The benchmark MSM index climbed 18.8 per cent over the course of 2004 and at this early stage is on target to continue the steady growth in 2005, with stocks up by 4.2 per cent since the start of the year. Banks dominate the bourse and all eyes remain on the merger of Bank Muscatand National Bank of Oman (NBO), the three-month delay of which was formally announced in early January. 'After the market digested the original news of the takeover, sentiment was negative and now it has worsened with the delay, dispute over an auditor and the lawsuit brought against NBO and its former chief executive by the Shanfari Group,' says Matthew Eyre, analyst at Blakeneys Asset Management. Both sides insist that the deal will go ahead. Nor have the other banking stocks done particularly well out of the news that their two major competitors will become one. Oman International Bankstock has remained flat recently, for example.

However, the prospects for the sector remain good. 'The regulatory environment is tight, banks are beefing up their capital positions and they are also gradually becoming more adventurous, while still prudent,' says Eyre. 'Credit growth is picking up from a very low base and provisioning is now so high that even significant write-offs of bad loans will have little effect on profitability.' Elsewhere, cement stocks have had a good run on the back of the construction boom and of local companies' expansion plans. An extraordinary general meeting of Raysut Cement Companyshareholders in early January approved a rights issue of 5 million shares to fund an increase in capacity.

Investors are clearly hungry for a broader range of stocks from which to select. The initial public offering (IPO) of shares in AES Barka Power Companyclosed in late December more than 17 times oversubscribed and few analysts would describe the stock as a particularly exciting one. Eliciting far more interest is the imminent IPO of shares in state-owned Oman Telecommunications Company (Omantel), due to come to market by the end of the first quarter. 'There is almost guaranteed to be oversubscription, even if the issue is priced sensibly as appears set to be the case,' says Eyre. Much will depend on whether the issue is open to foreign, at the very least GCC, investors, which is so far unclear. There is already evidence that Gulf money, particularly from the UAE, invested in the secondary market is driving up the MSM, as investors fear their home markets are running out of control and shop around for a bargain. Local investors will no doubt hope the trend does not become too pronounced.