Bulls make a Comeback

We correctly predicted the market movements last month. In our previous report, published in the January issue of Oman Economic Review, we mentioned that “the market saw a new six-month low this month (December) and closed at 4845 on 22 December 2005 against the close of 4886 on 24 November 2005. There are very high possibilities of a trend reversal taking place any time”. Our predictions have proved correct. MSM 30 index bottomed out on 19 December 2005 at 4720 as per our predictions and rebounded steeply to 5510 on 22 January 2006, an increase of nearly 800 points!

Time and again, we have been saying that MSM is attractive compared to other GCC markets. Its PE ratio was around 10 to 12 levels last December, which made it quite attractive compared to the other over valued GCC markets. History shows that an under valued market cannot remain under valued for a long time. The equilibrium forces will push up the undervalued market and pull down the overvalued markets. This is evident from the fact that the other GCC markets registered a very small rise during the same period, with the maximum rise being Saudi Arabia, with 5.7 per cent, and the minimum rise being Bahrain, with less than 1 per cent.

Future Outline
Where do we go from here? The economic and stock market outlook of Oman is very strong. In the last six years, we find that there has been a progressive shift towards investment expenditure in the total allocated expenditure of the government. Investment expenditure has been maintained around 25 per cent from 2004 onwards. The gradual shift towards investment expenditure from the current expenditure in the last six years is an indicator of excellent fiscal management of the Omani government. This is similar to a company reducing the administrative costs and investing the same in productive capital assets. The ultimate goal of any developing economy is to increase the pace of capital formation through more investment and this has exactly been achieved in Oman in the last five years. Budget 2006 takes this momentum further.

The other economic indicators are also strong for Oman. The nominal GDP growth for 2005 is projected at 21 per cent compared to 14 per cent in 2004, which is a 50 per cent increase. The Government is launching many new investment projects in infrastructure and tourism. The budgetary position is comfortable with a fiscal surplus of 8 per cent of GDP in 2005 as per preliminary estimates. Prices are under control with the Whole Sale Price Index (WPI) less than the 1995 level. The position on external front is comfortable, with a current account surplus of RO170 million in 2004.

The current developments on the international economic front are also favorable to Oman. The signing of the Free Trade Agreement between the United States and Oman is a step in the right direction. This will strengthen the confidence of the international investors on Oman and in turn will direct more capital inflows into the country. The increase in international crude oil prices (price on 20 January 2006 was US$68.35) will enhance the budgetary surplus of the government and pave way for more investment in the economy.

Transparent & well-regulated
The stock market in Oman is more transparent compared to other GCC markets. Oman market places very few restrictions on foreign investments when compared to the other GCC markets. The Capital Market Authority is insisting on rigorous reporting standards for all the listed companies. This enhances the confidence of the investing community in general.

The other positive development in the market is the concept of stock split. Bank Muscat and Renaissance Services have announced the stock split of 10 shares for every 1 share. Stock split is a healthy development for the market. It increases liquidity and brings a lot of small investors to the market. All the western markets have introduced this concept a long back and reaped rich benefits.

With all these positive developments, MSM is on a very strong footing. Investors will stand to benefit a lot if they stay invested in good companies with sound management and decent track record in the business.

Index Type	25.12.05	22.01.06	Gain /Loss%
General	4,845.16	5,510.01	13.72%
Banking	6,799.07	7,973.93	17.28%
Industry	3,753.22	3,908.14	4.13%
Services	1,970.67	2,195.45	11.41%
Gainers 1 Sohar Poultry +66.67% 2 Transgulf Holding +45.45% 3 AES Barka +40.00% 4 Muscat National Holding +37.66% 5 Oman National Electric +34.48% Losers 1 Abrasives Manufacturing -36.36% 2 National Mineral Water -17.50% 3 Dhofar Fisheries -11.11% 4 Modern Poultry Farms -10.94% 5 Al Anwar Ceramic -10.84%

	Data and analysis by The Financial Corporation SAOG (Fincorp). While utmost care has been taken in preparing the above report, neither Fincorp nor Oman Economic Review make any guarantee, representation or warranty, whether express or implied, and accept no responsibility or liability as to its accuracy or completeness of the data being provided