'When it started up again in June, there was a great rush to buy stocks,' says Monther al-Fettal, chairman of Al-Baraka Bankfor Investment & Financing. 'Everyone was expecting a great increase in share values as we thought Arabs and foreigners would start investing. It remained like this for two months, but after it became clear that no foreign investment would materialise, the mood eventually changed.'

Hardest hit were manufacturing and tourism-related stocks. Pharmaceuticals manufacturer Al-Kindi for Inoculationand Al-Rassaffa Play Cityboth lost 21 per cent of their stock values, while Baghdad Company for Public Transportexperienced a 23 per cent drop. Other notable losers among the 67 listed firms included Mosul Play City, Light Industries Company, Karbala Industries Companyand Hilal Industries Company, which all saw double-digit losses. The banking sector failed to escape unscathed. Basra Banklost 14 per cent of its value, while United Bankand Commercial Bank of Iraqalso suffered notable losses.

The bearish mood has been reflected in thinner trading volumes. Average trading in November hit just $1 million in each of the bi-weekly two-hour sessions, down from $2 million in the preceding months. 'The lack of a foreign investment law combined with the security situation has hampered investment,' says Al-Fettal. 'There is also a liquidity issue. There have been some big capital increases, especially among the banks. There is a need for liquidity, but there simply isn't enough to go round.'

The trend looks set to continue until the January elections. Investors are hoping that changes in the investment law will allow foreign investors to buy local stocks. 'I hope they do legislate on this,' says Al-Fettal. 'Shares are very, very cheap - you can buy five shares for the price of a sweet - so I expect there will be a huge demand. They are very good value for money.'

Stocks are not the only investment products offered. Competition for Central Bank of Iraq treasury bills has grown increasingly aggressive, with rates for the 90-day notes coming down from an initial 800 basis points (bp) to just over 150 bp. 'This is mainly a result of the competition between the two state-owned banks [ Rafidain Bankand Rasheed Bank],' says Al-Fettal. 'They have a lot of liquidity but don't know what to do with it, so they are just soaking up government debt.'