Apparently not a dead cat bounce?

Following the precipitous falls of last week, this week the MSM market continued to climb again as the institutions piled in, and as the IPO for Sohar power (heavily oversubscribed) released lots of unused deposit money back to small investors.

The climb back was greeted with some relief in the corridors of power, given the number of small investors in the market, and the extent to which middle class Omanis have piled into the bull market over the past 18 months. It was starting to look scary.

A couple of days ago, once the dust began to settle somewhat, Khalil Al Khonji, chairman of the Oman Chamber of Commerce and Industry, launched into the press to reassure the public on the market (see extract below), calling the drop 'unnatural', and urging people not to panic and to talk to their brokers. Which is natural I guess, but a worrying indication. Markets go up and down. And brokers always think the time to buy is now. Regional markets have seen some big drops of late.
Times Article

Al Khonji reassures investors at MSM
Times Sunday, August 17, 2008
MUSCAT — Khalil bin Abdullah Al Khonji, chairman of the Oman Chamber of Commerce and Industry (OCCI), assured capital market investors that the laws and regulations that govern trading at Muscat Securities Market (MSM) are transparent and provide all investors with equal opportunity to have access to information and take knowledge-based decisions.

“The current slump in the market is unnatural and, therefore, there is nothing that deter people from investing in the market,” he added.

Al Khonji urged pension funds, banks and investors to exploit the opportunity and invest in the market as the market is now doing well in terms of transparency and corporate government.

“MSM is still the best performing capital market in the AGCC states in terms of investment revenues compared to other markets,” he added. “There is a big difference between the slump in 1997 and the current one because the former was mainly attributed to unjustified sales by foreign funds leading to excess supply and low demand,” he added. The slump does not reflect the actual performance of the market and the positive gains by various public and private companies.

“All SMS investors are required not to do so after rumours and benefit from the services provided by the financial consultancy firms and brokers so that they can take the right investment decision,” he said. Al Khonji highlighted the role of brokers and urged the investors not to take any hasty sale decisions.

But the danger signs are all around I fear. Oman is now seeing the advent of many 'day trading' Omanis, buying and selling on the volatility and on the back of a bull market to make a reasonable income. And all and sundry have been pulled into the market by the recent 'free money' IPO trends, as well as the huge bull run the MSM has had over the past 2 years. A drop was to be expected. And its also unreasonable to expect the market to grow - on the basis of long term fundamentals - at more than ~10% per year. When the coffee boy is giving you stock advice, and the OCCI is urging people to stick with the market, its usually a sign of a bull run that's hit its peak.
So, again, my advice is to look for buying opportunities in quality stocks with strong business models and cash flow (e.g. Bank Muscat, Galfar, Renaissance), and invest for real growth, not anticipate a continuation of 50% pa gains across the swath of the market.