Attractive valuations of blue-chip stocks, oil price lift MSM up
After continuous decline in the previous weeks the cheap valuations of stocks attracted investors attention and the Muscat Securities Market (MSM) ended last week higher. The benchmark MSM30 index ended the week up by one per cent to close at 5047.59 points.
Announcements from some listed companies enticed investors’ attention as well. Oil price also aided positively to the market performance last week as it went up during the week after some positive announcements by the oil producers.
All the sub-indices finished the week on positive notes led by Services index which closed 0.91 per cent higher at 2,507.12 points. Financial index increased 0.02 per cent to close at 7,529.44 points, while Industrial index inched up 0.01 per cent to 6,817.74 points. The MSM Shariah index closed 0.33 per cent up at 747.3 points.
In our previous report we had mentioned that the MSM30 index will touch the first resistance level at 5,090 points. Based on the positive technical indicators it is expected that the market will continue its positive performance during the current week.
Raysut Cement formally announced that it has approved the sale of its entire stake in Oman Portuguese Cement Products Co LLC (OPCP) to Opal Development Co LLC. The company, however, did not mention the price at which it is selling the stake or the gain/loss from the sale of their stake. As of the second quarter of 2017 Raysut Cement’s cost of investment in OPCP stands at RO1.9mn.
Al Ahlia Insurance Co, which is currently undergoing IPO subscription, announced its first half year results last week. The company reported 14.8 per cent growth in the net income to RO2.56mn in first half of 2017 compared to RO2.23mn in the same period of 2016. Al Ahlia Insurance in its IPO prospectus estimated full year earnings of RO2.48mn for 2017 which has already been surpassed by first half earnings. Net underwriting profit of the company during the first half of 2017 rose 10.6 per cent to RO2.29mn compared to RO2.09mn in the first half of 2016.
Vision Insurance Co, which is also currently undergoing IPO subscription, announced its half-year results last week. The company reported 48.6 per cent growth in the net income to RO1.07mn for the first half of 2017 compared to RO0.72mn in the same period a year ago. Vision Insurance in its IPO prospectus estimated full year earnings of RO1.78mn for 2017. Investment and other operating income contributed 52.7 per cent to the company’s total income during the first half of 2017.
Renaissance Services SAOG announced that Topaz Marine S A (Topaz), a wholly owned subsidiary of Topaz Energy and Marine Limited and an indirect subsidiary of Renaissance Services, has successfully priced an offering of US$375mn aggregate principal amount of Senior Notes due 2022 at a fixed coupon of 9.125 per cent per annum.
H E Hamood Sangoor al Zadjali, executive president of the Central Bank of Oman (CBO), said that Oman’s foreign direct investment (FDI) law is being revised comprehensively in order to attract long-term foreign investment flows. He said, “The new law will address major concerns and shortcomings in the current law. Foreign investors’ rights and obligations will be clearly set out in the new law, and it will also provide dispute resolution and include international arbitration.”
In the GCC region, Bahrain’s stock market posted the highest weekly gain of 1.14 per cent, followed by Oman and Dubai which closed higher by 0.96 per cent and 0.91 per cent, respectively.
Saudi Arabia raised SAR17bn from its first local Islamic bond sale this year. The government received investor offers in excess of SAR51bn, three times the deal size, according to a statement posted on the Ministry of Finance website. The kingdom sold SAR12bn of bonds maturing in 2022, SAR2.9bn of seven-year notes and SAR2.1bn of ten year bonds, according to the statement. As reported by Bloomberg, the ten year Sukuk was priced at 3.55 per cent, the seven year at 3.25 per cent and the five year securities at 2.95 per cent.
On July 17, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Saudi Arabia. The IMF expects non-oil growth in Saudi Arabia to pick up to 1.7 per cent in 2017, but overall real GDP growth is expected to be close to zero as oil GDP declines in line with Saudi Arabia’s commitments under the OPEC agreement.
The IMF said Saudi Arabia’s growth is expected to strengthen over the mediumterm as structural reforms are implemented. Risks mainly come from uncertainties about future oil prices, as well as questions about how the ongoing reforms will affect the econ- omy.
The IMF expects Saudi Arabia’s fiscal deficit to narrow substantially in the coming years. The deficit is expected to decline from 17.2 per cent of GDP in 2016 to 9.3 per cent of GDP in 2017 and to just under one per cent of GDP by 2022, according to the IMF.
The IMF issued an update on its world economic outlook last week. It said that the pickup in global growth anticipated in the April’s world economic outlook remains on track, with global output projected to grow by 3.5 per cent in 2017 and 3.6 per cent in 2018. The unchanged global growth projections mask somewhat different contributions at the country level.
While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term. US growth projections are lower than in April, primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated. China’s growth projections have also been revised up, reflecting a strong first quarter of 2017 and expectations of continued fiscal support. Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is projected to slow considerably in 2017, reflecting primarily a slowdown in activity in oil exporters, before recovering in 2018.
Brent crude price rose during the week and closed at US$51 per barrel on Thursday (3pm Oman Time), up by six per cent when compared with last week close of US$48 per barrel on July 21.
The US Fed met last week to decide on the policy rate. In view of realised and expected labour market conditions and inflation, the Fed committee decided to maintain the target range for the federal funds rate between 1-1.25 per cent.
Our previous recommendation materialised last week as we said that many prices have touched historic low levels and have created good entry opportunities for investors. Blue-chip stocks, which received severe beating in last couple of weeks, witnessed greater attention and ended up with posting gains.
As expected, the US Fed did not announce any change in the policy rate and we expect that the next time a rate change would happen around close to end of the third quarter. We reiterate our stance of previous week recommendation and believe some stocks are still trading at attractive levels.