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Over the worst

Interview - March 23, 2012
It’s been a tough few years for markets worldwide, and Oman’s Index shrank by 15.7% in 2011. However, Mr Ahmed Saleh Al Marhoon, Director General of the Muscat Securities Market is optimistic about the future
MUSCAT SECURITIES MARKET (MSM), OMAN
MR AHMED SALEH AL MARHOON | DIRECTOR GENERAL OF THE MUSCAT SECURITIES MARKET

The turbulent events in the Arab world combined with the Eurozone crisis have adversely affected the investment in GCC bourses. Of all GCC bourses, only Qatar registered a positive growth of 1.1%, while Bahrain had the worst performance and its Index shrank 20%. How was 2011 for the Omani stock exchange?

It was not a good year for most of the exchanges in the region and worldwide, and Muscat Securities Market (MSM)was no exception. Most of the exchanges around the world experienced negative growth, not only on the index, but also on the volume of activity. Even the IPOs were not seeing much activity.

I must say that initially, we were not expecting 2011 to be as bad as it was. We thought that the GCC countries would not be so affected bearing in mind the prevailing circumstances of oil prices, the strength of the regional economies, and the injections of government funds into the systems. There were many on-going developments of regional projects and large amounts of money involved, so we thought we would not be so affected.

However, the politics of the Arab Spring affected the mood of the investors. Therefore we saw all the exchanges in the GCC countries retracting, apart from Qatar, which showed some growth, though it was only on the index and not on the volumes.

Considering the violent demonstrations that took place in Bahrain last year, it is understandable that the performance of their Bourse diminished by 20%. But why did Oman’s Index shrank by 15.7% in 2011?

I cannot answer that. Investors are very sensitive. When they see or hear anything that may affect their attitude toward making an investment, they hold off and watch. 2011 was characterized by that ‘wait and see’ attitude. Nothing happened, so now they are coming in to take advantage of the good economy and the resources in MSM.

Oman is a very stable country. The government has been involved with major projects, and the companies listed in MSM have shown positive signs. Oil prices are high. The government has a surplus on its budget in spite of heavy expenditures. These positive things did not help our exchange to show growth in the economy, but it is happening this year.

Now it is happening not only on the MSM, but across the region as well. We are hoping that the growth will continue because we have seen most of the exchanges worldwide showing positive signs on the growth of their indexes. The volumes are also very important and they are increasing. This means that confidence is returning to the exchanges and people will begin to invest more. It is a sign of better things to come.

There are still tensions in the region, so what is your outlook for the rest of 2012?

I think what we are going to see a difference this year. What we were expecting to happen in 2011 is happening in 2012. The beginning of the year has already shown some positive things. There are a lot of green figures on the indexes and also increased activities in the exchanges.

Most of the exchanges worldwide have showed some growth in their indexes ranging up to 25%. In the region we are seeing good indications. We are seeing increases in the indexes and volumes. Oil prices are very high and this is helping the government to spend more on different activities. So, of course 2012 has already shown positive signs. I am very optimistic about the growth of the indexes this year.

At the end of February, you moved to the NFCV 900, which is one of the most advanced systems used by stock markets. What are the benefits of this new trading system and how will it affect your operations?

We are in a fast moving environment. When you work in exchanges you have to keep pace with what is happening. There is a lot of competition among us with regards to keeping up to date. The investor will only have confidence in you if you keep pace with the newest developments. This affects every aspect.

Modernization is a significant commitment of the MSM. The new system is a complete change. We change the hardware and bring in manufacturers. It is not just the speed, but also the features, which accommodate the developments arising at all times in advanced exchanges.

You recently hosted a delegation of representatives from the major international stock exchanges, as part of your application process for the membership of the World Federation of Exchanges (WFE). What are the main criteria that you must comply with for the WFE membership, and how will it benefit MSM and the investors here?

We have been an affiliate with WFE for the last six years and in order to be upgraded to a full membership you have to comply with their requirements. If we are, and we hope to be recognized, it means we meet all their criteria, which are based on practices developed in any advanced exchange.

We sent a report to showcase where we are. They came so we could demonstrate that the things we said in the report are really operating and in place. We had meetings with representatives from London, Germany, Istanbul, etc. We assured them that we always apply the best practices and they appreciated that. We are not so different from other exchanges in the developed world. The NYSE technology is just one example of how advanced we are.

The ISO 27-001 is a security management system for IT and data that brings Information Security under explicit management control. How is this international standard providing additional security and protection to investors?

As an exchange, we have to make sure that everything is done properly. We have to have the most modern equipment, the best security and everything required from a modern exchange. Investors expect their exchange to be up to that level and standard. We always make sure that our systems are of acceptable standards and our networks are done in a way that we are not subjected to losing people.

Every year we get an independent consultant to test us and make sure our systems are properly managed and properly done. That test is conducted by a third party just to be sure that if there is any vulnerability, they can bring it to our attention. This happens every year, according to the standards of WFE, which requires us to have a proper check on our systems and network.

In a world dominated by algorithm trading and leverage hedge funds, it can be very hard for individual investors to get ahead and do well on the market because they are faced with such adverse circumstances. How does MSM ensure a dynamic market and give all investors, large, medium and small, an equal opportunity?

In our region, individuals still play a major role in our markets. You have a lot of high net-worth individuals and people who just want to invest their money in the market. You will find this not only in our market, but in all of the GCC countries and even some other Arab countries.

Individuals and potential investors follow the movement of market and understand the changes in prices. This is one way to educate people so that they know the risks of investing without consulting a brokerage firm. This is still a region where individuals like to make the investment, though institutions are also there with funds.

Can you elaborate on the regulations which are applicable on foreign investors?

The laws make Oman favorable for investors. From day one of MSM’s inception, there have been no restrictions on foreign investment in Oman. Foreign investment is open directly through the MSM. Any company that wants to be listed has to abide by international accounting standards.

We are so advanced compared to many other countries that this makes Oman attractive to foreign investment. There is no tax on capital gains whatsoever. The tax on corporations is minimal, only 7%. That is for all institutions. There is no restriction on the movement of capital. Of course, for money laundering there are restrictions.

What areas do you see as having the most potential for profit and growth in the future?

I see Oman as having a lot of potential to discover. We are a young country with a young economy. There is so much to come and we will expand. The fishing industry is not yet exploited to the extent it could be. We have 1,800 kilometers linked on our oceans. We are on the Indian Ocean, the Arab Sea and the Gulf of Oman. We have a wealth of fisheries. So many industries can be based on this wealth and so many people can work on it. We need to explore it further to gain the maximum.

The landscape of Oman is diverse. We have beautiful beaches, the desert, the mountains, and so many tourist villages could be built. We have different climates as well. There is a monsoon season during the summer and a hot climate here in Muscat. It is not cold in winter. From September to April there is a lot of tourism from the West. I think we have a lot of potential to expand and build our economy. Of course we can have other things based on certain industries.

If I were an investor, where would you suggest I put my money? Why should I invest in Oman?

There are so many things one can evaluate and look at. MSM is one place you can invest if you do not want to establish your own business. The return on investments with MSM is very attractive. Companies are making great profits. I saw a report today, which said our yield is the second in the region. There is a lot of potential for us to grow and for investors to make money if they select a good share.

We are the most stable country in the Arab world and our economy is growing at a good rate. This is well known to the investors and the rating agencies. Furthermore, for the last few years, we have had a budget surplus and the government has been diversifying the economy to create jobs for the young people. I am very optimistic about the growth of the country.

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