A disappointing result.

Author:Album, Andrew
Position:Beirut Stock Exchange

ANDREW ALBUM reviews the progress of the revived Beirut Stock Exchange.

A little over a year ago, the Beirut Stock Exchange (BSE) reopened for business. After 12 years of inactivity - the BSE was shut in 1983 due to the ravages of civil war - many hoped that the bourse would rapidly develop into a source of capital to help finance the country's reconstruction.

Housed in what used to be the local branch of the Iraqi Rafidain Bank, the exchange, says British journalist Robert Fisk, consists of just a few computer screens, a trading table so small you could not play poker on it, and six steel chairs. Still, the computer equipment is state-of-the-art technology and extensive assistance has been provided by the Paris bourse in setting it up, with the French government providing over $1 million to finance the undertaking.

The performance of the market to date has discouraged the optimists, with prices having fallen back by almost 20 per cent. Patrick George, a Lebanese equity specialist at London-based investment bank HSBC James Capel, cites four key reasons for the index's disappointing first-year record.

The first is that interest rates have remained stubbornly high. With investors able to gain returns of 15-19 per cent on secure bank deposits, or 8 per cent on US dollar savings, the market has faced an uphill struggle in its attempts to attract attention. Lebanon's Central Bank has indicated that it wishes to see a reduction in interest rates but, until that happens, there will be no rush of capital to the bourse.

Secondly, there has been a dearth of securities listed, in spite of initial hopes that the number of shares traded on the exchange would rise rapidly. To date, only four companies - concentrated in the glass, cement and construction materials sector - are listed on the primary market.

Before the BSE was closed down, 45 companies were traded, about two-thirds of them actively. Many of these, however, are no longer in existence, as they have either merged with larger corporations or were public utilities whose concessions have since expired and reverted to the government.

This lack of supply has pushed up the prices of those companies which are traded, with price/earnings ratios and dividend yield looking overstretched from both a regional and global emerging markets perspective. Cement company Societe Des Cements Libanis is one example, trading at a price/earnings (p/e) ratio of 20 and providing a dividend yield of 1.5 per cent. Such...

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