Overview of oil, banking, telecom, real estate, investment and industry sector by KAMCO

Faisal Hasan, Senior VP of Investment Research Department at KAMCO talks about the oil and gas, banking, real estate, telecom and industry sector.

Oil and Gas Sector in Kuwait

About oil and gas, which is the predominant sector of the economy, I think the sector will diversify more into downstream projects. We are seeing refinery projects. These are good in terms of profit margins. Refined products give good margins. The sector will obviously depend on the price of oil. But we do expect an upturn sometime in the second half of 2015. We will see increased demand from emerging markets. The oil market looks neutral for now.

Banking Sector in Kuwait

Another big sector of the Kuwait economy is the banking sector. The banking sector is growing. The credit market is growing at a lower single digit pace. But the profitability in the banking sector is high. In the past 9 month period, the banking sector was up about 18 to 20%. Overall, on the Kuwait Stock market, corporate earnings were up only 2%.

That shows the banking sector is doing well. There is also a huge scope in the near future for the banking sector in project financing. As i mentioned earlier there are a large number of projects that are coming up. The Kuwait banking sector will probably have to align with international banks to provide that scale of financing. Kuwaiti banks are also now looking outwards. They have acquired banks in the GCC and MENA regions. They are looking for an entry into bigger economies. Their revenue stream will be more diversified and they will be looking at inorganic growth.

I am positive about the banking sector. There is increased competition even in Islamic banking. They have new products and they are competing on level ground with the conventional banking sector. That is another area of growth as many people look more towards the Islamic banking sector. There are more products available from this sector now, for example, the sukuk. A lot of sukuks are emerging in the region. Markets have a tremendously increased ability to absorb sukuks.

Real Estate Sector in Kuwait

As for the real estate sector, it is a very important sector. It is intimately correlated with economic growth and macroeconomic fundamentals. However, the yields in this sector are still good in Kuwait. There is a lot of construction activity, particularly on the high end, which is the malls and retails. The yields in this segment are very good. I am not so positive on residential real estate, not so much because of oversupply but because there is a demand-supply mismatch that can potentially happen in the future. I am sure there will be a positive outlook for the commercial and logistics segments of the real estate sector.

Telecom Sector in Kuwait

In Telecommunications, the penetration rate in Kuwait is above 100%. There is not much scope for further growth for telecom companies within Kuwait itself. The companies are looking outwards, into other markets. For example, Zain formed Zain Saudi Arabia. All the telecom companies are looking at other telecom markets to increase their revenues and subscriber bases. There will be churn in the telecom sector in Kuwait. We have new players like Viva entering the market. They are making inroads into the market share of the other 2 major players. There is churn between the prepaid and postpaid segments. But major growth will come from the outside markets or inorganic growth, because penetration level in Kuwait is already very high.

Investment Sector in Kuwait

The investment sector is very dependent on the stock markets and their related products. The investment sector, investment banking sector, financial services sector and the insurance sector, will all benefit from the planned mega projects, where their expertise will be required. However, stock market volatility will affect them strongly. Investment companies will have to develop a more stable cash flow, investment banking activities, and brokerage services. Any movement in the stock market will directly affect them.

Industrial Sector in Kuwait

The growth of the industrial sector is related to the petrochemical sector. The construction sector dictates the growth of the construction materials industry, like cement. Real growth will depend on how they can expand into the GCC, MENA or international regions. That growth will be in line with the GDP growth we will see for the region per se.