On increasing participation in the stock exchange
To what extent has the Covid-19 pandemic impacted equity investments in Oman?
ABDULAZIZ AL BALUSHI: The onset of the pandemic had a significant negative impact on all stock markets in the first quarter of 2020. Oman was no exception, with the Muscat Stock Exchange (MSX) 30 Index falling by 20% during that period. However, the MSX has not participated in the global liquidity-fuelled recovery, given the twin impact of lockdown measures and low oil prices. These factors – together with the traditional lack of liquidity and low levels of foreign investor participation in Oman’s bourse – have contributed to the market remaining subdued. As a result, valuations are significantly less expensive and much more attractive when compared to regional and global peers.
As the stock market has lower levels of liquidity, the real measure of the sultanate’s economic and fiscal health is its international sovereign debt, which continues to improve on the back of oil price recovery and fiscal reforms. The positive evolution over the last year is evident, with the country’s US dollar-denominated bond that matures in 2025 recovering from a yield of 11.5% in March 2020 to 3.3% in June 2021.
Where do you see the most attractive post-pandemic opportunities for greenfield investments, and how can the sources of capital for such projects be raised and diversified?
AL BALUSHI: Oman should tap into its available resources and educated workforce to capitalise on tech trends such as e-commerce, online banking, cloud services and telehealth, as well as other growth segments. The country already has the necessary infrastructure in place: an advanced telecommunications network, quality logistics services and a free trade zone dedicated to technology called Knowledge Oasis Muscat. However, to increase the amount of capital available for greenfield investments, capital market regulations must foster the development of private equity, venture capital and other investment tools. Additionally, greenfield projects in the technology sector should be marketed to local institutions such as family offices and sovereign wealth funds for long-term capital support. Such entrepreneurial projects must be seen as fundamental to the national interest, as they will eventually contribute to economic growth.
Political stability, a reliable currency and robust infrastructure are important factors in Oman’s attractiveness for foreign investors, to whom we should reach out through international roadshows, particularly in light of the upcoming privatisation process. Regulators can also work to upgrade Oman’s stock market status from a frontier market to an emerging market, as well as boost its competitiveness against regional counterparts by implementing e-governance initiatives to enhance the ease of doing business.
How can access to the stock market be facilitated for retail and medium-size institutional investors, and what steps could be taken to stimulate less-conservative approaches to risk taking?
AL BALUSHI: Local investor participation in the MSX is lower than that in other regional and international markets. One reason is the consistent decline in stock prices, causing local investors to shy away from the market. As of June 2021 the MSX 30 Index was down by over 45% when compared to 2014. Another reason is the size of the stock market relative to others in the region: the MSX’s market capitalisation-to-GDP ratio is 18%, compared to 51% in the UAE, 55% in Saudi Arabia (excluding the valuation of Saudi Aramco) and 72% in Qatar.
To broaden participation in the stock market, Oman should privatise state-owned entities and facilitate the listing of more privately owned businesses. To promote innovation and liquidity, consolidation in the brokerage industry – which comprises more than 15 players – would allow for economies of scale and scope, as well as enable larger brokers to provide better services to local investors. Exchange-traded funds can be introduced as a means to gain diversified market exposure in a cost-efficient manner without taking large company risks. Real estate investment trusts are another way to generate sustainable income and long-term capital appreciation for investors. Furthermore, as investors increasingly demand strong adherence to environment, social and governance (ESG) principles, companies should be encouraged to report on ESG performance in order to send a clear signal that they can mitigate risks and generate sustainable, long-term financial returns.
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