Iraqi Stock Exchange

[Arctec]

Bridges To Babylon: New Fund Focuses On Iraq
Fin Alternatives - [10/02/2007]


Foreign investors are not yet allowed to trade on the two-and-a-half-year-old Iraq Stock Exchange—“They have said, ‘within six months,’ for the last two-and-a-half-years,” Englund laments, though he adds optimistically, “there is a possibility it will happen by the end of the year, but nobody really knows”—so you need locals on the ground.

Englund’s colleagues in the war-torn country are directors Ismail al-Rashidi and Fouad Cheragwandi, the former an ex-vice chairman of the Iraqi Federation of Industries and one-time Iraqi delegate to the World Trade Organization. He’s also co-founded a number of banks in Iraq, including the Commercial Bank, Economic Bank of Iraq and Investment Bank of Iraq.


For now, trading on the Iraq Stock Exchange is a decidedly small-scale affair. Its total market capitalization is just US$2 billion—half the size of Jordan’s—and it trades for only two-and-a-half hours a day, twice a week, on Mondays and Wednesdays. During those sessions, Englund says, only about a quarter of the roughly 80 securities listed on the exchange trade, with a total turnover of between US$2 million and US$4 million, at best, which is less than half the size of the fund.

“One of my worries,” Englund admits, “is that we might end up a strategic player, and that’s not our intention.” So, to blunt the force of his fund on the market, only about a quarter of its assets will be invested on the ISX. Another quarter will be invested directly in Iraq through a combination of internationally-traded Iraqi bonds, dinar-denominated six month Iraqi Treasury bills and some private equity investments. The rest will be invested in foreign companies that do business with Iraq.

Englund suspects that once the foreign investment restrictions are lifted, the floodgates will open. “There is a lot of interest from foreigners to enter the Iraq Stock Market,” he says. “But now you have to get around [the restriction], and many people don’t want to take that risk.” There are also concerns about a lack of transparency, but Englund argues that such risks are the nature of the emerging market—without them, there wouldn’t be the fantastic returns that investors often see in developing economies.

“Many people complain that you cannot find the stock price on the Iraq Stock Exchange on the Internet. You cannot find the data,” he says. “But when you have that, the market has already risen 100% or 200%. There are a lot of unknowns here.”