Abdulaziz Mohammed Al Balushi, Group CEO, Ominvest : Interview

Interview : Abdulaziz Mohammed Al Balushi

How will new products, such as real estate investment trust (REIT) funds, contribute to and meet the needs of the sultanate?

ABDULAZIZ MOHAMMED AL BALUSHI: The regulations for REITs were issued in early 2018 by the Capital Market Authority. REIT assets are an extremely popular asset class in international markets as they offer portfolio diversification and high dividend yields. They also give small investors access to high-quality institutional real estate, such as malls, hospitals, hotels and offices. Real estate is quite a popular asset class in Oman, and the launch of REITs will inject a new level of professionalism into the real estate sector, as REIT managers will create shareholder value by improving rental yields, optimising costs and building a portfolio of high-quality assets. REITs will also help add liquidity to an otherwise illiquid asset as they will be traded on the Muscat Securities Market (MSM). This will enable real estate developers to divest the profitability of their projects and start new ones, driving sector growth and raising GDP. Since the introduction of new laws in Saudi Arabia in 2016, REITs have become extremely popular. There have been 14 REITs that have made an initial public offering with a current total market cap of $2.7bn. There are two listed REITs in the UAE with a total market cap of $510m. Dividend yields are attractive, as Saudi REITs offer an average 8% yield, while UAE REITs offer over 8.5%.

What factors other than the removal of subsidies and increases in taxes in 2017 could impact the MSM’s future performance?

AL BALUSHI: The MSM 30 Index reached a nine-year low in July 2018, dropping below a level of 4400 compared with a high of over 7500 recorded in September 2014. The drop was primarily attributed to weak macroeconomic conditions and the government’s austerity measures, which caused corporate profits to decline.

Austerity measures included a reduction in fuel subsidies, changes in electricity tariffs, a decrease in public sector royalties and an increase in corporate taxes. However, the macroeconomic outlook is beginning to improve as the country’s twin deficits start to disappear and as oil prices are trading at $50-55. The IMF is forecasting a modest 0.8% fiscal surplus in 2019 and a negligible 0.5% current account deficit.

Liquidity conditions are set to improve with lower deficits, higher government spending and privatisation plans. As economic and liquidity conditions improve, the MSM is expected to rebound.

The market now offers attractive valuations, with a price-to-earnings ratio of 10x, compared with 13x on the GCC Index and a price-to-book ratio of 0.8x, versus 1.8x on the GCC Index.

How will emerging technologies, such as block-chain, transform the financial services industry?

AL BALUSHI: Blockchain represents the next wave of technological revolution in the world. The financial services sector will be the first to be disrupted by blockchain, and its implementation in the sector is happening primarily in six areas: over-the-counter trading; custody; foreign exchange transfers; trade finance; compliance; and digital cash.

Early adopters of these technologies can benefit by creating new products and services and becoming pioneers in the space. The Dubai government is leading the Gulf in blockchain innovation, working with IBM and ConsenSys on a total of 20 use cases for blockchain technology to complement its existing operations. The government has also shown its enthusiasm in adopting this new technology, by launching Blockchain Solutions & Services. This entity will be responsible for rolling out the technology and making sure that Oman has the right infrastructure in place. If properly adopted, blockchain technology will transform the financial services industry, making it more competitive and helping the country to develop as part of a regional centre of technological innovation.