Oman’s equity market is often over-looked and under researched by Global and even GCC investors alike but so far this year even among the Coronavirus outbreak and because of increased domestic focus on financial sustainability, it is the best performing stock market globally.

Oman’s MSM ( Muscat Securities Market) is the world’s best performing stock market in U.S. dollar terms. According to Bloomberg data, Oman MSM30 Index with +3.7% followed by Ghana with +2.92% and Jordan +1.3% and Morocco with +0.42% are the only four stock markets globally with a positive year to-date performance.

All other stock markets have posted losses year-to-date led by developed markets and China due to the Wuhan coronavirus pandemic. The U.S. as the largest stock market in the world has fallen -12% in less than ten days and the S&P 500 year-to-date performance now stands at -8.56% and it is noteworthy that all U.S. equity market sectors have now negative performance for the year.  While the U.S. reached all-time record highs in February it is also an expensive market mostly driven by hopes of lower interest rates and multiple expansion.

On February 19^th the day the U.S. stock market reached an all-time high and stock market capitalization of 158%, President Trump tweeted “Highest Stock Market in History, By Far”.

The next day the coronavirus pandemic sell-off led to the fastest correction in recent history but despite the ‘flush’ last week and an “emergency” 50 basis point interest rate cut by the Fed,  the U.S. market is still  at its 2nd highest valuation in history.

The U.S. stock market cap to GPD ratio has averaged 100% over the last 3 decades.  Getting back to that would require lopping another $ 8 trillion sell off  in market capitalization. This however is  assuming we neatly revert to the mean.  Increased volatility in U.S equities however makes this less likely.

When the U.S. stock market is potentially dangerously overvalued against the black swan event of Covid-19, a less known and overlooked and under researched local Arab stock market like Oman’s MSM 30 Index is suddenly the best performing stock market in the world and should merit some investor attention.

When you invest in liquidity driven and algorithm trading and potentially overvalued stock markets the downside risk can be significant as investors found out last week in U.S. and developed stock markets.

Oman however with P/E of 8.19 and dividend yield of 7.25 in local currency OMR Omani Rial pegged to the U.S. dollar seems so far to be a safer value market for investors at this current late stage economic cycle.

Oman Investable Universe blended forward P/E is currently trading at 9.2x and Industrial with 13.8x and Oil & Gas 13x, Financials 8.4x and Telecommunications 7.8x.  While Omani Industrial sector stocks are the most expensive now in terms of valuation they are also the best performing stock market sector with +13.2% return year-to-date. Telecoms +6%, Consumer Services +1.6% and Consumer goods +1.2%, Financials flat at 0%, Utilities -0.2% and Oil & Gas in line with most other stock markets globally is the worst performing sector in Oman with -4% decline year-to-date.

While financial sector has been flat so far this year, Bank Muscat the largest bank in Oman has outperformed the MSM30 Index by 50.81% over the last 5 years according to Bloomberg data.

For global investors, Bank Muscat U.S. dollar denominated London listed depositary receipts are a high yield value play on Oman and its economy.  Bank Muscat pays 8.65% dividend in dollars and the 1 year dividend growth stands at 23.78%.   Estimated P/E (Price-Earnings) ratio of 7.56x make Bank Muscat the true definition of a value stock.

Bank Muscat ex-dividend date is March 25^th 2020 and the bank recently announced a 35% cash dividend for 2019 plus a 5% in bonus shares. The bank’s capital adequacy ratio after the cash dividend payout is expected to be 19.72%.

Current consensus view on Bank Muscat stands at Buy 85.7%, Hold 14.3% and Sell 0.0%.  The 12 month average analyst TP (Target Price) of OMR 0.52 implies potential return of 15.6% from current levels.

Bank Muscat 2020 performance of +2.8% so far this year stands out especially in comparison to other major GCC (Gulf Cooperation Council) listed banks.  Emirates NBD -6.35% First Abu Dhabi Bank -6.8%, National Bank of Kuwait -6.63% and Qatar National Bank -4.55%.

Oman credit rating is Ba1 by Moody’s and BB+ by Fitch ratings but Oman’s new ruler Haitham bin Tariq Al Said is embarking on possibly unpopular steps to improve the Gulf nation’s finances and in recent cabinet meetings stressed financial sustainability. This is refreshing news for global investors who in Europe and the United States still have to deal with unconventional monetary policy and even the suggestion of MMT (Modern Monetary Theory).

Sultan Qaboos bin Said who successfully ruled Oman for five decades was longest serving leader in the Middle East and Arab world at the time of his death. Oman is the largest Arab crude producer outside OPEC and plans to lower its debt and review state companies.

In October last year, Oman CREDIT rating was affirmed at BB by S&P Ratings with an outlook “negative”. In March of last year, Oman was cut to “junk” by Moody’s with outlook negative.

Oman has posted deficits since oil prices slumped in 2014, with this year’s shortfall projected at 8.4% of gross domestic product and the International Monetary Fund forecasting no surpluses until at least 2024. The stock market however seems to be looking ahead and discounting the future.

Securing Oman’s independence demands a more secure financial footing. That requires tough economic decisions that will impact the Omani population directly, and those are tough choices for a new leader like Haitham bin Tariq Al Said to make. The fact that he is willing to make difficult choices today for a better future tomorrow is now showing in the relative outperformance of Omani equities in the global context.

According to research by Standard Chartered Bank it is expected that Oman emerges from recession this year on the back of rising gas output, investment in manufacturing, logistics and tourism. Tourism due to Covid-19 could be impacted longer than many think analysts currently think, but the other sectors hopefully can compensate.

Coronavirus hurts oil demand, trade and tourism globally but as recent stock market performances have shown Oman’s MSM under the new rule of Haitham bin Tariq Al Said is still the best performing stock market globally so far this year.  This is against the backdrop of most major stock markets now being negative for the year. The new sultan is changing the Oman government’s economic approach and is more inclined toward privatization and bringing financial sustainability. Investors take note.