KUWAIT CITY, 30 December 2004 — Kuwaiti shares surged 33.8 percent in 2004 on positive economic indicators and a stable security outlook, despite continued violence in neighboring Iraq, but economists predict a market slowdown in 2005.

Growth on the second-largest Arab stock market was already slower than last year, when the Kuwait Stock Exchange index more than doubled to close at a historic high.

The KSE index closed yesterday, the last day of trading for the year, on 6,409.50 points, up from the final 2003 figure 4,790.20. It set an all-time high of 6,498.90 points on Dec. 7.

Trading in Kuwait begins on Saturday and ends Wednesday.

“The fiscal situation of the country is good, oil prices are high and the general outlook is favorable,” said leading Kuwaiti economist and head of Al-Shall Economic Consultants Jassem Saadun.

“The market, however, resisted pressures for correction, but its growth has been much lower than in 2003 ... Moreover, the security situation in Iraq has been less positive than expected,” Saadun told AFP.

The market ended the year on a negative note, dropping three weeks in a row because of profit-taking sales and fears over liquidity levels.

The KSE Index has been rising steadily for more than four years but its pace picked up remarkably after last year’s ouster of Iraqi President Saddam Hussein who had ordered his forces to invade the emirate in August 1990. A US-led coalition drove Iraqi troops out seven months later.

The index closed 2001 and 2002 up 26.8 percent and 39 percent, respectively. But it ended 2003 a staggering 101.7 percent higher.

This year’s average daily trading was 61.6 million dinars ($208.8 million), down eight percent on 67 million dinars ($223 million) in 2003.

Last year, daily average grew 158 percent on 2002 average of $86.4 million, and about five times the 2001 average of $48 million.

Annual turnover was $51.8 billion, less than about 56 billion in 2003, but much higher than $22 billion in 2002.

The turnover was more than 123 percent of Kuwait’s gross domestic product (GDP) in 2003.

Saadun expects the market to slow down in 2005 and predicted that a small to medium correction may take place.

“The bourse will slow down in 2005. We will have less liquidity, lower budget surplus, higher interest rates and, more importantly, prices of stocks are very high,” he said.

Oil prices, which hit record highs in 2004, are expected to ease next year accompanied by output cuts, thus hitting revenues. Oil income accounts for more than 90 percent of total Kuwaiti revenues.

“But if violence begins to subside in Iraq and stability gradually returns, many of the expectations will change and the market may rebound,” Saadun said.

Six of the eight sectors increased, led by non-Kuwaiti companies, which gained 51 percent. They were followed by industries, at 18 percent, and services, at 17.5 percent. The insurance and food sectors dropped slightly.

The banking sector, which includes National Bank of Kuwait (NBK), the largest listed firm, rose just over six percent. The real estate sector gained 12 percent.

The KSE’s capitalization rose 20.5 percent to $73.8 billion at the end of 2004.

Most of the rise, however, is due to the listing of 17 new companies in the market during the year, taking the number of listed firms to 125.