MSM on Revival Path

Oil prices are expected to slow down in 2007. What will happen to the MSM?

The MSM Index finally managed to change its southward trend during the period November 19–December 19, 2006 with a steep gain of nearly 4 per cent to close at 5659 points. Even though the volumes remained low for the period under review, the number of stocks that got traded increased considerably as against the earlier periods.

The overall revival was lead largely by the industrial stocks, as was suggested by us in our previous column (Nov Issue) on the yearly performance of the MSM markets.

Of the three sectors, industry indices gained nearly 7 per cent as against 4.6 per cent for the largest market capitalisation sector, i.e. banking and investments. The continuous improvement in the industry index is largely a part of its improving earnings growth, along with its improved visibility on its future growth, based on its large capitalisation stocks. This includes the cement companies viz. Raysut & Oman Cement, Al Hassan Engg., Oman Cables, et al.

The overall valuations still remain low on its nine months ending September 2006 as against the other sectors and hence the overall trend is expected to continue in the next year as well.

After a 24 per cent growth in 2005, the economy is again expected to post double-digit growth in 2006 on the back of continually high oil prices. The average realisations till July 2006 had been US$ 62.9/bbl as against US$ 50.3/bbl during 2005. The increasing trend of industrial projects, which is expected to be worth more than RO 6 billion over the next two years, is expected to push the overall GDP up, in spite of an expected slowdown in oil prices in the coming year. In the longer term, tourism will also play a dominant role.

Overall, the Omani economy has continued to remain strong and is expected to again post a positive growth in 2007 on the back of increasing contribution by the industrial and services sector.

With the year 2006 coming to an end, the normal expectation of investors playing on dividend yields will come to the fore during the first quarter of 2007. In that perspective, stocks like OIFC, United Power, Oman International Bank could become favourites of the traders, improving the overall sentiment prevailing in the markets.

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 makes any guarantee, representation or warranty, whether express or implied, and accepts no responsibility or liability as to its accuracy or completeness of the data being provided.

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