Iraq Market Riding High on Hopes for End to ‘Darkness’
It might seem as if 1998 was a bad year for Iraq--its eighth under strangling U.N. economic sanctions and a time of heightened tension, culminating in the heaviest airstrikes since the 1991 Persian Gulf War.
But that’s not the view from the Baghdad Stock Exchange, where, according to investors, the future has never looked rosier.
While it is surprising that a country in such shambles as Iraq has a functioning stock exchange, what may be even more astounding is that the operation is going gangbusters.
Since the inception of the stock exchange in 1992, its all-share index has risen nearly 900%, according to its director. The total 1998 gain was about 70%. Even during the December assault by the U.S. and Britain, the exchange stayed open, with prices slightly to the upside.
While all this could be dismissed as another example of what Federal Reserve Chairman Alan Greenspan has termed the “irrational exuberance” governing the world’s stock markets, the truth is that Iraq’s small core of stock investors is betting that the country has already hit bottom and that--one way or another--it is due for a rebound.
In the investors’ view, the 95 Iraqi companies listed on the exchange are seriously underpriced because of the devaluation of the Iraqi dinar--which before the Gulf War was worth $3 and is now worth 1/18 of a penny--and because much of the firms’ business is frozen because of the sanctions, which investors believe are bound to be lifted eventually.
In a country as pervasively gloomy as Iraq, it is somehow cheering to see several hundred investors, most of whom regularly attend the thrice-weekly, two-hour trading sessions, carrying on their financial lives as if all was normal in their embargo-bound, war-threatened country.
The exchange lacks some of the technological pizazz of the Big Board, however.
It is an open hall in a low-rise building about the size of a basketball court. A wrought-iron fence separates private investors from brokers doing their trades. Outside, there’s a courtyard with a snack bar.
Stock Exchange Relatively Low-Tech
Instead of studying blinking tickers or glimmering computer screens, investors--some using binoculars or opera glasses--watch the price action recorded with colored markers on white boards hung around the room, one board for each issue.
Most of the investors are in business suits, but there are also the odd military uniform, Arab headdress and leather jacket in the area where rank-and-file investors stand and trade rumors while their brokers frenetically execute trades by hand.
Incomes in Iraq have fallen sharply over the eight years since the disastrous Gulf War. The investors are a cross-section of Iraq’s professional and white-collar class--doctors, teachers, engineers, state workers, yuppies starting out in life--and many of them have decided they cannot make a living in their normal fields of endeavor and so have turned themselves into market addicts.
“Here, they don’t have to suffer and lie to make a profit. They respect themselves when they do this sort of thing compared to selling something on the street,” said Ron Raied, a street-smart former video-store owner lounging in one of the seats along the back wall of the exchange, summing up his fellow investors.
Some dream of getting rich after the sanctions are lifted, but most are happy to come away with a little extra cash week after week. They see the market as a more dignified way of earning an honest capitalist dinar than, say, driving a taxi.
Buoying investor hopes are the government’s unrelenting efforts to maneuver out of the economic sanctions, a campaign that appears to be gaining ground among some members of the U.N. Security Council. Plus, even the United States has agreed to permit a more liberal oil-for-food program in which Iraq would be allowed to sell more oil and make some repairs in its petroleum, electrical and agricultural sectors.
In Baghdad, despite the recent bombings, one can see signs of rejuvenation eked out of the prevailing grimness. Streets are cleaner and more brightly illuminated than they were a year ago; the ziggurat on the huge clam-shaped Tomb of the Unknown Soldier shines at night in green and white stripes; neon-lighted boutiques, restaurants and coffee shops have opened for business.
An investor who gave his name as T. Jacob, an engineer who now spends most of his time dabbling in the market, said before the December air campaign that despite the depression Iraq has suffered, there are many solid companies attractive for an investor.
He cited Pepsi, a soft-drink bottler that now has no connection with the U.S. company of the same name and whose shares sell for less than a bottle of the cola it produces. He also favors state-controlled industries producing paints, chemicals and alcoholic beverages.
Pepsi has been trading at 88 dinars a share, or about 5 cents at the unofficial exchange rate of 1,800 dinars to the dollar. Chemicals are even cheaper at 4 cents. Tumar, the Iraqi date company that used to export its fruit all over the world, now sells for the equivalent of less than a penny a share.
Hassan Mohammed Johara, a 27-year-old broker, says that, on the whole, companies are priced ridiculously low compared with the value of their assets. He points to one of Baghdad’s biggest hotels, built for $60 million in the 1980s but with a capitalization on the stock exchange of $800,000.
“A lot of these companies are semi-stopped. . . . If sanctions are lifted, these companies will really start working,” Johara said.
However, Jacob said he cannot foresee what will occur when the embargo ends, except that “everything will change.”
Raied, 37, considers the market his full-time job and goes almost every day to the exchange or to the offices of the four brokerages he uses. He had emigrated to the United States and owned a video store in Detroit, but he returned to Iraq on a visit and liked being home so much that he remained.
Trader Likes Safety of Baghdad Exchange
He said he prefers the Baghdad exchange to investing in New York because the former is less risky. Most of the companies traded are partly owned by the government, which protects their franchises; they generally are monopolies or at least have few competitors; and the share prices on the exchange are allowed to rise or fall by only 10% a session.
Raied recalls with disgust his experiences investing in the United States. He bought shares of L.A. Gear when they were at $45, he said, and they fell to $1. Confident that nothing like that will happen in Baghdad, he has more than 20 million dinars ($11,000) invested.
“Inflation is so high that the stock market is the only way right now,” Raied said. And prospects for capital gains are enormous if the country’s political problems ease and more Iraqis discover the stock market, he said.
“People have money, but they are afraid to spend it until they see the end of this darkness,” he said. “These are big corporations with good management, and I think they are honest.”
In the annals of investing, there probably has never been a bourse born into harder conditions than the Baghdad Stock Exchange.
There was a project in the 1980s to start a stock exchange in order to replace the previous, inefficient system in which company shares were bought and sold through banks. But those plans were set aside because of the Gulf War. In 1992, when Iraq was in a postwar rebuilding frenzy, the state decided to go ahead.
At that time, the entire Iraqi economy was in shock after two years without oil revenue because of sanctions--cut off from foreign markets and credit and with no means to purchase goods or spare parts from outside. As a result, the exchange had to beg, borrow and steal a few aging computers and even a time clock from local banks to get underway.
“When we started, people said, ‘It can’t work,’ ” said Sabih Dulaimi, director general of the exchange. The programmers who set up the computers thought that, with luck, the exchange would manage to execute 200 transactions in a year. Now, it is doing 500 contracts every two hours.
The total market capitalization is still tiny by world standards: 8.5 billion dinars, or $4.7 million. A typical trading day might see 10 million shares trade hands with a value of 130 million dinars, or $72,000.
With eight personal computers cobbled together on a local network, all trades are recorded after each session, stored and then put onto floppy disks, copies of which are sent by courier that afternoon to all 40 brokers active on the exchange.
It is up to the brokers to collect money for the buy orders from their clients and to pay out the proceeds from sales. No money passes through the exchange itself.
“It is a simple system,” said Dulaimi, “but it is active.”
He also is confident about the future. In the midst of December’s bombing campaign, he was installing a $56,000 secondhand air-conditioning system, anticipating that even more traders will want to crowd in.
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Times’ Cairo Bureau Chief Daniszewski was recently on assignment in Baghdad.
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* OFFICIAL QUITS TALKS
Arab League fails to condemn bombing of Iraq, leaving Iraqi foreign minister bitter. A4
