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The greatest opportunities for emerging market investors have always come when political chaos coincides with a dire media consensus, and a major underlying economic improvement is thereby ignored. Iraq stands firmly in this tradition of missed investor opportunities.
Precedents begin with Japan in the early 1960s, when the Nikkei fell 27 per cent following Paul Murphy’s article in the Financial Analysts Journal of May 1962, which portrayed Japan as a country on the brink of disaster. The analysis was flawed; over the next 25 years the Nikkei rose 800 per cent. A comparable slough of despond arose in 1968 when, after unsuccessful attempt by North Korean commandos to assassinate the president of South Korea, the local index fell 30 per cent. Over the following four years, it climbed fivefold, against a background of deep political uncertainty. The most recent precedent was in Russia in 1995. Despite the escalating Chechnya conflict and deeply negative media coverage of the vagaries of Boris Yeltsin, the main index rose sevenfold in two years.
Despite the escalating Chechnya conflict and deeply negative media coverage of the vagaries of Boris Yeltsin, the main index rose sevenfold in two years. More Markets Insight ‘Financial coercion’ heralds return of M&A Desperately seeking a line in safe assets Beware the ‘central bank put’ China’s anti-corruption drive is a sideshow Iraq’s market may follow a different course, but there are striking similarities. Political risk has been at the fore throughout the past year. While many listed Iraqi companies achieved record profits in 2012, share prices have fallen to levels that reflect extreme pessimism about the country’s future. The bitter fight between president Nouri al-Maliki and vice-president Tariq al-Hashemi and shadow boxing between Baghdad and the Kurdistan authorities have attracted deserved, although often partisan, media coverage. Behind this story of gloom hides a very different picture: the beginnings of some sense of civil order, the accumulation and investment of corporate cash,
[letsrvsoon] and a widening economic growth. Most of the wealth created may yet disappear overseas, but given Iraq’s mercantile tradition, there will be plenty available to fund corporate growth through the local stock exchange. Violent deaths are still too prevalent, and may surge again this month, but that shouldn’t detract from the fact that they have fallen to a tenth of the peak six years ago. In the cities, 24-hour street life has returned, and there is a free and relatively safe movement of people and goods around the country. There is still no reliable nationwide electricity system, but companies such as Baghdad Soft Drinks can now power at least part of their production from the grid. Oil production is now 3.4m barrels a day, up 40 per cent from three years ago, and according to the International Energy Agency, Iraq will produce 45 per cent of the world’s marginal oil over the next two decades, replacing Russia as the second-largest oil exporter. The flow of income from oil is permeating the country and fuellin
[letsrvsoon] consumer spending: in 2011, GM sold 32,000 cars in Iraq, their second-largest market in the region. Next year, Iraq may become Turkey’s second-largest export market. Inflation is stable at 5 per cent, a change from the earlier hyperinflation. The Economist Intelligence Unit forecasts gross domestic product in 2012 of $180bn, and the IMF projects 14.7 per cent GDP growth in 2013, which would put most other frontier markets to shame. Ready to take advantage of this economic improvement is the Iraq Stock Exchange, founded in 2004 and replacing the Baghdad Exchange. It is self-regulated, under the Securities Law and the independent Iraq Securities Commission. There are 91 listed companies, including banks and insurance, construction, beverage and retail companies, many of which have earnings growth of over 100 per cent but trade at price/earnings ratios of about four.
[letsrvsoon] In its 2011 Iraq Financial Review, the World Bank attested to the exchange’s conservative trading rules, with margin trading prohibited, settlement at T+0 days, and buyers requiring sufficient funds before placing orders. Company accounts are audited by Western accounting firms and, to date, cases of fraud have been rare. Daily liquidity of $2m is still very low, and market capitalisation is only $5bn – so the Iraqi stock market is worth about the same as Tate & Lyle. To date, most investor interest has been in overseas-listed companies developing hydrocarbon resources in Kurdistan. In London are investor favourites such as Genel Energy, Gulf Keystone, and Sterling Energy, with services group Petrofac rapidly expanding services in both Kurdistan and southern Iraq. However, the domestic companies on the Iraq Stock Exchange, which are not subject to the unknowns of the oil and gas exploration business and internal Iraqi politics, are still waiting to be discovered by international investors [You must be registered and logged in to see this link.]
The greatest opportunities for emerging market investors have always come when political chaos coincides with a dire media consensus, and a major underlying economic improvement is thereby ignored. Iraq stands firmly in this tradition of missed investor opportunities.
Precedents begin with Japan in the early 1960s, when the Nikkei fell 27 per cent following Paul Murphy’s article in the Financial Analysts Journal of May 1962, which portrayed Japan as a country on the brink of disaster. The analysis was flawed; over the next 25 years the Nikkei rose 800 per cent. A comparable slough of despond arose in 1968 when, after unsuccessful attempt by North Korean commandos to assassinate the president of South Korea, the local index fell 30 per cent. Over the following four years, it climbed fivefold, against a background of deep political uncertainty. The most recent precedent was in Russia in 1995. Despite the escalating Chechnya conflict and deeply negative media coverage of the vagaries of Boris Yeltsin, the main index rose sevenfold in two years.
Despite the escalating Chechnya conflict and deeply negative media coverage of the vagaries of Boris Yeltsin, the main index rose sevenfold in two years. More Markets Insight ‘Financial coercion’ heralds return of M&A Desperately seeking a line in safe assets Beware the ‘central bank put’ China’s anti-corruption drive is a sideshow Iraq’s market may follow a different course, but there are striking similarities. Political risk has been at the fore throughout the past year. While many listed Iraqi companies achieved record profits in 2012, share prices have fallen to levels that reflect extreme pessimism about the country’s future. The bitter fight between president Nouri al-Maliki and vice-president Tariq al-Hashemi and shadow boxing between Baghdad and the Kurdistan authorities have attracted deserved, although often partisan, media coverage. Behind this story of gloom hides a very different picture: the beginnings of some sense of civil order, the accumulation and investment of corporate cash,
[letsrvsoon] and a widening economic growth. Most of the wealth created may yet disappear overseas, but given Iraq’s mercantile tradition, there will be plenty available to fund corporate growth through the local stock exchange. Violent deaths are still too prevalent, and may surge again this month, but that shouldn’t detract from the fact that they have fallen to a tenth of the peak six years ago. In the cities, 24-hour street life has returned, and there is a free and relatively safe movement of people and goods around the country. There is still no reliable nationwide electricity system, but companies such as Baghdad Soft Drinks can now power at least part of their production from the grid. Oil production is now 3.4m barrels a day, up 40 per cent from three years ago, and according to the International Energy Agency, Iraq will produce 45 per cent of the world’s marginal oil over the next two decades, replacing Russia as the second-largest oil exporter. The flow of income from oil is permeating the country and fuellin
[letsrvsoon] consumer spending: in 2011, GM sold 32,000 cars in Iraq, their second-largest market in the region. Next year, Iraq may become Turkey’s second-largest export market. Inflation is stable at 5 per cent, a change from the earlier hyperinflation. The Economist Intelligence Unit forecasts gross domestic product in 2012 of $180bn, and the IMF projects 14.7 per cent GDP growth in 2013, which would put most other frontier markets to shame. Ready to take advantage of this economic improvement is the Iraq Stock Exchange, founded in 2004 and replacing the Baghdad Exchange. It is self-regulated, under the Securities Law and the independent Iraq Securities Commission. There are 91 listed companies, including banks and insurance, construction, beverage and retail companies, many of which have earnings growth of over 100 per cent but trade at price/earnings ratios of about four.
[letsrvsoon] In its 2011 Iraq Financial Review, the World Bank attested to the exchange’s conservative trading rules, with margin trading prohibited, settlement at T+0 days, and buyers requiring sufficient funds before placing orders. Company accounts are audited by Western accounting firms and, to date, cases of fraud have been rare. Daily liquidity of $2m is still very low, and market capitalisation is only $5bn – so the Iraqi stock market is worth about the same as Tate & Lyle. To date, most investor interest has been in overseas-listed companies developing hydrocarbon resources in Kurdistan. In London are investor favourites such as Genel Energy, Gulf Keystone, and Sterling Energy, with services group Petrofac rapidly expanding services in both Kurdistan and southern Iraq. However, the domestic companies on the Iraq Stock Exchange, which are not subject to the unknowns of the oil and gas exploration business and internal Iraqi politics, are still waiting to be discovered by international investors [You must be registered and logged in to see this link.]
