The Financial Market: Institutional Investment Movements and Focus on Lead Shares

MSM30 has been under pressures during the last week largely on profit booking by foreign institutional investments who preferred to collect gains on shares that saw recent price increase. Both volumes and values have seen improvements backed by special deals, investors and speculators movements. In general, there is high selectivity in picking shares as many investors chasing more details about the upcoming quarterly results, companies’ disclosures and government actions.

The MSM30 ended the week with a decline of 0.88 per cent to 5,002.46. The Service Index was the only sub index gainer as it closed up by 1.45 per cent. Both the Financial and Industrial indices closed the week down by 1.3 per cent and 0.72 per cent respectively. The MSM Shariah Index closed down by 0.33 per cent at 733.84.

Multiple encouraging news were announced during the week by government and private sector. Continuing with its diversification efforts, OPWP chief executive officer said feasibility study on a 1,800MW capacity coal-fired independent power project (IPP) will be ready by next month. He also announced that they are planning to launch bigger than the original plan of 200MW solar project by the end of the year and an independent desalination project in Sharqiyah will be awarded in October.

On the other hand, Diam (Public Authority for Electricity and Water) has pledged to reduce administrative and operational costs through efficiency enhancements designed ultimately to ease its dependence on government subsidy. Last but not the least, Oman’s budget deficit narrowed down to RO2.6bn in 7M’17 compared to RO4.0bn (before means of financing) in 7M’16, revealed in the state financial position report submitted at the fourth Financial Affairs and Energy Resources Council meeting of the year.

Analysis about the local stock market show that out of total listed companies within the financial sector, 70 per cent are trading with price to book value below one. The average dividend yield of the sector is 6.1 per cent as per Bloomberg. While within the Industrial sector, 37 per cent of the stocks are trading below one on basis of price to book value and 33 per cent for the Service Sector. The average dividend yield for industrial and services sector is 5.33 per cent and 5.7 per cent respectively.

In the weekly technical analysis, market technically is still in the in horizontal trend. Technical indicator show positive indicator of the market index below the exponential moving average for 50 days and the average 200-day still moving averages in the order of positive technical close the average 50 days above its 200-day average.

The technical indicators expect the market closes the RSI is below 70, which is the level of risk in this indicator. The cash flow index MFI has collided with resisting at 57 and closes without this resistance. The volume index is in a bearish direction opposite to the market index. In addition, emphasizes read Bollinger expectation indicator enter the market index closes below the resistance line of Bollinger index. Crossed market index up the level of 5,100 points will have a positive impact on the confidence of investors. The points of support level it is at 5,005 points, according read Bollinger Band.

Locally, data extracted from Oman Public Finance showed that corporate income tax in 1H’17 stood at RO292.1mn i.e. 7.3 per cent of total revenues compared to 10.5 per cent in 1H’16. Custom Duties were RO102.7mn in 1H’17 i.e. 2.6 per cent of total revenues against 4.7 per cent in 1H’16 and 2.3 per cent as an average for 2010– 2016. Further, during 2010– 2016, mixed companies & establishments average tax income formed 55 per cent of total corporate income tax followed by Omani companies & establishments with 34 per cent then foreign companies and establishments for 7 per cent and finally non-resident companies in Oman at 4 per cent.

CBO’s latest data shows that M1 increased by 1.3 per cent on YoY basis as at the end of June’17 to RO5.42bn and M2 increased by 3.8 per cent on the same basis to RO 16.1bn. M2-M1 indicates a growth of 5.1 per cent YoY as at the end of June’17, whereas banks’ credit growth stood at 6.6 per cent YoY. On monthly basis, M1 improved by 3.7 per cent (vs. 12-month average decline rate: -0.1 per cent) and M2 improved by 0.1 per cent (vs 12-month average growth rate: 0.3 per cent).

GCC wise, Abu Dhabi Securities Exchange topped the gainers with weekly gain of 0.62 per cent while Qatar Exchange continued to remain the worse performance as it closed down by 3.07 per cent.

Saudi Arabia is revising its National Transformation Plan (NTP) just over a year after it was launched in June 2016. The move to revise the plan in some cases/areas or delaying the implementation of the reforms implies that Saudi may have decided some of the objectives were probably optimistic in current operating environment. It is being discussed that, privatization efforts outside the oil sector, as well as other initiatives such as providing more affordable housing and reforming the financial sector, will now be run outside of the NTP by different ministries.

Secondly, the kingdom’s most closely watched reform effort, the partial privatization of Saudi Aramco, sits outside the NPT. No suggestion is made that the NTP’s redrafting will affect the initial public offering of 5 per cent of Saudi Aramco, planned for next year. The full details of the changes will be known by end of October when officials are scheduled to present a final draft.

Bahrain raised US$3bn in a three-part international bond sale to shore up its finances which have been marred by low oil prices. The country raised US$850mn Islamic bond at 5.25 per cent. It also raised US$1.25bn in 12-year notes at 6.75 per cent and US$900mn due in 30 years at 7.5 per cent. It would be worth mentioning here that for the year 2017, Bahrain has budgeted deficit of US$3.5bn, meaning they have covered over 85 per cent of their expected budgeted deficit.

Globally, China’s trade surplus fell to US$42 bn in August 2017 from US$50.23 bn in the same month a year earlier. In August, exports grew by 5.5 per cent y-o-y to US$199.2 bn, slowing from a 7.2 per cent rise in the prior month while markets expected a 6 per cent gain. It was the weakest increase in outbound shipments since a 2 per cent fall in February, due to softening global demand. Imports increased by 13.3 per cent, following an 11 per cent increase in a month earlier to US$157.2 bn and above estimates of a 10 per cent growth. It marked the tenth straight month of growth in inbound shipments. The trade surplus with the US, China’s largest export market, widened to US$26.2 bn from US$25.2 bn in July.

New report by the International Energy Agency (IEA) said that stronger-thanexpected consumption in Europe and the U.S. was the main reason behind the best climb in global oil demand on quarterly basis in 2Q’17 since mid of 2015. The increase was 2.3mn barrels a day. Moreover, the lower supply by OPEC and outsider producers helped in achieving this result. Accordingly, the IEA has increased its estimate for demand growth in 2017 by 100,000 barrels a day to 1.6mn a day.

OPEC issued its monthly report last week. OPEC production declined by 0.3 per cent on monthly basis while the countries who agreed for output cut witnessed a production drop of 0.4 per cent. Production drop in Saudi Arabia, Gabon and Iraq contributed to the cut. Overall, output cut compliance improves m-o-m to 95 per cent in August compared to 86 per cent in July. The output cut news comes on the heels of a statement from Riyadh that Oil Minister Khalid al Falih had discussed the possibility of another extension of the 1.8mbpd production agreement between OPEC and 11 other producers beyond the March 2018 deadline.

Recommendation

We continue to reiterate our stance on increasing volumes and values in the coming period, in light of upcoming IPOs, corporate disclosures, rating actions and forthcoming result season. At current levels, we believe so many companies are trading at attractive levels in terms of multiple. Amongst listed companies on MSM, 70 per cent of stocks in financial, 37 per cent stock in industrial and 33 per cent stock in services sector trade below P/Bv multiple of 1. Thus, the market provides good investment opportunities.