Al “Arabi” Muscat Securities Market 2014 Performance

Al “Arabi” Muscat Securities Market 2014
Performance
Trading hall for clients of Investment Management Group - Oman Arab Bank
Al Arabi Muscat Securities Market 2014 Performance
Source: OABInvest, Ticker Chart
2014 – Yearly performance of MSM
MSM30 index began the year, supported by budget announcements and on later stage by annual corporate results.
Generally, the market’s performance during 2014 was strong, especially during the first 3 quarters, despite the impact of oil
price drop and the consequential erosion of 2014 market gains, recording a retreat in performance when compared to 2013.
It is worth noting however, that the market was able to recoup a portion of their losses on the back of statements and
reassurance from leading economic figures, coupled with a local institutional presence.
Despite the challenges ahead, investor fear and caution as well as weakened sentiment, the index has fallen by 7.19% during
2014 to reach 6,343.220 points, which is an acceptable retreat considering the pressures.
The MSM SHARIAH INDEX declined by 12.13% on yearly basis to 966.26.
Sectorial basis, Industrial Index lost 19.6% on yearly basis in 2014 to 8,365.9, followed by the Financial Index (-5.44%) to
7,710.31 then the Service Index (-5.28%) to 3,475.21.
In 2014, all “Al Arabi” indices posted losses. “Al Arabi Oman 20” and “Al Arabi GCC 50” and “Al Arabi MENA200 Index”
decreased by 5.71%, 1.13% and 0.98% respectively.
Specifically, MSM’s first quarter performance witnessed natural cycles effected by budget announcement, annual corporate
results and general meetings, dividend announcements, which dictated movement of the market in line with its historic
performance and without any surprises, despite geopolitical pressures and Ukraine crisis. Meanwhile, this period also saw
subscription process begin on government’s stake in Omantel (phase 1) as well as listing of Takaful Oman shares.
1
Following this, market witnessed volatility (shown in figure above) before heading to its highest level during the year at
7,551.42 points on September 14, supported by several factors during this period. These factors include a strong local
institutional presence, corporate results, successful listings, disclosures regarding companies’ growth and strategic plans.
This rise came amidst a period of public holidays, which usually sees a drop in trading activity, however this did not occur in
this period of 2014. This can be attributed to a change in strategy from funds, portfolio managers and listings during this
period.
This period of volatility, previously mentioned, saw interest rise on small-cap stocks of speculative nature, several IPOs,
profit booking and continued external factors that impact the market. The final quarter of 2014 can be broken up into
several stages, a stage of strong and apparent drop, a period of market volatility and ambiguity and finally a period of partial
recovery.
The first drop, which started from 12th October, MSM30 lost around 553 points mainly due to the fears related to world
economic growth and the start of the decline in oil prices and its perceived impact. This phase was followed by a volatile
period till the last week of November with investors trying to cope with rapid changes in addition to the 3 rd quarter results.
The third phase (24 October – 17 December) was the toughest on local markets as well as regional and international ones.
This period was characterized by panic due to falling oil prices and the possible impact on oil exporters growth and general
budgets. During this phase, the MSM30 lost almost 1,660 to have a negative YTD impact despite factors enjoyed by the local
market.
Those losses brought the necessity of hearing intervene speeches from high officials about the markets; a movement was
seen across the region. The other key support came from Local Institutional Investments, which haunted attractive
opportunities on shares. Consequently, the market started to witness a recovery phase gaining about (1000 Points) before
seeing some selling pressures and ending the year.
Our analysis shows that, 26 companies have had share capital increases in 2014, either through bonus shares (22
Companies), convertible bonds (2 companies), private placement (1 company) and rights issue (1 company). Out of these
companies, 17 belong to the financial sector (5 banks, 5 leasing companies, 6 Investment and holding companies and 1
Takaful Insurance Company), 5 Industrial companies and 4 Services companies. In respect of splits, 8 companies have did it,
out of these companies 7 belong to Service Sector in which most of them are power companies and 1 company belongs to
the Industrial Sector.
The bond market also witnessed one Government Development Bond listing, issue 45 amounting to RO 200mn. In addition,
the market witnessed five main initial public offerings (IPOs): TAKAFUL OMAN INSURANCE (Financial Sector), AL SUWADI
POWER and AL BATINAH POWER (Service Sector) and ALMAHA CERAMICS (Industrial Sector) and part of the government’s
stake in Omantel.
From previous, we see an improvement in market dynamics and growing movement of investments, which we expect to
continue during 2015, especially in anticipation of further IPOs and thus better depth and liquidity.
On another front, based on our database the total number The most important tenders
Value RO
of tenders awarded in the past year amounted to Bidbid-Sur dual carriageway road project (second stage) 189,835,618
approximately RO 1.37bn, almost 68% of what had been The second package of South Al Batinah Expressway
142,967,025
tendered in the year 2013. The month of November Adam Thumrait road project (First Phase)
109,996,000
91,048,241
remained the best in terms of the amount of tenders, Adam Thumrait road project (Second Phase)
64,961,425
reaching RO 316.5mn, wherein two major segments of Dualization of Barka-Nakhal Road Project
Source:
OABinvest,
press
release
,
tender
board
Adam-Thumrait road dualisation project were awarded.
2
Consequently, the fourth quarter of 2014 registered the highest amount of awarded tenders in value terms during the year,
amounting to RO 448mn, followed by the first quarter with tenders amounting to RO 390.8mn. The Q3 of the year came in
third at RO 302.2mn and finally the second quarter, with total tenders of RO 225.6mn.
The following table above shows the most important awards
Also as per our database, the total value of special deals carried
out on the Muscat Securities Market in 2014 has increased by
10% against the year 2013. The value stood at RO 141.7mn, of
which 31.4% belong to special deal on Ahli Bank as MB Holding
LLC and Al Marjan Financial Services LLC have divested their
entire holding in the Bank. The following table shows the largest
three special deals
Company
Ahli Bank
Taageer Finance
Oman Hotels and Tourism
Date
# Shares
6-Nov-14 44,472,620
14-Oct-14 13,816,542
3-Feb-14 9,197,657
Source: OABinvest
Most Top gainers and losers stocks, and the most active in terms of value and quantity
Top Gainers
Companies
FLEXIBLE IND. PACKAGES
NATIONAL SECURITIES
NATIONAL MINERAL WATER
AL BATINAH DEV. INV. HOLDING
SWEETS OF OMAN
Price
RO
0.060
0.160
0.060
0.125
1.345
Chg
%
275.00
77.78
57.90
48.81
43.09
Top Losers
Companies
Price
RO
Chg
%
AL HASSAN ENGINEERING
DHOFAR TOURISM
AL SHARQIA INVESTMENT HOLDING
AL ANWAR HOLDING
CONSTRUCTION MATERIALS IND.
0.099
0.490
0.130
0.191
0.036
(61.18)
(51.00)
(50.19)
(48.93)
(48.57)
Top Co. - Value
Price
Companies
RO
OMAN TELECOMMUNICATION
1.695
BANK MUSCAT
0.582
GULF INVESTMENT SERVICES
0.142
OMAN AND EMIRATES INV. HOLDING 0.123
AL ANWAR HOLDING
0.191
Value
Mkt.Share
in RO 000
285,202.78 12.57%
255,549.32 11.26%
152,482.25 6.72%
117,250.92 5.17%
104,561.94 4.61%
Top Co. - Volume
Companies
Price
RO
Volume
in 000
Mkt.Share
GULF INVESTMENT SERVICES
OMAN AND EMIRATES INV. HOLDING
BANK MUSCAT
OMAN INVESTMENT AND FINANCE
AL ANWAR HOLDING
0.142
0.123
0.582
0.199
0.191
593,380.18
517,436.39
386,673.10
363,018.30
351,550.59
8.85%
7.72%
5.77%
5.41%
5.24%
Source: M SM
The details of the performance of the index - 2014
Highest Point
7,551.42
SEP 14, 2014
Lowest Point
5,401.51
DEC 16, 2014
Largest Volume, RO
197,966,346.00
NOV 06, 2014
Largest Turnover, RO
50,206,088.00
NOV 06, 2014
Highest Daily Increase, % 5.52%
DEC 21, 2014
Lowest Daily Increase, % -6.21%
NOV 30, 2014
Market Capitalization
(In Billion)
OMR
USD
8.39
21.65
No. of Companies
Increased Decreased Stable
37
73
14
Source: MSM
3
2014 – Quarterly Performance of MSM
 Q1’14 Market Synopsis
In line with its historical performance, the first quarter of the year saw the MSM register strong growth, rising by 14.48% on
annual basis, supported by factors such as the Sultanate’s largest budget announcement ever, positive full year results from
most companies, an increase in liquidity in the markets, growth in dividend distributions, disclosures which clarified regional
impacts, if any, on the market as well as a strong local and foreign institutional presence in the market.
Of course, this quarter was also characterized by some speculative behavior and profit-booking. Further, currency woes
from global markets also played a role during the first quarter as it weighed on the performance of certain markets as well
as the Crimea crisis. As has become the norm, market was also effected by post-dividend distribution factors, which
adjusted market prices across the board. Listing of Takaful Oman shares occurred during this period, as well disclosures
regarding the listing of shares of Government’s stake in Omantel. Market turnover increased by 34% YoY to reach RO
691mn.

Q2’14 Market Synopsis
April saw mixed performance, ending with a
decline due to ex-dividend factors as well as
first quarter results disclosed. Several
factors further weighed on the index during
this period, highlighted by the second phase
of subscription in Omantel, the listing of its
shares in the market, which led to a strong
local institutional presence, as well as
reinvestment of received dividends.
The following month was characterized by
volatility, due to activity in regional markets,
interest in small-cap stocks which brought
the interest of speculators, subscription in
power companies (Sawadi and Batinah),
investors shifting positions and markets,
which all led to the index’s ever-changing
direction.
MSM summary
Year
2014
Year
2013
Change
Al Arabi Oman 20 Index
1,143.91
1,213.18
(69.27)
(5.71)
Al Arabi GCC 50 Index
1,199.69
1213.46
(13.77)
(1.13)
Al Arabi MENA 200 Index
MSM Shariah Index
1,120.86
1131.98
(11.12)
(0.98)
966.26
1,099.68
(133.42)
(12.13)
MSM 30
6,343.22
6,834.56
(491.34)
(7.19)
Volume( In 000)
6,706,568
8,162,900
(1,456,331)
Value traded (In RO 000)
2,268,748
2,255,095
13,653
No. of Trans actions
413,723
Sector Name
Bloomberg
Code
Change
%
(17.84)
0.61
Volume of Bonds
No.
Current
Previous
86,568,853
Points Change
Yearly
of Co.
BKINV
13
7,710.31
8,153.77
Indus try Sector
INDSI
10
8,365.90
10,406.82 (2041) (19.61)
Servi ces Sector
SINSI
7
3,475.21
3,669.10
Main Indicators - Sectors
52-Week
(443)
%
Fi na nci a l Sector
(194)
(5.44)
(5.28)
Main Indicators
The first week of May saw the best weekly
High
Low
P/Ex
P/Bx
return for the MSM in 4 months due to good
7,551.42
5,401.51
8.90
1.65
results for market leaders such as Omantel MSM 30
as well as the return of investor interest to Fi na nci a l Sector
9,520.96
6,487.82
4.18
1.26
fundamental factors. This rising market
Indus try Sector
11,402.45
7,255.60
13.82
2.14
trend was followed by a wave of volatility
Servi ces Sector
3,838.10
3,194.42
11.71
2.21
impacted by profit-booking and results
So urce: M SM , B lo o mberg
which came below-expectations.
June saw a rise in the market, as interest in banking and leasing lent support to the market. Several factors also impacted
the index’s behavior ahead of the annual revision for index and sub-index constituents, continued IPOs and the listing of
Batinah and Sawadi Power companies, the return of excess funds from subscription, company disclosures and possible talks
of mergers. As a result of the aforementioned, the index recorded a rise of 10.57% on annual basis (2.21% QTD) to reach
7,008.27 points amidst a decrease in volumes and values on an annual and quarterly basis.
4

Q3’14 Market Synopsis
MSM30 increased by 12.6% in the quarter on annual basis, supported by Financial and Services sector amidst a presence of
local institutional investors.
The quarter saw investors focus their attention on new companies that have entered the index. Despite this rise, investors
were keen to cash out of the market due to the extended holidays of Ramadhan and Eid.
During the next two months of the quarter (August and September), the market continued its upward momentum
supported by corporate results, positive disclosures regarding expansion plans and interim dividends
September 14, 2014 saw the index reach its highest close level during the year at 7,551.42 points. Al Maha Ceramics
subscription period began during this period.

Q4’14 Market Synopsis
The final quarter of the year was characterized by external factors dictating investor behavior and sentiment in the market.
A plunge in oil prices, while global economic demand was weakening, led to a strong sell-off in markets and extremely sharp
corrections, which ate away the gains made so far since the start of the year.
In spite of this correction in the market, support was provided by institutional players that entered confidently and strongly
in the market and announcements by leaders from different sectors. The index fell by 7.19% on an annual basis and 15.2%
on a quarterly basis.
Al Maha Ceramics was listed during this quarter, received strongly by investors in the market, ending its first weekly listing
up by 54.8%.
MSM Snapshot:
Description
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Index Close
3,375
4,875
5,582
9,035
5,441
6,369
6,755
5,695
5,761
6,835
6,343
44.4%
14.5%
61.9%
-39.8%
17.1%
6.1%
-15.7%
1.2%
18.6%
-7.2%
Change
Market Capitalization (RO Million)
3,632
5,879
6,221
10,273
7,912
9,092
10,901
10,342
11,665
14,155
14,565
MSM Trading Turnover (RO Million)
765
1,396
1,341
2,662
3,662
2,285
1,317
992
1,066
2,255
2,269
MSM Trading Volume (Millions)
347
508
1,113
3,422
4,441
6,092
3,024
2,381
4,342
8,163
6,707
Source: M SM Report, OABINVEST
5
Factors influencing MSM performance in year 2014
Q1’14
Q2’14
2014 General Budget
Omantel subscription (second phase) and
listing
Annual corporate results
Partial reinvestment of received dividends
Dividend disclosures, ex-dividend prices and
matters discussed during general meetings
First quarter corporate results
Administration and operational news regarding
listed companies
Increased participation from institutional
investors, specifically foreigners, aiming to
benefit from selected shares.
Listing of Takaful Oman shares
Subscription, refund and listing of power
company shares in the market
External factors such as Ukraine crisis as well as
announcement from Fed regarding interest rates
Position shifting ahead of MSM30 annual
revision of constituents
Start of subscription in the government partial
stake in Omantel (phase one)
Deals that occurred in the market, as companies
sold large stakes in shares held in the market
Regional pressures as a result of geopolitics,
especially from Iraq and Syria
Q4’14
Q3’14
Adjustments made to MSM30 index and its
sub sector constituents
Strong local institutional presence in the
market, especially due to listing of power
companies
Season of Ramdhan, Eid and public holidays
associated with that period
Trading channels created due to funds
shifting between regional markets
Corporate disclosures regarding projects and
future plans, acquisitions and interim
dividends
Bulk and cross deals on several stocks,
especially those in the Financial sector
Global factors like oil prices, economic growth
as well as reports world reports about the
economies
Subscription, refund and listing of shares in Al
Maha Ceramics
Budget discussions, as well as certain steps the
government intends to implement like
increasing gas prices
Interim dividend announcements
Eid Al Adha holiday
Local institutional presence
6
MSM 30 one year close(In Blue) & turnover Vs MA10 (In Green)
40,000
35,000
7,150
30,000
25,000
6,650
20,000
6,150
15,000
10,000
5,650
5,000
5,150
26-Nov
26-Dec
In RO 000
Source: OABinvest
0
26-Jan
26-Feb
26-Mar
26-Apr
26-May
26-Jun
26-Jul
26-Aug
26-Sep
26-Oct
Key Trade Analysis
Foreign institutional investments were in the market as net buyers for the first nine months benefiting from the IPOs,
companies dividends and building positions on sound shares. This status has been changed in the last quarter mainly due to
the drop in oil prices, which created fears about the regional governments’ ability to continue with their ambitious
development plans and thus lower overall growth, which is an important factor for sensitive investments. Monthly analysis
shows that the month of October registered the highest net buy by this type of investors as it records RO 14.48mn.
On the contrary, December saw the largest net sell by foreign institutional investments as they registered a net sell of RO
17.35mn, impacted mainly by fears of the lower oil price consequences.
With respect to the local institutional investments which are one of the key stones that supported the financial market,
they have been net buyers all year around absorbing justified or unjustified pressures that arose from fears on lower oil
prices.
However, drivers like IPOs and building positions on attractive shares in terms of valuations and good dividends were among
other reasons for attracting local institutional investors. Both April and June recorded the highest net buy with a combined
worth of RO 97mn on the back of listing of part of the government stake in Omantel (phase two) which was carried out in
April and the listing of Al Batinah and Al Suwadi Power companies in June.
Nationality Trading - Buy
Va l ue
(RO 000)
OMANIS
GCC
ARABS
OTHERS
Nationality Trading - Sell
11.4%
1.8%
Va l ue
7.3%
(RO 000)
1,802,035.7
OMANIS
166,591.3
GCC
79.4%
41,272.0
258,849.2
OMANIS
10.5%
2.0%
GCC
ARABS
OTHERS
ARABS
OTHERS
9.1%
1,780,821.8
205,847.2
78.5%
44,797.1
237,282.2
OMANIS
GCC
ARABS
OTHERS
Source: OABinvest, yearly bulletin
7
Regional Performance:
In spite of all events and factors that contributed to volatility of
GCC markets the returns of the GCC markets came mostly
relatively remarkable when compared to the performance of
global stock markets during 2014.
We will start with Qatar Exchange where the market has
managed to outperform the highest compared with its other
GCC counterparts in the region registering a gain of 18.36%.
Bahrain Bourse, UAE markets closed the year in the positive
territory. While Kuwait Stock Exchange and Muscat Securities
Market and Saudi Stock Exchange Market witnessed a decline
in performance. In general, all the GCC markets witnessed
volatility during the year, especially in the fourth quarter of
2014, primarily influenced by a decline in oil prices.
GCC Market Indices
Close
Close
Change
Change
2014
2013
Al Ara bi GCC 50 Index
1,199.69
1213.46
(13.77)
(1.13)
Mus ca t Securi ti es Ma rket
6,343.22
6,834.56
(491.34)
(7.19)
Sa udi Stock Excha nge
8,333.30
8,535.60
(202.30)
(2.37)
Kuwa i t Stock Excha nge
6,535.72
7,549.52
(1,013.80)
(13.43)
Qa ta r Excha nge
%
12,285.78
10,379.59
1,906.19
18.36
Ba hra i n Stock Excha nge
1,426.57
1,248.86
177.71
14.23
Duba i Fi na nci a l Ma rket
3,774.00
3,369.81
404.19
11.99
Abu Dha bi Securi ti es Excha nge
4,528.93
4,290.30
238.63
5.56
So urce: Zawya, OA B invest
During the year, some GCC markets managed to record new highest levels that exceeded some of the past several years while one market
surpassed all historical highs. The Abu Dhabi Securities Market, which recorded the highest level during the period, surpassed the level of
5,200 points (the highest since 9 years) and the Dubai Financial Market index recorded its highest point since August 2008. In the Muscat
Securities Market, highest point recorded surpassed 7,550 points since October 2008. In Kuwait Stock Exchange, index rose to the highest
point since December 2008, and in Saudi stock market index exceeded the level of 11,150 points since January 2008. The index in Qatar
Exchange Market has surpassed the 14,350 points, the highest level the index reached at all.
A review of the performance of the GCC markets and the most important events to affect the market are presented henceforth: In the
Dubai Financial Market, shares of banks and real estate & contractor services sectors clearly supported the index’s positive performance
and boosted gains during the year. Among the factors that supported the market during the period, UAE markets indices joined the MSCI
Emerging Markets Index and the performance of many UAE companies came better than expected, which supported the market. Although
in spite of pressures registered due to imposition of restrictions on margin lending and a clampdown on unlicensed margin lending and in
lower oil prices, but the index maintained at an upward level to register an increase of 11.99% close at 3,774 points. During this period,
Dubai Financial Market listed trading in Emirates REIT on Nasdaq Dubai, the Emirate’s first IPO in five years. While Dubai Financial Market
witnessed IPO’s for four Companies, listing of MARKA shares, listing of Emaar Malls shares, listing of Amanat Holdings shares and listing of
Dubai Parks and Resorts. The market added both Emaar Malls and Marka to its General Index (DFMGI) and to sector indices. Emaar Malls
was added to the DFM General Index and the Real Estate sub-index while Marka was added to the DFM General Index and the Consumer
Staples sub-index.
The Abu Dhabi Securities Exchange was backed mostly by banks like First Gulf Bank and Abu Dhabi Islamic Bank. In general, the situation
was positive with investors in the UAE because of the good recovery of the economy and the performance of good companies and largest
companies to pay their debts on time. On the corporate front, there was interest by investors to companies that were included in the
MSCI index, after Dubai Financial Market and Abu Dhabi Securities Exchange and Qatar shall be officially promoted to emerging market
status. During the period, the MSCI indices markets increase the weights on the UAE market index for emerging markets; this step gives a
move that bodes new inflows of foreign funds. In future positive factors, news surrounding the coming merger between Dubai Financial
Market and Abu Dhabi Stock Exchange and hosting Expo 2020 Exhibition which will be held in the city of Dubai.
Qatar Exchange was supported by the overall banking sector (especially by Al Ahli Bank, the Commercial Bank and Al-Rayyan of Qatar
National Bank). Qatar Exchange witnessed the listing of Mesaieed Petrochemical Holdings shares - a unit of Qatar Petroleum – which is
first listing in the market since 2010. The stock registered gains of 450% on the first trading day.
In the Saudi market, in spite of shares of retail sector, agriculture and food industries sector in achieving profits due to the good
performance of these companies sector. While the index impacted from the pressure of both petrochemicals and telecommunication
sectors to lose 2.37%. SABIC recorded by revenues linked to strong oil prices, a decline in its stock on the back of losses in oil prices later in
the year. However, shares in the Saudi Stock Exchange have achieved new highs this year, supported by rise in blue chip stocks, especially
during the first nine months of 2014 for a period. During the period, the positive development in the market was Saudi Tadawul Exchange
dropped last price methodology for its closing prices and will implement average price calculation as the new method in the last 15
minutes before closing. In the future positive factors include the market to be opened up under various terms and conditions to foreign
investors in the first half of 2015 according to officials and news agencies. This measure will attract leading international investors to the
largest economy in the region. In addition, Bloomberg said that Saudi Arabia is working on new rules aimed at promoting the local
currency bond and Sukuk market. Additionally, the possibility of the Tadawul to join the MSCI at a later stage. All such these steps to
support the market with more liquidity and attract the attention of global funds and foreign investment to invest. Saudi Capital Market
Authority encouraged issuing the private companies for IPO to be listed in the market with a greater number of companies to enhance the
depth of the market. In 2014, six major IPOs were distributed among different sectors. These included IPO Saudi Marketing Company,
Umm Al-Qura Cement Co., Al-Hokair Group for Tourism and Development and Al Hammadi Co. for Development and Investment and
Electrical Industries Co. and National Commercial Bank. It is expected that these versions contribute to securing more investment
opportunities in addition to the expansion of investment options. In Bahrain, the Bahrain Bourse performance was remarkable as it went
up by 14.23% during the period and the stock market has seen one IPO of Zain Bahrain Telecommunications Co. After this company listed,
number of total companies comes to 48 companies, including 43 Bahraini company and 5 non-Bahraini companies.
8
2015 Muscat Securities Market Technical Forecast
Muscat Securities Market index has seen several significantly volatile periods in 2014, affected by economic and other geopolitical
regional events either positively as a catalyst for higher index levels or adversely to drag the index down. The following paragraphs
describe the movement of index over each quarter of the year.
First quarter: As shown in the graph, the market index rose at the beginning of the first quarter to lose control in the middle of the
period to drop close to the level at the start of the year, where MSM30 settled in the conservative movement to slump. In the
second and third quarters: at the beginning of the second quarter until the end of the third quarter of 2014, the MSM30 index
continued its upward trend adding 628 points, during this period the index reach the level of 7,551.41 points (which is the highest
level reached by the index during this year and the highest since October 2008).
Finally, in the fourth quarter: MSM30 index reversed the upward trend and during a 45 day period, decreased by nearly 2,000
points, falling below the level of 6,470 points (which is the second level of support that was mentioned in our last yearly report),
completely wiping of all gains made since year-to-date to close at 6,343.22 points. During the final quarter, there has been lack of
clarity and many investors tended to avoid building positions after losing confidence in the market that has been experienced not
only by MSM but in also other regional and international markets affected by the decline in oil prices that began in the second half
of 2014.
Technically MSM exposure through 2014 went through many corrective periods (100-Day Moving Average was crossed four times
by the MSM30 index during 2014). We expect that in 2015, especially in the first half to remain "Fibonacci" level test at 38.2%, a
phase that should be finalized at 6,600 points (the first resistance level). If this level will be crossed by the MSM index, the index
will face the second resistance level at 7,700 points.
In terms of major technical indicators, we will start of the “ Bollinger Band “ index where the mid line face the MSM index at 6,600
points, technically it is expected to exceed the MSM index of the top‐line market for Bollinger. With regard to the money flow
index (MFI) and relative strength index (RSI) both are in good position, technically, the first one stands at 69.1 degrees which is a
degree of safe art (above 80 degree indicates risk in the index) and the second stands at 47.14 degrees close to the degree of risk
in the index RSI of 70 degree technicians. In terms of performance moving averages, during the year, especially in the last month
MSM30 index crossed down both Moving Average 50 days and 100 days, It is also noticeable that the moving average index for the
50-day crossed down the moving average index for a period of 100 days. We see that the index initial support level is at 5,400
points and a second support level is at 5,000 points.
MSM yields are superior compared to Regional Markets
P/E
P/BV
X
X
%
8.90
1.38
4.48
Sa udi Stock Excha nge
15.70
2.00
3.27
Kuwa i t Stock Excha nge
16.35
1.05
3.93
Qa ta r Excha nge
15.82
1.96
3.82
Ba hra i n Stock Excha nge
10.33
0.90
4.77
Duba i Fi na nci a l Ma rke t
11.07
1.41
5.27
Abu Dha bi Se curi ti e s Excha nge
12.15
1.54
3.67
Mus ca t Se curi ti e s Ma rke t*
Div Yield
So urce: B lo o mberg*, P Ex: last Clo sing price / Earnings per share (times), P B x: Last clo sing price / B o o k value o f the share (times)
9
Comprehensive regulations during 2014
Various initiatives and legislations were articulated during the year to enhance governance of market activity and develop
various economic sectors. Some significant ones include:
 The Central Bank of Oman released a circular on new guidelines on Credit Exposure to Non – residents and
Placement of Bank Funds Abroad. According to the circular, one of the new guidelines is that the aggregate funded
credit exposure to all non-resident borrowers (other than banks) and related parties will be limited to 20% of the
local net worth of the Bank. If non-resident banks are included, the aggregate funded credit exposures will be
limited to 30%.
 Limits per non-resident borrower will be 2.5% of the local net worth of the bank (domestic and foreign) for each
non-resident (other than a bank) and 5% for each non-resident bank. In addition, the aggregate of all foreign
currency balances held abroad by a domestic bank or a foreign bank branch operating in Oman with non-related
party shall not exceeded 60% of its local net worth.
 CBO have started to cut the ceiling of portfolio of personal loans for all commercial banks in Oman from 40% to
35% and increase the housing loans from 10% to 15% from June
 CBO directive requesting compliance with the USA Foreign Account Tax Compliance Act (FATCA) has also been
implemented.
 Edict by the Capital Market Authority (CMA) in respect of the urgency needed by the issuers of securities to disclose
early their initial quarterly results. The issuers shall disclose those results during the first 15 days from the end of
the respective quarter.
 CMA circular about timely disclosure of material information on which the CMA urged companies to at least
disclose any material information an hour in advance of commencing trading session.
 Amendments to the Law of the Capital Markets. Key target is to tighten sanctions on the violators whether
individuals or institutions. Aspects of the offense or harm the reputation of the market, dealers or companies by
spreading false rumors or any other ways are examples of the violations.
 CBO edict deferring the implementing of the capital conservation buffer of 0.625% of RWA that forms part of
Common Equity Tier 1 due in 2015 and 2016 to 2017 and 2018. The existing buffer of 0.625% implemented in 2014
shall remain in force.
 In December 2014, the Central bank of Oman issued the final frame work on Liquidity Coverage Ratio (LCR) and
Liquidity Coverage Ratio disclosure standards. The standard for LCR will become effective from 1 January 2015 with
a minimum ratio of 60% increasing by 10 % each year till it reaches 100% by 2019.
Government Development Bonds
Issue No.
Maturity Date
Issue Value (RO)
Coupon
Listing Date
37
Jul y. 26, 2015
100,000,000
4.00%
Sept. 01, 2010
39
Dec. 20, 2016
150,000,000
3.25%
Dec. 20, 2011
40
Jun. 19, 2022
100,000,000
5.50%
Jun. 24, 2012
41
Dec. 05, 2017
100,000,000
3.25%
Ja n. 28, 2013
42
Ma y. 13, 2020
80,000,000
4.25%
Ma y. 20, 2013
43
Sep. 05, 2017
100,000,000
2.75%
Oct. 03, 2013
44
Nov. 25, 2018
100,000,000
3.00%
Dec. 11, 2013
45
Dec. 15, 2019
200,000,000
3.00%
Dec. 15, 2014
So urce: M SM
10
Factors that might impact the sectors’ performance in 2014
General

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
2015 General Budget. Ways of spending, size of the spending and the targeted sectors.
The government move (if any) towards privatization of some of its held entities which will result in more activity in
the IPO market.
Other expected IPOs in the private sector.
The 9th five years budget preparations 2016 – 2020 (the last five year plan before Oman vision 2020)
Dividend season, companies board of directors outcomes, expansion plans, changes in management of the
companies or corporate actions.
The impact of rise in gas prices especially on the industrial companies and their quarterly earnings.
Partially completion or completion of mega projects and the implications on the related companies.
The changes of MSM index components at the end of June 2015.
Possible re-entry of foreigners into bell weather stocks once clarity emerges on Oil Prices.
Any changes in regulations that may affect market activity.
Banks

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
Equity & Debt Issuances will mark 2015. Most banks have announced capital raising plans to either shore up capital
adequacy ratios, refinance existing liabilities, or fund growth. These may take the form of E-MTN issuances,
subordinate debt placements, Rights offerings and a plough through Mandatory Convertible Bonds.
Sukuk issuances by the government have also been envisaged to possibly fund any deficits that may be incurred.
Further, Banks with board and shareholder approvals may be possible Sukuk issuers to fund receivables, providing
another facet to the recently launched Islamic Banking Industry.
Lending to the Small and Medium Enterprises (SME) Segment is expected to gain momentum as banks target
meeting CBO guidelines mandating a 5 % of their total Credit to SME’s.
Mortgage Finance portfolios are also set to increase as Banks grow their nascent housing loan books. The CBO has
mandated that housing loans/finance should go to 15% of total credit from 10 % a year ago. Personal loans offtake
will be limited in 2015, as banks have complied with regulations from the CBO mandating personal loans at 35 % of
total credit down from 40 % a year ago.
Lower Crude Oil prices might affect state spending consequently slowing credit offtake relative to last year.
The investment banking divisions of Banks should witness additional support as the announced privatization of
government entities, may yield stake sales or private placements requiring their expertise. Further, the possibility
of increased Sukuk issuances may also improve investment banks’ profitability.
11
Leasing Sector

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
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Any slow-down in construction and infrastructure building activities will negatively influence asset growth of the
sector, as roughly 50% of the sector’s assets are in the form of corporate loans.
New rules and regulations or revision of existing rules for the banking sector by the CBO directly influence the
leasing sector (positively or negatively).
Tightening of the regulatory environment by the CBO.
Threat of new entrants in the market, not only leasing companies but also new banks.
Cement Sector
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The expected rise in gas prices will impact negatively EBIT margins to the extent of of 3 – 5%
Lower growth in government spending in end use sectors due to low oil prices will pressurize sales
Competition created by imported cement is expected to cool down as the increase in demand in neighboring
countries will absorb the supply surplus partially
Prices are not expected to change significantly. Oman Cement (around RO 25 per ton), Raysut Cement Local
realizations will range between RO 26 – 27 per ton
Sales of cement are estimated at a growth rate of 4- 5% assuming no surprises at the government spending front.
Continuing development spending by regional governments will create positive momentum on end use sectors.
Oil Products Marketing Sector

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The Omani government not only plans to explore new reserves but is also investing in Enhanced Oil Recovery (EOR)
techniques in order to increase output from existing fields by increasing efficiency, which will support this sector.
The expansion of existing airports and construction of new airports will lead to increased demand for volumes of Oil
Marketing companies, as increased aircraft traffic will lead to demand for fuel products.
The government has set huge expenditure for infrastructure development and the subsequent demand for fuel will
bode well for Oil marketing companies.
There is a decision by the government to guide the decision to lift fuel subsidies in the Sultanate and this request is
subject to approval of the Shura Council.
The expected expansion of the distribution network and addition of new lubricants will support the earnings of the
companies.
12
Telecommunication Sector
 We expect operators in the telecom space to increase their subscriber base driven by the Mobile Prepaid Segment.
Broadband Penetration in the mobile and fixed line segments continues to grow at a healthy pace being a key
driver for revenues of telecom operators in 2015. Overall broadband penetration is expected to improve further
given near completion of the operators 3G & 4G networks in 2015.
 Average revenues per user per month (ARPU’s) are expected to trend marginally higher in 2015 supported by
broadband usage and bottoming SMS revenues. Further, managements have indicated that the impact of falling
voice revenues will be limited in the future.
 Omantel’s earnings will be solid as always offering investors an entity with stable cash flows with upside risks
emanating from the sale of their marine cable capacity. The government continues to control 51 % of the company
after the divesture in 2014 & the investors will continue to reap handsome dividend yields.
 The Omani Qatari Telecommunications Company's (recently rebranded Ooredoo) has incurred most of its capex to
turbo charge the company’s network and improve its coverage for mobile and fixed line services across the
country. Its subscriber base and revenues have grown handsomely in 2014, harvesting the rewards of this
investment and a significantly improved customer service experience. We expect this trend in revenues to
continue into 2015.
 A significant risk to earnings of telecom companies includes a higher royalty that may be implemented to shore up
national revenues subsequent to the plunge in Crude Oil Prices.
Regional Catalysts



The direction of Crude Oil Prices and accompanying news flows will be closely monitored variables determining the
direction of regional markets in 2015. National Revenues of GCC governments are sensitive to Crude Oil prices and
a lower crude oil price (down approximately 40% from its peak in 2014) will affect revenues adversely impacting
existing spending plans. Consequently, governments may revise their expenditure budgets to accommodate this
new reality.
A Crude Oil production cut, if imposed by higher cost producing countries will mitigate this, possibly lending
support to GCC government budgets. Further, an improvement in Crude Oil Consuming nations will also serve to
improve demand.
Low national debt levels, an accommodative interest rate environment to issue Bonds, if required & supportive
credit ratings will support government financing plans in nations where expenditures exceed incomes.
Global Developments

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
The world economy grew lesser than expected in the 2014 with disappointments from the euro zone and a slowing
china. Lower commodity prices affected exporters like Brazil, Australia South Africa and Indonesia as their
currencies plummeted. For 2015, most commentators believe growth will accelerate on reduced fiscal austerity &
increased monetary stimulus in Europe and Japan.
Personal consumption at the household level is expected to improve as individuals benefit from lower Crude Oil
Price. The plunge in the price of oil could boost overall world economic growth by between 0.3 and 0.8 per cent,
according to the International Monetary Fund. Certain businesses will also be impacted favorably. Entities
involved in the Autos, Airlines, Travel and Leisure, transportation businesses are also expected to show solid gains.
Inflation is expected to remain low for at least the 1st half of 2015. While the federal reserve is expected to raise
rates policy, most commentators do not expect the hike to weigh on equities as the event is well flagged & isn’t
expected to weigh on equities severely.
Accelerating geopolitical tensions in the Middle East or Eastern Europe are wildcards to the global outlook. Any
flare up in these regions may serve to dampen sentiment towards demand further.
13
Oman Arab Bank - Investment Management Group (IMG)
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This report has been prepared by research department in IMG – Oman Arab Bank, and is provided for information purposes only. Under no circumstances is
to be used or considered as an offer to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information
contained therein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be
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