Introduction
All communities depend on investment as a main source of reaching business goals and achieve profits and enhance its economy because investment is important for increasing work opportunities, gaining hard currency, increasing the financial movement of any country and supports the economic development of it. Investment can be in many fields and areas and it can be within large amounts of finance or small ones. To make successful investments, investors are asked to work on specific business plans and analyze the costs and benefits of the investment process, study the feasibility of the process and measure the potential profits that an investing project can produce. Investment can be defined as using finance assets to make profits and achieve business success through some trade processes and projects in different fields of business. It also represents the purchasing process for goods and products or services of certain values in order to make future returns out of them though reselling them or reusing them in the business operations.
Types of Investment
There are many types of investment as there are many factors affecting investments and these factors result in the variety in investment types. Risk and return makes the difference sometimes and making different investments regarding types reduces the risk and leads to better results. Among these types are the ownership investment which includes stocks, businesses, real estate and precious objects, there is also the lending investment which includes the bonds and the savings accounts in banks, there is also the cash equivalents such as the money market funds. There are also other types of investment such as the national, international, direct, indirect, long term and short term investment. This means types of investments can be numerous according to the effecting factor.
Investment Portfolio
It is a pool of various investments done by investors whether they are people or organizations with a target of achieving profits and keeping the invested assets. There are various risk reward combinations control choosing these investments such as low risk and high risk ones. An investment portfolio should be effective in reducing risks and achieve high revenues.
Investment Policy Statement
Purpose and Scope
The purpose of this IPS is to make a project that will be useful individually and for the society as the IPS will set the potential expectations, guidelines and objectives of the portfolio within its assets. Then there will be a classification for assets and how they will be invested and allocated. It will encourage the relationship between the advisor and the investor, prepare a framework for diversifying the mix of assets for getting returns on the long term on a suitable risk level. It describes the investment policy for both the investor and the advisor.
The portfolio
The portfolio is representing a strategy for the active assets allocation and there are mutual funds for investments so the assets will be liquid. There will be investment managers for fund advice and they will be monitored by the board of trustees. There will be criteria for choosing the investment managers based on adherence specifications. Each manager will provide advice regarding the assets according to the stated objectives of the fund and the investor will study the advice before performing the investment process.
Objectives
- The investment process tends to make profits with capital appreciation on the long term to be insurance against life difficulties.
- The investment is tending to grow a strong business in the Gulf area within different countries to enrich the Gulf market with products and goods it needs.
Guidelines and Policies
Time Horizon
The portfolio represents an investment horizon of 15 years long term in stock and 5 years in bond as short term.
Risk Tolerance with Return and Performance Expectations
The portfolio is comprised of investing in stocks and in bonds according to specific allocation in order to get returns but risk is expected too. The risk associated with stock is high but the return is high too and the risk associated with bonds is low but returns are low too. The statement is not guaranteeing any future performance.
Asset allocation
Assets will be distributed as 25% stock and 25%bond in Oman and 25%bond in KSA and 25% stock in Kuwait.
Rebalancing Procedures
There could be market conditions that may cause the investments of the portfolio to vary from the current set allocation so from time to time, each fund invested within the portfolio will be under revision and rebalance to its normal weight if there is a variation in the actual weight for about 3% or more from the preferred weight.
Ethical Position
This portfolio ensures legal investments with clear and clean levels of investments following laws and regulations of the three countries invested in.
Duties and Responsibilities
Investor
The investor is to provide the advisors with all relevant and important information such as financial situation, risk tolerance, net worth, rebalancing procedures and ethical position. The investor is well aware of all details within this portfolio.
Investment Advisor
Advisors are responsible for studying and analyzing this portfolio and the market in order to provide the investor with all information about asset allocation, investing decisions, risk tolerance and return expectations. The advisor will also provide periodically revisions for the portfolio in order to discuss the status with the investor and provide the proper advice.
Analysis for current and projected financial, economic, political, and social conditions and the portfolio investment plan
Investment Illustration
The amount will be invested in is 10 million Omani Riyal to be allocated as follows
Reasons for Investing in Oman
Economic
Oman is a country with strong economic growth as it is ranked as a competitive country in 2012-2013 Global Competitive Report of the World Economic Forum to be the 32nd most competitive country. Oman also attracts many companies and corporations from all over the world to invest in it such as companies of USA as Microsoft, Dover Energy and Oracle. This makes Oman of good investing climate for any investors to get good returns in it. (Michelle, 2014)Oman has strong economic reports compared with its neighbors and it is a great country for oil producing and manufacturing and has great production level of oil barrels as it is the largest producer of oil and natural gas in the Middle East. Oman has oil reserves estimated with 5,5 billion barrels in 2014 to be ranked 7th in the Middle East for energy investments with a refining sector controlled by The Oman Oil Refineries and Petroleum Industries Company. The GDP was 81 billion Dollars in 2013. (Eia.gov, 2015)
Political
Oman has a stable political situation which makes investment there is a good idea as the efforts made by Sultan Qaboos Bin Said to enhance national and international trade are great in addition to the good relationships with other countries in the Gulf area and around the world. (Oman.org.au, 2015)
Financial
Oman is advantaged with a financial and banking sector which is efficient and secured enough for safe investments and it can be catered locally and internationally. There are a number of commercial banks, Islamic and other national and international banks with different sectors and services. Short, medium and long term finances can be found in the commercial and international banks. Oman has banks which are owned by the government which are Oman Development Bank and Oman Housing Bank. These financial organizations provide its customers with a variety of services and business consult and experiences that provide Oman with a good rich financial environment full of accounting services and other services as marketing, legal and banking services. Many companies are found in Oman and they are national and international which provides lots of different types of investment in Oman.
Social
Oman has a diversified society with its main native citizens and other residents from many countries around the world who come to work. The main religion is Islam with welcoming to other religions of people living there. There are Arab majority, Ibadi and Sunni Muslims with ethnic groups and native languages. This social diversity results in great opportunities in business and investment as this creates a wider range and scope for business customers with their different needs and purchasing natures. (Peterson, 2004
Education
Majan College
Majan college is a part of a company which is a joint stock company and it is based in Oman for educational purposes. It provides higher education services for people in Oman by operating a campus college since 1995 according to a royal decree then. It is a private college in Darsait and it includes many educational academic disciplines such as business administration, English language, IT and others that provide degrees for its students and it is approved and supervised by the Ministry of Education. The college is chosen because of the great development it witnessed through the past years as it expands its services which are favored by many people in Oman and it is accredited by Bedfordshire university and its success and profits make it a good choose for investment in stock.
25% of my money will be invested in this company (2500000 Omani Riyal) as the company's net profits were increasing the past years to have a net profit growth of 35% in 28 February 2015. It is expected to have a net profit of 1,307 million OMR =3,397 $ as its net profit of 2014 was 967,249 OMR=2,512million $.
Market Capital=3million OMR
Price of share=0,1
Investment Price/Price of share=2500000/0,1=25000000
Investment Price/Total Price of investment= 2500000/10,000,000=25%.
Islamic Banking
National Bank of Oman
The National Bank of Oman SAOG (the Bank) is based in the Sultanate of Oman since 1973 and provides many banking and financial services for people in Oman such as retail banking, investment, corporate banking, international and Islamic banking . The Bank's shares are listed in the Muscat Stock Exchange with company code which is "NBOB". At 31 December 2013, the Bank was listed as the second largest bank in Oman by having total assets of about 13.0 per cent of total assets, 13.6 per cent of total deposits and13.9 per cent of total loans. There are about65 branches for the bank all around Oman and 169 ATM automatic teller machines. The bank is famous for making great success and high profits especially in Islamic banking which has been regarded as very successful in the Middle East and in the Gulf area specifically in Oman.
Islamic banking was chosen because it has reported worldwide competitiveness as international Islamic banking assets were reported to be more than US$778b in 2014, The Islamic banks global profit is expected to triple by 2019, Global Islamic banking assets had a growth rate (CAGR) of about 17% from 2009 to 2013 and Islamic Banking is preferred by most Omani people today. National Bank of Oman is providing Islamic Banking services which are very distinguished and preferred by most people all around Oman.
I will invest 25% of my money in National Bank of Oman as in Islamic Banking =(2500000 OMR). This is because of many reasons as the bank in 2014 achieved a net profit of OMR 23 million, with an increase of 22.3 per cent, compared to OMR 18.8 million for the same period the previous year.
Market Capital= 2,000,000,000 OMR
Price of share=0,1
Investment Price/Price of share=2500000/0,1=25000000
Investment Price/Total Price of investment= 2500000/10,000,000=25%.
Reasons for Investing in KSA
Economic
Kingdom of Saudi Arabia is a favored country for most investors because it has a very good economic status as it is one of the 25 largest economies in the Middle East, it is also among the largest economies in Africa and Gulf area. Its economy is fast growing with a great capital income which is expected to rise for USD $33,500 by 2020 as it reached USD $25,000 in 2012. Saudi Arabia has a cost advantage which is substantial because of the costs of energy which are low and because it has a great oil industry which enriches other industries and investments there. It has a stock exchange market which enriches all stock markets in the Gulf area. The Saudi currency which is Saudi Riyal is a stable currency that has no changes occurred to it through the past decades which raises its value and makes it good to invest in KSA. Saudi Arabia is considered the biggest free economic market in the Middle East as 25% of the total Arab GDP is hold by it and having the largest oil reserves in the world estimated with (25%) and it provides energy for projects that invest there with very reasonable prices. It is advantaged with the huge population who are interested in investments and purchasing.
Political
Saudi Arabia enjoys a stable political status in addition to a favorable political situation among all Arab countries, countries of the Middle East and countries of the Gulf area. KSA has a political power over all participants in the oil market and it doesn't have the political tensions occurring in most Arab countries today. The Saudi government provides many opportunities for foreigners and people of the Gulf countries to invest in almost all sectors without restrictions without local partners. The government provided many chances for people out of the country to invest with all availabilities such as setting up Investment Services Centre (ISC) by the Saudi Arabian General Investment Authority(SAGIA). The ISC is to decide for granting or refusing a license within 30 days of receiving an investor application.
Financial
Saudi Arabia has a very successful financial environment with high comparative advantages with its largest free market in the Middle East that bears 25% of the total Arab gross domestic product (GDP), biggest reserves of oil internationally, a stable currency and great investment projects in addition to its encouragement for small projects from KSA and from outside. Investors can get great benefits from the corporative agreement the government holds regarding taxations and its reduction for foreigners in addition to its being free of personal income taxes. Companies of KSA have 20% of its total profit. It has also the Human Resources Development Fund that provides support for any activity that involves recruiting or sharing Saudi employees. It is privileged with its Islamic Banking and its compatible avenues of Shari'a. Another reason is that the Arab Fund for Economic and Social Development (AFESD) is involved into financing economic and social development projects in many Arab countries.
Social
The Saudi social conditions are suitable for investment there due to the great variety of people living there as there are many people from different nationalities from all countries of the world living there and investing their money there. It has a unique social framework that witnessed great changes in the past decades which resulted in the existence of a vivid investing market there. Saudi people are Muslim in general and it has the most important holly places for Muslim worldwide which makes it a place for all people to come from all over the world and this raises the investment advantage of this country.
Saudi Orix
KSA is a leading country in the finance leasing activities as it is an important market in the Gulf area. The company was established in 2001 for leasing activities such as rental services. The company was a closed joint stock set by an issue from the Ministry of trade and industry. It included many shareholders such as Group Investment and Trade Development Co, Saudi Investment Bank, ORIX Corporation and ORIX Pakistan Leasing ltd. There are many branches for the company all around the kingdom.
I will use 25% of my money (2500000 OMR) to invest in Saudi ORIX due to the great success and profit it achieves as it made SAR 30.4 million net profits for the first quarter of 2015 with a rise of 7.7% year-over-year. The company announced its financial results for 2014 as the table:
ELEMENT
|
CURRENT YEAR
|
PREVIOUS YEAR
|
% CHANGE
|
NET PROFIT (LOSS)
|
116,948,453
|
100,202,366
|
16.71
|
EARNING OR LOSS PER SHARE, RIYALS
|
2.58
|
2.23
|
-
|
GROSS PROFIT (LOSS)
|
181,837,784
|
157,898,621
|
15.16
|
OPERATIONAL PROFIT (LOSS)
|
183,295,101
|
160,318,777
|
14.33
|
So its net profit for 2014 was 116,948,453 which means it increased from that of 2013 which was 100,202,366 OMR. Gross profit also increased from 157,898,621 in 2013 to be 183,295,101 in 2014.
Liquidity= Total assets / Total liabilities
= 1,841,687/ 1,303,201= 1.413
Investment price / Total price of investment= 2,500,000 / 10,000,000= 0.25= 25%
Reasons for investing in Kuwait
Economic
Kuwait has a currency which has the biggest world value and it is a leading country in oil manufacturing and production. The country is trying hard to versify its economics since Gulf war and it makes high profits. Kuwait is the Arab world largest foreign investor as in 2013 its outflows were 8,4 billion $ for FDI. It has oil reserves estimated with 102 billion barrels and representing 6% from the world reserves. In 2010, Kuwait prepared an economic development plan that tends to spend up to $130 billion throughout five years for diversifying its economy away from oil, attracting more investment, and boosting private sector share in the economy. It has a solid condition due to oil trade and oil reserves which raises the scope of investment in Kuwait. The Kuwait government has low debts.
Political
Kuwait is a very small country with stability in political conditions as the country's businesses flourished after the Gulf war finished and the country has a strong government which provides foreigners and citizens of the Gulf countries with many business and investment opportunities and its taxation system is very good as there are no personal taxations in addition to reducing the taxations on successful investment projects. Kuwait has good political relationships with all Gulf countries, Middle East countries and countries of the world because this small country attracts human resources from every place in the world to work there. It is advantaged with a parliament that issues very updated laws regarding business and investments which are very useful for any investor wishes to get high profits.
Financial
Kuwait is a country that includes many financial institutions that have a future vision for investment extending to 30 years. The Kuwait government has many financial bodies that enhance investments such as Kuwait Investment Office and Kuwait Investment Authority and they can provide financial aids and consults for investors. A great variety of banks and financial organizations are there in Kuwait representing a strong finance background for investors. There are many multinational investment companies with great assets and investment branches all over the world. Banks are varied among national banks as Kuwait National Bank and foreign banks such as Central Bank of Kuwait, City Bank, HSBC and others, there are also Kuwait Finance House, the Commercial Bank of Kuwait and the Kuwait Stock Exchange.
Social
The country has a great and interesting variety of people living there of citizens and residents who are almost more than citizens which makes Kuwait a country that has big chances for investing there and making profits. Most Kuwaiti are Muslims who are either civil or Beduin and there are Bedun people and the residents who come for work and they are of all nationalities and religions. Kuwait people has a nature of purchasing and seeking new products and new trade mark which raises the opportunities of making profit in a society such as that of Kuwait.
Financial sector
Kuwait Gulf Bank
Kuwait's Gulf Bank is the a great lender by assets in the Gulf area and it provides various banking services for all customers from all nationalities. I will invest25% of my money in this bank (2500000OMR). The bank is chosen for investments because it has high records of net profits and has a good reputation in the whole Gulf area. Its latest report asserted that the bank's net profit raised to 12%. The bank asserted having a net profit for the three months to March end was 9.78 million dinars ($32.4 million), compared to 8.73 million dinars in the year-earlier period. The bank is forecasted by KAMCO Investment Company to have net profit of 11.86 million dinars during the quarter. Gulf Bank confirmed the net profit rise and attributed it to a net interest income increase, which rose 8.8 percent to 31.2 million dinars. ($1 = 0.3021 Kuwaiti dinars)
Investment price / Total price of investment= 2,500,000 / 10,000,000= 0.25= 25%
Conclusion
Investment is very interesting when the country where investment is done is well chosen and the market conditions of it are well studied and analyzed according to the profits and the general financial situation of both the country and the company where investments are run in. The current paper is representing a portfolio of investment in three countries of the Gulf area which are Oman, KSA and Kuwait due to many economic, financial, social and political reasons.
References
- Eia.gov,. (2015). Oman - Analysis - U.S. Energy Information Administration (EIA). Retrieved 22 April 2015, from http://www.eia.gov/countries/
cab.cfm?fips=mu - Michelle. (2014). Why Invest in Oman?. Diversified Finance. Available at: http://diversifiedfinances.
com/why-invest-in-oman/ - Oman.org.au,. (2015). Business. Retrieved 22 April 2015, from http://www.oman.org.au/
business - Peterson, J. (2004). Oman Diverse Society: Northern Oman. Middle East Journal. Vol. 58, No. 1 ,pp. 32-51
- http://english.mubasher.info/
MSM/news/2717535/Majan- College-Q2-profits-leap-35-#. VTiD7dKqqko - The Report: Oman 2014. Oxford Business Group. https://books.google.com.eg/
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Stock.aspx?Stk=102
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