From the Kuwait Stock Exchange to Wall Street... What is driving the indices?

Whenever the Kuwait Stock Exchange index rises, a friend asks me, “Have new positive figures emerged?” And if it falls the next day, they look for the negative news that caused the decline.

The question is logical, because the fundamental premise is that share prices should reflect companies’ performance, profits, and expectations, which are the primary drivers of their value. However, in some trading sessions, a company’s figures may remain unchanged, while the market movement is driven by the inflow or outflow of global fund money into or out of the Kuwaiti market.

If these “Fund Flows” are large relative to market liquidity, their impact appears quickly in share prices and the index, pushing it up or down.

This effect becomes more pronounced during “Index Rebalancing,” when a stock is added or removed, its “Index Weight” changes, or the proportion of its free float available for trading (Free Float) is adjusted. In such cases, index-tracking funds adjust their portfolios, meaning buying or selling is executed to comply with index rules, not as a judgment on the company’s performance.

The impact of these flows became evident in Kuwait following its upgrade to an emerging market and its subsequent inclusion in the “FTSE Russell,” “S&P,” “Dow Jones,” and “MSCI” indices between 2018 and 2020.

On the day it was added to “MSCI,” November 30, 2020, trading value exceeded 961.6 million dinars, most of which came from foreign flows, according to the Kuwait Stock Exchange. Company profits did not suddenly change that day; rather, their position within global indices changed.

I had previously written about this concept, drawing on a topic discussed by The Economist in 2021. In August 2026, the magazine returned to the subject on the occasion of the 50th anniversary of Vanguard launching the first index fund available to individual investors.

The fund was met with ridicule upon its launch in 1976, and Vanguard founder Jack Bogle later described its beginning as a “resounding failure.” Yet what seemed laughable turned into a massive industry; index funds are no longer just tools that track markets, but have become influential in driving price movements.

The scale of these funds today explains the significance of the issue. “Passive Investing” has become a major component of the markets.

According to The Economist, more than half of the net assets of US investment funds are now invested in index-tracking funds. With this scale, the impact of their flows on prices is impossible to ignore.

Reading the index is not limited to the effect of flows. In the United States, “Goldman Sachs” noted that large technology stocks accounted for 53% of the S&P 500 index return in 2025. The index rise was real, but it did not reflect similar strength across the rest of the market; instead, a limited group of heavily weighted stocks drove more than half of the return.

These two phenomena may intersect, as a recent study suggests that the impact of flows into tracking funds may be stronger on large-cap stocks than on others, increasing their weights and making the index more dependent on them.

Therefore, knowing that the index rose or fell is not the end of the analysis, but its beginning. In Kuwait, the movement may result from fund inflows or outflows, or adjustments to market or individual stock weights. In global markets, a limited number of companies may drive the majority of the index’s rise, while the rest of the market is weaker than the overall figure suggests.

This does not diminish the importance of profits, governance, valuation, and management efficiency, which remain the foundation of a company’s long-term value. Nor do fund flows explain every rise or fall; however, they have become a significant factor in short-term price movements, and a complete market reading is incomplete without considering them.

Therefore, when the market or a particular stock moves in a striking manner, it is not enough to ask what has changed in the company. We must also ask whether new money has entered, whether the stock’s weight has changed, and whether most companies participated in the move or whether it was driven by a limited number of them.