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Beirut bourse still in free fall as investors bail

  • Experts say a drastic decline is only natural under the current political and and economic conditions.

BEIRUT: The Beirut Stock Exchange continues to tumble both in volume and value as many Lebanese investors look into more promising and stable markets abroad, brokers and analysts said Wednesday.

The Beirut index in the first seven months registered the worst performance among even the underdeveloped bourses in the region, registering a decline of 14.8 percent, while the second worst market, that of Libya, only fell by 8.4 percent, according to figures from the Central Bank and Byblos Bank.

Jean Michel Aoun, a senior investment adviser at the Arab Financial Corporation, told The Daily Star that it was only natural for Beirut’s bourse to see such a drastic decline in activity under the current economic and political conditions.

“We are hoping that the capital market law will help improve the performance of the Beirut bourse. The capital market law will also improve the rating of Lebanon in general,” Aoun said.

But the law, which was passed by Parliament last year, has yet to be implemented, although members of the committee for the capital market were named by the last Cabinet.

Aoun admitted that at least 90 percent of the operations of Lebanese financial institutions were now focused on the New York Stock Exchange, Dow Jones and other international markets, a clear sign that local investors were not keen to make more investments in the dormant Beirut bourse.

According to a Bank Audi report on Lebanon in the first six months of 2013, the BSE price index fell 4.3 percent, bucking a 6.3 percent rise in regional stock markets. “The BSE activity was tied to domestic developments and concerns about spillovers from the Syrian turmoil, while regional stock markets benefited from real estate recovery, stability in crude oil prices and huge government spending on infrastructure,” the report said.

The total trading value of the BSE in the first half of this year was limited to $133 million compared to $229 million during the first half of 2012.

BSE market capitalization fell from $9.982 billion at the end of 2012 to $9.773 billion at the end of June 2013.

Aoun said that even if politicians succeeded in forming a Cabinet, the market would briefly improve but would eventually start falling again due the ongoing war in neighboring Syria.

“It seems that the impact of the Syrian crisis far outweighs the domestic factors. As long as there is tension in the region, investors will prefer to hold on to their stocks and not trade them on the floor,” he added.

Marwan Barakat, the head of Research at Bank Audi, confirmed the long-standing view that politics affect both the economy and the BSE.

“In the first eight months of this year, the trading value of the BSE was $168 million compared to $408 million for the entire 2012. But what is more important is that the annual trading value to market capitalization reached 2.4 percent. This is very low compared to other emerging [markets]. The annual trading value to market capitalization is around 100 percent in emerging and international markets. In the region, the average is 40 percent,” Barakat stressed.

He added that this showed a lack of liquidity and efficiency.

But Barakat, who did not dismiss the importance of economic, political and security factors, believes that some of the profitable companies and banks listed on the BSE should be more aggressive in approaching the investors.

“I don’t see any reason why some of the firms do not hold road shows abroad and reach out for the investors. These companies should explain to the investors that despite the conditions in the region, the companies are making handsome profits,” he added.

 
A version of this article appeared in the print edition of The Daily Star on September 19, 2013, on page 5.
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