All that walking paid off for the Kuwaitis. Their government has approved the creation of a fund to invest in the local stock market.
November 19, 2008 12:51 by kippreport
The Kuwaiti government has finally caved in to investors’ demands: they’re creating a fund to shore up its ailing bourse. The Kuwait Investment Authority (KIA), the nation’s $264.4 billion sovereign wealth fund, has been assigned to set up the investment portfolio. The purpose of the fund is to restore investor confidence and to reduce the impact of the credit crunch on Kuwait’s economy. The government, however, did not announce the size of the fund.
The creation of the fund was spurred on by the central bank governor Sheikh Salem Abdul-Aziz al-Sabah. The governor, who is in charge of a task force created to deal with the financial crisis, has recommended that the KIA buy critical shares in the local stock market. The sovereign wealth fund is already a major shareholder in a number of Kuwaiti companies, including Mobile Telecommunications Co.
The decision comes after a number of demonstrations and walkouts staged by Kuwaiti investors throughout October. Last week, investors convinced the government to shut down the bourse in order to curb further losses. The bourse was reopened on Monday.
While the fund may resolve investors’ financial woes in the short term, it may send out the wrong message. Investing in the stock market comes with risks, and although the effects of the current economic crisis are astounding (GCC markets have $500 billion this year), like all crashes, the market will eventually correct itself. A government intervention at this point only shows that Kuwaiti investors aren’t patient enough to allow the stock market to take its course. It also proves to them that their government’s funds can be used as a crutch, which isn’t a healthy assumption in a ‘free’ market.
It’s a sentiment that the UAE government seems to agree with. When The National asked the Economy Minister if the UAE government is planning on a buyout plan, Sultan bin Saeed al Mansouri responded: “We are not considering it. We are a free market and we are going to keep it open. We are not going to make the same mistakes that other economies have.”