Political sentiment drags down Beirut exchange

14 December 2011

Bourse is third-worst performing in the Arab world this year

Lebanon’s Beirut Stock Exchange (BSE) showed signs of a rebound after benchmark the Blom Stock Index closed at 1225.60 on 7 December, the highest level seen since June this year, but the market is far from recovery, shedding 20.6 basis points on 12 December to close at 1205 points.

“It does not represent any trends, it hardly constitutes a reversal of previous trends of stagnation or low volumes,” says Nassib Ghobril, head of economic research and analysis at Lebanon’s Byblos Bank.  

The increase was helped by a growth in real-estate firm Solidere’s stocks, the largest listed company on the exchange. Solidere’s shares have risen about 20 per cent since November.

The BSE suffers from a lack of liquidity and, so far this year, there has been very little activity on the market as investor appetite, particularly from the Gulf, has dwindled.

The performance of the BSE is reflective of the wider regional and global movements. Since the beginning of the year, the main index has fallen about 21 per cent, the third-worst performing in the Arab world.

“The movement of the stock market in Lebanon is tied to political sentiment and developments a lot more than the performance of the economy and the performance of the listed companies. A lot of them are posting profits, but there is still a decline in their stock and share price,” says Ghobril.

The instability in Syria has added further strain to the BSE. Lebanon voted against imposing further sanctions on Syria due to the knock-on effects it would have on the country.

Most of Lebanon’s banks, which dominate the stock exchange, have faced a difficult year. Many of the banks have operations in Syria and also in places such as Jordan and Egypt, where the economy has come to a near standstill.

They have faced further downfall after US-based ratings agency Moody’s lowered its outlook on the Lebanese banking sector to negative from stable on 5 December.

Lebanon’s largest lender, Bank Audi, saw its shares fall 1 per cent in the week ending 9 December to $5.82. Blom Bank lost 1.9 per cent to $1.60 and Byblos Bank lost 1.23 per cent to $7.75.

The decision for the downgrade was attributed to the slowdown in the Lebanese economy, which has stemmed from a weakened domestic operating environment that has put increased pressure on performance.

Barclays Capital has forecast real gross domestic product (GDP) growth at 1.8 per cent for 2011. There does seem to be some hope, as real GDP growth for 2012 has been predicted at 3.6 per cent.

“The stock market is small, we only have 12 listed companies. To increase volume and generate demand the government needs to list state-owned assets,” says Ghobril.

Plans to privatise the two mobile operators and the national carrier Middle East Airlines continue to be postponed. There is some hope, however. Now that parliament has passed the Capital Markets Law, there is hope that an independent regulatory body will be established to help revive the BSE and encourage more companies to list.

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