Oman decides to use state funds to support the MSM stock market

With over a 50% decline in the Muscat market in the past 6 months, and investors screaming, Oman's Minister of Commerce and Industry has decided to invest 150 million rials in a so-called market stabilisation fund to act as effectively a buyer of last resort for Oman's publicly traded company shares. See article in the Financial Times today.

Hmmm.


Yes, Kuwait have also done it recently following huge investor protests, and other Asian countries did it in the aftermath of the Asian Crisis in 1998. You can read the sycophantic arguments supporting the Government's move in, where else?, the Times of Oman.

However the Oman Government will now be under pressure to buy all sorts of crap to support the portfolios of the well off or ill-informed investor. As long as the fund is properly controlled, and only buy on the basis of solid business performance, long term there is little downside. But if they get too involved, it will lead to market distortion - at what price will they buy, and even more important when will they sell? What will they do if the money runs out? 150 million is not a lot compared to the overall market capitalisation, but then again, a lot of the shares are already owned by the Government in one form or another via direct holdings [Omantel] and pension funds [more than 40% of Bank Muscat].

What do people think? Do you want to see the Government throwing money into the mouth of the local stock market right now?

Oman sets up fund to stabilise stock market
By Reuters
Oman’s government said on Thursday it would set up an OR150m ($389.6m) market-maker fund with the private sector to help stabilise the Gulf Arab country’s bourse as the financial crisis bites.

The government would provide 60 per cent of the fund, or OR90m, while the private sector and pension funds would contribute the remaining 40 per cent, it said in a statement on the bourse website.

”The fund will be managed by a special administration operating on market fundamentals to provide protection from the sharp and unjustified volatility that the financial markets are being exposed to and also work towards balancing supply and demand factors in the market,” the statement said.

”The government hopes the creation of this fund will return confidence in the investment climate,” it said.

The fund will be involved in both buying and selling shares on the Omani bourse in an effort to increase liquidity and smooth the volatility that has gripped Gulf Arab bourses over the past two months.

A trader said it was expected start operations in December.

Kuwait, which has been the worst hit of the Gulf countries in the financial crisis, has had its sovereign wealth fund buy up plummeting shares for weeks in a bid to shore up stocks and confidence.

On Tuesday, the government said it had asked its investment arm to set up a fund to invest in the bourse to shore up confidence after a brief halt to trading following weeks of declines.

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]...

Expect a quick bounce in MSM today - Government waves the big stick

Soon the MSM will open (in about 20 min as I type), and I'm expecting the Government to move to bounce the market away from its record low for the year reached on Thursday of less than 8,800. The cavalry is on its way...

As reported in The Tribune today (and on Muscat Confidential yesterday), the Minister of C&I Maqbool Bin Ali Bin Sultan 'held talks' with Oman Pension funds (which are anyhow mostly Government controlled) and telling them the drop in the market was ' not justified' and was hurting small investors, so they'd better sort it out - ie BUY, BUY, BUY. (Aside: The Minister probably had to get involved as clearly the exortations of the Chairman of the Omani Chamber of Commerce to not sell didn't really work a couple of weeks ago...)

Of course, a big driver behind the drop has been the recent 10%+ growth in the strength of the dollar, to which the Omani rials is fixed. And the significant drop in Omani oil price. This has emboldened overseas investors (and perhaps some Omani big boys too...) to get money out of the MSM and into pounds or Euros.

But, as the Government controls who runs the Pension funds, I expect the boys will do what their paymaster has instructed them to do with gusto today, or perhaps they won't be running a pension fund for much longer. And perhaps then the papers here will report on the MSM's 'record rise' and how everythings obviously totally OK... LOL.

Maqbool holds talks with pension funds
MUSCAT HE Maqbool Bin Ali Bin Sultan, Minister of Commerce and Industry and chairman of the Capital Markets Authority, on Saturday held talks with pension funds to find out the reasons behind the Muscat Securities Market slump and the steps need to regain investors’ confidence.

Profits of listed companies in the first half of 2008 has been 54 per cent higher compared to the same period last year. Hence the minister felt the market plunge was not justified. He also pointed to the stability of the economic conditions in the Sultanate. High oil prices during the first half of the year also saw the implementation of a number of projects across the country, he added.

Maqbool urged pension funds to manage their investments in a manner that while enhancing their profits boosted small investors’ confidence.
CMA CEO HE Yahya Bin Said Al Jabri said the main reason behind the slump was that investors sold shares in some companies to buy shares in other Omani companies, a pointer to their trust in the local economy.