Despite being the second oldest stock market in the Gulf region, Lebanon's principal stock exchange is also among the smallest; the country's market capitalisation accounted for about 1.2% of the aggregate market capitalisation of Arab equity markets in 2009.
The prevailing opinion is that the Beirut Stock Exchange (BSE) is not quite living up to its potential. "Our stock exchange is relatively irrelevant to economic activity in Lebanon. It does not play a role in funding economic activity or helping listed companies expand. Therefore, there is no incentive for companies to list," says Nassib Ghobril, head of economic research and analysis at Byblos Bank.
Taking stock
However, there is still a story to be told. Market capitalisation increased from $9.6bn at the end of 2008 to $12.8bn at the end of 2009, a year-on-year increase of 34%. Moreover, of the 24 instruments listed on the BSE at the end of 2009, 16 of them rose in price.
Those positive trends were offset by slides in other performance indicators. The total trading volume on the BSE reached 102.6 million shares in 2009, down 3% on 2008. Furthermore, aggregate turnover amounted to $1bn in 2009, down 39% from a turnover of $1.7bn in 2008. The market liquidity ratio was 8.1% last year, compared to 17.8% in 2008.
However, the BSE's vice-chairman, Dr Ghalib Mahmassani, is confident that things will get better. "New listings have been limited to new instruments issued by the existing listed companies. However, we expect new companies to be listed shortly as the government proceeds with its privatisation plan. It is normal that when such a phenomenon occurs, the BSE will be in the spotlight," he says.
The privatisation of key state assets, namely telecoms and certain utilities, might hold the key to reinvigorating the exchange. "The Lebanese market has a lot of potential because of the current high level of liquidity in the financial system and the interest in investing in Lebanon as a whole. I believe once privatisation takes place and more companies are encouraged to list shares, we will witness unprecedented times," says Mr Mahmassani.
Looking at listed equities, it seems a handful of banking and real estate stocks dominate BSE activity, which is perhaps a structural concern. Of last year's market capitalisation figure, 66.7% was in banking stocks, 30.7% in real estate, 2.06% in industrial, 0.28% in funds and 0.27% in trading stocks.
Meeting potential
New listings provide a way of tackling this problem, says Samir Hanna, general manager of one of the BSE's most prominent companies, Bank Audi. "At present, the BSE only has three or four companies with significant volume. However, the bourse continues to have great potential. Besides banks, there are three or four other companies worthy of an initial public offering. Such new listings can help to avoid the present system of a concentration of funds in a few stocks. It would be great for our bourse to have more listings of companies with business interests outside Lebanon," he says.
More significantly, the BSE is encouraging investment from outside Lebanon. "Some of our listed companies have global depository receipts listed in London. It will be difficult to quantify the level of foreign ownership but I can assure you we have regional and international investors in our market including some hedge funds," says Mr Mahmassani.
While privatisation and further listings will depend on the actions of others, the BSE has shown a willingness to bring itself in line with other bourses. Last year, it launched a new version of an advanced, electronic trading system, NSC UNIX V3+, based on the PAM system developed by NYSE-Euronext. The new system is more efficient in receiving orders, provides new types of buying and selling orders and has an audible warning mechanism for brokers.
Beirut Stock Exchange market capitalisation (equities and funds), $m
