Oman rebounds as GCC bourses shift up a gear

The second week of the New Year saw the Muscat Securities Market seemingly back in favour with investors and posting a 6.6% gain for the week.

The MSM was last year's biggest loser in the Gulf, with a 24.5% fall in value, and has now rallied from its year-end position of 150 points to 162.75 points. This surge in optimism followed news of a two per cent rise in state spending for 2002 to $7.45bn.

However, it is not clear how the MSM will digest less encouraging news from the Oman Central Bank about the accounting treatment of bad debts from the Ali Redha Group. More than $100m will disappear from the banking sector's 2001 profits in one-off provisions for bad loans.

On the other hand, there may be relief in the MSM that the banks are being forced to face up to reality, and a feeling that transparency is to be welcomed. Meanwhile, there is a good argument to suggest that the MSM has become very oversold, particularly with interest rates on deposit accounts returning less than dividends on blue chip stocks.

This factor continues to benefit other GCC capital markets, which all enjoyed a good second trading week of the year, and posted gains of 0.5 to 1.5%.

But brokers warned AMEInfo that share yields were now pricing in the lower interest rate levels and that further increases in share values due to this factor were now unlikely. The focus will now be back to fundamentals such as the investment outlook and state spending plans, though both of these factors may still be undervalued in the region's capital markets.