BLOMINVEST
BANK
The Beirut Stock Exchange: Under the Reign of
Regional and Local Tumults
Performance of the BLOM Stock Index Up to August
28 September,
September, 2013
Contact Information
Research Department
[email protected]
Head of Research: Marwan Mikhael
[email protected]
Source: Blominvest Bank, Research Department
Monthly Variations of the BLOM Stock Index
Source: Blominvest Bank, Research Department
“Too large a proportion of recent "mathematical" economics are mere concoctions, as imprecise
as the initial assumptions they rest on, which allow the author to lose sight of the complexities
and interdependencies of the real world in a maze of pretentious and unhelpful symbols.” This
was John Maynard Keynes’ stance at a time when economists shifted focus from the real
phenomena driving investor sentiment to a pure mathematical reasoning with the sole purpose
of establishing the discipline of economics as a hard science. Keynes’ emphasis on social,
economic and political challenges seems more than justified in our present times when those
same elements are what dictated stock market performances in the Middle East, US and Europe
and when rigid mathematical models remain questionable rather than assertive.
When tracking the above mentioned markets up to August, one can perceive wide gaps: In the
Middle East between oil importing and oil exporting countries and in Europe between
peripheral countries such as Spain, Italy, Greece and key growth drivers such as Germany. A
parallelism can also be drawn between the Lebanese stock market registering a loss by August
as compared to a gain in Europe and the US. Nonetheless, while European and US markets
both posted positive results up to August, the advance was much more pronounced in the
latter. In fact, Europe remained plunged in recession as proven by the Eurozone Services PMI
which remained below the 50 points mark all the way through July.
The Beirut Stock Exchange: Under the Reign of
Regional and Local Tumults
SAL
In the US, the S&P 500 Index closed at 1,632.97 points in August, 9% above January’s close and
way ahead the psychological 1,500 mark. The index was boosted by the avoidance of the fiscal
cliff early in the year and skeptics of further improvement throughout the year were proven
wrong. Despite Obama signing off on $85B budget sequesters, investors didn’t flinch as they
perceived it as giving the Fed even more incentive to pursue its quantitative easing thus
keeping interest rates subdued. Meanwhile, the Euro Stoxx 50 Index only gained 1% by August
to 2,721.37 points. Although the index posted 2,769.64 in May, its highest level of the period,
right when the ECB cut its benchmark interest rate from 0.75% to 0.5%, it remained exposed to
pressures stemming from the Cypriot crisis, the political impasse in Italy and the structural issue
of the European Unions’ budget, requiring equilibrium between net payers and net receivers.
On the local front, the Beirut Stock Exchange’s (BSE) performance in the first eight months of
the year is a clear portrayal that regional developments and local tumults held a strong grip
over market behavior. As both the Syrian war and the local political conflicts intensified, the
BLOM Stock Index (BSI), tracking the stock market’s activity, ended the month of August at
1,135.74 points, shedding 5% from January’s close and 2.85% since year start.
In a more detailed view, the BSI ended the first quarter (Q1) of the year with a 0.03% drop, a
stagnation mimicking the political gridlock. The latter was driven by political factions’ inability to
move forward with a consensual electoral law and by the workers’ Union Coordination
Committee’s open-ended strike, as teachers and public sector employees took to the streets
protesting against a delay in passing the law regarding hikes in their salaries. By the end of Q1,
the political scene was rattled by Prime Minister Najib Mikati’s resignation, a move thickening
the political plot. Hence, investors opted for a wait-and-see approach in the first three months of
2013, in expectation of a future turn of events.
During the month of April, the consensual nomination of Tammam Salam as prime-minister
designate temporarily boosted investor sentiment, allowing the BSI to climb to 1,232.73 points,
the highest level during the January-August period. However, the regained momentum was
short-lived as Q2 events left little room for optimism. After grappling with controversial electoral
law propositions in order to hold elections as scheduled in June, the panel of politicians lost the
race against time and paved the way for parliament’s mandate extension until November 2014.
Things weren’t faring much better on the security front, which was hit hard by clashes between
gunmen loyal to Sheikh Ahmed Al Assir and the Lebanese Army in Abra. Accordingly, the
strenuous months of political uncertainty and the built-up security tension were eventually
priced in the Lebanese equities, pulling the BSI down to 1,145.14 points in June, 6% below
April’s close.
The political stalemate extended its reach all the way into the months of July and August,
during which spillovers from war-torn Syria were the most pronounced. While the BSI was
barely hovering around the 1,140 points mark in early July, the explosion of a bomb planted in
the southern suburb of Beirut, justified by perpetrators as a response to Hezbollah’s
intervention in Syria, dipped the gauge to a lower base of 1,134 points. The intensity of security
incidents amplified in August as two car bombing episodes, merely 8 days apart, struck Beirut’s
southern suburb of Ruwaiss and the northern city of Tripoli. These dire events paired with news
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The Beirut Stock Exchange: Under the Reign of
Regional and Local Tumults
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of Western punitive military action on Syria for its alleged use of chemical weapons, didn’t go
unnoticed on the BSE. In fact, the BSI fell to its lowest level in eight months, 1,132.86 points on
the 28th of August. The index rebounded slightly when the West decided to halt the strike until
the UN Chemical Weapons Team’s investigation is finalized but was however incapable of
hiking back up to 1,140 points let alone to the high of 1,232.73 points.
In August, 27 stocks were listed on the BSE, with a market capitalization of $9.05B compared to
$9.06B in January. The total number of newly listed shares reached 7,250,000 while the number
of de-listed shares amounted to 12,825,756. In detail, Bank of Beirut listed 5,000,000 preferred I
shares as of January’s end and Bank Audi listed 1,500,000 Preferred Shares Class (G) and
750,000 Preferred Shares Class (H) in July. On the other hand, Bank Audi de-listed their
12,500,000 preferred D shares in April while in May, and following the maturity date of the
Beirut Preferred Fund, trading of the fund’s 325,756 shares was ceased. By August, total traded
volume amounted to 20.74M and total value traded reached $168.23M.
In terms of stocks, the top three performers were RYMCO, BLC Listed and BLOM GDR,
respectively adding 21% to $3.50, 8% to $1.95 and 7% to $8.50. Contrastingly, the three worst
performing stocks were real estate shares Solidere A and B and Byblos Bank’s listed shares
shedding 15% to $11.01, 17% to $10.62 and 4% to $1.49, respectively.
On a sectorial level, banking shares accounted for 65% of total traded value or $109.27M.
BLOM’s listed shares added 5.35% to reach $8.27, Audi’s listed shares gained 4.17% to close at
$6.25, BEMO’s listed shares rose by 0.55% to $1.84 and Bank of Beirut’s listed shares
maintained the same price of $19.00.
In the industrial sector, HOLCIM Liban’s share price declined from $15.75 in January to $15.68
in August while Ciment Blancs (Nominal) and Ciment Blancs (Bearer) fell by 1.82% and 0.92%
to $3.24 and $3.23, respectively.
The BLOM Preferred Shares Index (BPSI) slipped by 0.95% to reach 104.27 in August compared
to 105.27 in January. Audi’s preferred E and F shares gained 1.50% and 0.10% to respectively
settle at $101.50 and $100.10 and BEMO’s preferred 06 share price went from $100.00 to $101.
However, Byblos’ preferred 08 and 09 shares respectively slid by 1.67% and 2.06% converging
to the same price of $100.00. BLOM’s preferred 11 shares declined by 0.20% to $10.15 while
BLC’s preferred A and B shares slipped by 1.96% and 0.98% to reach $100 and $101,
respectively. Finally Bank of Beirut’s preferred H share recorded a loss of 1.54% to $25.60.
Taking the view onto a broader spectrum clearly displays a stark contrast between stock
markets in oil importing countries and the ones in oil exporting countries. Nonetheless, the
indices tracking Arab bourses veil these intra-region discrepancies. Up to August, the S&P Pan
Arab Composite Large Midcap Index and the S&P AFE 40 respectively added 6% and 4% to
121.25 points and 58.93 points, upward trends masking country-specific downturns.
Egypt, Amman and Tunis bourses were the region’s worst performers as their respective
indices plummeted by 6%, 8% and 3%. The poor performances in Egypt and Tunis come as no
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The Beirut Stock Exchange: Under the Reign of
Regional and Local Tumults
SAL
surprise given that the “state of Emergency” became a prime characteristic of their situation. In
Egypt, the overthrow of the president, the alarming tumble in foreign reserves, the heavy
depreciation of the Egyptian pound and the failure to secure a $4.8B IMF loan were main market
downers. Tunis on the other hand was shaken by the murder of a chief opposition leader and
failed attempts to form a non-biased government. Nevertheless, what sets Egypt and Tunis
apart is the fact that the latter increased taxes and slashed government subsidies in order to
qualify for a $150.2M IMF loan while the former failed to do so, fearing more popular outrage.
On the other side of the bar, Dubai and Abu Dhabi bourses displayed major gains leaping by
34% and 30%, respectively. Saudi Arabia, Qatar and Bahrain bourses jumped by 10% each.
Damascus bourse, posted the largest gain of 52%, however this gain is quite particular as it
resulted from a hedging strategy consisting of heavy investing in banking shares, relying on a
long term re-evaluation of the Syrian Pound and on the banks’ healthy balance sheets.
As a concluding remark, back on the local front, activity on the Beirut Stock Exchange remains
dependent on the unraveling of political and security events on Lebanese territory and in warridden Syria. In September, the BSI fell to an even lower base of 1,124.74 points before quickly
rebounding following the U.N support to Lebanon during the general assembly in New York.
However, for this boost to be sustainable, positive developments on the domestic political front
appear to be crucial.
For your Queries:
BLOMINVEST BANK
s.a.l.
Research Department
Verdun, Rashid Karameh Str.
POBOX 11-1540 Riad El Soloh
Beirut 1107 2080 Lebanon
Research Department
Tel: +961 1 743 300 Ext: 1283
[email protected]
Marwan Mikhael, Head of Research
[email protected]
+961 1 743 300 Ext: 1234
Disclaimer
This report is published for information purposes only. The information herein has been compiled from, or based upon
sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy.
This document should not be construed as a solicitation to take part in any investment, or as constituting any
representation or warranty on our part. The consequences of any action taken on the basis of information contained
herein are solely the responsibility of the recipient.
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