|Regional turmoil dampens local ASE trading
|Those who religiously follow the Amman Stock Exchange (ASE) are quickly realizing that local and foreign investors are getting scared. The mood is more than justifiable in view of the rapid political developments in the region concerning the US war rhetoric on Iraq and the Palestinian crisis.
Many investors are nervous and prefer to withdraw their resources from the market rather than lose already unstable dealings.
"The Americans must make up their minds soon. If they want to hit Iraq it must be now. If not, they should say it clearly," one investor told The Star.
Brokers and shareholders agree political deterioration in Iraq will double the market's sluggishness.
"It is normal as the ASE is still a shallow market," said Amer Muasher, executive manager of the Brokerage Dept at Jordan National Bank. "Politics are in the air and we can't do away with it," he told The Star. "Everybody there at the market is interested in hearing updates about Iraq, and this finds its way to the market's floor."
Economists emphasize the fact that many Jordanian companies have trade agreements with Iraq and fear that a war may bring detrimental repercussions to their businesses.
Brokers and economists note that sizeable resources have been withdrawn from the ASE over the past few weeks and placed in local banks. Worried investors want to put their money in a safer place. About 14 banks noticed a gradual increase in their deposits to more than JD 22.5 billion in the first half of 2002. A study by Ad Dustour Arabic daily showed these banks have made JD 127.2 million in profits, with an 18.1 per cent increase over the same period of last year. The study emphasizes the fact that the banking sector in Jordan is leading the ASE performance.
Iraq's recent gesture to allow UN weapon inspectors to resume inspections helped cast fears aside and revived hopes of quick resolution to the crisis. Share prices were booming in the last two weeks of September and trading volumes regained their normal course. Assad Dissi, head of the Amal Investment Brokerage Co, explained that "many brokers and investors had seen in Iraq's approval a chance to salvage the sinking trade at the market."
However, the failing talks last week between Iraq and the UN chief inspector Hans Blix deepened fears among shareholders and investors. Recently, daily trading hasn't exceeded the JD 1.5 level and share prices are still whittling away.
Traders and investors have ignored the fact that ASE's shareholding companies are expected to register marked profits by the end of this year. Almost all companies turned better profits in the first half of 2002, benefiting from the gradual reduction of the interest rates in local banks. In June, the market's gross trading volume was worth JD 212 million-the highest in the market's performance this year. Consequently, the following three months witnessed rapid decline as the market's trading volume dipped down to JD 45 million in September.
Jalil Tarrif, the stock market's CEO, agrees that all investors are observing the current political situation in Iraq very closely. He, however, reiterates that the ASE has the abilities to adapt with the political changes in the region and retain its convincing attribution to the local economy.
"It should be clear for everyone that politics have failed to disturb the ASE's basics in stock exchange," Tarrif stressed. "We in the Amman financial market were aware of the possibilities to face political dilapidation in the region. We have created strong financial and legislative infrastructure at the market that can adapt with any repercussions that may take place on local economy." Tarrif also mentioned that the Jordan Telecom Co will introduce shares into the ASE before the close of 2002. This new opportunity could potentially attract more investors into the market, pulling the ASE out of its current slump.
In August, shares owned by non-Jordanians made up 40 per cent of the ASE's capital, totaling JD 1.8 million. One month earlier, non-Jordanian shares were valued at JD 7.2 million. "Fears are rife among the non-Jordanian investors who see in the local financial market a chancy investment. It all was clear after the 11 September attacks on the US," said Nasser Al Amad, member of the ASE board.
Such financial reservations seem unjust at the time when Jordan is enjoying a strong and well-developed economic and political stability. Economists regard the ASE as a mirror to the performance of the local economy and many are wondering how the economy will fare with a shaky partner.
"I believe the economy in Jordan is capable to overcome the political obstacles and grow steadily," said Dr Bassam Saket, president of the Jordan Securities Commission. He emphasized the need to promote the education of investment among people. "Trust is always there in the financial market but we need first to enhance the popular knowledge about what facilities and procedures the market has for its investors," Saket added.
There are requests among businessmen and investors to devise new tools and facilities promoting local and foreign investments in the stock market. These include establishing investment funds enabling small investors to use the resources available in daily trading. However, investors must first be convinced that the ASE will rise from its depression.
Following the 11 September attacks, Arab investors brought more than an estimated $250 million back into the region from the US. However, these monies are not used for the stock market, they are kept in banks due to investor fear.
Saket believes that investors must bring this capital back into the stock market to stimulate re-growth in the Arab economies. "The ASE is one of the world's well-developed and advanced stock markets. This must be used in attracting more resources and enhance the financial investments in the country," Saket explained.