KUWAIT, 30 June 2006 — Kuwaiti investors are worried that a strong opposition showing in Parliamentary polls yesterday may signal more political tension and delay major projects.
Investors said the number two Arab market may draw some fuel from strong second-quarter financial results, which start in mid-July, but uncertainty over the new Parliament’s shape has prompted a decline in trading volume.
Kuwait’s assembly has a big say in economic policy issues and multi-billion-dollar development projects, with surpluses created by abundant petrodollar flows. “If the opposition is stronger, the market will be affected negatively ... there will be big conflict and that will create political instability and this uncertainty is bad for the market,” said Mustafa Behbehani of Kuwait Gulf Consultancy.
“Instead of going ahead with the big projects, everything will be stopped. That is very bad for the economy,” he added.
The June 29 vote for a new 50-member assembly takes place against a backdrop of tension between the government and former reformist MPs over electoral reforms, which led the Emir, Sheikh Sabah Al-Ahmad Al-Sabah, to dissolve the house last month.
One plan awaiting approval is the $8.5 billion “Project Kuwait” to boost oil output from northern oilfields with help from international energy companies.
The plan was introduced in the early 1990s. Several opposition Parliamentary candidates say plans to boost Kuwait’s oil output are unnecessary at a time of huge budget surpluses.
The key index of the Kuwaiti market finished June at just over 10,001 points, or down 12.6 percent from the start of 2006. It has been hit by the row in which opposition figures have accused some Cabinet ministers and ruling family members of trying to rig the election in favor of a rubber-stamp Parliament. Officials dismiss the accusations.
Some analysts said day-to-day trading in the immediate aftermath of the election could be volatile, as decisions may be influenced by rumors while the new Parliament takes shape.
“On a retail level, the poll result could make a difference to investors in their day-to-day decision-making, because many are driven by rumors and who they know,” said Ali Taqi, senior manager for capital markets at National Bank of Kuwait.
Few in the market see lasting damage if the opposition sweeps the polls, having withstood past crises like Iraq’s 1990-91 occupation.
“Short-term the market will fall when the government is not dealing properly with the opposition. This will affect market sentiment but not lead to a crash,” said Naser Al-Nafisi of Joman Center for Economic Consultancy. “In the end nobody will accept damage to the economy and they will do something about it,” he added.
Having corrected lower, analysts see Kuwaiti shares at reasonable valuations compared with other Gulf markets. Kuwait shares are trading on just under 12 times forward earnings compared to an Arab market average of 15.5, Dubai investment bank Shuaa Capital said.
