Amman stock exchange feels brunt of regional tensions

Friday 10/07/2015

Amman - With regional tension shaking investor confi­dence and eating away at its foundation, the Amman Stock Exchange (ASE) has taken a beating and is looking for ways to keep afloat.

On June 17th, the Jordanian cabinet approved in principle ASE’s transformation into a public shareholding company, a move expected to provide business flexibility and assist it to diver­sify services and products. ASE’s competence, liquidity and capac­ity to attract investments are also expected to be enhanced.

“This approval is very important because it reflects the support and commitment of the cabinet and lower house of parliament to de­velop the ASE in line with interna­tional standards,” said ASE Chief Executive Officer Nader Azar.

The next step is for parlia­ment to amend a 2002 securities law, which will “pave the way to transform the ASE into a for-profit shareholding company”, Azar said.

“The ASE is dedicated to its demutualisation into a for-profit public shareholding company totally owned by the government as a first step.”

“After completing the trans­formation process, the ASE has the choice to go public through an IPO at a later stage,” Azar said, referring to initial public offering, a term referring to the first sale of stock by privately owned compa­nies.

Commonly known as the Bourse, ASE was established in 1999 as a non-profit institution with administrative and financial autonomy. However, ASE trad­ing has been sluggish as cash-strapped Jordan tried to surmount several major blows, including the 2007-08 global financial crisis, the 2011 “Arab spring” revolutions and the civil war in Syria, which cost Jordan an important trade partner.

The regional upheavals led to Egypt cutting off cheap gas sup­plies, hiking Jordan’s fuel bill, putting tourism — a hard currency earner — at a virtual standstill and an influx of about 1.5 million Syr­ian refugees, who overwhelmed the country’s meagre resources.

Subsequently, the government reported a record budget deficit of $30 billion, 72% of gross domestic product. That sent the cabinet of Prime Minister Abdullah Ensour scurrying for solutions, hast­ily cutting expenditures and introducing a 10-year economic blueprint, which envisages an open-market economy with a larger role for the private sector to overcome economic challenges.

ASE figures showed the price index closed at 2,137 points on June 24th, a 1.3% decline from the corresponding period in 2014. Trading between January and June reached $1.77 bil­lion, compared with $1.79 billion for the same period of 2014, according to the figures made available to The Arab Weekly.

The number of traded shares reached 1.24 billion compared with 1.27 billion traded during the same period of 2014, a drop of 2.4%. The number of executed transactions reached 433,000 com­pared with 519,200 for the same period of 2014, a dip of 16.6%.

The ASE market capitalisation reached $25.2 billion by June 24th, a decrease of 1.2% compared to the year 2014 closing.

Currently, ASE is developing a strategic plan for the coming years that will focus on modernising the market up to the international standards, increasing ASE’s com­petitiveness, enhancing investors’ confidence and raising public awareness, Azar said.

Calculating a branded index for the ASE, upgrading the ASE classi­fication from “frontier” to “emerg­ing” market, motivating compa­nies to issue bonds and sukuk, or Islamic bonds, establishing special markets for new financial instru­ments are projected in the ASE’s strategic plan through the year 2018.

“Our plan will boost inves­tor confidence in the ASE and it should have a positive impact on the bourse’s overall performance,” Azar noted.

After the transformation is completed, ASE hopes to develop strategic partnerships, have better access to external and internal capital for infrastructure develop­ment and find greater opportuni­ties for growth while seeing an increase in income and profit­ability.

The total value of shares bought by non-Jordanian investors in 2014 was $510.8 million, which represents 16% of the overall trad­ing volume.

“The foreign investor owner­ship of stocks has fluctuated, between 46% and 52% in the last several years, proving that they are long-term investments stemming from high-level confidence in the ASE and the investment environ­ment in Jordan,” Azar said.

He said that the ASE is working on facilitating trading and attract­ing new investors to the market to increase the trading value and volume, to give the market more depth and to restore investor confidence.

“In order to improve the ASE, boosting investors’ confidence in the market is the primary goal the ASE is looking for,” Azar insisted.

“We will focus on organising campaigns to raise public aware­ness; organising road shows outside Jordan to introduce invest­ment opportunities at the ASE; motivating companies to issue bonds and sukuk; and reducing the trading cost at the market, which is supposed to increase mar­ket liquidity,” he explained.

The ASE wants to enhance its experience, partly by setting up a new surveillance system that will enable it to monitor trading in real time basis and provide early warn­ing signs through the use of alerts.

Azar said the project was in con­junction with Muscat Securities Market, Beirut Stock Exchange, Bourse de Tunis and Euronext Group, which owns and operates regulated markets in Belgium, France, the Netherlands, Portugal and the United Kingdom. The pro­ject is expected to be operational by the end of 2017, Azar noted.

“The changes and upgrades will have a positive impact on the ASE’s performance, and the coun­try’s economy and should get the stock exchange on a very positive long-term track,” he said.