The government's decision to set up a RO150mn market-maker fund is expected to stabilise the bourse by shoring up confidence among the investing public.
Market operators believe the 'stabilisation fund', which is similar to the National Investment Fund established in a similar manner during the post-1998 crash, will prop the sentiment, at least in the short term.
The fund can add stability and reduce high volatility on the bourse, which will prevent investors from selling shares. In the long run, if the fund managers are going to use it as a market-maker, it can add a lot of depth in terms of price quotes and the spread will be narrow at any given time," says Gowribalan, portfolio manager of Oman National Investment Corporation (ONIC) Holding.
The sultanate is following the footsteps of Kuwait and Qatar, which have floated similar funds to arrest market slump across the Gulf region. The government last week said it would set up an investment fund with a corpus money of RO150mn with 60 per cent contributed by the government and 40 per cent participation from the private sector, especially banks and investment firms.
"The market sentiment will improve, which will save collateral damage in the banking system," says Sankar Kailasam, senior vice-president - asset management - Gulf Baader Capital Markets. Many a time, high net worth individual (HNI) investors take loans (for their business) with shares as collateral.
And when the market falls, the banks ask HNIs to bring in additional 'mark-ups' or to square up their positions.
The benefits of the investment fund in propping up the sentiment, according to analysts, will depend on how the managers make investment decisions. "If the fund managers have a strategy to identify and buy stocks quoting below their intrinsic value in a phased manner, it becomes an active mechanism to stabilise the market. In the long-run, the fund becomes a self-sustaining mechanism.
It can also generate enough revenue to keep the market alive," says Gowribalan. The new fund will also facilitate price discovery, besides helping to form Exchange Traded Funds (ETFs). Strong rumours on the formation of the investment fund had aided recovery of more than five per cent in 2-3 trading sessions preceding the announcement.
However, the MSM-30 index is still down by 5,942.53 points or 48.85 per cent from its record peak of 12,164.50 points on June 12 to as low as 6221.97 points on November 20.
Similarly, the market capitalisation must have dipped by almost 50 per cent. A host of factors, ranging from selling pressure from foreign institutions to falling oil prices and liquidity crunch, were cited as reasons for the fall.
H E Yahya al Jabri, executive president of the Capital Market Authority (CMA), says the market regulator's duty is to make the bourse as transparent as possible to facilitate smooth trading.
The recovery of the market to the post-crash level will depend primarily on two factors - the extent of the impact of the global crisis on local companies and if oil recovers enough to stabilise in the range of US$65-70 level per barrel.
"The key driver of market sentiment in the region is the oil price. If oil prices stabilise between US$65-70 per barrel, it will automatically prop up the sentiment. Also, we have to see the extent of the impact of global recession on the bottom line of local companies. The sentiment will improve if the impact is not so severe," adds Gowribalan.
Among different segments of the corporate sector, banks, investment holding companies, leasing and hire purchase companies and brokerage firms are likely to face a slowdown in profit growth this year. Banks are likely to post a decline in profit growth in the next two to three quarters, with a slowdown in deposits and lending.
Investment holding companies will also show huge negative growth, in view of a 30-50 per cent fall in their portfolios in the aftermath of the regional and global market downturn. The story of brokerage companies is not different either.
The average traded volume on the Muscat bourse so far has fallen to RO14.8mn from RO17.5mn last year. In the last three to four months, the average daily traded volume is as low as RO3-4mn."