The Search for Liquid

As 2014 unfolded, many Omanis gazing across the Strait of Hormuz—the world’s key route for Brent oil—must have speculated over the possible ratio of headwinds to tailwinds that would shape the economic trajectory. Indeed, in the capital markets, factors of various hue saw the Muscat Securities Market (MSM) move in both directions, as across the strait Iran, faced global isolation and the price of Brent halved, while on a welcome positive note, beloved leader Sultan Qaboos, whose absence on health grounds had shaken the nation, returned from treatment in Germany.

SELECTED EVENTS OF 2014…

In 2014, Muscat Securities Market celebrated its 25th anniversary, having been established by the Royal Decree (53/88) of June 21, 1988. And as bourse Chairman Dr. Ashraf bin Nabhan Al-Nabhani stated, while appraising 2014, “We still have a lot in our future vision to continue our success streak through interaction between the market and the national economy and openness to the global economy in order to diversify the Sultanate’s sources of income and reduce dependence on oil wealth.“ Trading is broken down into stocks from the three sectors Financials, Industrials and Services. According to the Capital Markets Authority (CMA), the total capitalization of the market accounts for 30% of GDP.

…AND SWEETENING THE DEAL

Numerous steps have been taken to shore up the trading environment to attract further investor interest and lasting liquidity. The MSM as of 2017 will be operating a new trading system, having signed an agreement with NYES Technologies. This should enable the bourse to trade in derivatives, options and ETFs. It will also facilitate risk management, IPOs and securities lending. The MSM has also introduced cloud computing to better manage transactions. Important, too, regulatory discipline and expansive reach to the advantage of the broader economy remain central to daily business, as Executive President of the Capital Market Authority (CMA) HE Abdullah Salem Abdullah Al-Salmi explained. “We are members of IOSCO and IAIAS, the global regulatory bodies for capital markets and insurance respectively, and operate in compliance with their principles and requirements.“

In September of 2015 Oman signed a multilateral MoU with other Gulf nations on uniformity of law and regulation across GCC stock markets. The idea is to foster deeper economic integration among signatory states. The MoU was signed during the sixth Ministerial Committee meeting of the chairmen of GCC securities commissions. Information exchange will ultimately better safeguard the investor, both regional and from further afield, and boost professional training and expertise exchange.

And as Al-Salmi added, Oman’s smaller enterprises also stand to benefit as “We hope to integrate SMEs into the MSM, not merely as special or separate exchanges, and to create more activity.“ SMEs, while accounting for 90% of Oman’s businesses, contribute just 15% of GDP, a ratio the government, keen to diversify beyond oil, wishes to increase substantially to meet the objectives of the Oman 2020 Vision.

IPOs

In its 2014 report the bourse revealed Oman’s total public revenues to be at around $30.13 billion, including oil revenues of $23.79 billion. This accounted for a substantial 79% of total revenues, and has prompted the government to devise a forthcoming raft of economic reforms to mitigate the effect of depressed oil prices. Among these is a privatization program set to be rolled out over three years to ease the load borne by the public sector. The bourse saw just three companies listed at the stock market in 2014. Ahmed Saleh Al Marhoon, Director General of the MSM told TBY, that; “at the beginning of (this) year, the Minister of Finance said that there were 60 government-owned candidate companies to be sold, or partly sold to the public and listed on the MSM. […] This is how an economy can be built and grow; through the circulation of government proceeds for the creation of new companies.“

SOME BROADER CONTEXT

Putting the MSM’s 2014 performance into some context, in what proved to be a dramatic year, is quite useful. In 2014 world stock markets posted average growth of 8.3%, American markets appreciated on average by 10.8%, and European stock markets, the most anemic, climbed on average just 1.41%. Asian markets proved to be the world champions on an average gain of 16.3%.

MSM IN NUMBERS

The Arab markets posted an average growth rate of 6.4% for 2014, where GCC markets rose 3.88% and non-GCC nations appreciated by an average of 9.27% YoY. Yet Oman’s benchmark MSM-30 index underperformed notably on a year-end close of 6,343.22 points, having shed 7.2%, or 491.34 points YoY. The index peaked at 7,552.41 points on September 14 and troughed at 5,401.51 points on December 16 2014. For the year an almost flat trading performance brought a rise of 0.62% to $5.9 billion YoY. Punters were responsible for average daily trading of $24.15 million fractionally better than the $23.89 million of 2013. The year’s largest trading value, of $134.27 million, came on November 6, and the slenderest, at $6.75 million on June 15 2014. Meanwhile, market capitalization appreciated 2.89% YoY to $37.81 billion. Oman’s listed securities topped 137 during 2014, split into 117 listed joint stock companies, 18 bonds and two funds. Of the 121 securities traded 37 saw price rises, while 71 fell and 13 remained static. Non-Omani purchases printed at $1.212 million (20.57%) up from $1.202 million (20.53%) in 2013. Meanwhile, Omani selling activity stood at $4,625 million (78.49% of the total). Making those deals in 2014, the top-5 brokerages (out of a total of 21), namely UNITED SECURITIES (13.38%), GULF Baader (11.30%), Global Securities Market Capital (9.47%), EFG Hermes Oman (9.37%) and Bank Muscat (8.81%) held a total market share of 50.3%.

In March 2015 politics smiled on the capital markets as the MSM-30 posted a two-month high, rising 1.2% on March 23 after Sultan Quaboos resumed his place at the nation’s helm. The benchmark index went on to close 3Q2015 in the green. On the back of trading in large cap financial stocks, the MSM-30 Index closed the quarter in positive aspect at 5,787.69 points, up 0.47%. On the other hand, MSM Shariah Index—down 12.13% YoY for 2014, ending at 966.26 from 1099.68 at end-2013—lost 0.15% to end at 902.01 points. The quarter left the Financial Index with a 0.3% rise at 6,893.94 and the Services Index up 0.14% to 3,225.49, while the Industrial Index slipped 0.3% to 7,305.94. For the month of September, the top-three gainers were Oman Textile Holding (19.70%), Al Jazeera Services, Sharqiyah Desalination, Bank Muscat and Ominvest. The top-three losing stocks were Port Services Corporation, Al Batinah Dev. Inv. Holding, Gulf Investment Services and Al Anwar Ceramic Tiles. Over a six month period to October, the MSM-100 saw a high of 6,593.470 on July 25th and a low 5,706.490 on August 24th.

While the MSM lacks the mouthwateringly liquid stocks that appeal to a broader investor base, so too it is not susceptible to crashes. The future will depend on finding that sweet spot between the two positions.