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Index supported by all subsectors

The MSM30 Index continued to register gains for the second consecutive week, supported by all subsectors and driven by the financial sector. The index finished last week in the green rising by 1.04 per cent on a week-on-week basis to close at 5,584.67.

During the same week, Al Arabi Oman 20 Index gained 0.86 per cent to finish at 938.5. The Financial Index led the subsectors with weekly gains of 1.9 per cent to close at 235.67, on the back of a rise in the Oman International Bank share price by 4.8 per cent and an improvement in investment and holding companies' prices.

The Services Index was the second best performer of the week, adding 1.47 per cent to its value and finishing at 2,400.34 points. Support came from Omantel (which held a discussion panel during the week) and Renaissance Services . We believe that disclosures and announcements during the previous weeks helped in turning investors' and portfolio managers attention to some stocks, Renaissance being one of them.

After declining to an attractive level, the Renaissance stock gained 8.14 per cent last week and the stock led market activity with 12.48 per cent and 20.33 per cent of the total trading volume and value, respectively. The Industrial Index registered slight improvement to close at 6,092.21, up by 0.23 per cent.

An analysis of investor activity shows a noticeable increase in volumes and trading value by 27.48 per cent and 9.79 per cent, respectively, to 45.4mn shares traded and RO16.36mn in value traded. Local institutions emerged as net buyers of RO1.97mn and absorbed the selling pressure from foreign and GCC institutions (who pulled out a net of RO2mn).

At the beginning of the week, board of directors of the CMA issue several decisions to boost trading activity on the Muscat Securities Market which has witnessed a significant decline in the recent weeks on the back of many internal and external factors.

The decisions included:

• The reduction of the commissions collected by the market, so that commission charged by the broker on a client becomes 3.5 per thousand Omani rials of the value of the deal, down from four per thousand rials. This move will have a positive effect on investment portfolios and liquidity of the market by attracting the attention of speculators.

• The decisions also included a number of incentives to encourage companies to merge. Incentives include the exemption of merged companies from licensing fees, annual subscription fees and fees for exercising of activities, all for a period of three years. They also include exemption from paying the market share of the commission due for a period of one year.

• The board also adopted directives for Secured Financing for companies licensed to practice this activity, in accordance with regulatory requirements.

All these incentives should have a positive influence in the medium- to long term which would help improve trading volumes. But in the current scenario wherein we are witnessing low trading volumes, it is unlikely to have a clear impact in the short term. Oman Telecommunications Company ( Omantel ) held a panel discussion last week. Key points of the discussion are as follows:

• The company managed to increase its client base despite the high telecom penetration levels in Oman as well the stringent regulations laid down by the Telecommunications Regulatory Authority.

• Due to commissioning of international gateway operations by its rival, Omantel lost RO16.8mn in 2010.The company expects the total loss in 2011 to be around RO22mn.

• Omantel said that Oman is ranked third in a study carried out by Google regarding download speeds in the region. However, the first two countries which are Saudi Arabia and UAE are considered government investments, while in Oman it is private investment done by the company.

• With regards to WorldCall, Omantel 's Pakistani subsidiary, decrease in WorldCall's revenue during the first half of this year was primarily due to the lower contribution to revenues from international and long-distance calls. This was on the back of a number of decisions in Pakistan with regards to the reduction of tariffs. However, Omantel expects WorldCall to break-even (ie, cover its losses) due to the good performance of its data business which led to the company achieving an operating profit for the first time during the second quarter of this year.

• Omantel said that they have recently invested with three global telecommunication companies to create a unique cable gateway 'Europe Persia Express Gateway' which is a mostly landed cable and whose cost of the maintenance is lower that the sea cables. This gateway is expected to attract more operators to set up cables in the region. This is expected to enhance the 'Carrier of Carriers' business utilising Oman's strategic demographic situation.

• Omantel said that sale of IRU (indefeasible Right of Use) is not recurring on a quarterly basis, and is not expected to recur.

• With regards to the impact of increment in employee salaries and benefits, as well as the appointment of 200 new staff, the company indicated that the additional cost would be approximately RO4.4mn for this year.

Oman Chlorine, at its investors' meeting held last week, signalled to its expansionary plans in the sultanate (including the Calcium Chloride Project in Sohar with expected commercial production in October 2011) and outside, with representationin a joint venture with Gulf Chlorine in Qatar. The latter's target is to establish achlorine plant which will double the current production capacity, with the expected finalisation of the project in 2013.

Oman & Emirates Invesment Holding disclosed that it has divested its equity stake of 2.16 per cent in Al Barari Firm Management as well as divested its 50 per cent equity stake in CI Capital Gulf Financial Brokerage Co, (formerly United Brokerage Co). OEIH expects these divestitures to reduce its losses. Also, Galfar has completed the process of incorporation and registration of two companies in Oman.

One of which is 'Unibeton Galfar Ready Mix,' which is a limited liability company set up in association with Unibeton Ready Mix, UAE. The other company is named 'Aspire Projects and Services,' through which Galfar hopes to diversify its product range.

In terms of local news, Oman is seeking to increase its fiscal spending by nine per cent in 2012 to nearly RO8.9bn to finance construction projects and provide more jobs for citizens. A senior official in the Ministry of Finance predicted the level of deficit to be at RO850mn in 2012, which is the same as the level expected in 2011. In spite of the increased spending, total expected revenue growth due to expected increase in oil production during 2012 will reduce the impact of increased spending. Last week, the central bank issued its initial approval to establish two Islamic banks namely Nizwa Bank and Alizz International Bank.
Recommendation

Despite the fact that the following week will witness only two days of trading due to the Eid al Fitr holidays, which in turn will affect trading volume and depth, we expect the Muscat Securities Market to attract more interest from investors following announcements and disclosures made by leading companies such as Renaissance Services and Omantel .

Also the government's positive announcements, such as the increase in government expenditure in the coming years which further cements the government's commitment to increase economic development and which suggest that government plans have not been affected by the global economic crisis, will provide further support to the market in the medium- to long- term.

As recommended earlier, we advise investors to continue building their portfolios in companies with high yields which have a diversified base of revenue and services in the local market and in companies impacted by government expenditure (ie services and financial stocks, including banks) which stand to benefit directly. It is worth mentioning that as many as 36 companies, mostly in the services sector, are trading below their book value, which offers more investment opportunities.

By special arrangement with Oman Arab Bank- Investment Management Group

© Muscat Daily 2011