Kuwait investment companies face liquidity crunch

30/06/2010 00:00 AST

In a presentation for the performance of the investment sector in Kuwait, the Investment Research Department at KIPCO Asset Management Company (KAMCO) has prepared a detailed analysis of the financial position of the listed investment companies which have suffered during the financial crisis and the resulting credit crunch. The purpose of this report is to shed some light on the progress for the sector’s financial leverage which is currently considered to be one of the most important factors in light of the large amounts of accumulated debt along with the shortage of liquidity for the financial sector.

We would also like to note that the following analysis is based on figures for the sector as a whole and is not addressed to any specific company.

Due to the significant losses accumulated by the sector since the intensification of the financial crisis in September 2008 and the investment sector’s large exposure to the securities markets, the sector was one of the most affected in the local market for reasons that did not stop short at market conditions but incorporated a few critical issues that included the following:

n Shortage of liquidity which hampered the investment companies’ ability to take advantage of current attractive opportunities available in the market;

n Negative investors’ sentiment as a result of the high market volatility and the lack of clarity regarding the market’s short term direction;

n Fears of further investment losses has increased investors’ risk averseness as they cling to the remaining of their savings;

n The increased difficulty of the investment sector’s operating environment as a result of the halt in the credit market especially for the investment companies;

n Insufficient operating cash flow that can barely cover operating expenses for some of these companies in comparison with pre-crisis abundant cash flows from operating, financing and investment activities.

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Arab Times