Finance

Cautiously Optimistic

Capital Markets

Trading on the Beirut Stock Exchange (BSE) has seen a definite improvement over the past 12 months, with the installation of a new cabinet under the leadership of Prime Minister […]

Trading on the Beirut Stock Exchange (BSE) has seen a definite improvement over the past 12 months, with the installation of a new cabinet under the leadership of Prime Minister Tammam Salam in February 2014 proving to be just the tonic the market needed. However, the main market still lacks the spark it needs to become a bigger player in the local economy, with the GDP to market cap ratio at end-2013 coming in at just 23.78%. The limited number of listings on the market, at just 10, the limited number of approved brokerage houses, at 17, and the dominance of the banking sector in the equity market also means that the bourse still does not have enough strategic penetration within the national economy.

However, considering the events of the recent past, the BSE has proven resilient. Established back in 1920, the BSE is the second oldest stock exchange in the MENA region. While it had its glory days back in the 1950s and 1960s, the bourse has struggled to gain significant traction since it reopened for business following the end of the civil war in the early 1990s. It reopened for trading in 1996, after a hiatus of some 13 years. The creation of the Capital Markets Authority (CMA) in 2012 has seen a new level of regulation and transparency come to the market. And none too soon, as should some level of normality be returned to its neighbor Syria, then the good times at the Beirut bourse may be just around the corner. Still, how to encourage family companies in Lebanon to take the plunge and launch an IPO locally is a moot point, especially as so much local liquidity is tied up in the banks and bond market.

The overall market cap for the BSE ended 2013 at $10.545 billion, while it managed to stage something of a rally over 1H2014 and ended at $11.20 billion, according to data from the Banque du Liban (BDL), Lebanon’s central bank. A useful index used for the BSE, the BLOMStock Index (BSI) saw the BSE reach a low of 1,124.74 in late September 2013, and then rose to a high point of 1,234.30 in June 2014, making for a 9.74% gain between the two periods. However, in YoY terms, the market cap of the BSE rose from $10.22 billion in 1H2013 to $11.2 billion at the end of 1H2014, making for a 9.5% increase over the period, according to Fransabank. More surprising was the massive difference total trading volumes, with aggregate turnover for the market up 47.2% in YoY terms, while the average daily value of shares traded rose by 45.9%. As well, market liquidity has seen positive growth, from 1.5% in 1H2013 to 2% in 1H2014. This is well off a more recent high of 8.90% recorded over 1H2011. Still, the 2% figure for 1H2014 only represented an average daily liquidity of $1.9 million, which is small beer in anyone’s language.

With only 10 shares listed on the bourse, the market cap has been slanted in favor of one dominant sector, finance. At end-2013, the six listed finance stocks—Banque Audi, Bank BEMO, Bank of Beirut, BLC Bank, BLOM Bank, and Byblos Bank—represented 79.20% of the bourse’s market cap. The next largest, at 17.27% of market cap, was the development and construction sector. It was represented by a single stock, Solidere, the main developer of the Downtown Beirut area. The industrial category, at 3.17% of market cap, features two listed companies, both of which are involved in the cement sector: Holcim Liban and Ciments Blancs. Finally, bringing up the rear was the trading segment, at 0.36% of market cap on the BSE. It was represented by the last of the 10 issuers on the market, Rasamny Younis Motor Company (RYMCO), which is a major vehicle importer and distributor.

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