At­trac­tive val­u­a­tions of blue-chip stocks, oil price lift MSM up

Muscat Daily - - BUSINESS -

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.

Tech­ni­cal anal­y­sis

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.

Lo­cal news

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.”

GCC mar­kets

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.

Global news

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.

Rec­om­men­da­tion

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.

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