Beirut SE  

Current year high: 1,039.30    Current year low: 842.04

>  Review period:  Closed July 24 at 886.92 points   Period Change: +0.27%

The traditional post-government formation rally failed to materialise. Instead, markets toiled under the weight of local and regional worries as Moody’s changed its outlook on four of the largest Lebanese banks to negative and domestic economic indicators weakened. Indictments issued by the Special Tribunal on Lebanon plus ongoing turbulence in neighboring Syria and in Egypt made the BSE performance look almost Phoenix-like, with Solidere rebounding to neutral territory and Bank Audi reporting a 9.3% increase in second quarter profits.

Amman SE  

Current year high: 2,477.99                Current year low: 2,083.56

>  Review period:  Closed July 25 at 2,090.18 points            Period Change: -0.16%

Amman’s financial markets welcomed long-awaited stability following months of losses. The country’s focus shifted to securing energy supplies after the Arab Gas Pipeline bringing cheap Egyptian gas was sabotaged, costing the country millions of dinars in daily losses. While the gas is likely to flow again by early August, tourism revenues are not, as tourist numbers have already fallen 14% YoY in the first six months. Promise comes from ASX heavyweight Arab Bank with a 5.14% return during the review period, a possible sign of better times to come.

Abu Dhabi Exchange  

Current year high: 2,833.09                Current year low: 2,471.70

>  Review period:  Closed July 25 at 2,663. 13 points   Period Change: -1.5%

ADX stocks entered July with some gains but their rally of hope in June petered out. Market heavy Etisalat was resilient even when the company was accused of foreign direct investment violations in India. In banking, NBAD and First Gulf delivered strong 1H earnings growth. Construction and real estate stocks continued their 3-month trend south with little support in sight. Readying themselves for Ramadan, investors were in profit-taking mood and the ADX index weakened at the end of the review period.

Dubai FM  

Current year high: 1,781.92                Current year low: 1,352.24

>  Review period:  Closed July 25 at 1,510.58 points            Period Change: -0.42%

DFM investors were more active than their ADX peers in the pre-Ramadan lull, and attention focused on the Greek bailout and forthcoming quarterly earnings. Second quarter profits swelled 85% YoY at Emirates NBD, and investors are bracing for more positive banking results. Tipping the other side of the balance was Emaar Properties, whose Indian operations reported heavy losses, pushing its shares down 4.5% during our review period. Meanwhile, there’s the underlying positive sentiment about the potential MSCI upgrade even if the official decision spills over into 2012.

Kuwait SE  

Current year high: 7,129.30                Current year low: 5,973.10

>  Review period:  Closed July 25 at 6,065.3 points   Period Change: -2.36%

Solid second quarter results at National Bank of Kuwait (NBK), Boubyan Bank and Kuwait Finance House (KFH) were not enough to jump-start stock prices. Instead, profit takers ruled the charts and pushed the KSE index down to a seven-year low of 5,973.1 points on July 18, as market heavyweights NBK and KFH tumbled 6.9% and 10%, respectively. Kuwaiti investors await further positive earnings results, but the KSE benchmark ended the review period more than 12% down for the year to date.

Saudi Arabia SE  

Current year high: 6,788.42                Current year low: 5,323.27

>  Review period:  Closed July 25 at 6,472.03 points            Period Change: -1.58%

Dismal performance of Tadawul stocks in July in fact reflected profit-taking following dozens of strong earnings reports across various sectors. All banks except SABB and Samba posted second quarter profits and major companies such as Savola and Kingdom Holding posted double-digit growth in net income. Investors still snatched some returns from SABIC’s 2.9% gain through July 25, and are looking for more as Jadwa Investment expects global moves to outweigh the cyclical downward Ramadan pattern.

Muscat SM  

Current year high: 7,027.32                Current year low: 5,904.68

>  Review period:  Closed July 25 at 5,939.45 points            Period Change: +0.39%

Muscat securities appear to have touched bottom in July following the precipitous dips in February and April. Banking stocks were buoyed by rising profits at National Bank of Oman and Bank Sohar, although legal disputes drove down BankDhofar’s profits in the second quarter. The export-oriented economy was not insulated from the global slowdown, but the outlook remains positive, supported by expectations of a global recovery and increased government spending. Among the greener pastures was Omani Qatari Telecommunications Company which added 1.76% during our review period.

Bahrain Bourse  

Current year high: 1,475.10                Current year low: 1,298.35

>  Review period:  Closed July 25 at 1,298.95 points            Period Change: -1.57%

Rolling downwards has become the norm for Bahraini stocks. While the government was announcing plans to dig deeper for natural gas to meet the country’s rising demand, stocks were struggling to dig their way back up, instead giving away 12% from their 2011 peak. Rising profits at Ahli United Bank and National Bank of Bahrain did little to assuage fears of future unrest as the main Shiite opposition party pulled out of national dialogue. Ironically, S&P affirmed the country’s sovereign debt rating after relative stability had returned, but maintained a negative outlook.

Qatar SE  

Current year high: 9,242.63                Current year low: 7,004.66

>  Review period:  Closed July 25 at 8,399.8 points  Period Change: +0.46%

Although the Qatar Exchange is down 3.5% for the year to date, trading activity in July was only slightly diminished versus June and reflected the positive mood in the country due to rising oil prices and strong economic prospects, driving up heavyweight Qatar Telecom 1.9% through July 25. Banks and real estate stocks added to the cheer after Qatar National Bank reported strong gains in second quarter profits and a report by Barclays Wealth showed high net worth individuals expect real estate to be a safe short-term investment.

Tunis SE  

Current year high: 5,681.39                Current year low: 4,058.53

>  Review period:  Closed July 22 at 4,399.01 points            Period Change: +2.1%

Tunindex stocks aim for the stars and for the second consecutive month hit first place in the MENA region. Despite continued skirmishes between various groups ahead of October elections, the end of oppressive rule is breathing new life into tourism and trade, with the food sector especially benefiting from exports to neighboring war-torn Libya. Tunis Air reported strong increases in bookings and was swiftly rewarded with a 7.2% monthly return through July 22. Uncertainty about election results and post-election democratic processes remain a major source of investor unease.

Casablanca SE  

Current year high: 13,397.47              Current year low: 11,213.55

>  Review period:  Closed July 25 at 11,341.1 points            Period Change: -1.48%

The king won a unanimous, and by government accounts, democratic, 98% “yes” vote for a new constitution. Yet investors were not visibly emboldened by the king’s bids for change under his own leadership, which was deemed “inviolable” in the new constitution. The MASI kept sliding in July and slumped to a 17-month low at the end of the review period. Immediately following the constitutional vote, the Moroccan government announced plans to sell parts of its stakes in Maroc Telecom and Royal Air Maroc.

Egypt SE  

Current year high: 7,210.00                Current year low: 4,878.00

>  Review period:  Closed July 25 at 5,104 points     Period Change: -5.0%

Investors headed for the trenches as Egyptian protestors roared back into Tahrir Square. Already fragile stocks retreated back into the red in July as Commercial International Bank and Orascom Telecom fell 8.3% and 4.2%, respectively. Escaping the selling pressure was Telecom Egypt, rising 5.6% ahead of an anticipated dividend announcement. Orascom Construction was flat despite securing a major Saudi Infrastructure contract and $350 million in loans from the International Financial Corporation.

Lebanese equity markets

BLOM Stock Index (BSI)

Weighted effective yield of Eurobonds

Equities update

Although political tensions in Lebanon eased following the formation of a new cabinet, investor sentiment remained wary in light of escalating political upheaval throughout the Middle East and North Africa region. This was mainly reflected in low trade volumes on the Beirut Stock Exchange for the four-week period from June 20 to July 15, 2011. The daily average volume for the month reached 120,568 shares compared to 306,829 shares recorded over the preceding four weeks. Furthermore, the corresponding traded values fell by half to $1.56 million. The BLOM Stock Index (BSI), Lebanon’s equity gauge, fell considerably during the aforementioned period, ending at 1,320 points on July 15, 3.05 percent lower than its previous close on June 17, and amounting to a 10.5 percent loss  since the start of the year.

Compared to regional and emerging markets, the BSI underperformed both the S&P Pan Arab Composite Large MidCap and the MSCI Emerging indices.

Throughout this period, Solidere’s stocks dominated trades on the BSE, accounting for 65 percent of the total traded value. Nevertheless, the distorted political environment weighed negatively on the performance of the real estate stocks in classes A and B, which fell by more than 7 percent to settle below the $17 mark for the first time in 26 months. It is worth highlighting that BLOMINVEST Bank updated its coverage on Solidere with a ”Hold” recommendation and a fair value classification of $19.40 per share.

The performance of banking stocks also witnessed a downward trend, except for BLC bank’s stock, which rallied 12.6 percent to $1.87. The BLOM Bank Global Depository Receipt (GDR) stock declined 2.8 percent to $8.68 while its listed stock slipped 0.47 percent to $8.46. BLOM Bank preferred shares classes 2004 and 2005 were de-listed from the BSE in preparation for the issuing of $200 million worth of new five-year 2011 preferred shares. Bank Audi stocks followed suit, as its GDR and listed stocks dropped by a respective 4.42 percent and 0.43 percent. Byblos Bank common stock retreated, by 0.57 percent. The preferred stocks for Bank of Beirut classes D and E witnessed a mixed performance. The former lost 2.96 percent  while the latter rose 1.78 percent to reach $25.75.

Additionally, manufacturing sector equities closed on a negative note, as Holcim’s stock fell 9 percent to a four-month low of $16 due to the distribution of dividends.

Bond bulletin

With respect to debt instruments, the Lebanese Eurobond market sustained its advance between June 17 and July 15 with demand concentrated on medium and long-term bonds. This pushed the BLOM Bond Index upward 0.58 percent to 110.48 points. Consequently, the weighted yield on holding Eurobonds fell by 20 basis points (bps) to 5 percent and the spread against the US benchmark yield widened by 15 bps to 374 bps. Lebanon’s credit default swap for five years was trading between 340 bps and 367 bps on July 15, compared to 328 bps to 353 bps on June 17. In regional economies, CDS quotes for Dubai stood at 338 bps to 358 bps, with Saudi Arabia between 93 bps to 98 bps.

Lebanon’s newest bank receives  BDL approval

Banque du Liban (BDL), Lebanon’s central bank, granted its final approval for the establishment of the country’s newest specialized private bank, Cedrus Invest Bank, after the new enterprise fully covered its $44 million paid-up capital. During Cedrus’s general assembly held in June, Ghassan Ayyash, BDL’s former vice governor, was elected as chairman of the Board Of Directors (BOD), while Fadi Assali and Raed Khoury were appointed general managers of the bank. Other BOD members include Georges Atik, Ghazi Youssef, Ibrahim al-Jammaz and Elias Abou Farhat. Following BDL’s approval, Cedrus Invest Bank’s management issued a statement in which it explained that launching the bank at a time of domestic and regional political and economic distress was a vote of confidence from the bank’s investors and shareholders. The latter include around 30 Lebanese residents and expatriates, as well as investors from the Gulf Cooperation Council  countries. Lebanon’s newest bank aims at creating an office for high net-worth individuals and families alongside its other business lines, which include wealth management, capital markets, asset management and private equity. Cedrus Invest Bank will soon raise its paid-up capital to $50 million due to high demand for its shares, the statement added. The bank aims at expanding beyond the Lebanese market in the foreseeable future and will tap into the Levant region, with a focus on Syria and Iraq, as well as into the Gulf.

Lebanon performs well on The Banker’s list

Nine Lebanese banks ranked amongst the top thousand commercial banks in the world, seven of which improved their rankings since 2010, according to a recent survey by magazine The Banker. Taking into account only the core of a bank’s strength — the shareholders’ equity that is readily available to cover actual or potential losses — the survey ranked the banks based on their 2010 end of year tier one capital as per criteria set by the Bank for International Settlements. Bank of Beirut made the biggest leap among Lebanese institutions, rising by 120 places to reach 663rd while recording a 45.3 percent yearly increase in its tier one capital. Byblos Bank followed, ranking at 448th, jumping 58 places from its standing a year earlier and posting an 8.83 percent rise in its tier one capital-to-assets ratio. Recently acquired Lebanese Canadian Bank ranked 912th, a notable jump of 57 spots from the previous year. Meanwhile, both Bank Audi and BankMed saw their positions fall, dropping by 29 and 21 notches to the 355th and 659th spots, respectively. The aggregate tier one capital of the nine Lebanese banks totaled $8.67 billion by the end of 2010, a 15 percent yearly increase, compared to a 10 percent increase in the top thousand banks’ tier one capital, while their profits-to-tier one capital ratio reached 19.9 percent in 2010, also more than the 13 percent ratio for the top thousand banks.

Premiums land high in MENA rankings

Lebanon ranks first in the Middle East and North Africa (MENA) region and 52nd globally in terms of insurance penetration, or total insurance premiums as a share of gross domestic product (GDP), according to global reinsurer Swiss Re’s latest “World Insurance in 2010” report. Compared to 3.1 percent in 2009, Lebanon’s insurance penetration stood at 2.8 percent of GDP in 2010, above the MENA average of 1.3 percent for the same year, but still below the world average of 6.9 percent. Cover premiums in Lebanon totaled $1.1 billion last year, accounting for 0.02 percent, 0.17 percent and 3.2 percent of global, emerging markets and Middle East and Central Asia premiums, respectively. In terms of nominal premiums, Lebanon dropped two spots on the year before to 66th among 147 global markets, and slipped one place, to sixth, in the Arab world. Also included in Swiss Re’s report were estimations of the average amount spent per capita on insurance premiums, or insurance density, which placed the United Arab Emirates first in the MENA region, at $1,248, followed by Qatar at $619, Bahrain at $527, Oman at $261 and Lebanon at $253.

Cypriot banks’ deposit and debt ratings downgraded

A day after it had downgraded Cyprus’ long-term debt rating from A2 to Baa1, just two notches above junk, international ratings agency Moody slashed the deposit and debt ratings of the two main Cypriot banks, Marfin Popular Bank (MPB) and Bank of Cyprus (BoC), from Baa3/Prime-3 and Baa2/Prime-2, to Ba2/Not Prime and Ba1/Not Prime, respectively. Moody’s said the island’s high level of exposure to Greek Government Bonds (GGB) was the primary reason behind its ratings announcement, as it considered all rated Cypriot banks likely to take part in the Greek debt exchange.  MPB and BoC exposure to GGB is $4.9 billion and $3.5 billion, respectively, according to the European Banking Authority, constituting 95 percent and 55 percent of their tier one capitals, respectively.

Lebanon still a draw for FDI

Among 18 Arab countries, Lebanon was the fourth major foreign direct investment (FDI) recipient in nominal terms and posted the fifth highest FDI growth rate for the year 2010, according to figures released by the Arab Investment and Export and Guarantee Corporation (AIEGC) last month. Lebanon attracted $4.96 billion of FDI in 2010, a 3.2 percent rise from $4.8 billion a year earlier, making it one of five Arab countries to have witnessed an increase in FDI last year, in contrast with a 23.4 percent yearly decrease in aggregate FDI to Arab economies in 2010. Lebanon ranked highest in the Arab world in terms of FDI inflows as a percentage of gross domestic product (GDP), which stood at 12 percent, followed by Jordan at 6.2 percent, Sudan at 5.4 percent and Qatar at 5.1 percent in 2010. Lebanon’s FDI inflows accounted for 7.7 percent and 8.7 percent of total inflows to Arab countries and to West Asia, respectively, and for 0.44 percent of global FDI in 2010, which increased by 0.7 percent for the same year.

Foreign currency flight from Syria exaggerated

Many an eyebrow was raised at the end of June when The Economist cited that an estimated $20 billion had left Syria since protests began to sweep the country in March. “There is obviously capital flight, but it is impossible that $20 billion left the country,” said Jihad Yazigi, editor of the economic newsletter Syria Report. With the World Bank pegging Syria’s overall economy as worth $52 billion at the end of 2010, and total deposits in private and state banks close to $30 billion, such capital outflows would have disemboweled the country’s finances. “The $20 billion figure is ridiculous, as the deposits of private banks are $11 billion and the deposit base of the whole banking system is $29.8 billion,” Freddie Baz, chief financial officer at Bank Audi, told Executive. “Estimates range between a 15 percent to an 18 percent drop in the deposit base of private banks, so there has been a decline of around $2 billion.” Lebanon’s Bank Audi, which operates Bank Audi Syria, is the second largest private bank in Syria with some 18 branches. However, in an effort to contain foreign currency deposit flight and alleviate pressure on the Syrian pound, the Central Bank of Syria (CBS) issued in early July a set of rules to implement new measures it had announced in May to control foreign currency purchase and withdrawal transactions. The measures include authorizing Syrians to open savings accounts in US dollars and Euros up and equivalent to $120,000, granted the amount is blocked for a minimum of six months, while also allowing foreign currency purchases of up to $60,000 for accounts with a minimum six-month maturity, with the maturity extended by one month for every additional $10,000 purchased. CBS governor, Adib Malayeh, said they had closed about 30 foreign exchange bureaus suspected of conducting illegal operations, with reports of the Syrian pound having been traded at between 10 and 15 percent lower than its official exchange rate. Malayeh said the Syrian pound was still rock solid despite the political unrest, with bank deposits up 4 percent for the second quarter of 2011 relative to the first.

Lebanese banks receive a Moody downgrade

Lebanon’s top four alpha banks, Bank Audi, BLOM Bank, Bank of Beirut and Byblos Bank saw their standalone Bank Financial Strength Ratings (BFSR) and Global-Local Currency (GLC) deposit ratings downgraded by Moody’s Investors Service. On July 19, Moody’s cut all four banks’ BFSRs and GLC deposit ratings to D- and Ba3, respectively, from a previous stable rating. It also reduced Byblos Bank’s B1 subordinated debt to negative. The international ratings agency mentioned the slowdown in the Lebanese economy and political tension, along with instability in neighboring Syria, as factors for increased domestic credit risk and weakened asset quality and profitability for rated banks. Both Bank Audi and BLOM Bank’s extensive operations in Syria suggest a great deal of material exposures to the country, which Moody’s estimated ranged from 70 to 125 percent of the banks’ tier one capital at the end of 2010. Moody’s ratings announcements also raised concerns over the four banks’ exposure to sovereign risk due to their low-rated Lebanese government securities portfolios, which equal several times their tier one capital levels and reflects the banks’ continuous funding of Lebanese public debt. By contrast, Moody’s said the banks’ long-term foreign currency deposit ratings remained unchanged, as those deposits are capped by Lebanon’s B1 ceiling. Lebanese bankers downplayed public concerns in response to the ratings announcement, asserting that Lebanon’s financial institutions have enough liquidity to overcome what is a temporary situation.