MSM drops yet again - surprise surprise

Yes folks. There are limits to power it seems. As this gentleman of yore successfully proved, holding back the tide can be a difficult trick.

King Canute

Yesterday, the Minister of Commerce and Industry, HE , commanded the pension funds to support the market, which they dutifully did, helping boost the market to a 2% gain as everyone sold around them(or as the always predictable Times of Oman put it, finally daring to talk about the market "MSM-30 surges 1.92pc to close at 9002 points").

Today, the MSM returned to its recent form and dropped back to 8834.78, just about where it ended on Thursday before the pension fund managers got their talking to, although if you ask me it looked like they were active in the later part of the session to minimise the loss and keep it above a record low for 2008, which is where it was from 11-12pm. There was also no pause whatsoever as the index sailed past the previous low, another worry for those who want a return to the good old days.

I'm curious to see who comes out next to try their hand at holding up the market...
Those who tried yesterday morning probably ended up with a 3-5% net trading loss (at least on paper) in less than 36 hours.

Watch this space. Oh, and look at how the papers respond too. Expect more stories on the impressive drops in other regional markets [ie: it's not just us, it's happening everywhere], and calls for controls on foreigners selling out [ie: there's nothing wrong with the Omani companies, it's the fault of these speculating foreigners]...

King Canute analogies, anyone?

As predicted, this morning the MSM index responded to the massed forces of Oman's Pension funds, rallied to the cause following the personal intervention of the Minister of Commerce and Industry yesterday, when he basically instructed them to forget about making profits for a while, stop selling, and instead underpin the market to restore confidence and prevent a blood bath.

But the bump didn't last long, nor was it very convincing, although it did naturally arrest what had been an accelerating decline in the market.
However, after opening higher, the market then fell away as shareholders gladly sold into the waiting cheque books of the pension funds, and prices fell over the course of day (although generally still up on Thursday's close). The index climbed 5% in the first 20 minutes to 9272 before falling back to close at 9002 for a 2% rise on the day, still well below the value at the start of 2008.

I guess its hard to write cheques with one arm twisted up behind your back!

Lets see how it continues this week.

MSM continues to fly like a frozen chicken

The MSM, as predicted, has continued to plummet, dropping over 2% and 3% respectively on the last 2 days. The index reached 8,800 yesterday, down almost 10% from the dead cat bounce 2 weeks ago.

What's most peculiar however is the almost complete absence of any reports or comments in the papers. I mean, the market is now down more than 25% from its peak earlier this year, and the drops this past week are huge, but the business sections of the papers are quiet. Spooky.

The hard hitting and fearless Times of Oman had a few lines stating the facts on Wednesday, but nothing on Thursday. Tribune: Nothing. Observer: Nothing.

And the Chairman of the Chamber of Commerce remains tight lipped, after having urged people not to sell at 9,400... Expect more blood, another bounce, and blaming it on pesky foreigners...

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.

Dead cat bounce?

As expected, the MSM index rebounded somewhat yesterday, up about 3.5%.

Those with a penchant for risk and opportunity should keep a weather eye out for the next few days. I'd expect to see a further drop as short term profits are taken, and that should be a buying opportunity for quality stocks that get caught up in the low liquidity and general panic: EG:
Bank Muscat, Galfar, Renaissance. (one could add Omantel, given the expectation of the long awaited strategic partner, but they are such a badly run and incompetent Government monopoly I wouldn't touch them with a 10 foot pole).

However, given the volatility lately, you need a good broker, or you'll find out you paid the highest price during the day.

But no matter what, the market will be interesting to watch for the next few days...

Oh, for those unfamiliar with the term Dead Cat Bounce used in the title: it comes from the phrase 'even a dead cat will bounce if you drop it from a great height': Thus, its a common observation of markets that following a big drop, there is often a slight rise immediately afterwards, but this does not mean prices will recover - its a slight blip on a downward trend.