Business Interview - ‘We need IPOs of bigger firms to attract investments in Oman’s capital market’

Muscat - 

In an interview with Muscat Daily, Hassan Ali Jawad, managing director of United Securities talked about prevailing weak trading volumes at the Muscat Securities Market (MSM), market outlook for 2018 and shared his views on Oman’s economic diversification.

Can you give a brief introduction about United Securities and how the company has diversified from brokerage business into other fields?

We had a very humble beginning in 1994 when United Securities started operations as a stockbroker for the MSM with just three staff members. Oman’s stock market itself was just six years into its operations when we started the business. We operated only as a stockbroker during the initial years because the volumes expansion opportunities were limited in the initial years. This prompted us to think about horizontal expansion where we borrowed a few innovative ideas from various capital market players across the globe.

We acquired the license for various other investment banking activities such as the issue management, which helped us in increasing our revenues. Then we started portfolio management, which helped in showcasing our superior capabilities in asset management to the clients. Our performance has been very good and it further enhanced customers’ trust in the company.

We also expanded the business out of the country, which helped our clients to invest in other GCC markets. We launched United GCC Fund in 2011 and it has provided handsome returns to investors. By leveraging on our strong networks, we are now offering global investment brokerage services to our clients in markets like Nasdaq and NYSE.

United Securities witnessed a rapid growth during mid-2000s to become one of the major players in the market.

As a result of this growth, our capital base was increased to around RO7mn. We started our discretionary asset management services in 2003 and that has now increased to over US$500mn in assets. We are proud to say that we have one of the largest assets under management (AUM) base among non-banking asset management firms in the sultanate. So, starting from just a brokerage firm, we have now become a fully-fledged investment company.

Oil prices have improved significantly since the second half of 2017 and there are positive sentiments about economic recovery this year, but trading volumes at the MSM are continuing to remain weak. What reasons do you think are behind the weak activity at the MSM?

There are many factors responsible for lower trading volumes at the MSM. One of the obvious factors is low oil prices; though it have recovered a bit, still it’s not enough to attract investors as oil revenue is still the key for this region. Other major reason is the fear of political instability in the Middle East, which is preventing foreign investors to take long-term exposures to the markets in the region.

However, one must keep in mind that in the case of Oman, it is the small size of the market, which is the main cause of lower volumes.

There is neither any new story to tell the market, nor there has been any listing of large companies that would arouse interest of investors. Over the past two-three years not many companies, excluding insurance firms, have been listed on the exchange. Listing of insurance companies has also failed to rejuvenate the market due to several other reasons. Another important reason for the weak market activity is that most stocks are illiquid, which means a large portion of shares of listed companies are held by promoters and they are not liquidating them.

In a situation like this, as one of the key stakeholder in the market, what suggestions would you like to provide in order to improve the market liquidity?

According to me, one of the biggest causes is that the MSM as an institution has not been able to play its part very effectively in economic development and diversification. Moreover, most stocks are held by promoters, high net-worth clients or financial institutions. So the trading activity is not significant.

Now, one of the solutions is to encourage more initial public offerings (IPOs) to come to the market. Another important issue is the lack of coordination between various departments such as the manpower, Ministry of Finance, ROP and the MSM. They need to function like fingers of a single hand, but unfortunately things are not happening in that way. We need more IPOs and more diversification of the economy. We still don’t have a single company from oil and gas sector listed on the MSM, neither from fertiliser nor any big real estate firm. There are so many sectors in economy, from where not a single company is listed on the MSM. Inclusion of these companies on local stock market would boost investor confidence and will also help in attracting foreign investment.

Dwindling trading volumes at the MSM are a cause of worry for brokerage firms. How does United Securities plan to remain profitable?

We are surviving because of our strength. We didn’t keep quiet and confined ourselves to the local market only. We have other markets in the GCC where our business is good. Particularly, I would like to mention the Saudi stock market where a lot of money is being put into the system as the Saudi government wants to list their national oil company on the exchange. We see good opportunities on developments like this. So instead of focusing only on local companies on the MSM, we are broadening our horizon as there is lots of potential in other GCC markets.

Moreover, the US market is also booming and we have exposure to that market also. So these opportunities provide us income when domestic market is down. We also have asset management under our portfolio. We are managing assets worth around US$500mn. 
But one must remember that it is not easy, but still we are doing it.

I see things getting difficult for brokerage firms and those who are only based on brokerage are facing difficulties. We don’t feel good when a brokerage firm is forced to be closed, it is not in our interest in the long term. We want more companies as everybody brings something to the market. And whatever they bring to the market everyone get some share of it. For example, if one brokerage firm is bringing newer buyers to the market, we will benefit by selling them or if a new seller is introduced in the market, we will benefit by purchasing. So we want to see more companies entering into the market.

What is your outlook for the market, how do you see things shaping up in next six months to one-year period?

It is difficult to predict the future in the prevailing market conditions. Everything depends on how oil prices behave and now oil prices are more driven by political activities rather than economic factors. Going forward, we are likely to see a tough time for the economy as budgetary deficit is still there, diversification of economy is still below expected level and the level of Omanisation required by authorities is difficult to meet in such economic conditions. I am not a pessimist, but at the same time I am not very optimistic about market conditions going forward. The government has taken some good steps such as reducing subsidies and increasing taxes, but still much more is required.

Some industry leaders are very optimistic about certain steps taken by the government such as Tanfeedh programme, what is your opinion about this?

My opinion on Tanfeedh is that it was designed to remove hurdles in doing business, so that things could move faster. Moreover, the programmes are heavily inclined towards the small and medium enterprises (SMEs), but have ignored bigger companies. Now, if bigger companies flourish, they provide more business opportunities to the SMEs and could help them grow faster.

I am not saying Tanfeedh has not done anything good, but certainly things could have been better if they had focused more on easing regulations to promote business in the country. The main aim was to fill the gaps and remove hurdles, but things are still not improving and many more steps are needed to improve speed of doing business in the country. Moreover, there is also a need to promote entrepreneurship among young Omanis and particularly banks should come forward in supporting them.

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