Oman next to bail out bourse

An Omani traders stares in disbelief at his terminal.

Oman yesterday announced a US$390 million (Dh1.43bn) fund to invest in its sagging stock market, following Kuwait and Qatar in injecting cash into equities as the global financial crisis bites deeper into regional economies. A Kuwaiti official said on Wednesday that a fund worth at least 1 billion dinars (Dh13.5bn) and spearheaded by the Kuwait Investment Authority, the country's sovereign wealth fund, would buy shares on the market over five years. The fund "will target good stocks; blue-chip and stocks with a dividend", according to a source quoted by Reuters. Qatar's government has also bought shares on its exchange. The Qatar Investment Authority last month said it would buy between 10 per cent and 20 per cent of banks' shares on the bourse, at a cost of about $5.3bn. Economists say such funds can work if investments are made judiciously and gradually, avoiding sending markets into steep rises and declines. Share purchases work especially well when stocks are undervalued and the market is not properly assessing prices, experts say. In such cases, injections can restore confidence and provide support for long-term investors while giving governments a good return on their money. Injecting money into markets simply because of political pressure from small investors, however, is a more perilous path. About 60 per cent of Oman's fund is to be provided by the government, with the remainder coming from the private sector and pension funds. It is to be used to buy shares on the exchange when no other buyers can be found, according to a statement from the Ministry of Commerce and Industry posted on the Muscat Securities Market website. Like many bourses in the region, Oman's has struggled with an overwhelming imbalance of sellers over buyers, forcing prices down. Prices have declined by more than 30 per cent this year, but the market index surged 3 per cent following the announcement of the fund yesterday. "The Ministry of Commerce and Industry took the initiative and invited some financial and banking institutions to contribute to the capital of the fund that aims at striking a balance in the securities market in the Sultanate through investment in securities," according to the statement. The fund planned to buy shares of listed companies where prices were seen as "appropriate" and sell them once prices rose, the government added. The UAE has so far rejected the idea of such a fund, but there are increasing signs of agitation from investors who have been hit with heavy losses. The Dubai Financial Market (DFM) index is down about 67 per cent this year, and Abu Dhabi's bourse is down close to 38 per cent. World markets have fallen in concert. Tokyo's Nikkei Index fell by 6.9 per cent yesterday, helping push world stocks to their lowest point in five-and-a-half years. Oil, the main source of revenue for Gulf countries, fell below $53 a barrel yesterday. It is down by 64 per cent from a record high of $147 in July. To help stem the market losses, brokers in the Emirates on Wednesday suggested that regulators cut to 5 per cent the amount by which stocks on domestic markets can fall in a trading day. In a meeting with the Emirates Securities and Commodities Authority (ESCA) - the governmental body that regulates the Abu Dhabi Securities Exchange (ADX) and the DFM - a group of about 60 brokers put forward proposals that included the new limit on declines and an expansion of the limit on advances to 20 per cent in a trading day. The existing limit for declines is 10 per cent and the limit for price rises is 15 per cent. Also among the proposals was a call for the ESCA to issue a clear statement on short selling, which is illegal on the ADX and DFM. Short selling, or borrowing securities and selling them in the hope of repurchasing them at a lower price, is rumoured to be widespread in the country's markets despite its prohibition. Several brokers have been disciplined or fined by the ESCA in the past year for executing short sales. Short selling concerns some brokers because it can push market prices downwards as investors offload borrowed stocks. The brokers also asked the Central Bank to provide loans to companies to fund share buy-backs, measures firms typically undertake when management believes a stock is undervalued. The brokers also want authorities to punish companies that announce buy-backs, but do not go through with them. "It was a good meeting," said Mohammed Ali Yasin, the chief executive of Shuaa Securities. "People will now know that we have raised our concerns with ESCA, and so we want them to concentrate on supporting the broker community. I think we achieved something." Husam S Alameri, the chief executive of Al Brooge Securities - who initially called for the meeting last Saturday - said the ESCA had listened to the brokers and had said they "will study the proposals". * with Agencies