A LOADED MUSCAT

Oman 2014 | FINANCE | REVIEW: CAPITAL MARKETS

Floating on economic confidence, the sophisticated Muscat Securities Market (MSM) responded to regional instability with rampant growth, and in 2013 has broadened its vision with a new sharia window.

Established in 1988, the Muscat Securities Market (MSM) is the sole stock exchange in the Sultanate of Oman. The Royal Decree that enabled the MSM marked the determined step of regulating and expanding the scope of the Omani financial universe to a competitive level of participation in global finance. A decade of sterling performance led to further royal decrees that made a clear demarcation between the commercial activities of the MSM and the regulatory arbiter, namely the Capital Market Authority (CMA). Tasked with ensuring efficiency of the capital markets and insurance sector of Oman, the CMA supervises the MSM and the Muscat Clearing and Depository Company (MDSRC). As a governmental institution the MSM is a well-regulated and transparent bourse operating an advanced electronic platform. This was confirmed by its receipt of ISO 9001:2008 certification for the “Trading of Securities," and ISO 27001:2005 certification for “Information Security Management Systems." To streamline the workings and render the bourse more appealing to foreign investors, its system of clearance and settlement is executed through a settlement bank (Central Bank of Oman [CBO]) with a settlement guarantee fund (SGF).

Operating a three-tier system for the current 124 listed stocks, the MSM's “regular market" poses strict listing stipulations, admitting only companies with an established record of profitability. The second tier, the “parallel market," is less strict and provides an opportunity for the listing of smaller entities. The “third market" comprises companies in financial difficulties. MSM-listed companies are further divided into the three sectors of banking and investment, services and insurance, and industry. According to a 2012 World Bank report, the market capitalization of listed companies in Oman as a percentage of GDP in 2011 was 27.47%.

The Muscat Securities Market Index (MSM 30 Index) was established in 1992, with a base date of June 1990. Today, it features the 30 most liquid companies, serving as a benchmark for both individual and institutional investors and underpinning analysis and decision-making. The MSM 30 exclusively features freely available shares available for trading. As of 9M2013, the MSM 30 Index was up 20.10% year-on-year at 6,646.85. On a one-year perspective as of October 23, 2013, turnover of the MSM 30 Index was at OMR1.54 ($4 billion) out of a total volume of OMR5,53 ($14.39 billion). It posted a high of 6,926.56 on August 19, 2013 and a low of 5,528.13 on November 26, 2012. The index closed 2012 at 5,760.84, up 1.15% from 5,695.12 at end-2011.

BROKERING THE DEAL

Twenty brokerage firms operate at the MSM, and United Securities, Global Securities Market, and Bank Muscat were the largest by market share in 3Q2013 with a respective 15.2%, 11.5%, and 10.6%. In the first nine months of 2013, the total number of stocks traded stood at 1,847,492,964. The same three companies accounted for 274 million, 134 million, and 265 million shares apiece.

FERTILE 9-MONTH GESTATION

In terms of one-year forward P/E, the six GCC markets traded in the 9.4x–11.3x range, which was below the region's three- and five-year historic average of 13.5x and 13.4x, respectively, at the start of 2013. The MSM 30 index started 2013 in fine fettle on a combination of Oman's strong economic growth print and a robust set of financial results from the key sectors of finance and real estate. Yet, while it ended January up 0.68% at 5,799.79, it ranked last among its GCC peers. The gainer-heavy index saw an advancer-to-decliner ratio of 32-to-21, with seven stocks unchanged. In 2013, regional conflict had also taken its toll on regional equity markets, including Oman, with recovery from year lows following news that potentially drawn out international military intervention in Syria had been averted by a Russian deal. In the first nine months of 2013, the MSM 30 Index was up 20.1% to 6,646.85 with a market capitalization of OMR13.46 billion ($35 billion), up 18.8%. Meanwhile, the daily average trading value was at OMR8.9 million, up 110%. Over the period, foreign investors accounted for 28% of the total. The value of shares bought by non-Omani investors stood at OMR358.15 million, at 21.63% of the total value. Shares sold were at OMR334.12 million ($868.7 million), marking 20.18% of the total value. The total number of securities traded up to end-3Q2013 reached 6,427.75 million up 94.94% year on year. Turnover up to end-3Q2013 reached OMR1.66 billion ($4.3 billion) compared to OMR796.65 million ($2.07 billion) for the same period of 2012, on a formidable 107.9% rise. The MSM 30 Index closed at 6,646.85 points at end-September 2013, up 20.1% compared to the 5,534.38 points in the corresponding period of 2012.

THE 9M2013 TOP-THREES

For the period, Omanis accounted for 79.82% of sell value in 9M2013 and 78.37% of buy value. In the regular market in 9M2013 the Financials Index was up 31.36% to 8,113.85, the Services Index was up 26.93% to 3,457.6826, and the Industrials Index was up 37.51% to 9,685.65 year-on-year. The total value of financials stocks traded for the period was OMR875.36 million ($2.28 billion), and the top-three performers in value terms were Bank Muscat, Gulf Investment Services, and Al Anwar Holding at OMR155.7 million, OMR121.04 million, and OMR83.27 million, respectively. The total value of industrials traded was at OMR292.33 million, where the top three, Galfar Engineering and Con., National Aluminium Products, and Oman Cement, registered respective values of OMR37.60 million, OMR36.97 million, and OMR33.35 million. Meanwhile, the total value of services stocks traded for the period was OMR1,52 billion, where the top three performers, Oman Investment and Finance, Oman Telecommunication, and Renaissance Services, registered respective trading values of OMR110.72 million, OMR67.32 million, and OMR51.46 million.

Voicing optimism for the evolution of the MSE, Hassan Ali Jawad, Managing Director of United Securities, which manages assets in excess of OMR113 million, told TBY that, “The average daily trading turnover of MSM companies increased to OMR8.1 million during the first three months of 2013 as compared to the 2012 average turnover of OMR4.2 million, which we see as a positive sign and a return of investor confidence."

THE GAME'S BONDS

For 9M2013, 1,580 trades were conducted amounting to 203.26 million bonds with a total value of OMR24.61 million, the latter figure up 50.8% year-on-year. According to the Gulfbase portal citing the CBO, the government could issue dollar-denominated sovereign bonds in 2014, possibly as a prelude to regular debt sales in the future. In its first ever financial stability report published in May of 2013, the CBO stated that, “By re-establishing Oman's presence in the international bond market, a sovereign issue could pave the way for regular deficit financing through bond issues in future, if need be."

MEET THE PUBLIC

The market likes nothing more than fresh blood. According to arabbusiness.com, two Omani electricity generators, Al Suwaidi Power and Al Batinah Power, plan to hold IPOs in mid-2014. Both companies are earmarked to present 35% stakes to the public. On July 1, 2013, the MSM, responding to the growing trend for sharia-compliant financial instruments, launched the MSM Sharia Index. Jameela bint Ali Al Hamhamiyah, Head of the Indicators Section at the MSM Operations Department, told the Oman News Agency that the Sharia Index, featuring 32 joint stock companies listed as being compliant in business practice with sharia law, would attract a new investor class. The index is to be reviewed quarterly to assess continued compliance by existing members, and to remove errant companies, or usher in fresh ones. As of 9M2013, the index was at 1,048.83, marginally up from its launch month close of 1,035.70.