Portfolio Risk Management Analysis - Free Assignment Sample

Ques: Portfolio Risk Management Analysis. Table of Contents Introduction Economic and Industrial Analysis Company analysis Conclusion References Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.72 3000 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.68 3000 WARBA INSURANCE COMPANY WINS 27027.027 0.148 4000 Index 7,628.64 10000 ALI Nasser Mohammed 22/9/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.86 3583.33334 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.67 2955.88236 WARBA INSURANCE COMPANY WINS 27027.027 0.148 4000 Index 7,628.64 10539.2157 ALI Nasser Mohammed 29/9/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.71 2958.33334 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.7 3088.2353 WARBA INSURANCE COMPANY WINS 27027.027 0.15 4054.05405 Index 7,628.64 10100.6227 ALI Nasser Mohammed 6/10/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.68 2833.33334 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.69 3044.11765 WARBA INSURANCE COMPANY WINS 27027.027 0.144 3891.89189 Index 7,541.56 9769.34287 ALI Nasser Mohammed 13/10/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.685 2854.16667 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.68 3000 WARBA INSURANCE COMPANY WINS 27027.027 0.134 3621.62162 Index 7,421.56 9475.78829 ALI Nasser Mohammed 20/10/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.69 2875 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.67 2955.88236 WARBA INSURANCE COMPANY WINS 27027.027 0.13 3513.51351 Index 7,317.17 9344.39587 ALI Nasser Mohammed 27/10/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.7 2916.66667 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.67 2955.88236 WARBA INSURANCE COMPANY WINS 27027.027 0.12 3243.24324 Index 7,318.99 9115.79226 ALI Nasser Mohammed 3/11/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.6 2500 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.67 2955.88236 WARBA INSURANCE COMPANY WINS 27027.027 0.13 3513.51351 Index 7,178.64 8969.39587 ALI Nasser Mohammed 10/11/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.53 2208.33334 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.67 2955.88236 WARBA INSURANCE COMPANY WINS 27027.027 0.126 3405.4054 Index 7,051.77 8569.62109 ALI Nasser Mohammed 17/11/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.58 2416.66667 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.65 2867.64706 WARBA INSURANCE COMPANY WINS 27027.027 0.118 3189.18919 Index 7,047.27 8473.50292 ALI Nasser Mohammed 24/11/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.46 1916.66667 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.63 2779.41177 WARBA INSURANCE COMPANY WINS 27027.027 0.108 2918.91892 Index 6,756.83 7614.99735 ALI Nasser Mohammed 1/12/2014 7869 Name Ticker # of shares Price of share Value AJWAN GULF REAL ESTATE CO AJWAN 4166.66667 0.4 1666.66667 COMMERCIAL BANK OF KUWAIT CBK 4411.76471 0.61 2691.17647 WARBA INSURANCE COMPANY WINS 27027.027 0.108 2918.91892 Index 5,221.95 7276.76206 ALI Nasser Mohammed 8/12/2014 7869 Introduction The portfolio has been constructed to increase my profit margin as much as possible. This is done by diversifying the systematic risk as much as possible. This can be done by investing in good companies. The good stocks will cover the poor stocks. The risk due to decline in the price of one stock will be mitigated by the rise in the price of another stock. Economic and Industrial Analysis The economy of Kuwait is a small and open economy. The currency of Kuwaiti is the highest valued currency in the world. 10% of the oil reserves of the world are in Kuwait. The contribution of petroleum to the GDP of the country is 50%. It also forms a source of export revenue amounting to 95%. The Government earns considerable amount from the sale of petroleum. The major source of revenue for the country is petroleum. The revenue of the country has increased from 85% in 2001 to 95% in 2013. The major issue that the economy of Kuwait is facing is diversification. The major reason behind the poor diversification of Kuwait is the hostile relationship between the National Assembly parliament and the government. The negative relationship between the parliament and the government has prevented the implementation of economic reforms. Before the Gulf war had taken place, Kuwait was successful in diversifying its economy. But the diversification of the economy declined significantly after 199 0 Iraqi invasion. The companies in Kuwait relocated themselves to Dubai and Bahrain. The political tension in the country has suppressed the growth of any developmental projects in the country. The freedom in the monetary policies and the labor freedom have been overshadowed by the corruption in the country. Kuwait is one of the rich Arab countries. 50% of the GDP of the country is from the sale of oil and 95% of the revenue of the country is from exports. The legal framework of the country requires further development. There is no individual income tax in Kuwait. The source of income of the Government from tax is from foreign owned companies who pay 15% of the corporate tax on net profit. The burden of tax is less than 1% of GDP. The expenditure of the Government is 39% of the gross domestic output. The growth of the private sector of Kuwait will depend on the political climate of the country but it is expected that Kuwait will have fiscal and current account surplus in 2015 to 201 9. The decline in the prices of oil will not affect the fiscal and current account climate of the country. The growth in real GDP will weaken. It will be 2.9% average in the next five years. The national stock market of Kuwait is the Kuwait stock exchange. The stock exchange of Kuwait is one of the largest stock exchanges in the world. The opportunity for investment in the Kuwait stock exchange is unique. There has been speedy growth of the capital market of Kuwait due to industrial development. The stock exchange of Kuwait has a range of different shares from top companies. The quality stocks are attractive for the domestic as well as the foreign investors. The top performing sectors in the Kuwait stock exchange are banking, real estate, investment , insurance (Finance.mapsofworld.com, 2014). The expected return from the investment in the stock exchange depends on the macro economic variables. Various factors like the GDP, supply of money, inflation and rate of interest affect the stock market performance. The macro economic variables are intricately linked with the economic performance of the country. The financial market of Kuwait is less mature than the market of the developed nations. The economy of the country is small and open. The developed countries like US have an already established financial market. The stock market of Kuwait is in a developing stage. The major sectors that contribute to the GDP of the country are the oil and the service sectors. More than 94% of the GDP is contributed by these sectors. The other sectors contribute only 50% of the GDP. Privatization has not grown in the country. The private companies are surviving with the assistance from the government. The non oil growth in the country is expected to increase by 3.5% in 2014. The non oil growth in the country was 2.8% in 2013. The growth in the non oil sector is driven by the increase in the domestic consumption. The capital spending of the Government has increased. There has been an increase in the private investment of the country. The GDP growth of Kuwait has been positive in 2014. It is 1.3 percent. The GDP growth of the country in 2013 was -0.2%. In 2014, the rat e of inflation was stable at 3%. In 2014, the current account surplus of Kuwait is 38% of the total GDP (Imf.org, 2014). The political turmoil in the country is affecting the performance of the stock exchange. The ambiguity among the investors regarding the parliamentary elections has affected the performance of the stock exchange. The political scenario of the country has negative effect on the stock market which has led to political instability in the country. The tensions in Syria has casted a shadow on the entire share markets in the Arab region. The political scenario of the country has dominated the technical side of the country. Any kind of political turmoil or war like situation has adverse effect on the overall economy. The worsening political situation in Iraq has adversely affected the GCC markets. Despite the foreign turmoil in politics, the domestic political situation in the country has been stable. The stock market was high. The positive sentiment of the investors was restored. There are certain reforms that have been declared in the country that has affected the sentiments of the public . The economic outlook of the Kuwait has been affected adversely. However, these adverse affects has been mitigated by the healthy spending of the Government and the ambitious plan of the Government (kuwait.nbk.com, 2014). In the past decade, changes in the world economy have been quite noticeable. The economic and financial power in the countries has shifted. There are certain structural changes in the economic structure of the world. Earlier there were stringent restrictions against entry into certain markets. But in the era of globalization, the markets have been liberal. The performance of the country has improved by the cross border financial transactions. There has been tremendous boom in the international capital market. The foreign institutional investment has increased in the country. They have invested in the major industrial organizations. The major growth in the financial markets has been backed by the deregulation and liberalization of the various regulations governing the financial transactions, internationalization has increased the geographic scope, intense competence among the countries to take advantage of the economies of scale and restructuring of the financial institutions of the w orld. The major markets in the world have shifted towards securitization of the finance. This has resulted in the high rate of fluctuations in the market. The high rate of fluctuations in the market has been due to volatility of the interest rate and the exchange rate. The commercial banks find dominance in the GCC nations. The economic activity of the country relies on the traditional credit from the banks. The stock exchange of the world has been dominated by the banking sector. There are few domestic companies in the stock exchange of Kuwait. The major segment of the financial market is governed by the stock exchange. The countries issue bonds and other financial instruments which are the essential modes of financing of the countries. The backbone of the financial markets is foreign institutional investors but there is lack of participation of the foreign investors in the financial markets of Kuwait. The financial markets in Kuwait lack depth. The stock exchange in Kuwait is dominated by the domestic companies especially banks, companies belonging to the insurance sector and the industrial companies. The activity of the companies listed in the stock exchange is limited. The development of the oil market internationally has contributed to the gro wth of the oil industry domestically. The domestic GCC market has grown considerably. The growth of the oil industry in Kuwait has led to the development of the other economic sectors. The crisis in the domestic financial market has resulted in change in the rules and regulation. The institutional structure of the country has changed considerably. This has increased the potentiality of the capital markets in GCC. There are various factors that affect the financial market. The share market is dominated by the public sector organizations (Development of Capital Markets in the Countries of the Gulf Cooperation Council, 2014). Conclusively, it can be said that the capital market in Kuwait is dominated shares of the bank and the insurance sectors. The performance of the stock market is affected by the political situation of the country. The turmoil in Iraq has adversely affected the performance of the stock market in the country. There is high rate of potentiality of the Kuwait stock exchange. The price of the stock will increase which will be beneficial for the growth of the economy(In.reuters.com, 2014). The portfolio created by me concentrates on the banking industry, insurance industry and the real estate sector. These are the top performing sectors in Kuwait. They are efficient as well as stable industries in Kuwait. The portfolio consists of stocks from the top most companies in the industry. They are Ajwan Gulf real estate Co, Commercial bank of Kuwait and Warba insurance company. These companies were chosen by me to diversify the unsystematic risk. It will keep me insured for a longer duration of time. The industries in which I have invested form the largest segment in the country. The stocks in the banking sectors have contributed well to the rise in the index of the Kuwait stock exchange (Financial Times, 2014). Company analysis Ajwan Gulf Real Estate is a public company listed in the Kuwait stock exchange. The company is listed in the stock exchange since June 2008. The sector in which Ajwan Gulf real estate operates is the real estate sector. The company is focused in diversifying its real estate activities. Ajwan is established in the Kuwait city. The company is involved in the managing the commercial shops in the country. The company is also involved in the construction of the housing complexes. The company has invested the real estate portfolio that is specialized by the other companies. The company is also involved in the consultation of the real estate projects. It is involved in the studies related to real estate. The company is involved in the construction of the real estate projects related to housing, commercial and industrial projects. They are involved in the building the houses, operation of the houses and the transfer system. The price of the share of Ajwan Gulf real estate in the month of September 2014 is 0.72. The price of the share had risen to 0.82 in the end of September. In the first week of October, the price of the share was 0.71. In the middle of October, the price of the share has fallen to some extent to 0.68. The price of the share remained stable at 0.68 till 20th October. At the beginning of November, the price of the share has fallen slightly to 0.67. The share price suffered huge decline in the end of November. The price of the share fell to 0.58 from September 2014 to November 2014. The price of Ajwan Gulf real estate further fell to 0.4 in the first week of December. I suffered from loss in investing in this share. The share was purchased by me at a price of 0.72. But the current price of the share is 0.4.I purchased 4166 share at a price of KWD 0.72 amounting to 3000 KWD. I sold the shares at a price of 40KWD. I sold the total shares at 1666.67 KWD. I incurred a loss of 1333.33 KWD(Asm ainfo.com, 2014). The Commercial Bank of Kuwait is one of the leading banks in the country. It is engaged in wide range of banking products. One of the top performing sectors of the country is the banking sector. It also provides investment services in addition to the saving accounts and the term deposits. The bank also provides facilities to invest in the Indian stock market. The share price of commercial bank of Kuwait in end of September 2014 was 0.68 KWD. The price of the share was fluctuating between 0.67 to 0.65 KWD till the month of November 2014. The price of the share fell to 0.63 KWD in first week of December. The price of the share was 0.61 KWD in the first week of December. I purchased the shares 4411 shares at a price of 0.68. I purchased the shares at 3000 KWD. I sold the shares at 2691 KWD. I suffered a loss of 309 KWD. The price of the share in the banking sector has declined to a considerable extent. This is due to the rise in the demand of the shares in the oil sector. The stability in the oil prices has raised the demand for the shares of oil. This has hampered the performance of the other sectors (Gulfbase.com, 2014). The Warba insurance company is one of the largest insurance companies in Kuwait (warbaonline.com, 2014). The traditional values of Kuwaiti culture are imbibed in the Warba insurance company. The organization is operating for the past 35 years. They provide several kinds of assistance to the customers. The services of the organization includes life insurance services, provides insurance against fire accident and various types of risk. The company provides various kinds of benefits to the customers. They offer new kinds of services to the clients. The service of the insurance company is driven towards meeting the need of the customers. The price of the share in the month of September was 0.148 KWD. The price of the share increased in the first week of October. Post the first week of October, the price of the share began to fall considerably. It fell from 0.148 KWD to 0.108 KWD in the month of December. I bought 27027 shares of Warba Insurance Company in the month of September. The pric e of the share was amounting to 4000 KWD. I sold the shares at a price of 0.108 KWD amounting to 2918 KWD. I suffered a loss of 1082 KWD (Asmainfo.com, 2014); (Kitco News, 2014). Conclusion From the analysis of the present price of the shares, it is evident that my portfolio gave negative returns. Within the short period of time, the prices of the shares were falling to a considerable extent. I suffered a net loss. At the current scenario, the service sectors are not among the top performing sectors. The top performing sectors are the oil sector. Investment in these sectors would have given positive results. Although the banking industry is one of the performing sectors in Kuwait, the share price of the company has been falling to a considerable level for the past few months. References Asmainfo.com, (2014). Ajwan Gulf Real Estate Co. - AJWAN - Daily Summary- Kuwait Stock Market News, Price, Charts, Financials Analysis. Asmainfo.com, (2014). KSE - Kuwait Stock Exchange - News, Price, Charts, Financials, Research, Fundamental and Technical Analysis of Listed Companies. Development of Capital Markets in the Countries of the Gulf Cooperation Council. (2014). 1st ed. [ebook] pp.1-11. Finance.mapsofworld.com, (2014). Kuwait Stock Exchange. Financial Times, (2014). Kuwait can learn from Saudi capital market law - FT.com. Gulfbase.com, (2014). Commercial Bank of Kuwait | CBK | Company Overview. Imf.org, (2014). Kuwait: Concluding Statement of the 2014 Article IV Consultation. In.reuters.com, (2014). MIDEAST WEEKAHEAD-Slow progress on development projects puts Kuwait stock market boom at risk. Kitco News, (2014). KSE Extends Losses With 26.41 Pts Drop. kuwait.nbk.com, (2014). Kuwait: KSE corrects in 2Q14, but remains up thus far in 2014. warbaonline.com, (2014). COMPANY PROFILE.