08 February 2010
Investors will be hoping the steady recovery posted by the Sultanate's equities last year will continue into 2010. Already, early signs of confidence are becoming apparent, with initial public offerings (IPOs) expected to resume shortly and a degree of bullishness prompted by resurgent oil prices.
Oman's capital markets faced a challenging time in 2008, largely due to a sudden exit of hot money from international investors spooked by the US financial crisis. The Muscat Securities Market (MSM) lost half its value between mid-June and late October 2008, sinking to below 6000 points from highs of above 11,000.
The correction was prompted by a combination of low liquidity and an increase in foreign influence in the years running up to 2008. Historic levels of foreign ownership on the MSM have been relatively low in comparison with some other Gulf Cooperation Council (GCC) markets - around 11%, with the vast majority of that accounted for by other Gulf investors. However, in the final months of 2007 foreign ownership surged, hitting around 28% by spring of 2008. With trading volumes on many shares listed on the MSM typically low, the bear market trend was exacerbated by a sudden overhang of sell positions, which then combined with a surge in small domestic investors attempting to offload to create the perfect storm.
The result was Oman's first real bear market of the decade, which carried over into 2009. Bearish sentiment ended the Sultanate's encouraging trend of IPOs among its many family-owned businesses - a trend which had seemed secure following the listing of Galfar, an engineering and contracting company, in September 2007. Galfar's IPO was the most heavily subscribed ever on the MSM (14.5 times over-subscribed), and many market-watchers hoped it would lead to a flood of further IPOs in the Omani market.
The resulting slump saw four major Omani companies to shelve plans for IPOs during 2009. Hasan Juma Backer Trading and Contracting, Oman Merchantt Bank, Al Argan Towell Investment Company, and Barr Al Jissah Resort all put their IPO plans on hold, citing negative market conditions. However, following a resurgence in 2009, it seems that IPOs are now back on the table. Al Khalili Group, a family-owned diversified industrial group, announced recently that it was planning a 40% IPO, with Oman Arab Bank as lead manager. Further IPOs are a possibility if market sentiment continues to hold.
Altogether, the MSM's performance last year placed it high among regional markets. In terms of market capitalisation, the bourse grew 17.05%, making it the second-strongest performer in the GCC after the Saudi Tadawul. The rise was over five points above the regional average of 11.89%. In terms of total volume of shares traded, the MSM led the region in terms of percentage growth, with the volume rising 45.07%, compared with a regional average of 16.5%. However, the increase in equities trading in Oman was in large part due to a change in market regulations in July, which converted the MSM30 index from a "full-float index" to a "free-float index". The change, which refers to the method of calculating capitalisation weight on the index, apparently resulted in a significant adjustment in portfolios by major investors, hence leading to higher market volumes.
In the immediate future, the strength of the continuing recovery will be tested by the impending release of end-year statements for the Sultanate's listed companies. On this note, the Capital Market Authority last month warned brokers not to try pre-empting potential further gains by leaking details in advance, reminding them that insider trading in Oman carries a fine of up to RO100,000 ($260,000). This may be a sign that further positive news is expected from companies, suggesting the MSM's recovery will continue into the new year.
Investors will be hoping the steady recovery posted by the Sultanate's equities last year will continue into 2010. Already, early signs of confidence are becoming apparent, with initial public offerings (IPOs) expected to resume shortly and a degree of bullishness prompted by resurgent oil prices.
Oman's capital markets faced a challenging time in 2008, largely due to a sudden exit of hot money from international investors spooked by the US financial crisis. The Muscat Securities Market (MSM) lost half its value between mid-June and late October 2008, sinking to below 6000 points from highs of above 11,000.
The correction was prompted by a combination of low liquidity and an increase in foreign influence in the years running up to 2008. Historic levels of foreign ownership on the MSM have been relatively low in comparison with some other Gulf Cooperation Council (GCC) markets - around 11%, with the vast majority of that accounted for by other Gulf investors. However, in the final months of 2007 foreign ownership surged, hitting around 28% by spring of 2008. With trading volumes on many shares listed on the MSM typically low, the bear market trend was exacerbated by a sudden overhang of sell positions, which then combined with a surge in small domestic investors attempting to offload to create the perfect storm.
The result was Oman's first real bear market of the decade, which carried over into 2009. Bearish sentiment ended the Sultanate's encouraging trend of IPOs among its many family-owned businesses - a trend which had seemed secure following the listing of Galfar, an engineering and contracting company, in September 2007. Galfar's IPO was the most heavily subscribed ever on the MSM (14.5 times over-subscribed), and many market-watchers hoped it would lead to a flood of further IPOs in the Omani market.
The resulting slump saw four major Omani companies to shelve plans for IPOs during 2009. Hasan Juma Backer Trading and Contracting, Oman Merchantt Bank, Al Argan Towell Investment Company, and Barr Al Jissah Resort all put their IPO plans on hold, citing negative market conditions. However, following a resurgence in 2009, it seems that IPOs are now back on the table. Al Khalili Group, a family-owned diversified industrial group, announced recently that it was planning a 40% IPO, with Oman Arab Bank as lead manager. Further IPOs are a possibility if market sentiment continues to hold.
Altogether, the MSM's performance last year placed it high among regional markets. In terms of market capitalisation, the bourse grew 17.05%, making it the second-strongest performer in the GCC after the Saudi Tadawul. The rise was over five points above the regional average of 11.89%. In terms of total volume of shares traded, the MSM led the region in terms of percentage growth, with the volume rising 45.07%, compared with a regional average of 16.5%. However, the increase in equities trading in Oman was in large part due to a change in market regulations in July, which converted the MSM30 index from a "full-float index" to a "free-float index". The change, which refers to the method of calculating capitalisation weight on the index, apparently resulted in a significant adjustment in portfolios by major investors, hence leading to higher market volumes.
In the immediate future, the strength of the continuing recovery will be tested by the impending release of end-year statements for the Sultanate's listed companies. On this note, the Capital Market Authority last month warned brokers not to try pre-empting potential further gains by leaking details in advance, reminding them that insider trading in Oman carries a fine of up to RO100,000 ($260,000). This may be a sign that further positive news is expected from companies, suggesting the MSM's recovery will continue into the new year.
© Oxford Business Group 2010
