Beirut Stock Exchange: Politics, Reform and Opportunities

in Business In Feature Inside Look on Lebanon Politics by Ziad Al-Achkar — June 20, 2012 at 9:53 pm | 0 comments

Another routine day for the BSE, and by routine I mean another day of opportunities and chances come and gone. 4 years ago, Lebanon witnessed one of its darkest periods. As if political deadlock and the inability of rival groups to elect a president wasn’t enough of a problem, Hezbollah orchestrated a takeover of west Beirut under the pretext that the Government’s decision to remove the Chief of Security at Beirut International Airport from his position, in addition to measures to secure the Landlines, were direct violation and would limit and endanger the group’s ability to operate. Fast forward to end of June, while not forgetting to mention the tens of civilians who were brutally killed and injured because of a Group’s decision to operate outside of the scope of the state, and Lebanon witnessed an immense transformation.

It is as if overnight the country erased and forgot about the events of early may, the downtown area was cleared out of “Protesters”, although in my professional opinion they looked more like campers motivated by financial gains rather than any true political gains, and life started pumping back into the Capital Beirut; occupation in hotels was on the rise, The country witnessed an influx of tourist, although Arab or expatriates were, mostly, the ones flocking into to the country.

In the meantime, something incredible occurred, the Beirut Stock Exchange knew, although experts would have predicted this, an increase in activity, mainly in the stocks of Solidere A and B. Market Capitalization increased to an all-time high of approximately 17 billion dollars, the equivalent of 31% of GDP (2010est.). Post-Doha the Lebanese real estate exploded, investors were coming into the country and wanted to gain a part of the pie as Lebanon’s political situation looked to be stable for at least the short term; this led to a huge increase in the stock prices of Real Estate companies trading on BSE, most notably Solidere which saw their stock increase from the mid-high 10s to around $42; I recall watching Al Jazeera the morning after the announcement of the Doha agreement and Solidere’s stock had gained 6-7 dollars in value.

Any finance or economist expert could have told you at that time that the price of Solidere was surely going to decrease as the market would recalibrate itself after the initial atmosphere of excitement and positivity. Surely enough, by the end of the year (2008) Solidere wasn’t trading in the 40s, but low 30s and high 20s; currently as the market closed today, Solidere was trading at $12.97 a share. What are the lessons we need to take out of this? Well, let’s just say anybody who owned Solidere Stocks in June-July 2008 and sold them made a healthy profit and is currently capable of tripling, at least, their stock portfolio while keeping some cash in their pocket (Not a bad thing if you ask me). Moreover, one of the potentially most disturbing aspect of this is the 67% decrease in Total Market Capitalization, i.e. the total value of all the stocks on the market; in June-July 2008, Market Capitalization was worth approximately $17 Billion; Today it is roaming around $10.15 Billion with losses every day; stocks are steadily losing their value as investors worry about the potential for political and civil unrest in addition to the situation in Syria escalating every day, many fear that certain groups might act within Lebanon to distract the international community from the atrocities being committed by the Syrian Regime against its people; some would go as long as stating that the Syrian Regime has lost its sovereignty as it is unable to protect its own people, let alone is targeting a part of its population ( Check Larry May’s Crimes Against Humanity book, he describes in detail the nature of Sovereignty in the context of abuses of Human Rights)

Moving back into the financial side of things, the BSE is one of the areas of the Lebanese economy that isn’t operating, by any means, at the full potential of its capabilities (not that other areas are, with electricity topping the failed institution list). The number of companies that is trading on BSE is near 20, out of which around 12-13 have fixed stock prices and barely see, if any, any activity. There is room to grow and the potential is tremendous. Lebanon’s economy is heavily dependent on the Service sector; around 80% of the GDP actually is derived from the Service Sector.

The problem that I see in the Lebanese Financial market is the lack of a truly functioning stock market. First off, anybody that goes on the bse.com.lb website will witness the mess of a site it is in terms of data, design and functionality. Lebanese companies could benefit immensely, both in revenue and in foreign interest by creating Stock Options and making them available for trade on BSE; note of course we must make sure that we don’t expose them to speculative money, case and point the situation with Solidere where investors flocked to buy the stock thus raising its value in order to sell it and make a quick buck, or in that case double their money in 3weeks (Scary thought if you ask me).

There is room for a greater interest by the Lebanese population in local companies; employees could potentially buy stocks in the company they work for and therefore would have an incentive in the company’s progress and development. I can only hope that the current government will work to improve our financial market capabilities, although, looking at previous governments, there is little room for hope of modernization and implanting efficient and effective policies. The Financial market combined with potential revenue from Oil exploration, that is if Israel and Cyprus don’t beat us to it (which they are years ahead of us already), can help the country reduce its debt significantly and push us on a wave of economic development and not just economic growth.

This may be just pipe dreams, but I hope that one day we will witness an efficient modern stock market in our beloved country, but before so, we must hope for political stability, and by that I do not mean lack of opinions and diverse groups, but restricting these opinions and views to the political venues rather than taking to the streets and acting outside of the state law. Of course, we all know that before any economic development occurs, we must improve our communications infrastructure, most notably our Internet capacities, which is a huge constraint to the Lebanese economy as many businesses constantly note.