Stable trading — except on the last trading day — was seen in the last week, which included three days of trading due to the Eid holiday. Overall, investor caution continues to dominate ahead of second quarter results. Further, some interest was shifted towards other GCC financial markets as well.
The MSM30 closed the week up by 0.30 per cent at 4609.87. The Financial sub index was the only loser as it closed down by 0.06 per cent. Both the Industrial and Services indices went up by 0.22 per cent and 0.02 per cent respectively. The MSM Shariah Index also closed up by 0.47 per cent.
Salalah Beach Resort, a listed share, disclosed that Hotel, Hilton Salalah Resort reopened on June 14, 2018 after closure on May 24, 2018 due to the effect of Cyclone Mekunu that hit Dhofar Governorate.
MSM announced the Shariah Compliant Companies for 1Q 2018. The only adjustment was the removal of Oman Refreshment and replaced by Gulf International Chemicals as of June 20.
Dhofar Generating Company (DGC) (under transformation), owner and operator of the Salalah II IPP proposes to launch its initial public offering (IPO) soon. As stated in the project founders’ agreement, the company is required to offer 40 per cent of their share capital to the public through an IPO. Accordingly, DGC, intends to offer 88.9 million existing shares through listing on the Muscat Securities Market (MSM). The company currently generates its revenues pursuant to a 15-year power purchase agreement (PPA), maturing on January 1, 2033, with Oman Power and Water Procurement Company (OPWP), which is indirectly wholly-owned by the government. The power capacity of the company is fully contracted to OPWP and will be used to meet the growing power demand in the Dhofar Governorate during the term of the PPA and beyond.
In the weekly technical analysis, we will keep our last recommendation that MSM index will fluctuate between the first support level at 4,560 points (broken this level will allow the index to reach 4,520 points) and the first resistance level at 4,600 points (cross this level will enable the index to reach 4,640 points. In the technical analysis, the market is still moving between these two levels.
Locally, statistics published by the National Centre for Statistics and Information revealed that number of lands registered for the first time came at 58,515 in 2017, an annual increase of 6.1 per cent. Residential use formed 82.7 per cent of the total registered lands.
CBO’s latest data shows that narrow money stock (M1) in Oman registered a 3.0 per cent YoY and a 6.5 per cent MoM increase to RO 5.2bn during March 2018. M1 represents currency with public and RO demand deposits. Quasi-money (Omani rial saving and time deposits, certificates of deposit issued by banks, margin deposits and foreign currency denominated deposits) witnessed a growth of 2.6 per cent YoY. Quasi money declined, however, on monthly basis by 2.2 per cent MoM to RO 11.16bn. Broad money supply M2 (M1 plus quasi money) stood at RO 16.45bn at the end of March 2018 and grew by 2.8 per cent YoY and 0.4 per cent MoM.
After a recent run up in the bond yields of Bahrain, Oman also followed suit and witnessed selloff of its bond, making the yields hitting all time high. Yield on 5 &10 year bond hit 5.6 per cent and 6.6 per cent respectively compared to 5.0 per cent and 6.0 per cent respectively at the start of June 2018. We believe that the recent sell off would be largely because of hike in bond yields in US and emerging market as investors might have preferred to go for less risky and high rated bonds. 10-year yield of US treasuries climbed again and hit almost 3 per cent last week. We believe that with continuation of rate rise by Fed, we will continue to see capital flight from frontier and emerging markets to developed markets.
MSM30 topped the gainers up by 0.3 per cent within the GCC region while Abu Dhabi Securities Exchange was the worst as it went down by 3.81 per cent. The Central Bank of UAE said last week that it has set a maximum limit on fees and commissions charged by banks in a move to ease burden on consumers as well as to encourage home ownership by easing the burden of mortgage payments as the country seeks to woo more expatriates and boost non-oil growth. The Central Bank capped fees on retail consumer-related banking services such as home loans and late fees for credit cards, it said in a statement. The fee caps will apply to 43 types of charges (out of 140 total) and all bank fees will be reviewed annually. Fee income typically constitutes a significant portion of non-interest income of banks (60-80 per cent). Depending on the bank’s revenue diversification strategy, it can constitute anywhere from 15-30 per cent of total net revenue of the bank in the UAE.
Although it is difficult to say at this time what the exact impact will be like in the absence of details on cap specifications, however, we believe the impact will be marginal as (1) banks with low net fee and commission earned as percentage of total revenue will not be impacted as such (2) banks can still raise more fees by generating higher volumes (3) only 43 items out of 140 have been capped and amongst these 43, 19 are new items and lastly the most important one (4) the cap is only on retail consumer-related banking services and not on corporates. Overall, we believe this will have a limited impact on the profitability of the banks.
MSCI issued its country classification review report last week. MSCI announced that it will include MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6 per cent of the index with 32 securities, following a two‐step inclusion process. The first inclusion step will coincide with the May 2019 Semi‐Annual Index Review. The second step will take place as part of the August 2019 Quarterly Index Review. As of March 2018, MSCI Emerging Market Index had more than 830 constituents and covered approximately 85 per cent of the free float-adjusted market capitalization in each country. With over $1.9 trillion in assets benchmarked globally to the Emerging Markets Index suite as of March 2018 and with weight of Saudi Arabia being at 2.6 per cent, it will potentially bring in liquidity of $50bn on top of inflows coming in from FTSE which earlier this year classified Saudi Arabia to emerging markets as well. While MSCI announced that it will include the MSCI Kuwait Index in its 2019 Annual Market Classification Review for a potential reclassification from Frontier Markets to Emerging Markets status.
In Qatar, talks to merge three Qatari banks have ended after they were unable to reach an agreement, the lenders said in a joint statement on the Bourse. Islamic lender Masraf Al Rayan and conventional lenders Barwa Bank and International Bank of Qatar (IBQ) have been in talks since December 2016 over a potential tie-up. The talks stalled over the past year as shareholders could not agree on valuations and due to client concerns about the possibility of converting IBQ into an Islamic lender. Qatari regulations do not allow a bank to operate both types of lending, so IBQ would have had to convert its business to being Sharia-compliant should the deal have gone ahead. Qatar is an overbanked market, given the fact that 18 local and international commercial banks serve a population of 2.6m. However, it was later reported by Reuters that Barwa Bank and International Bank of Qatar are in advanced talks to merge and are expected to disclose this officially next week. The two banks had total assets of QAR 81.7bn ($22.5bn) at the end of last year, according to their financial reports. [Courtesy: U Capital]
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