stock market


Iraq Stock Market Report

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 13th Sept 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD719 (+0.3%) / $767 (+0.1%) (weekly change) (-11.3% and -8.2% YTD change, respectively). The number of week traded shares was 2.5bn and the weekly trading volume was IQD1.2bn ($1.0mn).

ISX Company Announcements

  • Iraq Baghdad for General Transport (SBPT) will hold an AGM* on Oct. 7, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of SBPT starting Oct. 2, 2018.
  • Babylon Hotel (BBAY) will hold a GA on Oct. 1, 2018 to elect five new private sector representatives. The company has been suspended from trading since Aug. 8, 2018 for not disclosing the annual financial report.
  • Gulf Commercial Bank (BGUC) will hold an AGM* on Sep. 29, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BGUC starting Sep. 25, 2018.
  • Kurdistan International Bank (BKUI) will hold an AGM* on Sep. 22, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BKUI starting Sep. 18, 2018.
  • Iraqi Islamic Bank (BIIB) resumed trading on Sep. 13 after discussing and approving 2017 annual financial results and deciding to distribute 3% cash dividend (IQD 0.03 dividend per share, 7.3% dividend yield).
  • Bank of Baghdad (BBOB) will hold an AGM* on Sep. 17, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of BBOB starting Sep. 12, 2018.
  • Cihan Bank for Islamic & Finance (BCIH) will hold an AGM* on Sep. 15, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of BCIH starting Sep. 12, 2018.
  • Asia Al Iraq Islamic Bank for Investment (BAIB) has completed the legal procedures to change the company name from United Company for Money Transfer (MTUN) to Asia Al Iraq Islamic Bank for Investment (BAIB), the company’s activity from money transfer to Islamic banking and increase the capital from IQD45 bn to IQD100 bn.
  • Karbala Hotels (HKAR) completed the procedures to increase its capital from IQD5.0 bn to IQD7.5 bn through 50% rights issue on Sep. 3, 2018.
  • Al-Harir for Money Transfer (MTAH) will hold an AGM* on Sep. 13, 2018 to discuss and approve 2017 annual financial results and to discuss merging with Al-Ameen Al-Arabiya for Money Transfer. ISX suspended trading of MTAH starting Sep. 10, 2018.

Iraq Stock Market Report

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 6th Sept 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD717 (-2.4%) / $766 (-2.4%) (weekly change) (-11.6% and -8.3% YTD change, respectively). The number of week traded shares was 4.4bn and the weekly trading volume was IQD2.4bn ($1.9mn).

ISX Company Announcements

  • Al Taif Money Transfer (MTAI) will hold an AGM* on Sep. 23, 2018 to discuss and approve 2017 annual financial results. The company has been suspended from trading since Dec. 12, 2017 related with its decision to being converted into an Islamic bank.
  • Kirkuk for Producing (IKFP) will hold an AGM* on Sep. 15, 2018 to discuss and approve 2009, 2011, 2012, 2013 and 2014 annual financial results. In the AGM, the company will elect five original and alternative BoDs and discuss re-list shares of IKFP on the ISX. (Note: IKFP has been delisted from the ISX in Dec. 2013)
  • National Company for Tourism Investment (HNTI) resumed trading on Sep. 6, 2018 after discussing and approving 2017 annual financial results and to distribute 7% cash dividend (IQD0.07 dividend per share, 0.9% dividend yield).
  • Iraqi Islamic Bank (BIIB) will hold an AGM* on Sep. 8, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of BIIB starting Sep. 4, 2018.
  • Credit Bank of Iraq (BROI) resumed trading on Sep. 4, 2018 after disclosing 2017 annual financial results.
  • Region Trade Bank for Investment and Finance (BRTB) resumed trading on Sep. 3, 2018 after discussing and approving 2017 annual financial results.
  • ISX requested National Household Furniture Industry (IHFI) on Sep. 3, 2018 to disclose the subscription results.
  • According to a letter sent by ISC to Economy Bank for Investment (BEFI) on Sep. 3, 2018, ISC decided to continue the suspension of BEFI in the ISX until the submission of full and clear financial statements by BEFI which will be prepared according to the accounting standards and audited.
  • Iraqi Islamic Bank (BIIB) disclosed that one of its shareholders (Srwa Amer Khdheir Al-Kubaisy) sold all of its 12.3 bn shares on Aug. 30, 2018, corresponding to 4.93% of BIIB paid-in capital.
  • Cross Transaction: 255 mn shares of Cihan Bank for Islamic & Finance (BCIH) on Sep. 5, 2018, which represents 0.1% of BCIH capital.

Budget Surplus Soars, but Markets continue to Bottom

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market followed through with its longer-term bottoming process as the July interim bottom was tested this month. After having rallied 14.5% in July from an important technical level, August saw a retest with the index retracing to 6-8% above it. The market ended the month down -5.9% and -6.0% for the year.

Trading volumes have been low (see chart below) with August being the hottest month of the year and the peak of the summer holidays. This year it coincided with the Eid holidays, the continuation of the demonstration that began in July and the prolonged uncertainty over the government formation – all of which put the market’s action in perspective.

Monthly Turnover Index (green) vs RSISUSD Index (red)

(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

From a longer perspective, the current test of the July bottom is part of a much larger bottoming process, in which the index is testing the major multi-year low made in May 2016. Given the significantly improving macro picture for Iraq, the most likely outcome is for a continuation of the bottoming process, with the uptrend’s timing highly dependent on the return of liquidity into the broader economy.

The thesis of the return of liquidity is supported by the latest budget data from the Ministry of Finance showing a budget surplus of about USD 12.5bn for January-June 2018, which argues for a year-end surplus higher than the USD 18.8bn that was argued for here a few months ago. The variance is driven by higher oil prices and exports than assumed earlier. Based on data showing an average price of about USD 65.5/bbl for January-August 2018, and the direction of oil prices, it would be reasonable to assume that the average Iraqi oil price in 2018 could be higher still by USD 3-5/bbl.  Coupled with higher oil exports, they would imply a year-end budget surplus of potentially USD 24.5bn – equal to about a 19% stimulus for the non-oil GDP vs. the earlier estimated 14.5%.

Supporting this line of thinking is the gradual appreciation of the market price of the USD vs. the IQD over the last few weeks. This premium has been range bound between about 1.5% to over 2% over the few weeks, after hitting lows of around 1.2% in June. This is likely to be a function of a recovery of government spending and a tentative recovery in consumer spending with the resultant increase in demand for imports – it should build on the first signs of this recovery as seen by the 13% year-over-year increase in imports in 2017 as the chart below shows.

Iraq’s Imports 2003-2017

(Source: https://tradingeconomics.com/iraq/imports)

The link between the market price of the USD versus the IQD and recovery in consumer spending is a result of the dollarization of the economy, in that that the strength or weakness of the IQD is a function of the demand-supply balance for USD, and not a specific USD weakness or strength. While, this could be due to the re-imposition of the sanction on Iran and the likely higher demand of USD, as argued in “Iran, Sanctions and Iraq: The Bigger Picture” this is unlikely given that Iran’s access to the USD was severely restricted following the signing of the JCPOA.  As such, there is no reason to expect that the re-imposition of sanctions would change thigs much, and thus the most likely explanation is increased demand for imports due to a tentative recovery in consumer spending.

The implications for this line of thinking can be substantial for the oversold banking sector given its leverage to the recovery in imports. It was shown in “Of Banks and Budget Surpluses” that trade finance revenues – a major source of revenue growth – suffered severely during the years of conflict and low oil prices, which contributed to the decline in their earnings, and subsequent dismal price performance in 2018.

Further recovery in consumer confidence, once liquidity returns, should lead to higher imports, which in turn should lead to an increase in the premium of the market price of the USD over the official rate to a range of 2-4%, if not higher. For commercial banks’ earnings, this means a recovery in trade finance revenues and increased FX margins, which with improvements in deposit growth and quality of loans, should imply a resumption of earnings growth.

However, this improving outlook is yet to be discounted by the market. While all stock markets are a discounting mechanism, they need data to discount. Local trading on the Iraq Stock Exchange (ISX) is dominated by speculators, who tend to appreciate the true values of local assets especially at extreme valuations. However, their discounting mechanism is mostly a rear-view mirror extrapolation of the prior negative trends into the future and thus would not have taken into account this potential change in fortunes for the banking sector.

Trade Finance vs Imports 2010-2017

(Source: Central Bank of Iraq (CBI), Asia Frontier Capital (AFC))

The chart above shows the trends over the last few years in commercial banks’ trade finance revenues, Iraq’s imports and the link to government budget surplus/deficit – given the centrality of the government’s role in the economy. As can be seen from the chart, the improved imports have yet to translate to a recovery in trade finance earnings for the banks. This continues to underscore the opportunity to acquire assets that have yet to discount a full economic recovery.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Budget Surplus Soars, but Markets continue to Bottom

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market followed through with its longer-term bottoming process as the July interim bottom was tested this month. After having rallied 14.5% in July from an important technical level, August saw a retest with the index retracing to 6-8% above it. The market ended the month down -5.9% and -6.0% for the year.

Trading volumes have been low (see chart below) with August being the hottest month of the year and the peak of the summer holidays. This year it coincided with the Eid holidays, the continuation of the demonstration that began in July and the prolonged uncertainty over the government formation – all of which put the market’s action in perspective.

Monthly Turnover Index (green) vs RSISUSD Index (red)

(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

From a longer perspective, the current test of the July bottom is part of a much larger bottoming process, in which the index is testing the major multi-year low made in May 2016. Given the significantly improving macro picture for Iraq, the most likely outcome is for a continuation of the bottoming process, with the uptrend’s timing highly dependent on the return of liquidity into the broader economy.

The thesis of the return of liquidity is supported by the latest budget data from the Ministry of Finance showing a budget surplus of about USD 12.5bn for January-June 2018, which argues for a year-end surplus higher than the USD 18.8bn that was argued for here a few months ago. The variance is driven by higher oil prices and exports than assumed earlier. Based on data showing an average price of about USD 65.5/bbl for January-August 2018, and the direction of oil prices, it would be reasonable to assume that the average Iraqi oil price in 2018 could be higher still by USD 3-5/bbl.  Coupled with higher oil exports, they would imply a year-end budget surplus of potentially USD 24.5bn – equal to about a 19% stimulus for the non-oil GDP vs. the earlier estimated 14.5%.

Supporting this line of thinking is the gradual appreciation of the market price of the USD vs. the IQD over the last few weeks. This premium has been range bound between about 1.5% to over 2% over the few weeks, after hitting lows of around 1.2% in June. This is likely to be a function of a recovery of government spending and a tentative recovery in consumer spending with the resultant increase in demand for imports – it should build on the first signs of this recovery as seen by the 13% year-over-year increase in imports in 2017 as the chart below shows.

Iraq’s Imports 2003-2017

(Source: https://tradingeconomics.com/iraq/imports)

The link between the market price of the USD versus the IQD and recovery in consumer spending is a result of the dollarization of the economy, in that that the strength or weakness of the IQD is a function of the demand-supply balance for USD, and not a specific USD weakness or strength. While, this could be due to the re-imposition of the sanction on Iran and the likely higher demand of USD, as argued in “Iran, Sanctions and Iraq: The Bigger Picture” this is unlikely given that Iran’s access to the USD was severely restricted following the signing of the JCPOA.  As such, there is no reason to expect that the re-imposition of sanctions would change thigs much, and thus the most likely explanation is increased demand for imports due to a tentative recovery in consumer spending.

The implications for this line of thinking can be substantial for the oversold banking sector given its leverage to the recovery in imports. It was shown in “Of Banks and Budget Surpluses” that trade finance revenues – a major source of revenue growth – suffered severely during the years of conflict and low oil prices, which contributed to the decline in their earnings, and subsequent dismal price performance in 2018.

Further recovery in consumer confidence, once liquidity returns, should lead to higher imports, which in turn should lead to an increase in the premium of the market price of the USD over the official rate to a range of 2-4%, if not higher. For commercial banks’ earnings, this means a recovery in trade finance revenues and increased FX margins, which with improvements in deposit growth and quality of loans, should imply a resumption of earnings growth.

However, this improving outlook is yet to be discounted by the market. While all stock markets are a discounting mechanism, they need data to discount. Local trading on the Iraq Stock Exchange (ISX) is dominated by speculators, who tend to appreciate the true values of local assets especially at extreme valuations. However, their discounting mechanism is mostly a rear-view mirror extrapolation of the prior negative trends into the future and thus would not have taken into account this potential change in fortunes for the banking sector.

Trade Finance vs Imports 2010-2017

(Source: Central Bank of Iraq (CBI), Asia Frontier Capital (AFC))

The chart above shows the trends over the last few years in commercial banks’ trade finance revenues, Iraq’s imports and the link to government budget surplus/deficit – given the centrality of the government’s role in the economy. As can be seen from the chart, the improved imports have yet to translate to a recovery in trade finance earnings for the banks. This continues to underscore the opportunity to acquire assets that have yet to discount a full economic recovery.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Iraq Stock Market Market

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 20th Aug 2018).

Note: ISX will be closed starting from Aug. 21, 2018 to Aug. 26, 2018 due to the religious holiday of Eid Al-Adha. The next session will be held on Monday, Aug. 27, 2018.

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD736 (+0.9%) / $783 (+0.5%) (weekly change) (-9.3% and -6.3% YTD change, respectively). The number of week traded shares was 0.6bn and the weekly trading volume was IQD1.1bn ($0.9 mn).

ISX Company Announcements

  • Al-Harir for Money Transfer (MTAH) will hold an AGM* on Sep. 13, 2018 to discuss and approve 2017 annual financial results and to discuss merging with Al-Ameen Al-Arabiya for Money Transfer. ISX will suspend trading of MTAH starting Sep. 10, 2018.
  • National Chemical & Plastic Industries (INCP) will hold a GA on Sep. 3, 2018 to elect four new private sector representatives and alternative BoD members. The company has been suspended since Jul. 4, 2018 for not disclosing 2017 annual report and 3M18 fin1ancial results.
  • Region Trade Bank (BTRB) will hold an AGM* on Aug. 29, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of BTRB starting Aug. 20, 2018.

Iraq Stock Market Market

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 16th Aug 2018).

Note: ISX will be closed starting from Aug. 21, 2018 to Aug. 26, 2018 due to the religious holiday of Eid Al-Adha. The next session will be held on Monday, Aug. 27, 2018.

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD729 (.1.9%) / $779 (-2.3%) (weekly change) (-10.1% and -6.8% YTD change, respectively). The number of week traded shares was 22.1bn and the weekly trading volume was IQD8.9bn ($7.4 mn).

ISX Company Announcements

  • Chairman of Iraqi Securities Commission (ISC), Abdul Razzaq Al-Saadi, said during an interview with newspaper Al Sabah that the obstacles of the work of the Commission is the absence of a modern law that suits the international laws, so the Commission has worked to prepare a law for it, and has completed 85% of it. He stated that within six months the law will be completed and sent to the House of Representatives. He pointed out that this law allows the development of work and the adoption of new systems, most importantly corporate governance, which are the most important pillars to attract foreign investors. (ISC)
  • The Central Bank of Iraq (CBI) has been awarded the ISO 9001: 2015 certification in the Quality Management System (LMS Certification) by the British LMS Certification. (CBI)
  • Al-Zawraa for Financial Investment (VZAF) will hold an AGM* on Sep. 25, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of VZAF starting Sep. 20, 2018.
  • Bank of Baghdad (BBOB) will hold an AGM* on Sep. 17, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BBOB starting Sep. 11, 2018.
  • Al -Hilal Industries (IHLI) will hold an AGM* on Sep. 9, 2018 to discuss and approve 2016 annual financial results. The company has been suspended from trading since Jul. 4, 2018 by an ISC decision.
  • Modern Chemical Industries (IMCI) will hold an AGM* on Aug. 31, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of IMCI starting Aug. 28, 2018.
  • Region Trade Bank for Investment and Finance (BTRB) will hold an AGM* on Aug. 29, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BTRB starting Aug. 20, 2018.
  • Iraqi Engineering Works (IIEW) will resume trading on Aug. 19, 2018 because the company fulfilled ISX request to disclose its 2017 annual financial results.
  • Al-Khair Finacial Inv. (VKHF) will hold an AGM* on Aug. 28 to discuss and approve 2015 and 2016 annual financial results and to elect five new original and alternative BoDs. The company has been suspended since Jul. 6, 2017 by an ISC decision.
  • Modern Sewing (IMOS) resumed trading on Aug. 13, 2018 after discussing and approving 2017 annual financial results and to distribute 15% cash dividend (IQD0.15 dividend per share, 3.2% dividend yield).
  • ISX announced that Trust International Islamic Bank (BTRU), having a capital of IQD250 bn paid-in capital, has completed the listing procedures. BTRU started trading in the non-regular market starting Aug. 12, 2018.
  • Cross Transactions: 18.7 bn shares of Al-Noor for Money Transfer Co. (MTNN) on Aug. 15, 2018, which represents 41.6% of MTNN capital.

Iraq Stock Market Market

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 9th Aug 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD743 (-1.0%) / $797 (-1.0%) (weekly change) (-8.4% and -4.6% YTD change, respectively). The number of week traded shares was 36.7bn and the weekly trading volume was IQD11.8bn ($9.7 mn).

ISX Company Announcements

  • National company for Tourism Investment (HNTI) will hold an AGM* on Sep. 2, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of HNTI starting Aug. 28, 2018.
  • ISX announced that Trust International Islamic Bank (BTRU), having a capital of IQD250bn paid-in capital, has completed the listing procedures. BTRU will start trading in the non-regular market starting Aug. 12, 2018. The opening price will be free for the first three sessions and then will have +/-20% price change limit.
  • Iraqi Land Transport Company (SILT) announced that the resumption of trucks’ transportation with Jordan will be resumed soon. Agreement was signed for the entry of the trucks of both countries. (Iraq Trade Link)
  • Al -Khazer for Construction Materials (IKHC) replied ISX request on Aug. 9, 2018 explaining their inability to provide 2017 annual financial reports due to the occupation of ISIS over the company. They also mentioned that the company’s production has stopped due to the damage of most of its equipment.
  • Ashur International Bank (BASH) resumed trading on Aug. 8, 2018 after discussing and approving 2017 annual financial results and to distribute 1% cash dividend (IQD0.01 dividend per share, 3.3% dividend yield).
  • Gulf Commercial Bank (BGUC) announced that the CBI approved the assignment of Adil Nuri Al-Alim as the new CEO of BGUC on Jul. 25, 2018.
  • The following companies were suspended from trading on Aug. 8, 2018 for not disclosing their 2017 annual financial results: AMAP, BBAY, BDFD, BDSI, BIME, BLAD, BNOR, BQAB, BROI, BUOI, HASH, HBAG, HBAY, HISH, HPAL, HTVM, IELI, IHFI, IHLI, IICM, IIEW, IKHC, IKLV, IMCM, IMIB, IMPI, INCP, ITLI, SBAG, SIGT, SILT, SMOF and VKHF.
  • International Islamic Bank (BINT) resumed trading on Aug. 6, after discussing and approving 2017 annual financial results and to distribute 1.54% cash dividend (IQD0.0154 dividend per share, 1.5% dividend yield).
  • Cross Transactions: 16 bn shares of Mosul Bank (BMFI) on Aug. 5, 2018, which represents 6.3% of BMFI capital. 13.5 bn shares of Al-Noor for Money Transfer Co. (MTNN) on Aug. 7, 2018, which represents 29.9% of MTNN capital. 255 mn shares of Cihan Bank for Islamic & Finance (BCIH) on Aug. 8, 2018, which represents 0.1% of BCIH capital.

Market Review: “Frenzies and Market Bottoms”

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market, as measured by the RSISUSD index, marked an important bottom in July as part of a likely bottoming process. The multi-month bank selling shifted into high gear. This intensified into a frenzy, climaxing by the middle of the month with the liquidation of a large foreign position in the Bank of Baghdad (BBOB) – one of the top banks on the Iraq Stock Exchange (ISX). At the worst point in July, BBOB and the index were down -24% and -12% respectively for the month, after which both reclaimed these losses to end up +2.4% and +0.5%.

The selling in the banking sector over the last few months, driven by concerns over declining FX margins (as explained here in the past), was paced by consistent foreign selling in BBOB. The size of the selling exaggerated the stock’s declines which had a knock-on effect on other banks which declined in-tandem and dragged the market with them given the sector’s dominance of trading on the ISX.

Local retail trading is dominated by speculators, yet locals tend to appreciate the true values of local assets especially at extreme valuations. At the worst point, BBOB’s market capitalization was equal to about 0.3x Book Value, 8.5% of assets and 15% of cash (based on the trailing 12 months) which would suggest that the stock was discounting some sort of end of the world type event. The locals, aware that such a catastrophe was not around the corner and that the decline was a function of a portfolio liquidation, raised funds from family, friends and banks in order to buy BBOB. Joined by a few foreign investors, undoubtedly aware of the same valuations, the combination absorbed all the significant selling, after which the stock began to climb.

Irrespective of BBOB’s strong position among local banks, it too suffered from the same forces that crushed the sector’s earnings, as discussed in last month review of banks (Of Banks and Budget Surpluses). Furthermore, it had its share of company specific issues and structural weaknesses that were exposed by the pains of 2014-2017, including the recent pressure on FX margins. The bank’s focus on addressing these weaknesses at the expense of revenue growth is hindering near term growth. However, given the quality of its management, strong position with high quality customers (in particular foreign companies) and the strength of its franchise, it should emerge in a position to resume growth in the recovering economy.

As explained last month, the banks’ leverage to the economy crushed their earnings. In particular, the double whammy of the ISIS conflict and the collapse in oil prices squeezed government finances as expenses soared while revenues plummeted. The government resorted to dramatic cuts to expenditures by cancelling capital spending and investments which, due to the centrality of its role in the economy, led to year-year declines in non-oil GDP of -3.9%, -9.6% and -8.1% for 2014, 2015 and 2016 respectively. Ultimately, the government had a cumulative deficit of around USD 41bn during this period and accumulated significant arrears to the private sector in the process.

The same leverage should work in reverse as the expected budget surpluses of USD 28.5bn for 2017-2019 should have simulative effects on economic activity which ultimately should translate to stronger future earnings for the banks. These were discussed in further details at: “Forget the Donations, Stupid.”

For BBOB, the changes for the worse during the years of conflict can be seen through the three charts below that look at loans/non-performing loans (NPL’s), deposits and trade finance and their association with budget surpluses/deficits. BBOB Data as supplied by the research team at Rabee Securities is gratefully acknowledged. Data from 2010-2014 are based on Iraqi accounting standards, while data from 2015-2017 are based on IFRS.

BBOB’s loan book growth peaked in 2015, while NPL’s grew at the height of the crisis in 2016. The sharp decline in the loan book since then exaggerated the growth of NPL’s as a percentage of loans, as NPL’s declined in absolute terms marginally in 2017 vs. 2016.

Bank of Baghdad: Loans, NPL’s & Loan provisions 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

Though NPL’s are relatively high, even during the relative boom times, loans as a percentage of deposits have been very low at the mid-20%’s level as can be seen below.  Moreover, most of these loans are collagenized by property as most banks’ loans are in Iraq where the norm is for collateral value at 2x the loan. BBOB’s relatively large NPL’s were a function of the relative size of their loan book which meant a larger exposure to riskier loans taken during the boom years.

Bank of Baghdad: Deposits and Loan/Deposit ratio 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

The decline in deposits as a function of the economic contraction was made worse by the decline in BBOB’s trade finance business as that meant the loss of funds deposited as partial collateral required for the provisioning of trade finance.

Trade finance, once an engine of growth for the bank suffered as a result of the sharp economic contraction brought about by investment cuts and the slowdown in consumer spending.

Bank of Baghdad: Trade Finance 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

It’s logical to conclude that the sea change which has taken place in the government’s financial health would reverse the trends that affected the sector’s earnings as the significant stimulus to non-oil GDP should lead to sustainable economic activity which would provide BBOB room to recover, address its weaknesses and grow.

The question- when will these budget surpluses find their way into the economy through government action- has been partly answered by the government’s response to nationwide protests that erupted in early July, demanding the provision of services. The first response was to allocate USD 3bn to the city of Basra to fund long delayed infrastructure projects, a USD 669mn injection into the country’s housing fund to provide about 25,000 housing loans, plus a number of smaller projects in the southern governorates.

The eruption of protests in the city of Basra and their spread across the southern governorates right to Baghdad has, as is the usual case in all Iraqi events, led to two polar views. The first dismisses these as the usual ritual of summer protests ignited by the scorching heat that would soon settle with a few government handouts and the end of summer – echoing perhaps an old Iraqi politician who likened Iraqis’ anger to effervescent salts that erupt with a great fanfare before settling down. The second warns of the emergence of instability given that the Iraqi political establishment is incredibly slow to change its bad old habits, if at all, but that the young angry population is running out of patience.

While both arguments have merit, current protests should be seen from a wider prism in that they are the fourth instalment of a protest movement that began in 2010 and developed in both scope and maturity. The last incarnation in 2015 had a profound effect on how the election was fought and its ensuring results, as it led to the break-up of the ethno-sectarian monolithic blocs that were dominant over the past 15 years and which were at the root of Iraq’s instability. Thoughts supporting this line of thinking appear in (The Protest Movement, the Politicians and the Elections).

The influential religious leadership has supported the protest movement calling for the quick formation of a government focused on meeting the demands of demonstrators. This should hasten the formation of the government ending the current uncertainty. However, irrespective of how it is formed, the government would have the financial wherewithal to start the reconstruction of the country and the provisioning of infrastructure in the form of cumulative two-year budget surplus of USD 18.8bn by end of 2018- equal to a stimulus of 14.5% of non-oil GDP once reconstruction projects are underway. These would be enhanced by potential budget surplus of USD 9.3bn in 2019 or a further 6.8% stimulus to non-oil GDP. (Details available in a recent article).

It worth noting that while Iraq has its share of challenges, none are unsolvable in that the key issue of the last few years has been a sequence of crises that have forced successive governments into short -term solutions without providing overall long-term solutions. For instance, the current demonstrations were started by anger over the lack of electricity coverage beyond a few hours each day. Yet, “of 26 gigawatts installed generation, theoretically enough to meet the current 23 GW of demand, less than 17 GW is operable because of lack of fuel, maintenance and transmission capacity: source.” As such, these are addressable in a reasonable timeframe by a focused government with a clear mandate which could emerge given the current pressures from the electorate supported by the religious authority.

Finally a report on Iraq’s debts addresses a number of misconceptions on its debt profile that would have a huge implication for its ability to fund the needed reconstruction and the provisioning of services is here (Understanding Iraq’s Debt).

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

 

Iraq Stock Market Market

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 2nd Aug 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD751 (-5.1%) / $806 (-5.1%) (weekly change) (-7.4% and -3.6% YTD change, respectively). The number of week traded shares was 6.4 bn and the weekly trading volume was IQD5.5bn ($4.9 mn).

ISX Company Announcements

  • The CBI participated in the opening of the representative office of the International Development Bank (BIDB) in Dubai. The opening ceremony, attended by Iraqi and foreign economic and financial figures, underscored the need for the Iraqi private banks to play a role in the development of the Iraqi economy and the development of banking. (CBI)
  • The Governor of the CBI, Ali Mohsen Ismail, accompanied by a number of general managers, made a field visit to private banks for two days. This visit came within the series of visits by the Governor to find out the obstacles facing banks, and work to remove them. (CBI)
  • AL Arabiya Islamic Bank (BAAI) will hold an AGM* on Aug. 16, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BAAI starting Aug. 12, 2018.
  • Sumer Commercial Bank (BSUC) will hold an AGM* on Aug. 12, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BSUC starting Aug. 7, 2018.
  • Dar Al-Salam for Insurance (NDSA) will resume trading on Aug. 5, 2018 after discussing and approving 2017 annual financial results as well as disclosing its 3M18 financial results.
  • National Bank of Iraq (BNOI) resumed trading on Aug. 2, 2018 after discussing and approving 2017 annual financial results and distributing 8% cash dividend (IQD0.08 dividend per share, 19.5% dividend yield).
  • Original shares of AL-Sadeer Hotel (HSAD) resumed trading on Aug. 2, 2018 after discussing and approving 2014, 2015 and 2016 annual financial results and deciding to increase its capital from IQD1.239 bn to IQD1.735 bn through 40% rights issue.
  • Al-Mansour Pharmaceuticals Industries (IMAP) resumed trading on Jul. 30, 2018 after discussing and approving 2016 and 2017 annual financial results and deciding to distribute 6% cash dividend (IQD0.06 dividend per share, 8.7% dividend yield).
  • Iraqi for Tufted Carpets (IITC) resumed trading on Jul. 30, 2018 after discussing and approving 2017 annual financial results and deciding to distribute 50% cash dividend (IQD0.50 dividend per share, 6.5% dividend yield).
  • Cross Transactions: 255 mn shares of Cihan Bank for Islamic & Finance (BCIH) on Aug. 2, 2018, which represents 0.1% of BCIH capital.

 

Iraq Stock Market Jumps 15% in 1 Week

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 26th July 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD792 (+15.1%) / $849 (+15.1%) (weekly change) (-2.4% and -1.6% YTD change, respectively). The number of week traded shares was 28.6 bn and the weekly trading volume was IQD9.5bn ($7.9 mn).

ISX Company Announcements

  • Al-Hamraa for Insurance (NHAM) will hold an AGM* on Sept. 10, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of NHAM starting Sept. 5, 2018.
  • Modern Sewing (IMOS) will hold an AGM* on Aug. 8, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of IMOS starting Aug. 5, 2018.
  • Ashur International Bank for Investment (BASH) will hold an AGM* on Jul. 31, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of BASH starting Jul. 26, 2018.
  • International Development Bank for Investment (BIDB) resumed trading on Jul. 25, 2018 after discussing and approving 2017 annual financial results and deciding to distribute 5.2% cash dividend (IQD0.052 dividend per share, 6.0% dividend yield).
  • Al-Ameen for Insurance (NAME) resumed trading on Jul. 25, 2018 after discussing and approving 2017 annual financial results.
  • Iraq Noor Islamic Bank for Investment (BINI) resumed trading on Jul. 24, 2018 after discussing and approving 2017 annual financial results and deciding to distribute 2.4% cash dividend (IQD0.024 dividend per share, 2.4% dividend yield).
  • AL-Sadeer Hotel (HSAD) will hold its AGM* on Jul. 29, 2018 to discuss and approve 2014, 2015 and 2016 annual financial results and increase the capital from IQD1.239 bn to IQD1.362 bn through 10% rights issue. ISX suspended trading of HSAD starting Jul. 24, 2018.
  • Kurdistan International Bank (BKUI) disclosed the current ownership percentages of Bahra Muhammed Yassin and Khan Adil Disco as 8.27% and 8.89%, respectively.
  • International Islamic Bank (BINT) postponed its AGM* from Jul. 24, 2018 to Jul. 31, 2018 due to the absence of some BoD members.
  • Al Janoob Islamic Bank for Investment and Finance (BJAB) started trading on Jul. 22, 2018 after 21 days of depositing the company’s shares. The company’s share price will be free only for the first three sessions.
  • Cross Transactions: 12 bn shares of Mosul Bank (BMFI) on Jul. 24, 2018, which represents 4.75% of BMFI capital. 510 mn shares of Cihan Bank for Islamic & Finance (BCIH) on Jul. 22 and  Jul. 26, 2018, which represent 0.2% of BCIH capital.