Fear Yields to Hope on This Big Board

Times Staff Writer

There are plenty of ways to lose your shirt on the Iraq Stock Exchange. Right now, the biggest risk is simply showing up.

As one of the economic institutions hatched since the U.S.-led invasion, the exchange is widely viewed as a fat symbolic target for insurgents. Even its location makes it vulnerable: The ISX, as it calls itself, is housed in a former Italian restaurant just one block from volatile Haifa Street.

Yet every Sunday and Wednesday, scores of Iraqis make their way through vehicle checkpoints and weapon pat-downs to wait for the 10 a.m. opening bell. They gather in a breezeway outside the front entrance, protected from the sun by a tall canvas overhang and from intruders by plainclothes Iraqi guards with shoulder-slung AK-47s.


On the air-conditioned trading floor, separated from the “investors’ hall” by a row of plate-glass windows, ISX Chief Executive Taha Ahmed Abdul-Salam nervously eyed the arriving crowd at the start of one recent trading session.

When the exchange reopened in June after a name change and a 15-month hiatus for war, Abdul-Salam and other ISX officials were so afraid of attack that they admitted only 20 investors -- and no reporters. Since then, holding their breath, they have allowed the crowd to expand to as many as 250 for each two-hour trading session. There’s no telephone or computer trading, so if you want to play you have to come in person.

“We’d have 1,000 if I’d let them in,” said Abdul-Salam, former research director for the ISX’s predecessor, the Baghdad Stock Exchange.

The security fears are pushing the exchange’s crash program to shift to a purely electronic marketplace, like the Nasdaq Stock Market, by year’s end. In technological terms, it means leaping to the 21st century from the 19th, with its yelling crowd of Iraqi investors, trades scrawled on grease boards, mandatory hand-signed stock certificates and multiple paper records trailing every transaction.

It has to be done because it is too dangerous for the heart of the nation’s investment community to be so exposed, even if for just two hours at a time.

“We’re talking about the economy of Iraq,” declared Mohammad Sadr, a financial consultant to the exchange.


Sadr’s claim may sound overblown, considering that the total value of shares changing hands in an ISX session averages $1.5 million -- about what the New York Stock Exchange turns over every three-quarters of a second.

Oil, public utilities, mining and other key sectors are a long way from being privatized, let alone forming companies and listing shares on the stock exchange. But to Sadr and other believers in free-market Iraq, the institutions and habits of capitalism ought to be in place when that day arrives.

President Bush was a little ahead of the market when he recently said more than 100 stocks were listed on the ISX. The latest count is 67, although, as the president said, new listings are being added almost every week. The listed companies are banks, hotels, beer and soft-drink bottlers, construction firms and manufacturers of appliances, rubber products, carpets and bicycles.

The most striking thing about the crowd at the recent trading session was its demographics: Baghdad is a youthful city, but few if any of these 100 or so market players were below middle age, and many were well past it. The sartorial style -- short-sleeve plaid shirts, a few sweater vests in the 90-degree heat, a sharp tropical-weight suit with an electric-blue tie on a very elderly gent -- called to mind a weekday flock of railbirds at Hollywood Park.

“I invest in everything but banks,” confided investor Farouk Kasim, clutching a small pad of paper that he consults frequently. “I’m worried about the banks.” Peering from behind thick glasses, Kasim offered his theory on why industrials were a safer bet: “They have their own land, factories, machines -- all they need is the money.”

Like most investors here, Kasim played the old Baghdad Stock Exchange, winning some and losing some with the Saddam Hussein crowd. In those days, Baath Party bigwigs could manipulate stocks by causing new shares to be issued on a whim.


“Sometimes the price came crashing down, but before it came down completely, I sold what I could,” Kasim said.

Abdul-Salam, the ISX chief executive and a sometime economics instructor at Baghdad University, was asked why some of his young students aren’t out in the crowd practicing what they have learned in class.

“They don’t have any money,” he said with a shrug.

Many investors in the ISX hold shares acquired years ago on the Baghdad exchange. Thus, their presence here in the trading crowd isn’t necessarily a straightforward vote of confidence in Iraq’s economic future; it also may be a bid to protect what they’ve got.

Um Sarmad, retired from a government finance agency, stalked the perimeter of the crowd in a pale coral gown, with the air of somebody who knew what she was doing.

Indeed, she said, on the BSE she amassed a small fortune of 34 million Iraqi dinars, or about $25,000. It put an extra floor on her house.

Now she’s back, mostly buying but also, she said, “looking for the right moment to sell.”

Some near-term goals for the ISX, Abdul-Salam said, are to restore trading in as many as possible of the 140 stocks that were listed on the old Baghdad exchange and to add new listings when companies can meet such criteria as having at least 75 investors and being able to show audited financial reports.


At present, only Iraqis can trade. A longer-term goal is to open the ISX to foreign investors. Realistically, that can happen only after the exchange builds credibility by running a transparent, technologically sound and scandal-free operation.

“It’s a baby now; it needs to be taken care of,” Deputy Trade Minister Fakhri Rashan said of the ISX in a recent interview. “But it has started, which is a good sign.” A freely trading, internationalized ISX would mesh with the Iraqi interim government’s -- and the Bush administration’s -- prime economic imperatives of privatizing industry and attracting foreign capital.

Those too are long-term goals. Meanwhile, the ISX toddles forward at the speed of pencil and paper.

Investors circulate in the hall, trading tips and sometimes consulting the listed companies’ financial reports, which are stapled to bulletin boards along the back wall.

When an investor has a trade in mind, he or she waves a hand or sometimes knocks on a window to get a broker’s attention. Then either the broker steps outside for a huddle or the investor jots the particulars of a buy or sell order on a scrap of paper and flattens it against the window.

If the broker can match a buyer and seller, he scribbles out a trade slip and hands it to a runner, who takes it to a recording desk at what used to be the restaurant’s bar, where it’s time-stamped and the information is typed into a computer.


At the same time, clerks with felt markers feverishly record all the buy or sell orders and completed trades on big whiteboards -- one for each listed stock. When a stock gets hot, its board fills up and investors crowd around that spot in the hall.

On this day, the action was in Mosul-based Northern Soft Drinks, an upstart rival of Baghdad Soft Drinks. Both are Pepsi-Cola bottlers and sometimes are called Pepsi North and Pepsi Baghdad. The buzz, investor Kasim said, was that Northern might strike a favorable new deal with Pepsi.

Northern’s board was dark with trades, but when the closing bell sounded at noon, its shares actually were down 2 dinars to close at 16. (With the dinar trading at about 15 to a penny, it takes a boatload of shares to make a sizable stake.) It was a blah day for the whole market, in fact, with nearly half the stocks not trading at all and most of the rest losing ground.

Sarmad, the government finance agency retiree, was philosophical: “You have to be patient,” she counseled. “You can’t make your money all in one day.”

On the trading floor, Talib Tabatabaic finally had a chance to relax. He is a veteran broker who also serves as the new chairman of the exchange.

He dismissed the rumors about Pepsi and Northern Soft Drinks. The real answer is simpler, he said: Northern has higher profit than Baghdad but fewer shares trading. Therefore, its price per share should be higher than that of Baghdad, which closed at 21 dinars.


Leaning forward in his best have-I-got-a-tip-for-you manner, Tabatabaic added: “The people who bought at 16 are going to be very happy. I’m not supposed to say that, because I’m the chairman. But if the market wasn’t down today, it would have closed at 25.”