Markaz Volatility Indices (MVX)

Kuwait Financial Centre S.A.K Markaz R E S E A R C H August 27 Markaz Volatility Indices (MVX) August 27 Research Highlights: Markaz volatility indices for the GCC, GEM and S&P 5. Summary The Volatility levels across the six GCC countries represented by eight indices continue to witness a decline. MVX GCC Index continued to decline for the third month in a row. The MVX of five of the seven country indices, are trading well below the 12 day Moving Average (MVA) level of MVX. This is in stark contrast to the alarming levels of volatility witnessed in the Emerging Markets (EM) and S&P 5 in July. The MVX S&P 5 touched an all time high of 128 on July 31st and ended the month with a 36.7% premium over the 12 day moving average. On a Month on Month (MoM) basis, MVX S&P 5 witnessed an increase of 17.16%. (Refer table 1) The Emerging market returns which are highly co-related to an extent of 77% with S&P monthly returns on a five year period also witnessed a similar spike in volatility in the month of June. On a MoM basis, the MVX EM increased by 15% and is at a premium of 14% over the 12 day MVX MVA. Qatar market witnessed the highest decline in volatility rates. On a Month on Month (MoM) basis, the Qatar MVX declined by 9.15%. This is the third consecutive month of decline in MVX in Qatar. The MVX in Qatar is trading 25% lower than its 12 MVA. MVX Kuwait is currently at 49, which is almost 35.48% lower than the 12 day MVA. After declining about 38% in the month of June, MVX Kuwait witnessed a decline of 2.43% in July. The decline rates in MVX continue to get thinner. Similarly in Saudi Arabia too, the MVX Saudi Arabia declined by 2.27% in July as compared to 4.45% in June and 23.99% in May. Even though the decline rates are becoming thinner, the spot MVX in comparison to the 12 day MVA continues to be lower by 2%. M.R. Raghu CFA, FRM Head of Research +965 224 828 rmandagolathur@markaz.com Amrith Mukkamala Research Analyst amukkamala@markaz.com Abu Dhabi, is the only market wherein the volatility levels increased in the month of July. The MVX Abu Dhabi increased by 7.21% and is one of the two markets in GCC to trade above the 12 day MVA by 9.76%. The other market which is also trading above the 12 day MVA is Oman. Even though in the case of Oman, there has been a decline in volatility as measure by MVX Oman by 5% on a MoM basis in July, the spot MVX is at a premium of 5% to the 12 day MVA. Figure 1: Markaz Volatility Index (MVX) as on 31st July 27 1867 218 2225 1458 128 118 1139 123 Kuwait Financial Centre S.A.K. Markaz 583 49 P.O. Box 23444, Safat 1395, Kuwait GCC MSCI EM S&P Base Index - 1 (1st Jan 24) Kuwait Saudi Arabia Bahrain Qatar Dubai Oman Abu Dhabi Source: Markaz Research

August 27 Table 1: Markaz Volatility Index (MVX) 1 Current Historic Historic Historic Historic Value High High Date Low Low Date 31-Jul-7 12-D Moving Average MVX-Saudi Arabia 118 2,877 8-Aug-6 392 28-Apr-4 1,269 MVX-Kuwait 49 1,535 11-Jun-6 396 8-Feb-5 76 MVX-Qatar 123 3,385 5-Jul-5 731 1-Jan-5 1,613 MVX-Dubai 1867 5,716 18-May-6 954 11-Sep-4 2,13 MVX-Abu Dhabi 2225 5,448 3-Jul-5 79 29-Mar-4 2,27 MVX-Oman 218 4,393 15-Aug-5 922 27-Apr-4 1,926 MVX-Bahrain 1139 2,352 1-May-6 1, 23-Dec-4 1,185 MVX-GCC 583 2,165 14-Jul-7 574 8-Aug-6 766 MVX-EM 1458 2,97 2-Jul-6 788 4-Oct-5 1,278 MVX-S&P5 128 1,28 31-Jul-7 482 22-Jan-7 753 Source: Markaz Analysis 1 Base Date Index 1 as of 1st Jan 24 Markaz Volatility Index (MVX)-Country Charts (Till July 27) Saudi Arabia Kuwait 22 2 18 16 14 12 1 8 6 4 2 Saudi Index (LHS) MVX Saudi (RHS) 35 3 25 2 15 1 5 14 13 12 11 1 9 8 7 6 5 4 3 2 1 Kuwait Index (LHS) MVX Kuwait (RHS) 18 16 14 12 1 8 6 4 2 3-Jan-4 13-Mar-4 15-May-4 17-Jul-4 18-Sep-4 27-Nov-4 5-Feb-5 9-Apr-5 11-Jun-5 13-Aug-5 16-Oct-5 25-Dec-5 6-Mar-6 8-May-6 1-Jul-6 11-Sep-6 21-Nov-6 3-Jan-7 3-Apr-7 5-Jun-7 3-Jan-4 1-Mar-4 19-Apr-4 8-Jun-4 27-Jul-4 14-Sep-4 3-Nov-4 27-Dec-4 21-Feb-5 13-Apr-5 4-Jun-5 23-Jul-5 11-Sep-5 3-Oct-5 2-Dec-5 21-Feb-6 16-Apr-6 4-Jun-6 23-Jul-6 11-Sep-6 5-Nov-6 24-Dec-6 19-Feb-7 15-Apr-7 3-Jun-7 18-Jul-7 Qatar 12 1 8 6 4 2 Qatar Index (LHS) MVX Qatar (RHS) 4 35 3 25 2 15 1 5 Abu Dhabi 7 65 6 ADB Index (LHS) 55 5 MVX ADB (RHS) 45 4 35 3 25 2 15 1 5 6 55 5 45 4 35 3 25 2 15 1 5 4-Jan-4 17-Mar-4 26-May-4 4-Aug-4 13-Oct-4 29-Dec-4 14-Mar-5 23-May-5 1-Aug-5 11-Oct-5 25-Dec-5 12-Mar-6 21-May-6 3-Jul-6 9-Oct-6 25-Dec-6 8-Mar-7 17-May-7 26-Jul-7 3-Jan-4 7-Mar-4 5-May-4 7-Jul-4 5-Sep-4 7-Nov-4 13-Jan-5 22-Mar-5 21-May-5 18-Jul-5 15-Sep-5 16-Nov-5 24-Jan-6 26-Mar-6 24-May-6 22-Jul-6 19-Sep-6 6-Dec-6 19-Feb-7 3-Apr-7 9-Jul-7 2

August 27 Dubai Oman 9 8 7 6 5 4 3 2 1 Dubai Index (LHS) MVX Dubai (RHS) 7 6 5 4 3 2 1 7 65 6 55 5 45 4 35 3 25 2 15 1 5 Oman Index (LHS) MVX Oman (RHS) 48 45 42 39 36 33 3 27 24 21 18 15 12 9 6 3 27-May-4 25-Jul-4 23-Sep-4 3-Nov-4 5-Feb-5 5-Apr-5 4-Jun-5 2-Aug-5 1-Oct-5 1-Dec-5 8-Feb-6 8-Apr-6 6-Jun-6 3-Aug-6 4-Oct-6 21-Dec-6 7-Mar-7 16-May-7 25-Jul-7 28-Dec-3 1-Mar-4 26-Apr-4 21-Jun-4 16-Aug-4 11-Oct-4 15-Dec-4 16-Feb-5 13-Apr-5 8-Jun-5 4-Aug-5 29-Sep-5 28-Nov-5 3-Jan-6 28-Mar-6 24-May-6 19-Jul-6 14-Sep-6 15-Nov-6 17-Jan-7 14-Mar-7 9-May-7 8-Jul-7 Bahrain GCC 3 Bahrain Index (LHS) MVX Bahrain (RHS) 25 12 GCC Index (LHS) MVX GCC (RHS) 25 25 2 1 2 2 15 8 15 15 6 1 1 4 1 5 5 2 5 23-Dec-4 27-Feb-5 25-Apr-5 21-Jun-5 17-Aug-5 12-Oct-5 11-Dec-5 15-Feb-6 13-Apr-6 11-Jun-6 6-Aug-6 1-Oct-6 29-Nov-6 4-Feb-7 2-Apr-7 29-May-7 24-Jul-7 16-Nov-5 7-Dec-5 28-Dec-5 18-Jan-6 9-Feb-6 2-Mar-6 23-Mar-6 13-Apr-6 4-May-6 25-May-6 15-Jun-6 6-Jul-6 27-Jul-6 17-Aug-6 7-Sep-6 28-Sep-6 19-Oct-6 9-Nov-6 1-Dec-6 22-Dec-6 17-Jan-7 7-Feb-7 1-Mar-7 22-Mar-7 13-Apr-7 4-May-7 25-May-7 13-Jun-7 8-Jul-7 25-Jul-7 EM S&P 5 13 12 11 1 9 8 7 6 5 4 3 2 1 EM Index (LHS) MVX EM (RHS) 24 22 2 18 16 14 12 1 8 6 4 2 18 16 14 12 1 8 6 4 2 S&P Index (LHS) MVX S&P (RHS) 12 1 8 6 4 2 2-Jan-4 1-Mar-4 26-Apr-4 21-Jun-4 17-Aug-4 12-Oct-4 7-Dec-4 1-Feb-5 29-Mar-5 24-May-5 19-Jul-5 13-Sep-5 8-Nov-5 3-Jan-6 28-Feb-6 25-Apr-6 2-Jun-6 15-Aug-6 1-Oct-6 5-Dec-6 3-Jan-7 27-Mar-7 22-May-7 17-Jul-7 1-Jan-4 12-Feb-4 25-Mar-4 7-May-4 18-Jun-4 2-Aug-4 14-Sep-4 26-Oct-4 8-Dec-4 21-Jan-5 7-Mar-5 19-Apr-5 1-Jun-5 14-Jul-5 25-Aug-5 7-Oct-5 18-Nov-5 4-Jan-6 16-Feb-6 31-Mar-6 15-May-6 27-Jun-6 9-Aug-6 21-Sep-6 2-Nov-6 15-Dec-6 1-Feb-7 16-Mar-7 3-Apr-7 11-Jun-7 24-Jul-7 3

August 27 Appendix 1: MVX- Historical Statistics 4

August 27 Appendix: 2 Markaz Volatility Index (MVX)-Methodology Markaz Volatility Index (MVX) follows the following steps for its calculation. MVX S&P 5 enjoys a 8% correlation with CBOE VIX index. Calculate 12-day moving standard deviation (A) Calculate a factor based on movements more than +/-.5% daily (B) Adjust A with B Index the findings with base date of 1 st Jan 24 as 1 MVX MVX considers 12-day moving standard deviation as we believe this reflects the medium-term risk profile appropriately. It is possible to construct the MVX using a shorter time frame (3 day) or longer time frame (24 day). MVX also considers a second parameter for estimating the volatility. This parameter considers the number of days during the previous 12 trading days that index trades outside a pre-set level. Presently, this level is +/-.5%. The +/-.5% is derived after observing that market returns normally falls within the band of +/-/5% on a daily basis most of the time (Table 2). Any movement away from this indicates heightened level of volatility. The second parameter is a reinforcement to the first parameter and may be influenced by the first parameter. However, since the methodology is uniformly applied across all the markets, the model is strengthened by the second parameter. MVX S&P 5 enjoys a 8% correlation with CBOE VIX index. % Number of days of deviation Saudi Abu MSCI Arabia Kuwait Qatar Oman Dubai Dhabi Bahrain EM S&P GCC Less than +/-.25% 16 31 23 37 14 24 45 25 37 25 +/-.25% & '+/-.5% 17 22 16 23 15 19 26 24 24 23 +/-.5% & '+/-.75% 12 18 11 15 12 13 12 18 16 14 +/-.75% & '+/-1.% 9 12 8 1 9 1 8 12 12 12 +/-1.% & '+/-1.25% 9 5 8 6 8 9 4 6 6 8 +/-1.25% & '+/-1.5% 5 4 5 2 6 6 2 7 3 4 +/-1.5% & '+/-1.75% 4 2 4 2 6 4 1 3 2 4 +/-1.75% & '+/-2.% 4 1 3 3 4 3 1 2 1 2 +/-2.% 24 3 21 3 25 13 2 4 1 9 1 1 1 1 1 1 1 1 1 1 Source: Markaz Research. Date Range of study: Jan 24 May 27. 5

Markaz Published Researches R E S E A R C H August 27 Sl No Title Release Date Research Highlights 1 GCC Equity Funds: The Asset September 26 Issues behind asset allocation for GCC equity Allocation Challenge funds. The report examines the asset allocation pattern among GCC equity fund managers. 2 GCC Leverage Risk: How real it is? November 26 Examining the risk behind increased exposure of the GCC financial system to stock market. The report considers four key variables: Size, Asset Intermediation, Cross border activity and Capital market representation. The report also analyses the linkage between bank credit growth and interest rate margin. 3 GCC for fundamentalists: A topdown framework 4 Managing GCC Volatility: Strategies and Tactics 5 Derivatives Market in GCC: Cutting a (very) long market short 6 To Leap or To Lag: Choices before GCC Regulators December 26 Establishing a framework involving fundamental variables affecting GCC stock markets. The report examined nine important variables: economic factors, valuation attraction, economic liquidity, fund managers average, earnings growth potential, moving average, investor sentiment, geopolitical developments and market liquidity. February 27 Devising risk-based portfolio strategy to benefit from the high-risk environment of the GCC stock markets. The report discusses four strategies: Relative vol, Contrarian, Technical and Options-based strategy. March 27 Examining the need for introduction and growth of derivatives market in GCC. The report examines the limitations of GCC capital markets and how introduction of derivatives can overcome some of these limitations. April 27 Examining the evolution and progress of GCC capital market structures relative to MENA and BRICS. The report benchmarks GCC capital market regulatory progress vis-à-vis Mena and BRIC countries and provides a road map. 7 Real Estate Report - Syria April 27 Examining the trends and developments concerning the real estate sector in the Arab Republic of Syria. 8 May 27 Presenting asset allocation strategy for GCC 9 GCC Asset Allocation June 27 stock market using an in-house proprietary model. The report also analyses the performance of GCC equity funds. 1 A Gulf Emerging Portfolio: And Why Not? June 27 A Study on Saudi, Kuwait, and UAE for Portfolio Enhancement. 11 Markaz Volatility Indices (MVX) July 27 Launch of Volatility Indices for the six GCC markets, EM and S&P. 12 GCC Asset Allocation July 27 13 GCC Asset Allocation August 27 Presenting asset allocation strategy for GCC stock market using an in-house proprietary model. The report also analyses the performance of GCC equity funds. To obtain a copy, contact: Kuwait Financial Centre Markaz - Client Relations & Marketing Department Tel: +965 224 8 Ext. 184 Fax: +965 2414499 Postal Address: P.O. Box 23444, Safat, 1395, State of Kuwait Email: info@markaz.com 6

August 27 Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Central Bank of Kuwait. The report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. Markaz has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals, with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. 7