Stock market review.

Author:Album, Andrew
Position:Middle East's winners and losers

Last year saw mixed fortunes the region's stock markets.

With the exception of Morocco, 1998 was a difficult year for the major bourses in the Middle East. In addition to some domestic considerations, Istanbul, Cairo and Tel Aviv were all caught up in the aftershocks of the Asian economic collapse. Even some of the smaller and more insulated markets suffered from the fallout as a steep decline in demand saw the price of oil spiral downwards, dragging many Gulf equities down with them.

As the Asian debacle flowed to eastern Europe - following Russia's rouble crisis and into Latin America, global portfolio managers were forced to dump stocks in a hurry, to meet redemptions. With few buyers elsewhere, a number sought to raise cash by selling equities in the more liquid local markets such as Turkey and Egypt. This led to steep price drops from which most bourses had failed to recover by the end of the year.

In Turkey, the problems were compounded by domestic political turmoil and a slowing economy. By mid year, the Istanbul Stock Exchange had built on its impressive 1997 performance by surging to an all-time high. This was followed by a collapse which saw the index plunge, quickly wiping out all of 1998's gains and leaving the market 51 per cent down on the start of the year.

The continued depreciation of the Turkish lira meant that dollar investors only suffered losses of about half of this amount.

Israel was another market that began the year strongly. As the Bank of Israel's tight monetary policy began to bear fruit, falling inflation was followed by a succession of interest rate cuts. With bonds and cash deposits looking increasingly unattractive, domestic investors were attracted back into the market and a number of foreign portfolio managers increased their exposure to Tel Aviv.

Whilst the government continued to stall and obfuscate in its negotiations with the Palestinian Authority, the Netanyahu administration at least succeeded in implementing a number of privatisations. Over $1.2 billion of assets were divested, including a part of Bank Leumi and a large stake in Israel Chemicals, which was the market's largest ever initial offering.

However, a combination of a run on the shekel and some disappointing economic news forced the Bank of Israel into some hefty interest rate hikes, to support the currency. This triggered a market fall-back, eroding a large part of the year's gains. In spite of this, by the end of December, the index was...

To continue reading