Chairman’s Letter

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To our esteemed Shareholders,

On behalf of myself and my fellow colleagues, Chairman and members of the Board of Directors of Rasameel Investment Company, it is my pleasure to welcome you to our Ordinary Annual General Assembly meeting. I am glad to present to you the annual report for the financial year ended on 31 March 2021, which includes the Board of Directors’ annual report, the latest developments in the company’s activities, an up-to-date progress report, the Fatwa and Shariah Supervisory Board report and the company’s independent external auditors report. The annual report also includes an overview of the most prominent global, regional and local economic developments.

Rasameel’s activities and operations focus mainly on asset management and alternative investments. These two departments are currently working on providing the best investment opportunities and solutions for our clients. The Asset Management Department provides Shariah-compliant equity and sukuk investment services in the form of portfolios and funds. Thanks to our team of experts, Rasameel is also one of the few companies in the region that has the ability to manage Shariah-compliant international equity investments. The company’s Asset Management Department can manage portfolios and funds in any of the major stock markets, as well as investments designed to meet clients’ needs and requirements.

The Alternative Investment Department focuses on private equity and real estate investment products in the Gulf Cooperation Council countries (GCC) and the international markets. This department uses strict criteria to select the best real estate investments that provide returns on a quarterly basis to the company and its clients. Rasameel’s alternative investment team supervises the management of all real estate investments.

An Overview of the Financial Year

Three quarters of Rasameel’s financial year were in 2020, which was one of the worst years for the global economy since the Great Depression in the early 1930s. While the International Monetary Fund (IMF) estimated in its July 2021 report a contraction of the global economy by around 3.2%, The Economist Intelligence Unit (EIU), the research and analysis division of The Economist Group, projected in its July 2021 report that the global economy would shrink by around 3.8%. The international trade volume decreased in the same year by 8.3%, despite the strong and unsustainable expansion in both the fiscal and monetary policies of all the economies around the world.

The Gulf Cooperation Council countries were severely hit. These economies suffered because of the crash of the oil prices as a result to the weak global demand due to deflation, and because of the repercussions of the crisis on the transportation market that accounts for the largest share of petroleum consumption.

The Brent crude price fell from an average of US$ 64.3 in 2019 to an average of US$ 42.0 in 2020, and this led to a significant shortage in foreign exchange income in the countries of the region. All this resulted in a growth in fiscal deficit and an increase of the levels of borrowing from the global markets. The IMF report for the month of April 2021 indicated that the contraction of the GCC economies ranged between 2.6% for the lowest, the State of Qatar, and 8.1% for the highest, the State of Kuwait. This means that the rate of losses the GCC economies suffered were higher compared to the contraction rate of the global economy.

As previously mentioned, the impact of the crisis on the Kuwaiti economy was the most severe among the GCC countries’ economies. The Central Statistics Bureau indicated that the real contraction rate in 2020 was around 8.9%, while the economic report of the Central Bank of Kuwait estimated it at about 9.9%. The potential deficit in the general budget for the fiscal year 2020/2021 amounted to about 14.7 billion Kuwaiti Dinars, which is the highest level ever registered. This budget deficit will decrease to about 7 billion Kuwaiti Dinars with the issuance of the final budget results for the same fiscal year due to the recovery of oil prices during the second half of the fiscal year and because of the potential achievement of savings over the actual expenses. As a result of the significant expansion of the monetary and fiscal policies at the global and regional levels, the performance of the world stock markets did not follow that of real economies. For instance, between the end of March 2020 and the end of March 2021, the Dow Jones gained about 50.5%, the FTSE around 18.4%, the Dax about 51.1%, and the Japanese Nikkei 54.2%. All the stock markets of the GCC countries recorded gains during the same above-mentioned period, the highest increase being in the Abu Dhabi Securities Exchange, with gains around 58.3%, followed by The Saudi Stock Exchange Tadawul with a growth of 52.3%, the Dubai Financial Market and the Qatar Stock Exchange with gains about 44% and 26 .7%, respectively. The Bahrain Bourse registered 8% gains and the Muscat Securities Market a 7.6% growth rate.

The results of Boursa Kuwait did not reflect the real economy performance, and it continued to grow in all major world indices. Boursa Kuwait liquidity increased in the year ending on March 31, 2021 by about 29.7% compared to its liquidity for the fiscal year ending on March 31, 2020. Because liquidity is the most important indicator that reflects the performance of a stock market, the general index of Boursa Kuwait started to make up for the losses incurred during the Covid–19 pandemic, and its gains reached around 19.8% during the period between the end of March 2020 and the end of March 2021. This might have played a role in mitigating the effects of the faltering performance of the real economy.

The Company’s Financial Performance:

The management of Rasameel Investment Company has worked over the past year to increase the number of investment options it offers. In February, the company launched the Navigator Fund, a multi-asset fund specifically designed to invest in the opportunities offered by global markets across diverse sectors and various asset classes that yield strong gains over the entire economic cycle. The fund also aims to take advantage of the opportunities provided by the markets and invest appropriately in global stocks, sukuk, commodities and precious metals. In addition, the company’s team launched a new strategy through its global revenue portfolio.

This strategy consists of a model portfolio that provides clients with the opportunity to invest in a variety of companies that adopt a policy of distributing annual dividends at rates relatively higher than the general average, as well as provide sustainable income and achieve long-term growth levels. The strategy was launched on the first of March 2021, and investments according to this strategy achieved a growth of 5.7% by the end of that month. The percentage of gains achieved reached 10.4% as at June 30, 2021, slightly outperforming its benchmark index, even if this was achieved after the end of the year. The company’s financials, and Rasameel’s core equity sector strategies outperformed throughout the year, with the global equity strategy and disruptive technology delivering impressive gains of 49.9% and 49.8%, respectively, for the year ended March 31.

We believe that this strong performance is due to effective stock selection. Meanwhile, the GCC equity strategy underperformed its benchmark index over the year, rising only by 36.8% against the benchmark’s 53.7% gain. We would attribute this underperformance to the Strategy’s defensive sector allocation and its high cash position. It must be emphasized here that our clients are satisfied with the performance that was achieved through various strategies, especially since we were able to protect the capital in the first part of 2020, after we began to reduce the exposure levels as a hedge against the possibility of a health crisis erupting with the outbreak of the Covid–19 in China in early 2020.

The fiscal year was full of achievements related to the management of alternative investments. The company acquired two office properties in Ohio, USA, worth US$ 194 million, by adopting a conservative strategic approach that balances market requirements and clients’ aspiration for income-generating investments. The two properties are fully leased to companies working in the field of healthcare. The first property, which was acquired at the beginning of the fiscal year, is a completely renovated property and is leased to the American company Ensemble, which works in the field of information technology specialized in managing hospitals and medical facilities. The second property was acquired at the end of the financial year. It is an office property built in 2016 that is fully leased for a period of 14 years to Mercy Health, a hospitals management company.

During the fiscal year, the company has also launched a whole new sector, which is investment in private equity and emerging companies. STARETCH Fund, the first fund that focuses on investing in emerging technology companies was launched. The Fund is licensed by the Kuwait Capital Markets Authority.

The STARTECH fund allows clients to invest in the promising emerging technology companies in the region, which provides them with the opportunity to grow their investment returns as well as to distribute the risks through diversifying investments in companies operating in different sectors. The fund’s portfolio includes direct investments in companies such as Floward, which is an online platform for flowers and gifts, Wahed company; a FinTech company, and Eureeca; an equity crowdfunding platform. Through Startech’s portfolio, clients can also invest in the Middle East Fund for Startups that includes more than 12 investments in various sectors.

However, due to the pressure of the business environment, on the one hand, and the poor performance of the company’s old assets, and the cash distribution suspension of some assets and investments as a result of the pandemic on the other hand, the company has recorded total losses of 1,49 million Kuwaiti Dinars for the fiscal year ended 31 March 2021. These losses included about 620 thousand Kuwaiti Dinars, which was a provision for a decline in the value of the company’s real estate investments in the GCC, in addition to more provisions related to the Murabaha signed with Smart Auto General Trading and Contracting. The remaining amount of 870 thousand Kuwaiti Dinars, represents the excess of operating expenses over the company’s revenues due to the above-mentioned reasons.

Future Prospect

It is important to note that at the time of preparing this report in July 2021, the volatile situation persists. The Covid-19 pandemic is still ongoing and there are multiple new mutations of the virus spreading around the world. At the approach of the summer season, the governments of the Northern hemisphere economies have been working on issuing decisions related to the re-opening of economic activities. Some of these countries are acting faster than others while keeping an eye on the developments of a third wave of the pandemic.

While health and economic challenges may persist going forward, the long-term picture continues to look positive, and it points towards a broad-based economic recovery. The financial support and expansionary monetary policies adopted by central banks and governments around the world is expected to continue. According to the latest report from the International Monetary Fund (IMF), the performance of the global economy in general, and its largest economies, in particular, is expected to achieve higher growth rates than it was projected. The IMF estimates that the global economy is likely to grow by about 6% in 2021, to return to a size slightly higher than its pre-crisis size at the end of 2019, and to grow by 4.9% in 2022. The economy of the United States, which is the world’s largest economy, is expected to grow by around 7% in the current year and by around 4.9% in 2022. The Chinese economy is estimated to grow by about 8.1% in 2021 and by around 5.7% for 2022, while the growth projections for the euro bloc economy are 4.6% for the current year and 4.3% in 2022.

As for the GCC economies, the performance expectations are going in the same direction, but at a slower pace. The GCC economies will all register positive growth after a collective negative one in 2020. The six GCC countries will also register a surge in their liquidity levels and in stock markets indices. It is estimated that the GCC countries will have a growth ranging between 0.7% for the lowest and 3.3% for the highest. This growth level will improve slightly to range between 2.6% for the lowest and 7.4% for the highest in 2022.

If the Brent crude oil remains above US$ 70 per barrel, it is assumed that the economic growth rates of the GCC economies would change, supported by the increase of their oil production level according to the OPEC + agreement. Therefore, it seems that both the world’s and the region’s economic activities, including Kuwait, have returned to their pre-pandemic levels. However, the risks persist and must be closely monitored. The world’s debt is at a record level of US$ 289 trillion, or 341% of the global economy size. The prices of financial assets are at all-time record levels, and the inflation rates began to rise, which threatens the continuation of expansionary monetary and fiscal policies.

I would like to conclude by thanking the dedicated staff of Rasameel Investment Company for their continued efforts and hard work to maintain the company’s reputation as it is today. I would also like to acknowledge the sustained support of our shareholders that keeps us motivated to continue working successfully, and to thank the Fatwa and Shariah Supervisory Board for its cooperation.

In conclusion, we cannot but pray to God Almighty to reward our efforts to provide the best to our shareholders and investors. We ask God Almighty to protect Kuwait and its people under the wise leadership of His Highness the Amir and His Highness the Crown Prince.

We also thank you for your continued support and we assure you that as a company, we will always work to meet your expectations.

Dr. Fahad M F. Al Rashed

Dr. Fahad M F. Al Rashed