BEIRUT: Most stocks listed on the Beirut Stock Exchange resumed their fall during the first week of Ramadan, despite several positive announcements regarding capital markets oversight and key economic indicators.

The market capitalization of listed stocks fell 0.34 percent during the week to $11.25 billion, erasing $40 million in shareholder value and reflecting thin trading volumes and persistent investor concern over domestic and regional political developments.

“In the short-term, political uncertainty will continue to weigh on stock prices. Investors are realizing that the years of 20 percent + Earning Per Share growth will not include this year and it is a question as to when these growth rates will return,” Nadim Kabbara, CFA, head of Research at FFA Private Bank told The Daily Star. He added that “investors are not as excited about Lebanese bank stocks [for example] as much as they were a year ago.”

After hitting their 2011 peak on Jan. 11, BSE stocks entered into a downward spiral which has so far cost investors 14.3 percent during the year through Aug. 5. Share classes A and B of Solidere, the exchange’s heavyweight and developer of Downtown Beirut, fell 0.71 percent and 0.88 percent respectively during the week as the company continues to feel the pinch of a deteriorating domestic real estate market since 2010.

Banks, which had reported strong first-half earnings in July, were also grappling with downbeat investor sentiment, driving Byblos and Bank of Beirut’s shares down 0.6 percent and 1.3 percent respectively for the week ending Aug. 5. Ironically, Bank Audi, which has sizeable operations in revolution-ridden Syria and Egypt, saw its shares increase in value by 0.14 percent during the week, while BLOM, a fellow well-exposed bank in the region, remained flat.

Instead, confidence in the banking sector emerged from new data released by the Central Bank showing commercial bank deposits inched up 0.82 percent in July to reach $113.1 billion. In particular, deposits by non-residents grew 2.53 percent, faster than those of residents at 0.57 percent, the equivalent of $920 million in inflows to the banking sector during the month.

“We have seen some deposit growth despite all that has happened in the country, and economic indicators have changed from negative during the first few months to mixed recently,” confirmed Kabbara who expects deposits to grow 5-7 percent for the full year.

Indeed, the dismal first few months of 2011 appear to be slowly fading and new data suggest an economic pick-up is under way during the second half, partly attributed to the relative stability following the formation of a new government in Lebanon.

In an interview with The Daily Star, economist Ghazi Wazni said “some economic indicators have turned positive since the new government was formed, namely a strong rise in tourist arrivals in July compared to June, a strengthening in the Lebanese pound against the U.S. dollar to LL1,501 from LL1,513-1,514, and lower interest rates on refinanced treasury bills.”

Even on the political level, Lebanon’s Parliament held a successful plenary session over two days during the week. Several strategic economic laws secured the approval of lawmakers across the aisles, including Lebanon’s maritime borders law and the long-awaited capital markets and insider trading laws.

Positive reactions on the latter law poured in from economists and experts, including Wazni, who said “the new capital markets law will boost confidence, leading to an increase in market capitalization and the number of shareholders.” But pending the selection of the watchdog’s committee, the effects will most likely be felt only in the medium- and long-term, Wazni added.

BSE stocks also hold plenty of promise for investors in the long-term. The steady decline in share values has depressed valuations, presenting an attractive entry point for long-term investors. According to Kabbara, “the banking sector should continue to show resilience especially given good asset quality and capitalization.”

Similarly, Solidere, which reported meager land sales during the first six months, said that it has recently held serious negotiations with potential clients on the waterfront area, suggesting a brighter second half or 2012. “The company has a cleaner balance sheet than its regional peers, and historically a better cash position,” Kabbara said.

For now, despite long-term potential, banking investors face an uphill battle after months of share price erosion and years of soaring. Instead leading banks have moved to protect existing assets in the region and to defend their positions in the domestic economy.