MEED – [6/18/2010]
The legislation proposes a minimum capital requirement of ID250bn ($214m) for Iraqi banks, which would result in billions of new shares as they comprise about 75 per cent of the exchange by both market capitalisation and trading volume. Current volumes average only $1m to $1.5m a day.
The new law will also allow firms to list at market value – the current law only permits listings at the value of the company’s capitalisation. The regulation would not only boost trading volumes, but also attract much-needed foreign investment. Although the bourse allowed foreign investment in August 2008, non-Iraqi money comprises only 3 per cent of trade.
The Iraq investment story is becoming increasingly attractive as macro indicators show the economy is staging a recovery. Interest rates have come down from 20 per cent to 6-7 per cent, inflation has fallen from 80 per cent five years ago to about 5 per cent today. The country’s exports, namely oil, are growing.
For a foreign investor, the stock exchange provides the quickest and easiest way to invest in Iraq. The only problem is the lack of liquidity. The exchange’s market capitalisation currently stands at just $3bn.
However, the bourse has seen a gradual increase in trading volumes, mainly due to the successful move over to the OMX platform and increasing the trading days to five days a week.
In April 2009, the exchange began automated trading with five companies. Today, there are 85 listed companies.
The mechanisms are in place – the key challenge now is ensuring the appropriate legislation is brought in. The approval of the securities legislation is crucial for the exchange’s future growth.