Liquidity is back, reasons still unclear: There has been a broad shift in local liquidity into equities with YTD ADVT of USD135mn, up from USD39mn ADVT in 2016 (Fig.1), and the market is up 10% YTD, outperforming MENA, EM and FM (Fig. 2). The reasons are unclear, but we believe that weaker real estate prices are pushing money into other assets, and local brokers report high participation from local investors. Foreign investors (with FM or MENA mandates) are significantly underweight, and are likely trying to catch up. One important consideration for Kuwait is that Pakistan (the most-owned market by FM managers) is leaving the benchmark in May (Figs.4-5). While FM funds are not benchmark strict, they are unlikely to keep Pakistan as their top allocation after it migrates to EM. One final factor is the cUSD1.1bn proceeds from FOOD KK’s tender offer expected to close on 13 Feb, should this money flow back to the Kuwaiti market. (Read full report)  (Mohamed Al Hajj, Simon Kitchen)