‘Stocks in Oman are inefficiently priced,’ says Matthew Eyre of London-based Blakeney Management, advisers to the Oryx joint investment vehicle, Oman’s biggest fund. ‘The market has been playing catch-up ever since interest rates collapsed when the index fell in 2001. It has taken a long time for equities to adjust. Oman has had the most powerful bull and bear markets of any GCC index. The index peaked in 1998 and then crashed spectacularly in 2001. The memory of this is still fresh in many investors’ minds.’

Bank stocks, which tipped the market over the edge three years ago when the full extent of non-performing loans (NPLs) became apparent, are driving the current upsurge. The sector accounts for 50 per cent of the total index and is a barometer for the market’s health.

‘The rebound in BankMuscat, which alone accounts for 20-25 per cent of the index’s value, is indicative of the sector. Banks are once again looking at growing their loan books and the attraction of its stock is rooted in the prospect of more volume growth,’ says Eyre.

National Bank of Oman (NBO)was one of the hardest hit by the high levels of bad debt but it too is beginning to taste the fruits of recovery. In 2001, the bank reported a net loss of RO 6.4 million ($16.7 million), following a 175 per cent increase in provisions to cover a high level of NPLs and investment losses from corporate defaults and its Egyptian banking operations. The decision at the beginning of October by the Suhail Bahwan Groupto pump RO 24 million ($62 million) into NBO’s paid-up capital also gave the stock a fillip.

‘We are looking at NBO stock as a good recovery play after Bahwan’s decision to pump in capital,’ says Eyre. ‘This should allow them to write back about RO 108 million [$276 million] onto their balance sheet and return a dividend by next year.’

Over the next 12 months, the market is expected to benefit from a flood of project activity that will stimulate the domestic economy. ‘Why should the market stay at its present level? Over the next three years we expect there to be more growth. There is $5,000-6,000 million worth of projects ready to come through next year and these should provide local banks with a good opportunity to participate and grow their corporate loan books,’ says Eyre.