


Chart 2: Trade balance

Source: Central Bank of Kuwait; * Kuwait Export Crude

Chart 3: Worker remittances(% of GDP)

Source: Central Bank of Kuwait; NBK estimates

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Balance on goods (% of GDP, LHS)KEC* oil prices ($ pb, RHS)



> Fatema AkashahEconomist




digit growth seen before 2014; they shrank by 9% between 2013 and 2016. The decline is likely due to the lower oil price environment. Cuts in subsidies and increases in various fees have increased the cost of living. At the same time, an increased emphasis on Kuwaitization has reduced demand for expatriate workers.

Chart 4: Financial account(KD billion)


Chart 5: Central bank reserves(months of imports)

Source: Central Bank of Kuwait; NBK estimates

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Table 1: Summary of Kuwait’s balance of payments

(KD million) Level Change

3Q16 4Q16 1Q17 2Q17 KD mn % y/y

Current account 289 626 442 616 174 222.0Goods (net) 1,726 2,018 1,951 2,022 71 29.9

Exports 3,645 4,143 4,182 4,179 -3 16.9Oil exports 3,263 3,724 3,715 3,736 21 17.1Non-oil exports 382 419 467 443 -24 15.1

Imports -1,919 -2,125 -2,231 -2,156 75 6.7Services (net) -1,510 -1,510 -1,653 -1,716 -63 9.5Investment income 1,303 1,413 1,260 1,470 210 -1.3Workers’ remittances -1,026 -1,188 -1,169 -1,032 137 -18.3Other investment -204 -107 53 -129 -182 416.0Current +capital account 253 579 408 584 179 456.0Financial account -561 63 -2,383 -395 1,988 -397.0Direct investment (net) -437 -687 132 -1,706 -1,838 192.0Portfolio investment (net) -1,816 -1,555 -3,480 -1,812 1,668 2.3Other investment (net) 827 3,051 1,554 3,130 1,576 41.1Reserve assets 865 -746 -589 -7 582 -103.0Net errors & omissions 308 -642 1,975 -189 -2,164 -20.3Overall balance -865 746 589 7 -582 -103.0




Chart 1: Monthly real estate sales(KD million)

Source: Ministry of Justice

Chart 2: Residential real estate sales

Source: Ministry of Justice, NBK estimates

Chart 3: Residential real estate price indices(index, 3-month moving average, 2010=100)


Improvement in real estate activity continues apace as sales posted strong growth figures and prices remained relatively stable. Total real estate sales grew an impressive 46% year-on-year (y/y) in October, the highest monthly growth since June 2014, reaching KD 216.9 million, on revived activity in the commercial sector as well as strength from the residential sector sales. Total transactions picked up to 450 units in October, rising 23% compared to the same period last year. Prices remained on the recovery trend overall, except for the residential home price index that saw a return to early 2017 price levels.

The residential sector bolstered the real estate market once again in October, continuing the supportive role witnessed throughout 2017. Residential sales jumped 38% y/y in October to KD 110.3 million with a healthy 357 transactions (Chart 2). In the first ten months of this year, sales activity in the residential property market as a whole has grown by 25% compared to the same period last year. Residential homes made up over 60% of transactions. In residential land sales, there was strong activity in the Sabah Al-Ahmad coastal area with 31 plots sold, Abu Ftaira with 30 transactions, and Al-Funaitees with 24 plots.

Residential land prices continued their recovery after the slowdown in the first half of the year, while residential home prices softened slightly. The NBK residential home price index reached 150.2 in October, down 1.5% from a year ago. The NBK residential land price index picked up further to 176.7, down only 1.1% y/y (Chart 3). The price indices both show progress, given the pace of decline in both indices was more pronounced in the first half of the year.

Investment property sales show pick up but are still lower than the prior year’s monthly average. October sales reached KD 60.1 million, a better performance than the 3Q17 monthly average, but remained below the 2016 monthly average of KD 68 million (Chart 4). Investor interest may be coming back on improved expectations; oil prices have recovered and the government has shown it is committed to the development plan with project awards.

Higher sales in September and October helped reverse the drag on investment building prices. The NBK investment building price index recovered to 181.1 in October, down a mere 2.3% y/y (Chart 5). This is a vast improvement from the double digit declines—to the tune of 14% y/y on average—witnessed earlier this year and in late 2016.

Commercial sector activity bounced back quickly in October following a short lull in market activity. A total of 7 sales took place in the commercial sector, worth a combined KD 46.5 million, up from the previous month’s KD 7.5 million (Chart 6). The largest transaction that took place was a KD 29.4 million commercial plot in Sharq.

Real estate

Real estate activity picks up in October, amid stable prices

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Table 1: Real estate sales Monthly average 2017 Oct 2017

2015 2016 Aug Sept Oct %m/m %y/y

Sales (KD mn) 253.5 195 154.5 144.0 216.9 50.7 46.1

Residential property 113.4 79 67.2 68.3 110.3 61.5 38.0

Investment property 102.2 68 34.8 68.2 60.1 -11.8 2.6

Commercial property 37.9 48 52.5 7.5 46.5 520.1 365.1

Number of transactions 452 354 300 292 450 54.1 23.0

Residential property 323 237 217 207 357 72.5 40.6

Investment property 120 108 68 84 86 2.4 -18.9

Commercial property 8 8 15 1 7 600.0 16.7

Transaction size (KD ‘000) 566 547 515.1 493.0 482.0 -2.2 18.8

Residential property 352 332 309.7 329.8 308.9 -6.3 -1.8

Investment property 882 646 512.0 811.8 699.1 -13.9 26.5

Commercial property 5,185 5,204 3500 7,500 6,644 -11.4 298.7

Source: Ministry of JusticeNote: Our real estate indexes database comprises 65,000 transactions. Each index combines monthly average prices (per sqm when possible) in select, more active, areas of Kuwait; it is then adjusted for volatility. The indexes are based in 2010, i.e. 2010 price index equals 100. The indexes are not adjusted for seasonality nor for number of business days. They also do not cover the commercial sector.

Chart 4: Investment real estate sales


Chart 5: Investment building price index(index, 3-month moving average, 2010=100)


Chart 6: Commercial real estate sales(KD million)


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Listed Kuwaiti companies continued to post a notable rise in profits for the first nine months of 2017, though softness in business activity has affected revenue growth. The financial sector was the main contributor to the solid growth, with investment income benefiting from the stock market rally. Although results in other sectors continued to reflect a more lackluster operating environment, moderation in the consumer sector was visible in company results.

Earnings of listed corporates were up 18% y/y during the first nine months of the year. The aggregate profits of 148 reporting companies, out of 153 Kuwaiti companies listed on Boursa Kuwait, rose to KD 1.34 billion. There was also a significant drop in aggregate losses, which shrank by 50% y/y to KD 43 million; still, the number of loss-making companies was steady at 37.

The financial services sector benefited from the stock market rally this year. Boursa Kuwait’s weighted index was up 9% during 3Q17, as the market benefited from the Zain acquisition by Omantel and the upgrade of Kuwait’s market to emerging by FTSE. Non-bank financial service companies with large exposures to the local market made strong gains on their investment portfolios. Total profits for this sector quadrupled to KD 131 million in 3Q17, up from KD 26 million in 3Q16. The strong results of the sector were broad-based. The number of loss-making companies dropped notably compared to 3Q16 with 54% of reporting companies seeing an improvement in earnings.

Banks were the second largest contributor to profit growth in 3Q17. Profits for the sector rose a good 7% to KD 595 million. Most banks contributed to the growth, with only one bank seeing declines in earnings. While growth came primarily from investment gains, net interest income also supported the sector’s profitability.

Industrial companies were another main contributor to profit growth. The sector’s profits were up 26% in 3Q17. Gains from the sector were concentrated in two main companies, with others posting mixed to flat results.

Real estate companies have also done well, benefiting from the pickup in activity in the sector in 2017. The real estate market witnessed a slow and orderly correction in activity and prices in tandem with the declining oil prices between 4Q15 and 4Q16. Since then, the pickup in the sector’s activity and stabilization in real estate prices help push profits of real estate companies up 24% y/y in 3Q17.

The consumer sector was a clear exception to the positive outcome, with results still reflecting a moderating operating environment. Although profits for the consumer sector were down 11% y/y, only a third of the companies saw declines in earnings. This is in line with the slight improvement that was witnessed in consumer sector data recently. In fact, consumer spending, imports of consumer goods, consumer confidence and household debt have all improved somewhat in 3Q17.

Corporate earnings

Improved corporate earnings still signaling some softness

Chart 1: Profits and losses(KD million )

Source: Boursa Kuwait

Chart 2: Profits by sector


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Table 1: Profits by sector

(KD million)

Net profits Growth

9Q16 9Q17 % y/y

Banks* 537 575 7.1

Basic Materials 16 22 38.1

Consumer Goods 63 56 -11.2

Consumer Services 34 31 -9.9

Financial Services 27 131 391.9

Healthcare 4 5 39.0

Industrials 133 168 26.1

Insurance 19 25 31.7

Oil & Gas 4 5 5.8

Real Estate 93 116 24.1

Technology 6 2 -64.1

Telecommunications 186 184 -1.3

Total 1,123 1,320 17.5


* Adjusted for NBK’s consolidation of Boubyan Bank.



Corporate earnings, 9 months (KD thousand)

Code Company name 9 months Growth

2016 2017 %

Banks

101 National Bank of Kuwait 219,242 238,361 9102 Gulf Bank 32,801 36,147 10103 Commercial Bank of Kuwait 27,490 14,439 -47104 Al-Ahli Bank of Kuwait 19,803 22,094 12105 Ahli United Bank (Kuwait) 39,132 40,044 2106 Kuwait International Bank 13,477 13,468 ...107 Burgan Bank 48,612 53,905 11108 Kuwait Finance House 123,130 137,865 12109 Boubyan Bank 29,627 34,068 15818 Ahli United Bank 134,242 142,313 6820 Ithmaar Bank 1,961 -8,171 …821 Warba Bank 877 4,752 442

Basic Materials

511 Kuwait Foundry 1,328 6,073 357514 Boubyan Petrochemical Co. ... ... …517 Al-Kout Industrial Projects Co. 4,244 5,542 31526 Qurain Petrochemical Industries 10,488 10,561 1

Consumer Goods

619 Kuwait Slaughter House 524 ... …626 National Slaughter House -65 ... …637 Palms Agro Production Co. 427 -59 …701 Livestock Trading & Transport Co. 2,561 2,467 -4702 Danah Alsafat Foodstuff Co. 2,511 -1,171 …703 Kuwait United Poultry Co. 951 ... …704 Kuwait Food Co. (Americana) 44,698 44,898 ...823 Mezzan Holding Co 13,141 10,122 -23

Consumer Services

601 Kuwait National Cinema 7,492 8,938 19602 Kuwait Hotels Co. 495 34 -93610 Sultan Center Food Products Group 1,454 2,191 51615 Kuwait Cable Vision Co. -157 -161 …620 Eyas for Higher & Technical Education Co. 4,762 ... …634 IFA Hotels & Resorts 517 -516 …645 Oula Fuel Marketing Co. 2,992 3,133 5651 Kuwait Resorts Co. 1,909 1,534 -20654 Jazeera Airways Co. 12,011 9,544 -21655 Soor Fuel Marketing Co. 2,808 3,013 7657 Future Kid Entertainment & Real Estate Co. 1,584 1,500 -5660 Al-Rai Media Group Co. 2,941 1,494 -49661 Zima Holding Co. 27 4 -86705 United Foodstuff Industries Co. 482 ... …

Financial Services

201 Kuwait Investment Co. 1,936 16,201 737202 Commercial Facilities Co. 5,461 7,304 34203 International Financial Advisors Co. -4,646 1,456 …204 National Investments Co. 1,035 9,543 822205 Kuwait Projects Company (Holding) 40,020 22,306 -44207 Coast Investment & Development 1,111 665 -40209 Securities House 455 -571 …211 Securities Group 1,235 ... …212 Arzan Financial Group for Financing and Investment 1,988 2,428 22213 Kuwait Financial Centre 1,381 5,832 322214 Kuwait & Middle East Financial Investment (KMEFIC) -3,235 -492 …218 Al-Aman Investment -31 501 …219 First Investment Co. 718 485 -32220 Al-Mal Investment Co. -14,116 -1,364 …221 Gulf Investment House -616 -1,080 …222 Aayan Leasing & Investment 1,625 6,899 325223 Bayan Investment Co. -273 70 …225 Osoul Investment Co. 348 1,155 232227 Kuwait Finance & Investments Co. 222 299 35228 KIPCO Asset Management Co. 890 997 12231 National International Holding Co. 2,849 1,235 -57232 Housing Finance 872 1,288 48233 Al-Madar Finance & Investment -1,217 -1,936 …234 Al-Deera Holding Co. 626 -496 …236 Al-Salam Group Holding Co. 206 -396 …237 Ektettab Holding Co. -106 -338 …



Corporate earnings, 9 months (KD thousand)

Code Company name 9 months Growth

2016 2017 %

240 Al-Madina for Finance & Investment 1,030 857 -17241 Noor Financial Investment 70 4,584 6,444242 Tamdeen Investment 9,194 8,282 -10243 Kuwait Bahrain International Exchange -153 ... …244 Taiba Kuwaiti Holding Co. 108 ... …245 Kuwait Syrian Holding Co. 113 649 475247 Kuwait China Investment Co. -4,632 794 …249 Gulf North Africa Holding Co. 106 179 69250 Amwal International Investment Co. 22 9 -58252 Al-Imtiaz Investment Group 7,029 33,753 380430 Safat Global Holding Co. ... ... …436 Manazel Holding Co. -945 -225 …501 National Industries Group (Holding) Co. -5,057 7,347 …529 Boubyan International Industries Holding -17,063 -529 …611 Al-Arabi Holding Co. -1,467 -387 …624 Privatization Holding Co. 1,058 3,069 190631 Credit Rating and Collection Co. -291 830 …636 Jeeran Holding Co. 432 ... …811 Egypt Kuwait Holding (US$) 12,490 21,339 71813 Gulf Finance House 1 26 2,106817 Inovest 2,785 5,728 106

Health Care

643 Al-Mowasat Holding 2,723 ... …652 Advanced Technology Co. 3,862 5,368 39653 Yiaco Medical Company -2,048 ... …

Industrials

503 Kuwait Cement 15,207 12,254 -19504 Refrigeration Industries 4,647 ... …505 Gulf Cable & Electrical Industries 5,339 7,130 34506 Heavy Engineering Ind. & Shipbuilding 4,547 4,503 -1508 Kuwait Portland Cement 6,297 8,199 30509 Shuaiba Paper Products 1,663 1,482 -11510 Metal & Recycling 142 -16 …512 Aerated Concrete Industries 5,035 4,293 -15515 Gulf Glass Manufacturing 1,204 ... …516 Al-Hilal Cement -4 -47 …519 Kuwait Building Materials Manufac. ... ... …520 National Industries Co. for Bldg. 3,497 1,693 -52522 Equipment Holding -2,932 -3,439 …524 National Co. for Consumer Industries 169 49 -71525 Kuwait Gypsum Manuf. & Trading 162 127 -21527 Salbookh Trading Co. 73 -251 …603 Agility 43,304 49,219 14607 Educational Holding Group ... ... …609 National Cleaning Co. 571 923 62614 Kuwait & Gulf Link Transport Co. 1,457 3,005 106618 Kuwait Co. For Process Plant Cons.& Cont. 550 1,486 170623 Human Soft Holding 16,219 19,039 17625 Nafais Holding Company 5,974 9,643 61628 Safwan Trading & Contracting ... ... …630 Gulf Franchising -145 281 …632 National Ranges Co. -2,070 -1,780 …635 Combined Group Contracting 1,117 1,949 75639 Mushrif Trading & Contracting ... ... …640 United Projects Group 6,163 6,856 11642 Aviation Lease & Finance 14,073 32,815 133650 Mubarrad Transport Co. 914 2,385 161658 KGL Logistics Company 5,634 5,886 4804 Sharjah Cement & Industrial Dev. 3,322 3,607 9805 Gulf Cement 2,556 2,732 7806 Umm Al-Qaiwain Cement Industries 1,940 1,390 -28807 Fujairah Cement Industries 3,744 2,226 -41808 Ras Al-Khaimah for White Cement 1,894 1,341 -29

Insurance

301 Kuwait Insurance Co. -738 7,234 …

302 Gulf Insurance Co. 10,564 8,030 -24

303 Al-Ahleia Insurance Co. 6,183 7,093 15

304 Warba Insurance Co. 886 -2,897 …

305 Kuwait Re-Insurance Co. 233 2,781 1,091

306 First Takaful Insurance Co. 965 2,327 141

307 Wethaq Takaful Insurance Co. 675 157 -77

812 Kuwait Bahrain Insurance Co. 2,107 1,859 -12



Corporate earnings, 9 months (KD thousand)Code Company name 9 months Growth

2016 2017 %

Oil & Gas

507 Contracting & Marine Services Co. 792 ... …

528 Ikarus Petroleum Industries -1,213 ... …

606 Safat Energy Holding Co. -3,666 -907 …

608 Independent Petroleum Group 3,967 5,085 28

617 National Petroleum Services Co. 5,721 7,996 40

627 The Energy House Co. -3,990 -3,874 …

629 Gulf Petroleum Investment 2,380 -3,631 …

633 Burgan Co. for Well Drilling 1,126 ... …

Real Estate

239 Sokouk Holding -2,261 440 …

401 Kuwait Real Estate 4,745 4,522 -5

402 United Real Estate 4,910 285 -94

403 National Real Estate 11,089 12,567 13

404 Salhia Real Estate 8,058 11,006 37

406 Al-Tamdeen Real Estate 8,214 8,489 3

408 Ajyal Real Estate Entertainment Co. 2,382 3,426 44

409 Al-Massaleh Real Estate Co. -171 -1,225 …

410 Arab Real Estate -2,551 -2,266 …

412 Enma'a Real Estate 465 485 4

413 Mabanee Co. 36,477 36,746 1

414 Injazzat Real Estate Development 2,652 3,249 23

416 Investors Holding Group -415 -141 …

417 International Resorts Co. -743 766 …

418 Commercial Real Estate Co. 8,383 11,281 35

419 Sanam Real Estate Co. -140 -92 …

420 A'ayan Real Estate Co. 1,017 1,019 ...

421 Aqar Real Estate 923 1,029 12

422 Kuwait Real Estate Holding 25 43 68

423 Al Mazaya Holding 6,837 6,875 1

424 Al Dar National Real Estate -103 ... …

425 Al-Themar International Holding -323 ... …

427 Tijara & Real Estate Investment 629 355 -44

428 Tameer Real Estate Investment -448 -204 …

429 Arkan Al-Kuwait Real Estate 2,770 2,911 5

431 Al-Argan International Real Estate 1,160 5,079 338

432 Abyarr Real Estate Development Co. -1,219 -1,761 …

433 Munshaat Real Estate Projects Co. -2,936 8,146 …

434 First Dubai For Real Estate Development 2,100 1,720 -18

435 Kuwait Business Town real estate 1,281 1,686 32

437 Real Estate Asset Managemnet Co - Ream 598 707 18

438 Mena Real Estate Co. -12 -154 …

439 Al Mudon International Real Estate -75 -108 …

440 Real Estate Trade Centers -87 -83 …

441 Kuwait Remal Real Estate -748 -769 …

644 Mashaer Holding Co. 585 -19 …

Technology

616 Automated Systems Co. 1,341 1,366 2

638 Al-Safat Tec Holding Co. 5,107 946 -81

647 Future Communications 315 ... …

649 Hayat Communication Co. 49 ... …

Telecommunication

605 Zain Kuwait 124,474 122,450 -2

613 Wataniya 32,201 34,754 8

621 Nibras Holding Co 588 -1,551 …

822 Kuwait Telecommunication Company 29,046 28,277 -3



The resignation of Kuwait’s government early in the month took its toll on the equity market in November, with the Saudi anti-corruption drive later in the month also weighing on prices. This was only partly offset by Omantel’s acquisition of an additional 12.1% stake in Zain, which provided some support to the market at mid-month. By contrast, and despite 18% y/y growth in 3Q17, corporate earnings appeared to have little positive impact. The market lost 5% of its capitalization in November, to end the month at KD 27.8 million.

The price and weighted indices both retreated by 5% on the month, with most sectors seeing declines. The hardest hit were consumer goods and banks, which fell by 15.7% and 5.8%, respectively. Financial sectors also failed to end the month in positive territory, despite positive financial results. Meanwhile, trading volumes continued to retreat. The average daily traded value declined to KD 15.6 million in November, down 23% on the month.

Foreign buying in November continued to edge lower to a 3-month moving average of 15.8% but still compared well to its average in the first three quarters of the year.

Stock market

Government’s resignation weighs on Boursa in November

Chart 1: Boursa Kuwait

Source: Thomson Reuters Datastream, Boursa Kuwait

Chart 2: Regional markets(rebased indexes)


Chart 3: GCC markets & oil


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Table 1: Boursa Kuwait performance by sector, November 2017Change %

Price WeightedPrice index Weighted index

Market % of Trading activity Price to

index index cap (KD mn) Market (daily avg.) earnings*

30-Nov 30-Nov m/m YTD m/m YTD 30-Nov mn shares mn KD 30-Nov

Total market 6197 399 -4.9 7.8 -5.0 4.9 27,832 100.0% 80.5 15.6 15.0

Banks 876 474 -6.6 4.7 -5.8 10.0 13,686 49.2% 19.2 7.0 14.5

Basic materials 1237 725 -3.4 23.1 -2.0 29.0 790 2.8% 0.6 0.3 22.8

Consumer goods 877 584 -10.2 -22.0 -15.7 -38.2 901 3.2% 0.5 0.1 12.5

Consumer services 920 499 -1.4 -0.5 -0.3 10.3 754 2.7% 2.7 0.2 50.5

Financial services 633 406 -6.0 5.9 -5.4 -5.5 2,496 9.0% 30.5 2.7 17.9

Healthcare 1511 623 0.0 21.4 0.0 5.1 237 0.9% ... ... ...

Industrials 1705 721 -3.6 26.9 -0.5 22.7 3,387 12.2% 4.5 1.9 15.2

Insurance 1003 591 -6.9 0.9 -8.3 -1.4 345 1.2% 0.1 0.0 10.6

Oil & gas 941 278 -5.5 20.6 -4.9 3.6 242 0.9% 0.8 0.0 …

Real estate 879 524 -4.8 1.0 -4.8 -5.4 2,077 7.5% 15.6 1.0 17.4

Technology 499 251 -9.9 -17.8 -12.0 -22.0 36 0.1% 0.1 0.0 …

Telecommunications 547 330 -3.7 -14.0 -4.1 0.0 2,880 10.3% 5.9 2.2 11.9

Parallel 1014 373 -7.1 -7.9 -1.9 -5.1 … … … … …

Source: Boursa Kuwait, Thomson Reuters Datastream* PE is calculated using market cap as of month close and latest 12 months trailing earnings.

Chart 4: Market indexes(rebased indexes)

Source: Thomson Reuters Datastream, Boursa Kuwait

Chart 5: Foreign buyers(% y/y, 3mma)


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Head Office

KuwaitNational Bank of Kuwait SAKPAbdullah Al-Ahmed StreetP.O. Box 95, Safat 13001Kuwait City, KuwaitTel: +965 2242 2011Fax: +965 2259 5804Telex: 22043-22451 NATBANK

www.nbk.com

International Network BahrainNational Bank of Kuwait SAKPZain BranchZain Tower, Building 401, Road 2806, Seef Area 428, P.O.Box 5290, Manama, Kingdom of BahrainTel: +973 17 155 555Fax: +973 17 104 860

National Bank of Kuwait SAKPBahrain Head OfficeGB Corp TowerBlock 346, Road 4626Building 1411P.O. Box 5290, ManamaKingdom of BahrainTel: +973 17 155 555Fax: +973 17 104 860

JordanNational Bank of Kuwait SAKPAmman BranchShareef Abdul Hamid Sharaf StP.O. Box 941297Shmeisani, Amman 11194JordanTel: +962 6 580 0400Fax: +962 6 580 0441

Saudi ArabiaNational Bank of Kuwait SAKPJeddah BranchAl Khalidiah District, Al Mukmal Tower, Jeddah P.O Box: 15385 Jeddah 21444Kingdom of Saudi ArabiaTel: +966 2 603 6300Fax: +966 2 603 6318

LebanonNational Bank of Kuwait(Lebanon) SALBAC BuildingJustinian Street, SanayehP.O. Box 11-5727, Riyad El SolhBeirut 1107 2200, LebanonTel: +961 1 759700Fax: +961 1 747866

IraqCredit Bank of IraqStreet 9, Building 187Sadoon Street, District 102P.O. Box 3420Baghdad, IraqTel: +964 1 7182198/7191944 +964 1 7188406/7171673Fax: +964 1 7170156

EgyptNational Bank of Kuwait - EgyptPlot 155, City Center, First Sector 5th Settlement, New Cairo EgyptTel: + 20 2 26149300Fax: + 20 2 26133978

United Arab EmiratesNational Bank of Kuwait SAKPDubai BranchLatifa Tower, Sheikh Zayed RoadP.O. Box. 9293, Dubai UAETel: +971 4 3161600Fax: +971 4 3888588

National Bank of Kuwait SAKPAbu Dhabi BranchSheikh Rashed Bin Saeed Al Maktoom (Old Airport Road)P.O. Box 113567Abu Dhabi, U.A.ETel: +971 2 4199555Fax: +971 2 2222477

United States of AmericaNational Bank of Kuwait SAKPNew York Branch, 299 Park AvenueNew York, NY 10171, USATel: +1 212 303 9800Fax: +1 212 319 8269 United KingdomNational Bank of Kuwait(International) PlcHead Office, 13 George StreetLondon W1U 3QJ, UKTel: +44 20 7224 2277Fax: +44 20 7224 2101

National Bank of Kuwait(International) PlcPortman Square Branch7 Portman SquareLondon W1H 6NA, UKTel: +44 20 7224 2277Fax: +44 20 7486 3877

FranceNational Bank of Kuwait(International) PlcParis Branch90 Avenue des Champs-Elysees75008 Paris, FranceTel: +33 1 5659 8600 Fax: +33 1 5659 8623

SingaporeNational Bank of Kuwait SAKPSingapore Branch9 Raffles Place # 44-01Republic PlazaSingapore 048619Tel: +65 6222 5348Fax: +65 6224 5438

ChinaNational Bank of Kuwait SAKPShanghai Representative OfficeSuite 1003, 10th Floor, Azia Center1233 Lujiazui Ring RoadShanghai 200120, ChinaTel: +86 21 6888 1092Fax: +86 21 5047 1011

NBK Capital

Kuwait NBK Capital 38th Floor, Arraya II Building, Block 6, Shuhada’a Street, SharqP.O. Box 4950, Safat 13050KuwaitTel: +965 2224 6900Fax: +965 2224 6904 / 5 United Arab EmiratesNBK Capital Limited - UAEPrecinct Building 3, Office 404Dubai International Financial CenterSheikh Zayed RoadP.O. Box 506506, DubaiUnited Arab EmiratesTel: +971 4 365 2800Fax: +971 4 365 2805

Associates

TurkeyTurkish BankValikonagl CAD. 7Nisantasi P.O. Box 34371,Istanbul, TurkeyTel: +90 212 373 6373Fax: +90 212 225 0353

© Copyright Notice. Kuwait Economic Brief is a publication of National Bank of Kuwait. No part of this publication may be reproduced or duplicated without the prior consent of NBK.

While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. Kuwait Economic Brief is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “Reports” section of the National Bank of Kuwait’s web site. Please visit our web site, www.nbk.com, for other bank publications. For further information please contact NBK Economic Research at:Tel: (965) 2259 5500Fax: (965) 2224 6973Email: [email protected]

Kuwait Economic Brief - Amazon S3 · 2017-12-10 · Kuwait Economic Brief - December 2017 Contents...

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Transcript of Kuwait Economic Brief - Amazon S3 · 2017-12-10 · Kuwait Economic Brief - December 2017 Contents...