Technical analysis

As we anticipated in our previous report that the first resistance level of MSM30 would be at 5,090 points, the index touched the highest point of this level during last week.

Based on positive technical indicators, it is expected that the market will continue its positive performance during the current week to reach the level of 5,131 points.

Local news

BankDhofar announced that its board of directors approved raising of Core Equity Tier 1 (CET-1) capital of an amount up to RO40mn by way of rights issue of ordinary shares, subject to necessary regulatory approvals. The bank’s total current CET-1 capital is RO385.86mn and CET-1 capital ratio (CET-1 capital as a percentage of riskweighted assets) is 9.55 per cent. BankDhofar’s Tier 1 capital ratio is at 12.41 per cent and total capital ratio is at 14.89 per cent as of June 30, 2017, way above the Central Bank of Oman’s (CBO) currently stipulated minimum levels.

Bank Sohar will hold an extraordinary general meeting on August 13 to approve the issuance of additional Tier I capital instruments in the form of perpetual bonds through a private issue for a total of RO100mn (a RO70mn + RO30mn as green shoe option) with nominal value of RO1000 per bond.

Raysut Cement announced that it has approved the sale of its entire share in Oman Portuguese Cement Products Co LLC to OPAL Development Company LLC at a sales price of RO5.5mn. Raysut Cement has made a consolidated profit of RO1.11mn from this sale which will appear in the financial statements for the third quarter of 2017.

The sultanate has taken a US$3.55bn loan from Chinese banks. Oman had originally planned to raise US$2bn from the Chinese market but raised the amount because of strong response.

It would be worth mentioning that Oman has already raised US$7bn from international bonds this year – more than the expected budget deficit for 2017. It issued a triple-tranche US$5bn conventional bond in March and an US$2bn Sukuk in May. International demand for both transactions was high, with the conventional bond attracting more than US$20bn in orders and the Sukuk almost US$7bn.

Oman is also in talks with international banks about raising more funds through loan and bonds, according to a Reuters report. The discussions are at an early stage and the government has not issued any official request for proposals.

Moody’s Investors Service downgraded Oman’s long-term issuer and senior unsecured bond ratings to Baa2 from Baa1 and changed the outlook to negative from stable. The negative outlook reflects Moody’s view that despite a number of credit strengths the balance of risks to the Baa2 rating are skewed to the downside.

The key driver for the rating downgrade is that in Moody’s view progress towards addressing structural vulnerabilities has been more limited than expected, reflecting institutional capacity constraints to address the large fiscal and external imbalances.

Following the sovereign downgrade Moody’s also downgraded the long-term local and foreign currency deposit ratings of six Omani banks and took rating actions on seven Omani government related issuers.

Foreign direct investment (FDI) in Oman reached RO7.4bn in 2016, almost a billion rials higher than the previous year, according to the government statistics.

GCC markets

Dubai Financial Market (DFM) posted the highest weekly gain of 1.91 per cent in the GCC. This was followed by Abu Dhabi and Kuwait bourses which rose 0.61 per cent and 0.3 per cent, respectively.

Total GCC banking sector (banks which have disclosed results so far) posted a total net profit of US$15.5bn in the first half of 2017, up 4.5 per cent year-on-year. Total GCC banking sector net profit touched US$7.85bn for the second quarter of 2017.

Within the GCC, the UAE’s banking sector posted the biggest year-on-year jump of 14.9 per cent in total net profit, followed by Kuwait at 7.5 per cent, Bahrain at 3.2 per cent and Qatar at 1.1 per cent. Saudi and Omani banks posted 1.3 per cent and 5.5 per cent declines in total banking sector net profits for the first half of 2017.

Moody’s downgraded the Government of Bahrain’s longterm issuer rating to B1 from Ba2, and maintained the negative outlook. The negative outlook reflects continued downside risks to the rating, which manifest themselves in heightened government and external liquidity risks.

Global news

In line with the market expectations, Eurozone economy grew by 0.6 per cent in the second quarter following a downward revision of 0.5 per cent growth in the previous period. GDP growth picked up in Spain and remained unchanged in France and Austria. Growth slowed in Belgium, Latvia and Lithuania.

Other figures showed unemployment in Eurozone was at its lowest since 2009, building on the picture of improving economic health across the area. Earlier the International Monetary Fund (IMF) in its World Economic Outlook report stated that the outlook for several Eurozone economies was brighter than initially thought, with countries including France, Germany, Italy and Spain seeing growth forecasts revised up.

In another important global development, China closed down 42.4mn tons of crude steel capacity in the first half of 2017 or nearly 84 per cent of its target for the whole year, a government official disclosed. The country has essentially completed its five year target, set last year, to cut between 100150mn tons of excess steel capacity within less than two years. China made the pledge in January 2016 as it bid to put an end to a price-sapping capacity glut that had left the country’s massive steel sector mired in debt and losses.

Recommendation

Taking into account the encouraging response to the fund raising in China and plan of raising additional funds through a loan or a bonds, would bode positively for Oman in general and would further aid in improving the liquidity.

We believe there is still potential in the market and some of the stocks to go further up. There are at least 21 stocks below the PE multiple of 8x and 13 stocks below the P/Bv multiple of 1x.