US embassy cable - 05KUWAIT1756

UNCLAS SECTION 01 OF 02 KUWAIT 001756 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 4520/ITA/MAC/AME, 3131/USFCS/OIO 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, BEXP, PINR, KU 
SUBJECT: KUWAIT STOCK EXCHANGE: AN INSIDE VIEW 
 
REF: KUWAIT 1373 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
1.  (U) Summary:  Econ Officer met on April 27 with Kuwait 
Stock Exchange Manager of the Technical Bureau Department Ms. 
Wafa Mohamed Al-Rasheed for an overview and tour of the 
Exchange.  Al-Rasheed described the modernization and 
upgrading of the Exchange, including the installation of a 
new electronic trading display system provided by a U.S. 
company.  She described the regulatory environment of the 
Exchange as "very restricted", and laid out some elements of 
the Exchange's Strategic Development Plan, which she is 
implementing.  She spoke of the need for additional training 
in the U.S. for her staff and asked for Embassy assistance in 
communicating with U.S. training institutions.  End Summary. 
 
KSE: Background and Overview 
---------------------------- 
 
2.  (U) On April 27, Econ Officer met with KSE Manager of the 
Technical Bureau Department Ms. Wafa Mohamed Al-Rasheed to 
learn more about the stock exchange, the current trading 
environment and future directions of the KSE.   The Kuwait 
Stock Exchange (KSE), having broken the 8,000 point barrier 
on April 3 (reftel), continues to set new records and has 
gained over 30% so far this year.  The modern Exchange was 
organized by Amiri Decree in 1983 and adopted an electronic 
trading system in 1995.  The KSE makes money by charging 
brokerage houses 30% of their trading commissions, plus fees 
for initial company listings and company membership fees. 
The KSE is currently listing 120 Kuwaiti companies, 14 
non-Kuwaiti companies, and a handful of mutual funds, and is 
open for trading 3 hours a day, Saturday to Wednesday. 
Individuals can register to buy and sell shares on the 
exchange (there are currently over 70,000 registered 
investors), and there are 14 licensed brokerage houses that 
can place orders at the KSE on behalf of individual 
investors.  By an Amiri Decree passed in 2000, foreigners can 
own up to 49% of the shares of the Kuwaiti companies listed 
on the exchange.  Al-Rasheed said that there are about 200 
foreign individuals with stock trading accounts, but no 
corporations yet.  She attributed the absence of foreign 
companies to the tax law, which would require any foreign 
corporation making profits in Kuwait to pay 50% taxes on 
those profits. 
 
The Soaring Market: "It Makes No Sense" 
--------------------------------------- 
 
3.  (U) When asked about specific reasons for the daily 
records set by the KSE, Al-Rasheed said that "it makes no 
sense" and could not be attributed to any specific market 
fundamentals.  She explained that most of the trading 
actually takes place by the 14 licensed brokers, who take 
orders over the phone from their clients.  The hundreds of 
people sitting around at the market everyday represent 
individual traders who, in Al-Rasheed's opinion, are actually 
doing very little trading and are mostly just "passing the 
time."  She noted that many of them are retired Kuwaitis and 
that their presence creates a "herd mentality" which can 
drive stocks up or down very quickly. 
 
Technological Advancements 
-------------------------- 
 
4.  (U) Al-Rasheed described how the KSE has evolved from a 
system based on an erasable whiteboard to one on par with the 
most technologically advanced stock exchanges of the world. 
Daktronics, based in South Dakota, completed an initial 
installation of the first phase, worth $1.5 million, of an 
integrated electronic display system in December 2004.  In 
March 2004, the KSE awarded Daktronics an additional $7 
million contract for the second phase of the project.  Two of 
the 14 licensed brokers are currently taking stock orders 
from their clients online, according to Al-Rasheed, with the 
others expected to follow soon.  Al-Rasheed added that the 
KSE itself plans to implement direct online purchasing 
through its website (http://www.kuwaitse.com).  Al-Rasheed 
also said that the KSE would soon create new sector 
classifications, adding new categories for Islamic 
investments, holding companies, and the IT sector. 
 
 
KSE Regulated "More Than Other Markets" 
--------------------------------------- 
 
5.  (U) Al-Rasheed said that, based on her experiences with 
other stock markets, the KSE was highly regulated, perhaps 
more so than most others.  She said that insider trading was 
prohibited, and that KSE employees need to put in a written 
request if they themselves wish to purchase stocks.  Most 
supervision of companies is done through the Ministry of 
Commerce and Industry and through the bank lenders of the 
companies, Al-Rasheed explained, and not through the KSE. 
The KSE only provides supervision over actual trading 
activity, and has suspended companies from trading on the 
exchange for various suspicious activities related to 
inflation of stock prices.  Noting recent news reports about 
the over-subscription of a number of high-profile initial 
public offerings, Al-Rasheed said that the KSE was trying to 
cut down on "group buying" of IPO shares and was going to 
limit individuals to buying just the shares allotted to a 
person and his or her immediate family.  IPO shares of new 
companies have always been distributed on an individual 
basis, Al-Rasheed explained, but some individuals would buy 
or "rent" the Civil IDs of many people and purchase stocks on 
their behalf, then simply hold on to all of the stocks. 
 
Women: They Can't Vote, But They Get Their Own Trading Hall 
--------------------------------------------- -------------- 
 
6.  (SBU) Al-Rasheed took great personal pride in the "Ladies 
Trading Hall", which is a separate area for women on the 
upper floor of the exchange.  She said that even she, as a 
high-ranking employee of the exchange, feels uncomfortable 
going on to the main floor because there are so many men 
there.  She said that women had complained to the KSE 
management that their husbands, brothers, uncles, etc., were 
taking their money and playing the stock market, and that the 
women had no control over how the men invested the money.  To 
rectify the situation, and to allow women to feel comfortable 
at the exchange, KSE created the Ladies Trading Hall as a 
separate area.  It is well-equipped and even has the new 
Daktronics display system before the men have it in the main 
trading area.  On the day that we visited the KSE, the Hall 
was quite active, with about 50 women present.  The KSE 
provides a female employee who can train the women traders. 
Al-Rasheed said that the Hall was doing very well.  She 
described herself as a supporter of women's rights, including 
the right to vote and run for office.  She said that she 
thinks the whole voting issue is really about money and the 
fact that the men "just don't want to share the cake." 
 
Seeking U.S. Training Opportunities 
----------------------------------- 
 
7.  (U) Al-Rasheed spoke of the need for more training for 
KSE employees and specifically mentioned her desire to get 
more employees to the U.S. for training.  She asked for 
post's assistance in getting some of her staff to the NY 
Institute of Finance for training.  (Comment: Post has 
contacted the appropriate person at the NYIF and put the two 
organizations in contact.)  Al-Rasheed said that she 
regularly visits stock exchanges around the world to get new 
ideas and usually tries to keep the KSE ahead or on par with 
other exchanges.  She and other KSE staff had attended a U.S. 
Securities and Exchange Commission workshop in the U.S. in 
the past, but did not attend this year because one of her KSE 
colleagues was unable to secure his visa in time to attend. 
 
Bio Note 
-------- 
 
8.  (SBU) Al-Rasheed speaks excellent English and travels to 
the U.S. often.  She is one of 15 children.  One of her 
brothers is the recently appointed Minister of Information, 
Annas Al-Rasheed.  Another brother, Ahmad Al-Rasheed, is 
Manager of Kuwait Oil Company's Planning Group, and one 
sister, Maha, is a well-known attorney. 
 
******************************************** 
Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
******************************************** 
LEBARON