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The advantages of investing in Oman
include a strong macroeconomic situation and a business-friendly environment,
writes Celine Salloum of Zawya.
Story page head:
Oman funds industry remains on an even
keel
By Celine Salloum of Zawya
As a middle-income country with an
economy based primarily on dwindling hydrocarbon resources, Oman plays a firm
but active role as a member of the Gulf Cooperation Council (GCC).
As markets unveil higher volatility
and with no easy solutions in sight to the problems of the developed world,
fund managers are struggling to adapt and clients are increasingly becoming restless.
The situation in the GCC is no different. Companies continue to struggle in
growing their assets under management (AUM) and making ends meet.
The Gulf economies have made massive
improvements over the past year with greater growth and government spending
lifting the prospects of many key companies.
The advantages of investing in Oman
include, but are not limited to, a strong macroeconomic situation and a
business-friendly environment in a stable, secure nation in an unstable yet
strategic region. The nation has made considerable investment in infrastructure
as it is in a strategic geographic location at the crossroads of the Middle
East, Africa and Asia.
Nevertheless, after
three decades of intense development effort, Oman still faces a host of
challenges stemming mainly from the fact that the economy is reliant on oil, a
non-renewable, declining resource subject to a high degree of price instability.
Though mutual funds
have existed in Oman for almost a decade and a half, they have become more
popular in the past three years. The
market is quite small compared to other GCC states but it is evolving steadily. Stock market intermediaries trust that
expansion of a vibrant mutual fund industry is vital for bringing down the
investment risk for small players on the bourse. The mutual fund industry in
Oman is still in a nascent stage of development, mainly due to lack of
awareness among the investor community.
With increased liquidity in the
market and the Muscat Securities Market returning good growth, mutual funds in
Oman are increasingly becoming a favored investment instrument, especially
among small investors. Most
fund managers have reported an increase in the number of investors and the fund
sizes have grown substantially.
According to Zawya Funds Monitor, Oman
had USD 182 million of assets under management (AUM) at the end of the fourth
quarter of 2011, almost 0.55% higher than in the previous quarter (USD 181
million), and 13% higher than in the second quarter of the that year (USD 161
million). Net fund flow in the last quarter of 2011 was a positive USD 8.41
million, after a net outflow of USD 1.13 million in Q3-2011. This reflects the
massive investments that took place at the end of 2011.
By the end of October 2012, Oman is
a domicile for 12 mutual funds, of which 11 are equity funds and one is a money
market fund that was launched in May 2012 by BankMuscat Asset Management and regulated by the
Capital Market Authority. The fund is a unique open-ended
investment fund targeted at corporate and institutional investors.
GCC Equity Funds Performance (YTD – 27 Sept
2012)
Source: Zawya Funds Monitor
Among conventional GCC equity funds,
year-to-date, UAE funds performed best with a 9.1% increase compared to the
start of the year. Saudi funds followed with an 8.27% increase; Oman
appreciated by 2.02%; Qatar and Bahrain increased 1.27% and 0.61%,
respectively. Kuwait equity funds decreased 0.19%.
Although oil and gas production will
remain the backbone of Oman’s economy for years to come, the non-oil sectors are
making great strides. Islamic financial products, first authorized by the Omani
government in 2011, are set to take off later this year, with the banking, real
estate and insurance sectors all expected to see benefits.
“Overall, there are clear indications
of a strong uptake of Islamic banking products,” said Khalid Yousaf, director of
Islamic finance advisory services at KPMG Oman. “However, we have to remember
that a successful launch of Islamic banking products and services will depend
largely on their competitive pricing, marketing and utility to the end-users.”
The Islamic funds industry has developed
rapidly over the last decade to become one of the key components of the Islamic
finance industry. The Central Bank of Oman has opened the door for the licensing
of fully fledged Islamic Banks, as well as Islamic windows of conventional
domestic and foreign banks operating in the sultanate.
The introduction of Islamic banking is
also having a ripple effect throughout the wider financial sector. There has
been strong movement on the MSM, with a number of banks looking to raise
funding to support their entry.
Oman’s stock
exchange
The
GCC markets are witnessing a domino effect of the volatility in the global
financial markets. With
corporate earnings showing signs of healthy growth driven by the stable
economic outlook in Oman, the MSM is expected to regain positive investor
sentiment. The benchmark was
up nearly 2% at the end of July 2012.
The amendments to the
Capital Market Law in recent years have made the capital market in Oman more
transparent and better regulated. This has led to increased investment. More liquidity
in the market has attracted the fence-sitters as well.
Oman has also
improved the transparency of its securities markets and publicly traded
companies largely through the work of the CMA, the regulatory body for such
areas.
YTD Performance of the Muscat Securities Market:
Source: Zawya
The MSM index has dropped about 0.77% YTD, closing on 25 October
at 5,660.03; however, this was a 1.74% gain over September’s close of 5,563.25.
There are no
restrictions in Oman on the flow of capital and the repatriation of profits.
Foreigners may invest in the MSM as long as they do so through an authorized
broker.
Fund managers and
investors in the Arab Gulf expect this year to be better for business than
2011, a new survey by Advent Software says. The need to
anticipate the market's changing demographics suggests that asset managers
should focus continued attention on advice and products tailored to the needs
of an aging global population.
Celine Salloum is a research
analyst at Zawya
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