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Oman: Steady as it goes

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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.

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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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