Friday, Jan 05, 2007
By Cynthia Darrous
Of ZAWYA DOW JONES
BEIRUT (Zawya Dow Jones)--Political turmoil is clouding the prospects for Lebanon's equity markets in the coming year, after an improved performance by the Beirut Stock Exchange in 2006 compared with 2005.
As a result of political tensions, the BSE had its weakest month of 2006 in December. The value of shares traded was just $34 million, down from $335 million in December 2005.
Internal political developments will continue to determine the BSE's performance in 2007, even more than the impact of a 34-day war between Israel and Hezbollah in the summer and political assassinations, analysts say.
"Trading volumes on the BSE will remain low as long as the crisis persists," said Kamal Assi, investment adviser at Arab Finance Corporation.
The crisis centers on the political struggle between two sharply opposed camps: loyalists and opposition to the government of Prime Minister Fouad Siniora.
Opposition forces, led by Hezbollah, have been holding a sit-in in downtown Beirut since Dec. 1 to demand Siniora's resignation and the formation of a new cabinet that would give them effective veto power.
Imad Saab from Fidus Groupe Societe Generale told Zawya Dow Jones that the bourse might fall at most 5% in 2007, but that depends on political developments.
"Investors are adopting a wait-and-see approach. If the crisis subsides, this will positively reflect on the market. Valuations are very low, I expect them to bounce up at a certain time on condition this is coupled with political relief," Saab said.
Banking and real estate stocks dominate Lebanon's small bourse. The Lebanese Company for the Development and Reconstruction of the Beirut Central District, or Solidere (SOLA.LE), and the country's three biggest banks - Bank Audi (AUDI.LE), BLOM Bank SAL (BLBD.LE), and Byblos Bank SAL (BYB.LE) - together account for $7 billion of the BSE market capitalization of $8.2 billion at the start of 2007.
The three key banking stocks will remain intact because the banking sector is the strongest and most resilient sector in the Lebanese economy, Assi told Zawya Dow Jones.
Bank Audi and BLOM Bank stocks could rise if an international aid conference for Lebanon at the end of January, the so-called Paris 3 conference, is successful, said the head financial analyst for a Lebanese bank.
"Shares of both banks are close to $60 and could move above $60 if Paris 3 is a success, but they could drop further if it isn't," the analyst said.
On Friday, Bank Audi GDR shares closed down 0.09% at $54.35 and BLOM Bank was unchanged at $58.
Solidere, which manages the real estate and urban development of downtown Beirut, could be affected if the political disputes continue for several months because the ongoing demonstrations by Hezbollah and its allies are taking place in the area.
"If this is going to continue and foreign real estate investors decide to move away from downtown projects, I could see Solidere shares drop significantly," the analyst said.
AFC's Assi, however, doesn't expect Solidere shares to drop below $14.
"Some investors, individuals or companies, from Arab countries are keen on maintaining the level of Solidere shares and ensuring that it does not drop to low levels," Assi said.
The BSE index closed Tuesday down 0.32% at 1,180.38 points amid continued political tensions. It moved up on Wednesday by 0.02% to 1,182.42 and by 0.03% on Thursday to 1,182.82 points.
On Friday, Solidere A and B closed at $15.88 and $15.89 respectively, amid continued weak trading in the first week of 2007.
Solidere shares, which had peaked at $26 in January 2006, were trading between $17.40 and $18.79 under the impact of the summer war. They closed 2006 at $16 on Dec. 28, down 11% from their close of $17.98 on Dec. 30, 2005.
Performance Improved in 2006
Overall, activity on the BSE showed a significant improvement in 2006 compared with 2005, though there were sharp fluctuations throughout the year.
The total value of shares traded in 2006 reached $2 billion, up 120% from $923.4 million in 2005. The volume of traded shares in 2006 was 132.34 million, compared with 87.4 million in the previous year.
The BSE entered 2007 with a market capitalization of $8.3 billion for listed securities and related GDRs, compared with $4.92 billion on Dec. 31, 2005.
Based on an upturn in 2005, the bourse started 2006 with an excellent first quarter, owing to inflows of liquidity from Gulf investors and surging interest in Lebanese banking and real estate stocks.
Monthly averages for the value of traded shares reached $392.3 million during a short-term rally in the first quarter and slowed to $131.7 million in the second quarter. Analysts attributed the second-quarter slowdown to the impact of a correction on GCC stock markets in the spring.
A weak second half followed, as the BSE was affected by further downward pressure on Arab bourses in addition to the Israeli attacks. The value of shares traded slumped to a monthly average of $82.7 million in July, August, and September as Lebanon suffered under the impact of the war between Israel and Hezbollah, which started July 12.
"The market is hurt mainly by political and security tensions," Saab said.
Although the market recovered much of its war-related losses in September, investor confidence was tested severely by internal political wrangling in the fourth quarter. The drop in stock market activity in December was even more pronounced than in the third quarter.
Several bankers and stock brokers described the December crisis as the worst detriment to BSE activity and Lebanon's investment prospects in the past two years.
Salim Sfeir, chairman of Bank of Beirut, said the internal dispute had cost the country's reputation dearly, whereas the summer war had garnered it sympathy in the region and the international community.
"Most (foreign) investors are not willing to invest in Lebanon in view of the current instability and political uncertainty," Fidus Groupe Societe Generale's Saab said.
He said BSE performance in 2006 was better than in 2005 in terms of volume and value of shares because in 2005 and before, the market had been restrained by numerous factors. Lebanese stocks were undervalued but regional political uncertainty and the Syrian presence hampered the market.
It took strong economic momentum on the regional level to lift the Lebanese bourse out of its financial drought.
"By the end of 2005 and in 2006, we were affected by the rise of oil prices in the Gulf, which led to an excess in liquidity amid an existing rise in the markets there. That's why markets in Egypt, Jordan and Lebanon went up," Saab said.
It's also notable that, while overall lagging behind the region, Lebanese equity markets grew throughout 2005 despite a series of political assassinations that began with former Prime Minister Rafik al-Hariri in February.
Hariri's assassination caused a shock on the BSE because of fears that Solidere would weaken in the aftermath. But stock market activity recovered quickly and the value of traded shares increased from $38 million in February 2005 to $66.5 million in March.
"The good thing about the bourse in Beirut is that shares are somehow staying stable despite all ups and downs," Assi said.
-By Cynthia Darrous, Zawya Dow Jones; +961 1 985757, Cynthia@zawya.com
Copyright (c) 2007 ABQ Zawya Ltd.
(END) Dow Jones Newswires
05-01-07 1637GMT
