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Silk Road Launches Iraqi Equity Indices

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1Silk Road Launches Iraqi Equity Indices Empty Silk Road Launches Iraqi Equity Indices Fri Feb 03, 2012 8:03 am



Silk Road Management has announced the launch of the Silk Road Iraq Index (SILKIQ) and Silk Road Iraq Oil Index (SILKIO, two debut equity indices that include the largest Iraq-focused companies, listed on the Iraq Stock Exchange (ISX) as well as international bourses in London, Toronto and Oslo.

Covering 26 companies with total market capitalization of USD12.8bn as of January 1, 2012, the SILKIQ posted a return of 14% in January, and Alisher Ali, Managing Partner at Mongolia-based Silk Road Management, believes that there is much untapped potential in the Iraqi markets.

“Resource-rich Iraq and Mongolia are by far two most attractive frontier markets now and for years to come," Alisher Ali said. "In 2011, Iraq had the world’s best performing equity market (up 35%), while Mongolia was the world’s fastest growing economy (17% GDP growth). We estimate that Mongolia and Iraq will be the world’s two fastest growing economies in 2011-2015, with GDP growth of 18% and 13% per annum respectively. Both countries have one of the lowest ratios of equity market capitalization to GDP globally which, along with massive economic growth, would translate in world beating performance of their respective equities markets in coming years. Therefore, following success of our Silk Road Mongolia index, we are excited about the launch of two new Iraqi equity indices.”

19 locally-listed Iraqi banks and companies are included in the SILKIQ. However, they collectively represent only 25% of the index’s total market capitalization while seven internationally listed oil & gas companies currently dominate the index.

“It is hard to believe but the entire universe of 87 companies listed on the Iraq Stock Exchange has only less than USD5bn in total market capitalization in the USD100bn Iraqi economy," continued Alisher Ali. "We expect the Iraqi local equity market to boast at least USD50bn in market capitalization by 2015 on the back of privatization, IPOs and revaluation of asset values."

Both indices track the share price performance of internationally and locally-listed companies with assets and operations in Iraq. Internationally-listed companies with minimum 30% of their total assets attributable to Iraq are qualified. The initial values of both indices were set at 1,000 on January 1, 2012.

With average daily trading volume of nearly USD50m, the SILKIQ is one of the most liquid early frontier markets globally, according to Silk Road Management. The oil & gas sector represents the largest share with 75% of the index’s total market value followed by banks (23%). General Energy is the largest member of the Index by its market value and contributes 25% of its total market capitalization.

In terms of breakdown by country of the listing, the UK represents 62% of the index’s total market capitalization. However, more ISX-listed companies from various industries, such as telecoms, energy, transport and retail, are expected to be included in SILKIQ in due course.

The SILKIO, which returned 24% in January, currently includes seven internationally-listed companies with oil & gas assets located in the Kurdistan region of Iraq. While legal uncertainties over the oil law have held back investment in this sector thus far, Silk Road Management says that these companies "have already created significant shareholder value for international investors by accessing early the oil sector in Iraq".

Currently, no local oil & gas companies are listed on ISX, but Silk Road expects this to change with industry privatization and IPOs in coming years. Four companies with listing in the UK represent 82% of the index’s total market capitalization as of January 1, 2012.

Silk Road Management is an investment management firm focused on investments in various asset classes in Mongolia and other resource-rich 'Silk Road' countries, including public equities, private equity and property. Based in Ulaanbaatar, Silk Road Management owns other indices, including: the Silk Road Composite Index, the Silk Road Central Asia Index, the Silk Road Mongolia Index, the Silk Road Australia Index, and the Silk Road Hong Kong Index.

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