BLOM Stock Index (BSI)

Weighted effective yield of eurobonds

Exchange update

Activity on the Beirut Stock Exchange (BSE) continued its downward trend during the period between May 16 and June 17, 2011, as local and foreign investors remained cautious amid the delay in the formation of a new cabinet. This was aggravated by the adverse political developments in the region. The BLOM Stock Index (BSI), a gauge of Lebanon’s equity activity, hit its lowest level in two years at 1,357 points on June 8, before bouncing back over the next two days in the positive political climate surrounding the formation of a new government. Nevertheless, the trend was reversed on June 13, as investors were skeptical about the nature of the cabinet.

The BSI retreated on a monthly basis by 2.49 percent to reach 1,362 points by June 17, 2011, its year-to-date performance trending downwards at -7.7 percent. Cross trades of Solidere and BLOM listed stocks lifted the daily average volume per month to 306,829 shares, with a value of $3.22 million, compared to 213,320 shares worth $1.19 million during the prior period. On the regional front, the BSI outperformed the MSCI Emerging index, which declined by a monthly 3.25 percent to 1,107, while the S&P Pan Arab Composite LargeMidCap index fell by 2.26 percent to 115 points.

Banking stocks captured the bulk of trades during the aforementioned period, accounting for 54 percent of the total value traded. BLOM’s Global Depositary Receipts (GDR) and common stocks retreated from their previous close on May 13 by 5 percent and 3.4 percent, respectively, to settle at $8.93 and $8.50 on June 17. Byblos’  common stock also lost 4.37 percent, falling to $1.75. As for BEMO Bank, its common stock slid by 0.36 percent to close at $2.76, while its preferred stock 2006 dropped by 8.3 percent to close at $100.

Regarding Bank Audi, its GDR rose 2.4 percent to $7.69, while its common stock remained flat at $7. It is worth highlighting that Bank Audi converted 4,893,576 shares of “Audi Listed” to “Audi GDR” on May 19. With respect to Bank of Beirut, its common and preferred “D” stocks advanced, with the former rising 0.53 percent to $19.1 and the latter adding 4.27 percent to $26.38. Also of note, on May 23 BLC Bank listed 133,333 additional new shares on the BSE.

The performance of the real estate stock, Solidere, was strongly affected by the unstable local and regional political situation. As a result, Solidere A and B stocks lost 5.6 percent and 5 percent, respectively, from their previous close on May 13 to settle at $17.80 and $17.70.

Manufacturing stocks, on the other hand, closed on a positive note, as Holcim, Ciment Blancs “B” and Ciment Blancs “N” advanced 0.86 percent, 1.66 percent and 34.78 percent, respectively, to $17.6, $3.07 and $1.55.

Bond bulletin

With respect to debt instruments, the Lebanese Eurobond market maintained its uptrend between May 16 and June 17, 2011, as investor confidence in the Lebanese fixed-income market increased following the successful rollover of $1 billion worth of bonds in May 2011. Demand was mainly observed on the medium and long-term bonds, pushing the BLOM Bond Index (BBI) up 0.38 percent to 109.84 points. Consequently, the weighted yield on holding Eurobonds fell by 30 basis points (bps) to 5.20 percent, and the spread against the United States benchmark yield widened by 20bps to 389bps. Lebanon’s five-year credit default swap was trading between 328bps and 353bps on June 17, 2011, compared to Dubai’s 325bps to 345bps and Saudi Arabia’s 103bps to 107bps.

Capital inflows to MENA to slump

Net capital inflows to the Middle East and North Africa (MENA) region are forecast to drop 28 percent in 2011, from $80.6 billion in 2010 to $60.3 billion, according to an Institute of International Finance (IIF) report entitled “Capital Flows to Emerging Market Economies” issued earlier last month. Meanwhile, net capital outflows from the region are expected to rise to $221.5 billion for 2011 against the backdrop of political turmoil, a 74.55 percent increase from $126.9 billion in outflows a year earlier. The report said foreign direct investment (FDI) in the MENA region would rise by $8.2 billion this year, which would compensate for portfolio investment losses and the drop in inflows from banks and private creditors. While account surpluses have more than doubled for the United Arab Emirates and Saudi Arabia, buoyed by increases in oil prices, the report highlighted that some countries have suffered from large capital outflows and account deterioration, namely Egypt. Estimates for the country’s total outflows reached $16 billion, largely due to a slump in tourism activity, an $8 billion drop in reserves and a sharp fall in FDI. For Lebanon, the IIF projected the current account deficit to widen from 15.9 percent of gross domestic product in 2010 to 17.7 percent for 2011, and net private capital inflows to decline by 49.35 percent in 2011 to $3.9 billion, compared to $7.7 billion a year earlier, due to the country’s political situation.

BDL regulates money dealers

In an effort to deter money laundering and terrorism financing, Banque du Liban (BDL), Lebanon’s central bank, issued a set of circulars to regulate the operations of money dealers in the country. The directive includes mandatory training courses on anti- money laundering and terrorism financing for all persons involved in the direct or indirect management of money dealer institutions. The circular also prohibits them from opening accounts at any bank at which their partners, owners, shareholders, managers and members of the board of directors hold personal accounts and from depositing cash directly into their clients’ accounts or accepting to represent third parties. It also requires that money dealers notify the Banking Control Commission (BCC) of any bank with which they work. The circular also stipulates that money dealers appoint a compliance officer and exchange bureaus an internal auditor to make sure their operations are aligned with the regulations of BDL, BCC, and Lebanese central bank’s Special Investigation Commission (SIC). One of the circulars sets a minimum capital of 5 billion Lebanese lira [$3,333,333] for money dealing institutions, adding that the latter’s accounting transactions must segregate shipment of cash and precious metals from those of other operations. Per the new regulations, money exchange institutions and banks that ship bank notes or precious metals between Lebanon and abroad must notify the BCC and BDL’s Directorate of the Financial Markets of the detailed number and volume of such shipments through monthly financial statements. And lastly, money dealers will be required to send monthly, quarterly, semi-annual and annual financial statements to the BCC and BDL’s Directorate of Financial Markets.

Cost of sending remittances to Lebanon drops

According to figures released by the World Bank, the cost of sending remittances to Lebanon dropped in the first quarter of 2011. A $200 transfer from the United States to Lebanon costs $25.10 in nominal terms, almost 12.6 percent of the total amount, a decline from 13.2 percent for the same period the year before. Likewise, the cost of sending $500 amounts to $27.70, 5.53 percent of the transfer and a decrease from 5.74 percent for the first quarter of 2010. The survey was conducted on 24 countries, among which 11 were in South and Central America, seven in East and Southeast Asia, three in the Caribbean and two in Africa. Lebanon ranked as the most expensive destination for $200, and sixth for $500 US transfers. Including a transaction fee and an exchange rate margin, the cost represents the average charges for transferring money through commercial banks and money transfer operators, which amounted to 17.2 percent and 6.2 percent for the first three months of 2011. On a side note, the World Bank also revised 2010 expatriates’ remittance inflows to Lebanon upwards to $8.4 billion, compared to an $8.2 billion forecast in November 2010.

Lebanon’s NACB bank freezes Libyan assets

In compliance with United Nations Security Council resolutions 1970 and 1973, Lebanon’s North African Commercial Bank (NACB) froze an undisclosed amount of assets belonging to the Libyan regime in June. Both resolutions mandate that member states freeze any economic or financial resources owned or controlled by the Libyan regime, whether directly or indirectly. A spokesman for NACB, which is 99.54 percent owned by the Tripoli-based Libyan Foreign Bank and formerly known as The Arab Libyan Tunisian Bank, dismissed news reports that the bank had ceased its commercial activities since February 2011.  Further tightening the financial sanctions on the Libyan government, the United States Department of the Treasury (DoT) released a statement on June 21 blacklisting and prohibiting U.S. transactions with nine companies controlled or owned by Muammar Qadhafi’s regime, including NACB, the Arab Turkish Bank and Tunisia-based North African International Bank. The DoT exempted other financial institutions based in foreign countries and overseen by the Libyan government from these sanctions, provided their operations do not benefit the Qadhafi regime, or any Libyan entities and individuals who have previously had their assets frozen.

And the rich get richer

The worth and number of global high net worth individuals (HNWI) have surpassed 2008 pre-crisis levels, growing by 8.3 and 9.7 percent in 2010 respectively, according to Merrill Lynch and Capgemini’s 2011 “World Wealth report”. The number of HNWIs in the Middle East reached 40,0000 in 2010, an annual increase of 10.4 percent, while the region’s wealth was estimated at $1.7 trillion, up by 12.5 percent from a year earlier. At 32 percent, fixed-income assets made up the bulk of total financial assets held by Middle Eastern HNWIs, followed by equities at 28 percent, real estate at 18 percent, cash and deposits at 16 percent and alternative investments at 6 percent.  The report also shed light on ‘passion’ investments — such as art, luxury collectibles, jewelry, jems and watches. The majority of Middle Eastern HNWIs biggest ‘passion’ appears to be luxury collectibles, which stood at 29 percent of their total investments of passion in 2010; their allocation to jewelry, gems and watches was reduced from 35 percent in 2009 to 29 percent in 2010. Meanwhile, art and sports investments took away 17 percent and 13 percent of Middle Eastern HNWI wealth dedicated to passion in 2010, respectively.

On a local level, the report said the key drivers of HNWI wealth in Lebanon for 2010 included a real gross domestic product growth of 7.2 percent, an increase in real private and government consumption, a continuous rise in property prices, large capital inflows, rapid de-dollarization and containment of inflation at around 4.5 percent. The main inhibitor to growth in Lebanese wealth in 2010, according to the report, was the country’s fiscal policy as its government debt, which stood at 148 percent of gross domestic product by end of 2009, was still among the highest in the world. The report showed that globally, HNWIs’ greatest concern was the impact of the economy while some 69 percent of HNWIs were concerned that future generations would not adequately manage their inheritance.

BDL foreign reserves see slight dip

In its May 2011 balance sheet, Banque du Liban (BDL), Lebanon’s central bank, recorded a 0.74 percent decline in its foreign currency reserves for the second half of the month, a depreciation of $224.15 million to $29.95 billion, down from $30.18 billion for the first two weeks of May 2011. This would be the first time BDL’s foreign reserves slip below the $30 billion mark since March 2010, a decrease mainly attributed to weakened investor sentiment in Lebanon amid political instability in the country and the neighboring region. Meanwhile, BDL’s gold reserves appreciated by a bi-weekly total of 1.61 percent to $14.18 billion for the second half of May 2011, following the surge in prices of precious metals.