Drop in performance amid calm trades: MSM30

The domestic financial market started well last week with the support of speculators and focused on stocks that saw dividends before. However, a wave of calm and pressure descended on the market in the wake of a ratings report on Oman. The MSM30 closed the week down by 0.76 per cent at 4,112.92. All sub-indices ended the week down led by the Industrial Index (-1.64 per cent) then the Services Index (-1.35 per cent) and the Financial Index (-0.36 per cent). The MSM Shariah Index closed down by 1.18 per cent w-o-w. In the weekly technical analysis, according to our previous report, the MSM has reversed to the upside as we mentioned to the level of 4,180 points as the MSM was very close to this level at 4,173.66 points. Currently the MSM30 index will suffer from the dividend distribution season, which will pressure the index to goes down to 4,040 points again (support level that we mentioned last week).
Till date, the total proposed cash dividend for the year 2018 is RO 379.46 million. The financial sector contributes 57 per cent to the total proposed amount, followed by services at 32 per cent and Industrial sector at 11 per cent. The total market proposed cash payout stands at 56.7 per cent with cash yield of 6.8 per cent. The industrial sector’s cash payout tops with 73 per cent of earnings to be paid-out as cash, followed by the Services sector at 62 per cent and financial sector at 52 per cent. The industrial sector leads in dividend yield on proposed dividends at 8.0 per cent, followed by the financial sector at 6.7 per cent and services at 6.7 per cent.
Bank Sohar’s shareholders and the CMA approved issuance of AT1 Capital instruments in the form of perpetual bonds of up to RO 100m (at an issue price of RO 1000 per bond), by way of private placement. The issue is open from March 5-11, 2019, and is expected to be listed on March 21, 2019. As at the end of FY18, the bank had a Tier 1 ratio of 13.16 per cent down from 13.93 per cent at the end of FY17. The bank’s total capital adequacy ratio stood at 15.04 per cent as at the end of FY18 down from 16.22 per cent a year ago. Capital ratios of the bank have declined because of increase in risk-weighted assets. Total Tier 1 capital was RO 373.52m on December 31, 2018 and this new issuance should provide a boost of up to about 27 per cent to tier 1 capital resulting in improving the bank’s tier 1 capital ratio, which is already above the minimum stipulated by CBO of 11.5 per cent. The minimum stipulated includes the capital conservation buffer but does not include a countercyclical buffer of 0-2.5 per cent, which has not yet been imposed.
Recent data published by the National Centre for Statistics and Information (NCSI) showed that the daily average production in Jan’19 went slightly up by 0.3 per cent YoY to 970.3k while the average price per barrel went up by 9 per cent to $66.3. The average export percentage of the total production stood at 77.5 per cent for Jan’19 compared to 83.6 per cent for Jan’18. China remains the top importer of the Omani Oil with a stake of 78.8 per cent followed by South Korea (8.6 per cent) then Japan (6.4 per cent).
The total number of small and medium enterprises (SMEs) registered at the Public Authority for Small and Medium Enterprises Development (Riyada) stands at 37.7k in Jan’19, up by 16.5 per cent YoY, according to preliminary data released by the NCSI. Muscat Governorate was on top with the largest number of SMEs with 34 per cent followed by Al Batinah North (20 per cent) then Al Dakhiliyah (11 per cent), Dhofar (8 per cent) and the rest which is 27 per cent is for the remain Governorates.
Kuwait Stock Exchange, was the only gainer among GCC financial markets as it ended the week up by 1.49 per cent while Abu Dhabi Securities Exchange was the worst closing down by 4.35 per cent.
Saudi Arabia is considering plans to increase an Islamic tax paid by local banks to as much as 20 per cent, or double the current rate. Local lenders started paying zakat at 10 per cent of profit after deducting returns on government bonds from last year as part of a settlement with the authority. They used to pay at 2.5 per cent of equity and the new rate was applied retrospectively for many years, in some cases stretching as far back as 2002. We believe this development would not be beneficial to the companies in the banking sector, which are already under pressure because of lesser loan growth and pressured valuations because of rising interest rate scenario (increasing cost of equity). The talks are ongoing and final rate could be lower than 20 per cent but higher than current one.
Kuwait National Assembly last week overwhelmingly approved in two rounds of voting a draft law requiring foreigners visiting Kuwait to obtain a health insurance policy for the duration of the visit. The law stipulates no specific amounts to be paid by the visitors, but this is expected to be defined when the ministry prepares the bylaws for the application of the law following its publication in the official gazette within one month of reaching the government. The law is the latest in a raft of measures that authorities have taken following a plunge in oil prices in mid-2014.
Other measures adopted by the government include raising electricity tariffs by 150 per cent and raising fuel prices and other fees related to residency. Kuwait government is also being petitioned by many in the industry to address the clear lack of an independent regulator for the market. The question of how Kuwait’s insurance sector is governed has emerged as an important issue in the sector in the last few years. (Courtesy: U-Capital)