" MUSCAT SECURITIES MARKET AbstractThe following research project is aimed at making an in depth analysis of the Muscat SecuritiesMarket (MSM), the only existing stock exchange in Oman.For the purpose of detailed analysisthe overall project has been effectively segmented in different sections. The main concern of theProject was focusing on emerging market and the diversification they offer internationally.Research has been carried out for the investigations which has clearly highlighted the overallperformance and efficiency of certain MENA countries in the stock markets section. The mainObjective of the Project was in-depth Analysis of the Muscat Securities Market (MSM) and tofind out the Factors which affects the performance of MSM and also analyzes the significance ofMSM in improving the overall economic stability of Oman.The method and important detailsregarding the stock exchange of Oman has been elaborated here significantly.The project isaimed at developing a complete idea about the growth and performance of the Muscat SecuritiesMarket (MSM) by the proper evaluation and interpretation of the collected data from variousdata sources and use of the tools and techniques required to make an appropriate analysis.MSMis capable of assisting their issuers and capital raisers with the exact market place as they needand want. A well regulated market place, transparent enough can help the capital raisers to raisetheir capital. Muscat Securities Market (MSM) investors have the opportunity to evaluate themar ke t?s e x ist ingc ondit ion, in vestment opportunities and future growth by use of variousevaluation tools and techniques. It can be added that similar to other stock exchanges, the MuscatSecurities Market (MSM) investors considers the crucial elements of financial information andperformance factors. 1 | P a g e Table of ContentsChapter 1: Introduction ................................................................................................................... 71.1 Global Overview ....................................................................................................................... 71.2 Project Overview ...................................................................................................................... 81.3 Economic Overview................................................................................................................ 111.3.1 The Macroeconomic Overview: ................................................................................... 121.4 Objectives of the study............................................................................................................ 141.5 Project Structure...................................................................................................................... 14Chapter2: Sketching Oman Country Profile ................................................................................. 162.1 Oman– Country Profile .......................................................................................................... 162.2 Oman Economic Indicators: ................................................................................................... 182.2.1 Oman Population: ......................................................................................................... 20Population Growth in Oman, 1980-2050 ...................................................................................... 212.3 Oman Development Plan: ....................................................................................................... 212.4 Oman Financial System and Opportunities: ........................................................................... 232.5 Private Sector Cross Border Investment Opportunities: ......................................................... 24Chapter 3: Oman Stock Exchange Profile .................................................................................... 263.1 Introduction ............................................................................................................................. 263.1.1 Definition – Stock Market or Exchange ....................................................................... 263.2 Muscat Securities Market (MSM): A detailed study ....................................................... 273.2.1 Muscat Securities Market (MSM) Development Phase ............................................... 273.3.2 Rules for Listing of Companies and the Listing Procedure: ........................................ 28Rules for Listing .................................................................................................................... 28Listing Procedure (For Omani Company): ................................................................................... 28Listing Procedure (For Non- Omani Company): .......................................................................... 293.2.3 Muscat Securities Market (MSM) Regulatory Body ........................................................... 293.2.4 MSM Indices ........................................................................................................................ 33Calculation of MSM 30 Index takes the following factors into consideration: ..................... 342 | P a g e Features of the MSM 30: ....................................................................................................... 343.2.5 Merits and Demerits of Muscat Securities Market (MSM) ................................................. 37Chapter 4: Literature Review ........................................................................................................ 384.1 Introduction ............................................................................................................................. 384.1.2 Our Approach....................................................................................................................... 381. Previous Researches .......................................................................................................... 382. Effect of Inflation on Economy ......................................................................................... 403. Associated Risks in the Stock Market ............................................................................... 414. Change and Impact on Stock Markets ............................................................................... 425. Relation between Return and Risk .................................................................................... 42Chapter 5 Research Methodology ................................................................................................. 445.1 Methodology Structure ........................................................................................................... 445.2 Objectives of the Research ...................................................................................................... 445.3 Sources of Data ....................................................................................................................... 455.3.1 Secondary Data ............................................................................................................. 455.3.2 Data Collection Sources ............................................................................................... 455.3.3 The Tools and Techniques for Analysis ....................................................................... 455.4 Limitations of the Study.......................................................................................................... 45Chapter 6: Interpretation and Analysis ......................................................................................... 476.1 Introduction ............................................................................................................................. 476.2 The Business Environment of Oman ...................................................................................... 526.3 Muscat Securities Market (MSM) Strategic Plan 2012-2016 ................................................. 546.4 Legislative Reforms at the Muscat Securities Market (MSM) over the years ........................ 556.5 Foreign Investments ................................................................................................................ 556.6 Performance Overview (2006-2014) ...................................................................................... 576.6 Trend Analysis ........................................................................................................................ 606.6.1 Export: .......................................................................................................................... 606.6.2 Imports .......................................................................................................................... 616.6.3 Balance of Trade ........................................................................................................... 62Chapter 7: Findings ....................................................................................................................... 723 | P a g e Systematic Risk ............................................................................................................................. 72Chapter 8 Recommendation and Conclusion ................................................................................ 768.1 Recommendations ................................................................................................................... 768.1.1 Risk Management ......................................................................................................... 778.1.2 Investor Protection and Education ................................................................................ 788.2 Conclusion .............................................................................................................................. 81References ..................................................................................................................................... 83Appendix 1 .................................................................................................................................... 88List of abbreviations: .................................................................................................................... 88Breaches of Law: .......................................................................................................................... 93 4 | P a g e List of Abbreviations MENA– Middle East and North AfricaGCC – Gulf Cooperative CouncilOECD - Organization for Economic Cooperation and DevelopmentIPOs - Initial Public OfferingsGDP – Gross Domestic ProductOMR - Omani RiyalMSM - Muscat Securities MarketCBO - Central Bank of OmanMoCI - Ministry of Commerce and IndustryOCIPED - Omani Center for Investment Promotion and Export DevelopmentFTA - Free Trade AgreementCMA - Capital Market AuthorityCML - Capital Market LawCAPM – Capital Asset Pricing ModelIMF - International Monetary FundSMEs - Small and Medium EnterprisesUAE - United Arab EmiratesP/E - Price to EarningsEPS - Earnings per ShareWTO - World Trade OrganizationFDI - Foreign Direct InvestmentNPV - Net Present Value 5 | P a g e Project SummaryThe project has been divided into several chapters or segments:Chapter 1 includes the overall introduction to the project.Chapter 2 includes the overview of Oman.Chapter 3 makes a detailed analysis of the Muscat Securities Market (MSM) the only stockexchange in Oman.Chapter 4 illustrates the methodology Chapter 5 deals with the overall analysis and interpretation of data collected for the research. Chapter Six shows the findings obtained by the researcher after data interpretation and analysisChapter 6depicts the generalized recommendationsChapter 8 it gives an overall conclusion of the project 6 | P a g e Chapter 1: Introduction1.1 Global OverviewThe world is in a state of amelioration, where every aspect is changing by the passage of timerapidly and by the up gradation of the science and technology it is spreading its territories in alldimensions. This energized expansion is raising the pennant of optimism beyond the widespreadchallenges and the flow of globalization combining with the technological advancements andfinancial development has recast the international financial landscape. The world economy is oneof the most importations and integrated factor which remains suspended and coagulated in everyaspect of the world, and it is proportional to the power of dominating every ingredient that existsin this blue planet. The financial aspects of the world witness the increase of the stock mobilityand innovation of several ideas and techniques which creates new financial opportunities. In thecurrent process of time the present financial situation of the market is observed to be the result ofthe openness of the markets, as the local markets gets coagulated with the international marketswhich provide the financial markets a high tolerance for which it is assumed that the degree ofthe integration will rise rapidly. From the historic past it is seen that stock exchanges have playedan important role in the promotion of corporate governance practices among listed companies. Ithas been found out that stock exchanges have contributed to establishment of effective corporategovernance frameworks modes of collaborating with other regulatory agencies, in addressingbroader governance and capital market development challenges.In the MENA region, it has been observed that many countries are seen going throughamajortransition phase.The changes in government in countries such as Egypt, Libya, Tunisiaand Yemen have led to various social unrest to the economic activity. The overall growth for thecountries in transition is somehow marred by the social instability and certain politicaluncertainties. The plan for the comprehension of the growth surrounding the private sector, as asolution that has not been considered and requires the necessary attention. Cooperation withGCC countries that provide major finances for these countries could be of a major beneficialadvantage.The GCC economy has seen enjoying a high and rapid growth in economy from the high oilprices, expansion of oil production and substantial revenue policies. High external surpluses,7 | P a g e moderate inflation rate gave added to the positive economic growth which has allowed economicactivities to dominate and flourish. The business circle of the GCC countries are basically drivenby the four external factors:? Oil prices? Global Trade? Moderate Interest Rate? Global DemandHowever the above mentioned factors are surrounded by some elements of uncertainty. The oilprices are subjected to vulnerabilities. Though the risks concerning to the GCC from the exposure it gets in Europe are limited, theoverall impact of oil demand and prices can be of substantial in nature. The swift and expeditiousdeterioration and fall in the overall global economy may have some development impacts similarto what the region has experienced in 2009, which includes a sharp fall in oil prices and highdisruptions in the flow of the capital.Most GCC countries have sufficient savings to prevent aminor shock, but an extended and continuous drop in the oil prices could pose a threat to theavailable reserves.There has been a rapid growth and development of stock exchange in the Middle East and NorthAfrica (MENA) region and it focuses on the better implementations of various laws andregulations in the region. The OECD was called to examine how MENA could contribute topromotion of better corporate as well as efficient governance practices in the listed companies. In2011 the OECD Taskforce of MENA Stock Exchanges was established, which included theparticipation of stock exchanges and other securities regulators from across the MENA region.Reports have shown that some exchanges, notably the Omani, Jordanian, and the Egyptian stockexchanges have been actively participating in the incorporation of good governance requirementsinto listing their rules and extensive monitoring of the various applications of such set of rulesand regulations by the market participants.1.2 Project OverviewFor the past years, emerging markets have been of a keen interest to researchers.The focus onemerging mark and the diversification they offer internationally is of prior concern. A certain8 | P a g e line of research has carried out investigations which has clearly highlighted the overallperformance and efficiency of certain MENA countries in the stock markets section.Over the past two decades, the overall pattern of the stock exchange industry has been observedto witness a notable change. Research has shown that in many developed and emerging markets,exchanges haveeitherself listed or have merged with various domestic and other foreigncompetitors. It has been seen that in recent years the emergence and emanation of transatlanticmarkets like NYSE, Euronext, and the rapid development of different alternative platforms fortrading has resulted in increase of the overall competition in the industry.This trend howeverhas remained subdued in the MENA region, where stock exchanges are still dominantly remainstate-owned or as organized public institutions. The global financial crisis has heavily and adversely affected the regional markets. Thementioned fact is evident from the sharp decline of the initial public offerings (IPOs) and variousvolumes of overall trade across the region. The period in-between 2011 and 2012 have shownvery low IPO volumes, with a notable decline of almost 70 percent on a yearly basis. This addsto the extensive impact of the global financial crisis and the political developments in the regionwhich has resulted in a sharp decline of most MENA markets in 2011.Because of the diversity of the MENA exchanges it is difficult to make an effectivegeneralization. Some of the markets in the region have been seen operating for over a centurywhile other markets have been established in the last few years. Moreover the marketcapitalization in the region has a expanded range which ranges from the largest to the relativelysmall markets.There are some common characteristics shared amongst MENA markets:? Dominant state ownershipThe unique feature of Arab stock exchanges is that most of the markets are predominantly stateowned or are organized as various public institutions. Only a very few exchanges operating inthe region are mutually owned or are listed. Current standings show that out of the 18 boursesthat operates in the region, 14 are predominantly state owned and only3 operates as structured mutual organizations. Only two exchanges in the region, which consists of the Palestine Stock9 | P a g e Exchange and the Dubai financial Market, are owned by the private investors and are not yetmutualised. ? Low regional and international integrationA particularity of MENA markets is that most bourses have seen to have domesticorientations. MENA markets have not witnessed any agglomeration of the industrythrough different acquisitions and mergers which would have resulted in integratedexchanges, sometimes covering multiple jurisdictions. It has been seen that coordinationwith the various markets operating in Europe and North America may provide somebeneficiary help to the MENA stock exchanges in enjoying an increased economy ofsales and get a proper needed global exposure for the overall benefit of the market.? Moderate competition for listingCompared to Europe and North America it is seen that the overall competitions forlistings amongst the regional exchanges are much less intense. The numbers of domesticcompanies listing abroad are found out to be very rare. Even if the domestic companieshave foreign listings they tend to favor the markets outside the region.? Young markets, dominated by a few sectorsApart from a few exceptions majority of the stock exchanges operating in the region arerelatively young institutions. ? High level of retail investmentIn MENA region it is seen that the largest class of investors are the retail investors andnot the institutional investors. Keeping aside the slow development process of insurance,pensionsandthe mutual fund sectors, low institutional and foreign investor participationare the main reason behind the free flow in most MENA markets. The investingrestrictions that exist is the key attribute to the low institutional and foreign investorsparticipation in MENA stock exchanges.The impact of low institutional and foreigninvestor participation on development and growth of capital markets should be takenunder consideration. It is seen that low institutional and foreign investment and variouslimitations in the overall retail investment have resulted in the increase of volatility in themarket. In addition although the retail investor domination produces a notable highturnover ratios in the region the quality of price is seen to be very weak.? Diversification of financial products10 | P a g e Studies have shown that the development of capital markets in the MENA region can beachieved by proper establishment of financial centers and extended diversifications ofcertain financial institutions in local markets. The refinement of financial products andinstitutions that are listed on MENA markets has seen to have a slow growth. Over theyears the problem of equity issues has dominated the MENA capital markets. The lack ofyielding a proper structure that pertains to government debt and dominance of banks inthe overall economy of the region has resulted in underdevelopment of the markets.However this has undergone a slow change in listings of corporate debts which shows theinclusion of the state-owned enterprises.1.3Economic OverviewSultanate of Oman mainly has a middle economy of income with a substantial notable oil andgas resources and a surplus of trade and budget. Petroleum is found to account for nearly 64% ofthe total earnings by export, 45% of the overall government revenues and contributes to 50% ofthe overall GDP. The hydrocarbon sector is considered to be one of the most important sectorscontributing to the Oman economy. The period in between 2003-2008 was found to be the bestfor the economy in relation to improved economic performance on the backdrop of the oil priceswhich have helped Oman in building the two mentionable surpluses (budget and trade) and otherforeign reserves. Oman has a strong and diverse private sector, covering the overall sector ofindustry, agriculture, textile, retail and tourism. The major industries concerned are copper,mining and smelting, oil refining and cement plans. Oman seeks private foreign investors,majorly concerning the sectors of industry, IT, tourism and higher education fields. Theindustrial plan basically focuses on gas resources, metal manufacturing and petrochemicals. Theliquidity and inflation rate until late 2008 made Oman face some challenges. The overall andprolonged decline in the world oil marketand global financial crisis has resulted in the reductionofOma n? s bud ge t surplu s sig nific a ntl yin 2009. B ythe mode of e nha n c e d oil re c ove r ystrategiesand techniques, Oman has achieved success in increasing the oil production in 2009, which gaveOman the time needed for diversification. Oman has undertaken a five year development planwith main focus on diversification, industrialization and privatization with the sole objective ofreduction in the oil sec tor ?s c ontribut ion t o GD P of around(9%)in 2020. 11 | P a g e "