Oman’s small stock market is seeing a rise in investor interest as attractively valued listed companies start benefitting from government spending on infrastructure and job creation, according to an expert.
“Projects in the Sultanate that have been in the planning stage for the last two year are finally coming to fruition. These projects include ports and roads to industrial estates also soft infrastructure such as education and health care. Over US$8 billion of contracts were awarded in 2012 and about the same are due for this year,” Sachin Mohindra is the portfolio manager of Invest AD GCC Focus Fund in a report said.
Some of the most intense activity is around coastal town of Duqm. Once a small fishing settlement, Duqm is now the target for US$18 billion of investment aimed at turning the oil town into a major port and petrochemical industrial zone employing 45,000 people. Once complete, Duqm will be a strategically well-placed port complex for trade with Asia and Africa, and one of the major contributors to Oman’s economy.
With around 60 percent of the population under the age of 30, Oman’s spending spree is motivated by the need to create jobs. The government aims to spur creation of 40,000 new jobs annually, split equally between the private and public sectors.
For the time being, Oman can afford the stimulus, with hydrocarbon revenues helping to produce a fiscal surplus – albeit a narrower one than many of the country’s Gulf Cooperation Council neighbours.
Oman is currently producing 940,000 barrels per day of oil production, but the fact that oil reserves could run dry in as soon as 15 years, is giving some urgency to the country’s economic diversification strategy. Oil-related activity accounts for 55 percent of the country’s GDP.
Investors are hoping that the current government investment will lead to the kind of consumption ripple effect through the economy that Saudi Arabia has witnessed over the last two years.
The Omani $7 billion stock market – just 3 percent of GCC stock market capitalisation – has some of the highest standards of regulation and transparency among emerging and frontier markets.
It has seen daily trading volumes rise to around $20 million from around $10-15 million last year, partly due to increased activity from local institutional investors in a country which has a well-developed pensions and insurance industry.
The most direct beneficiaries of the government infrastructure spending are likely to be in the construction sector – small firms such as Gulfar Engineering, Oman Cement and Raysut Cement, with the potential for rapid growth.
Rising incomes and consumption will certainly feed into the banking sector, which experienced loan growth of over 14 percent and deposit growth of nearly 13 percent last year.
The benchmark Muscat Securities Market (MSM) 30 Index is trading at about 9.5 times 2013 earnings, compared to around 11-12 times for emerging and frontier markets. Earnings at listed companies are also on a strong upward trajectory, with projected growth of over 15 percent this year.