Foreign investors see robust 2012 for Iraq's bourse

Wed Dec 28, 2011 5:36pm GMT

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* Foreign investors net buyers in 2011

* Political crisis not seen stemming investor appetite

* Iraq's small stock exchange robust in global slowdown

By Aseel Kami

BAGHDAD, Dec 28 (Reuters) - Foreign interest in Iraq's fledgling stock exchange is expected to rise in 2012 after its main index jumped more than 30 percent this year and investors say a political crisis that threatens to increase sectarian discord will not deter them.

Tensions came to the surface within the Iraqi government immediately after the last U.S. troops left 10 days ago, opening the door for a possibility of sectarian strife that drove the country to the brink of civil war a few years ago.

The crisis erupted when Iraq's Shi'ite premier moved against two senior Sunni leaders and a slew of bombings that killed dozens in mainly Shi'ite areas in Baghdad also rattled nerves.

But foreign investors, who were net buyers and snapped up $150 million worth of shares on the local bourse this year, say the latest political turmoil and security concerns have done little to affect their appetite for the frontier bourse.

"We are still committed to the Iraqi market ... our views won't change just because of what is happening now," said Sherif Salem, a portfolio manager with Invest AD, an Abu Dhabi investment company that has invested $18 million in the ISX since November 2010.

"We are probably counting on investing more money towards the beginning of next year when the market opens, so it (the current situation) does not change our outlook," he said.

The ISX held its last trading session on Dec. 20. The total number of traded shares in 2011 stood at 492 billion with a volume of $753 million, compared to 255 billion shares with a volume of $377 million in 2010, according to the ISX.

Foreign investors bought 82.7 billion shares at a volume of $150 million and sold 18.7 billion shares with a volume of $41.7 million.

Foreign trading on the ISX, which has a market cap of around $4 billion, was almost nil a few years ago.

"Iraq will be the fastest-growing important economy in the world by far for the next decade, and we expect to see this reflected in the country's public companies," said Northern Gulf Partner's Bartle Bull, a portfolio manager of Iraq Investment Partners I fund.

"Foreigners will undoubtedly continue to be net buyers of Iraq in 2012. Where else can investors find world-leading GDP growth and resource wealth at post-war prices?"

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The ISX, which sits in a compound surrounded by blast walls and armed guards in central Baghdad, is a bold example of steps taken to broaden Iraq's state-centric economy and attract foreign investors as the OPEC member tries to rebuild its battered infrastructure after years of war and sanctions.

Although violence in Iraq has ebbed dramatically since the height of sectarian fighting in 2006-07, bombings, killings and other attacks still occur on a daily basis.

The ISX, which started operating in 2004 and has 86 listed firms on it, is one outpost of private investment outside of the oil industry in a country still dominated by state firms.

The banking sector is the largest on the bourse, which also lists industrial, insurance, hotel and agriculture firms.

While Iraq's bourse is tiny compared to other regional or international stock markets, the ISX has proved more robust in a global economic slowdown as one of the few markets with potential for huge growth.

The ISX closed at 136.03 points in its last trading session of 2011, up 34.7 percent from its last trading session of 2010, which was at 100.98 points.

The MSCI All-Country World index is down about 9 percent for the year while Japan's Nikkei stock average is on track for a 17.6 percent decline in 2011 and London's FTSE is off 7.5 percent year-to-date.

Foreign investors say changes in Iraq's economic climate are more likely to influence their decisions although they are taking heed of the political climate.

"While we will continue to watch political developments closely, our decision to enter the Iraqi market is based on economic factors," said Hussein Qaragholi, a managing partner at Phoenix Capital, which has invested in firms listed on the ISX.

"In 2012 we expect to deploy significant capital into assets on the ISX."

Investors say one of the main factors that will drive investor sentiment towards the ISX in 2012 is the expected listings of Iraq's three main mobile phone operators.

Zain Iraq, a unit of Kuwait's Zain, Asiacell, an affiliate of Qatar Telecom and Korek, part-owned by France Telecom SA and Kuwait's Agility all missed an initial Aug. 31 deadline in their contracts to list, which now look likely to go ahead sometime next year.

"Any one of these (listings) could double the entire market capitalisation of the ISX, and would bring extensive analyst coverage and liquidity into the market," said Bull.

"Should one of these IPOs get off the ground, we could be looking at 100 percent or more returns in 2012 -- in U.S. dollar terms. If these IPOs don't happen, we're looking at another modest 20-40 percent (in the) year, with the really big growth a little farther down the road." (Additional reporting by Amran Abocar in Dubai; Editing by Serena Chaudhry)

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