Foreigners Invest in Iraq, Expect a Boom

According to a report from Reuters, foreign investors are increasingly choosing Iraq’s stock market as a lucrative investment.

Iraq’s bourse is still very small when compared with other regional or international stock markets, however a drop in violence since the peak of sectarian fighting in 2006-2007 and the scope for quick growth is creating some strong interest.

Taha Abdulsalam, Chief Executive of the Iraq Stock Exchange (ISX), recently announced that the volume of shares traded through Sept. 30 this year was $495 million compared with $337 million in the full year of 2010.

The ISX started operating in only 2004 and currently has only 86 listed firms. The ISX is one colony of private investment freestanding of the oil industry in a country still controlled by state firms.

The number of shares foreign investors bought through to end-September this year was 66 billion, valued at $110 million. Foreign dealing was almost non-existent a few years ago. Russian-based 55 North Company is a bold example of foreign eagerness in the ISX.

The firm plans to determine an investment fund worth $25 million, its Managing Director Paul Collison said, the maximum it can invest right now due to the low level of liquidity in Iraq’s Stock Market.
“It is important to start early on… it is a fantastic opportunity for a small fund to get established,” Managing Director Paul Collison said.

Panu Saukkonen, a senior partner at Finnish Virtus Capital Oy Company, which started investing in the Iraqi bourse three years ago, said Iraq was a great choice to invest in as there is no serious competition and market prices are still low.
The three mobile phone operators, Asiacell, Korek Telecom, and Zain Iraq, are required by the terms to their license’s to list shares on the local bourse, and this could see the ISX’s current market capitalization of $4 billion double, Abdulsalam told Reuters last week.

Oliver Emanuel, executive Director of Middle East and North Africa sales and trading at Morgan Stanley, said the initial public offerings by Iraq’s mobile phone firms would give a great boost to the local market.

“The upcoming telecom IPOs will no doubt act as a facilitator for the Iraq stock market precipitating greater focus by international and regional investors, helping improve liquidity,” Emanuel said.

Investors said the implementation of some regulations such as custodian bank services and share-trading settlement could further open the market for more foreign capital.

A share trading settlement would allow non-Iraqi investors up to two days to arrange their payment after making a trade, compared with currently having to pay before conducting a trade.
Saukkonen said having a custodian bank could boost its investing by at least 10 times within three years.

The head of the Iraqi Securities Commission (ISC), Abdulrazaq al-Saadi, said custodian regulation would be issued in November.

The ISX moved from manual to automated trading in 2009 and is open for trading for two hours a day, five days a week. Each trade takes around 8 seconds to process.
The banking division is the largest on the bourse, which also lists industrial, insurance, hotel and agriculture firms.

Collison said he expected the ISX to grow rapidly once an international bank takes on the custodian role, at the same time he said the market would need to be carefully monitored.
“The risk is you get a very quick bubble and it will lose 50 percent and that is precisely what happened in places like Russia,” said Collison.

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