Kuwait's stock market is the most attractive among the seven Gulf Arab bourses after the oil producer decided to scrap capital gains tax on foreign share investment last month, HSBC said in a research note on Tuesday.
The bank is "extremely bullish" on all Gulf equities and holds 8 percent of its emerging markets portfolio in the region - an "overweight" position, it said in a note, citing high oil prices, infrastructure investments and falling interest rates.
"While the whole Gulf Cooperation Council should benefit and we think it is worth having a broad exposure, investors may want to nuance this slightly," HSBC said.
"From a strategy perspective, right now we think that Kuwait is the most attractive GCC investment destination," it said.
Kuwait's parliament voted on December 26 to abolish capital gains tax of 55 per cent for foreigners investing in the stock market and reduce foreign corporate tax to 15 per cent from as much as 55 per cent. The moves would draw more capital into Kuwait, both as foreign direct investment and portfolio flows, HSBC said.
Kuwait stocks were also cheaper than those elsewhere in the Gulf, it said. In US dollar terms the market has lost 5 per cent of its value in the past three months, while Saudi Arabian stocks have surged 44 per cent. The Kuwaiti benchmark was the Gulf's second worst performer last year, gaining 24.75 per cent compared with rallies of almost 62 per cent in Oman, 52 per cent in Abu Dhabi and more than 40 per cent in Dubai and Saudi Arabia.
"Within the GCC, Kuwait now looks cheaper relative to other regional markets than has been the case for some time," HSBC said, estimating that 164 stocks on Kuwait's main index were trading at around 13.6 times its earnings forecast for 2008 and 11.8 times for 2009. The 100 stocks on the Saudi benchmark were trading at around 18 time earnings for both years, HSBC said.
Kuwait's 10 largest stocks were more expensive, trading at 14.6 times earnings for 2008 and almost 13 times those for 2009, although they were the most likely to benefit from investment after the tax cuts, it said.
Banks and industrial stock were most likely benefit from growth driven by foreign investment, high oil prices and lower interest rates, HSBC said.
Gulf Arab countries usually shadow US interest rates to prevent their dollar pegged currencies from appreciating. Kuwait tracks it dinar against a currency basket dominated by the dollar.
HSBC did not name any stocks in its note.
Kuwait Finance House, National Bank of Kuwait, Gulf Bank; and Commercial Bank of Kuwait are the four largest lenders on the Kuwait index. National Industries Group is the biggest industrial stock.
Mobile Telecommunications Co, the third biggest Arab telecom company, is Kuwait's largest stock. (Reuters)
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