MSM posts weekly decline amid Q3 results
The benchmark index of the Muscat Securities Market (MSM) ended marginally lower last week, mainly driven by the announcements of corporate results for the third quarter of 2020.
Affected by weak financial results of the industrial and financial sectors companies, the MSM30 index recorded a 0.29 per cent decline for the week.
Financial index was down 0.66 per cent while Industrial index declined 0.72 per cent on weekly basis. Services index, however, closed 0.3 per cent higher for the week. The MSM Shariah index also declined 0.16 per cent.
Local news
Raysut Cement Company announced the completion of negotiations and officially acquired 75 per cent shares in Lafarge Holcim Maldives Ltd, a cement terminal located at Thilafushi Island, Maldives, at a purchase value of US$8mn. Oman Investment & Finance Company (OIFC) received the Central Bank of Oman's approval to operate as a payment service provider (PSP). Accordingly, within six months, OIFC will be required to complete all legal requirements related to obtaining the final approval and required license in that regard. BP started the production at the Ghazeer gas field project in Oman, significantly boosting the sultanate's domestic energy supplies several months ahead of the schedule. The Minister of Energy and Minerals praised the project and called it a step towards Oman's 2040 Vision in providing additional energy and diversifying the economy. The total daily production capacity from Ghazeer and Khazzan is expected to rise to 1.5bn cubic feet of gas and more than 65,000 barrels of associated condensate, BP said. The company said in March that the giant field was capable of producing more natural gas than had been initially agreed under contracts for the first two phases of the Block 61 development. The value added tax (VAT) will be imposed in the sultanate within 180 days i.e. in April 2021 from the date of publication of Royal Decree No 121/2020 in the Official Gazette. The VAT is expected to provide an additional source of support to the state's general finance. It is also expected to ensure the quality of public services and enhance the realization of the sultanate's goals of diminishing dependence on oil and other hydrocarbon sectors as main sources of revenues. There are selected items that are not subject to the standard VAT rate of 5 per cent, including: exports (zero-rated), school fees set out in the regulations (exempted), certain healthcare services (zerorated), sale of bare, (e.g. vacant land) (exempted), and certain financial services such as a life insurance policy (exempted).
As per the Central Bank of Oman's latest monthly bulletin, Oman reported a deficit of RO1.55bn for the first seven months of 2020 compared to RO1bn deficit in the same period of last year. Revenue during the period declined by 19.3 per cent to RO5.19bn compared to RO6.42bn in same period of last year. Expenditure on the other hand aided in controlling the deficit. Expenditures declined by 9.3 per cent to RO6.73bn in the first seven months of 2020 compared to RO7.42bn in the same period of 2019. In the month of July alone, Oman's total revenues stood at RO358mn with oil revenue and gas revenue at RO62.7mn and RO82.3mn, respectively.
GCC and global news
In its latest World Economic Outlook report released last week the International Monetary Fund (IMF) expects almost all the GCC countries to report negative GDP growth in 2020. In terms of recovery, Saudi Arabia is expected to witness sharp bounce back in 2021 and estimated to grow by 3.1 per cent next year followed by GDP growth of 2.5 per cent in Qatar. Oman is estimated to lead in terms of GDP growth in 2022 with growth of more than 11 per cent.
Preliminary data indicates that global oil production in September decreased by 0.06mn barrels per day (bpd) to average 90.71mn bpd compared with the previous month, and was lower by 7.83mn bpd on year-on-year basis.
The total OPEC crude oil production averaged 24.11mn bpd in September 2020, down by 0.05mn bpd from the previous month.
Crude oil output inched up mainly in Libya, Iraq and Saudi Arabia, while production decreased primarily in the UAE.
The share of OPEC crude oil in the total global production remained unchanged in September at 26.6 per cent compared with the previous month.
Recommendation
Internationally, the markets remained volatile last week on the news regarding the US stimulus. We expect such trends to continue until the US presidential elections. However, the third quarter results are expected to drive the markets in the coming days.
Regionally, the markets will continue to take cues from the international markets and oil price movement.
Also, the earnings season started but albeit at a slow pace. We believe the markets will be driven by results in coming period regionally.
Locally, we witnessed a mixed set of results at the MSM. Overall earnings for the nine months period were down on year-on-year basis with major headwinds coming in from the COVID-19 related challenges. We advise investors to pick least affected companies with healthy balance sheet to ride off COVID-19 related challenges.