Kuwait's Market Reforms Open New Horizons for ETFs and Sukuk: A Liquidity-Driven Opportunity in 2025

As Kuwait's capital markets undergo their most significant transformation in decades, global investors are presented with a rare opportunity to capitalize on emerging liquidity and diversification in one of the Gulf's most undervalued markets. The Capital Markets Authority (CMA) and Boursa Kuwait's second-stage reforms under Phase Three of the Market Development Program have laid the groundwork for the introduction of exchange-traded funds (ETFs) and Islamic bonds (sukuk), while aligning infrastructure and regulation with global standards. For investors seeking exposure to Gulf markets or ESG-aligned assets, the strategic timing is now.

Infrastructure Upgrades: The Bedrock of Liquidity

At the heart of Kuwait's reforms is a multiyear overhaul of its financial infrastructure. Upgraded IT systems, a Central Counterparty Clearing (CCP) framework, and the KASSIP cash settlement system are designed to reduce operational friction and attract institutional capital. These upgrades, combined with the elevation of brokerage firms to “Qualified Broker” status, create a market environment primed for higher liquidity and reduced settlement risks.

The CCP framework, in particular, is a game-changer. By centralizing clearing and settlement, it eliminates counterparty risk—a critical barrier for international investors wary of opaque Gulf markets. Meanwhile, the KASSIP system streamlines cash transactions, ensuring smoother execution for ETFs and sukuk.

Note: While Boursa's total market cap has risen steadily since its 2019 privatization, liquidity remains constrained by low foreign ownership (currently ~5%). The reforms aim to address this gap.

Regulatory Reforms: Building Trust, Attracting Capital

Kuwait's reforms are not just about technology—they're about trust. Sub-account numbering under omnibus accounts and stricter oversight of brokerage firms enhance transparency, addressing historical concerns about market opacity. These steps align with global standards, such as those set by the International Organization of Securities Commissions (IOSCO), making Boursa Kuwait more palatable to institutional investors.

The CMA's emphasis on “market depth” and “resilience” signals a shift toward attracting long-term capital rather than short-term speculation. For global investors, this means reduced volatility and a more stable environment to deploy assets.

Global Alignment and ESG Appeal: Sukuk's Strategic Role

The reforms' emphasis on global standards positions sukuk as a linchpin for attracting ESG-focused capital. Islamic finance principles—such as alignment with Sharia law and ethical investment criteria—have gained traction among institutional investors seeking to pair returns with social impact.

Sukuk issuance has surged from $62 billion in 2020 to an estimated $100 billion in 2024, driven by demand for green and sustainability-linked instruments. Kuwait's sukuk listings could capture a significant slice of this growth.

Kuwait's sukuk market, once overshadowed by Saudi Arabia and Malaysia, now stands to benefit from its modernized infrastructure. Projects tied to Vision 2035—such as renewable energy or real estate development—could provide investors with exposure to high-impact sectors while meeting ESG criteria.

Investment Implications: Act Now, Diversify Early

While launch dates for ETFs and sukuk remain pending legislative changes, the groundwork is complete. For investors, this is a “buy the rumor” moment:

1. ETFs: Gateway to Gulf Liquidity
   Boursa Kuwait's ETFs will offer a cost-effective way to diversify into a market with a P/E ratio ~30% below the MSCI Emerging Markets Index. As foreign ownership limits ease (a reform under discussion), ETFs could channel passive capital flows into undervalued sectors like telecoms and industrials.

2. Sukuk: ESG Meets Infrastructure Demand
   Sukuk tied to infrastructure projects—such as Kuwait's planned $50 billion National Development Plan—offer a rare blend of yield and ethical alignment. With global ESG bond issuance projected to hit $2 trillion by 2025, Kuwait's sukuk could attract pension funds and sovereign wealth entities seeking Sharia-compliant, yield-driven assets.

3. Risk Management: A First-Mover Advantage
   The delay in launch dates is a feature, not a bug. Investors who position now—through existing Gulf ETFs (e.g., EGShares MSCI Emerging Markets Islamic Index Fund) or regional Sukuk ETFs—can secure exposure ahead of the liquidity surge once ETFs and sukuk listings go live.

Conclusion: Kuwait's Time to Shine

Kuwait's reforms are not incremental—they're transformative. By modernizing infrastructure, enhancing transparency, and aligning with global norms, Boursa Kuwait has created a platform for liquidity-driven growth. For investors, the message is clear: act now to capitalize on undervalued Gulf markets and ESG-aligned opportunities. The legislative hold-ups are temporary; the structural shift is permanent.

In 2025, Kuwait isn't just a Gulf market—it's a global player in the making. Those who move first will secure the best seats at the table.

Disclaimer: Always conduct independent research and consult with a financial advisor before making investment decisions.