Baghdad bourse shows potential

In any other capital market, the launch of a $5m investment fund would go unnoticed. But in Iraq, the launch of the first mutual fund to invest exclusively in shares listed on the Iraq Stock Exchange (ISX) is a key stage in the development of the market.

The ISX already has some foreign investors, but the Mesopotamia Equity Fund managed by London-based investment bank MerchantBridge is the first fund dedicated solely to Iraq.

The country’s equities market is still at a very early stage - there is a shortage of brokers to forecast earnings or quiz managers on their business models, and trading volumes are still low.

The next step in the market’s development should come quickly. The country’s three mobile phone operators have to float about 25 per cent of their capital on the ISX as a condition of the licences they bought in August 2007. The authorities in Baghdad now say they want them to do this by early 2010 at the latest.

The two largest operators are Asiacell and Zain, owned by Qatar’s Qtel and Kuwait’s Zain respectively, which are estimated to be worth more than $2bn each.

Korek Telecom is smaller, but between them the three firms will make a significant difference to the overall market capitalisation of the market, which currently stands at just $2bn.

Unlike most other countries in the region, Iraq automatically registers the shares of all listed companies, making it easier and more tempting for major shareholders, including government entities, to sell part of their stakes when they need cash.

Iraq is already the region’s best performing stock market - it rose in value by 64 per cent in 2008 - and such rules mean it could also become one of the most open.