Global Arab Network | Oman's Capital Markets - Institutional Investors Focus

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Oman's Capital Markets - Institutional Investors Focus

Global Arab Network - Oxford Business Group

Friday, 18 June 2010 23:45

Oman's capital markets look set to benefit in the future from increased participation among institutional investors. According to a recently published report by NCB Capital, a Saudi investment company, the Gulf Cooperation Council (GCC) will increasingly attract international institutional investors looking to benefit from the region's stable economy, high-net-worth individuals and big-ticket infrastructure projects. One of the knock-on effects of this type of investment should be to help reduce some of the volatility that has previously affected the region's markets - until now dominated largely by individual retail investors.

The Muscat Securities Market, the Omani exchange, has generally been more open to foreign institutional investors than other bourses in the region. In May (the most recent month for which figures are available), foreign institutional investors accounted for 12.3% of sell and 8.7% of buy transactions on the MSM. By contrast the Saudi Tadawul - the region's largest bourse, accounting for 49% of GCC market capitalisation - is mostly composed of individual investors (91%), with non-financial institutions accounting for only 4% of investments.

As a smaller bourse, the MSM is often prone to a herd mentality among investors - both in bear and bull markets. This can result in some impressive gains during bull runs, but also some equally impressive crashes when sentiment turns. For example, between June and October 2008, during a period of intense turbulence in global financial markets, the MSM sank below 6000 points from a high of over 11,000. While this slump coincided with the onset of the global financial crisis and a fall in the price of oil, the prime mover was actually hot money from foreign investors who had banked on a revaluation of the Omani riyal against the US dollar (at one point foreign investment in the bourse surged to 28%). When that revaluation failed to materialise, those investors cashed in their chips, creating a sudden overhang in sell positions that prompted domestic investors to follow suit, triggering the drop.

Since then the Omani exchange has held steady, yet market sentiment has not yet recovered sufficiently to countenance further initial public offerings (IPO) - Al Khalili Group, a family owned industrial company, announced plans to list in January this year but shelved them in March due to concerns the offering would not reflect fair market value for the company. As yet there is no news on the MSM's other potential IPO for 2010 - Qatar Telecom's local subsidiary, Nawras.

Investors on the MSM, however, have reason to feel bullish. So far this year the MSM 30, the exchange's benchmark, has held relatively steady - falling 4.4% since the end of 2009, from 6368.8 to just under 6100 currently. This performance is comparable to that of the Saudi Tadawul, which dropped 4.2% over the same period, and indeed the Dow Jones, and is much more resilient than many European bourses.

As major institutional investors from Europe and the US look beyond their local markets in search of greater returns in the years to come, it is likely the GCC will catch their eye. When that happens, one way in which the bourses of the GCC - and particularly the smaller ones such as the MSM - can avoid a repeat of the hot money flight of 2008 is to make quicker progress with their own plans for a union, enabling them to eventually float their own currency and hence remove the incentive for carpet-bagging when oil prices cause economies to overheat. According to the GCC's secretary-general, Abdulrahman Al Attiyah, speaking last month, the GCC remains optimistic that such a monetary union, when it comes about, will include both the UAE and Oman.

Global Arab Network

This article is published in partnership with Oxford Business Group

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network