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Jordan: Amman Stock Exchange prepares for a brighter future

Monday, 01 March 2010 13:30

Investors on the Amman Stock Exchange (ASE) will be hoping that the projected growth in the Jordanian economy and a long sought after increase in liquidity will see the bourse reverse its downward slide of recent months.

The ASE has had something of a rollercoaster ride over the past year and a half, sharing the experience of many exchanges in the region and indeed around the world. In June 2008 the ASE index broke through the 5000-point barrier, before tumbling to just over half that by late November. Subsequently, the market has worked toward the 3000-point mark, with the index presently moving around the 2500-2470 range.

Between them, the 272 companies listed on the ASE have a total market capitalisation of $31.5bn, representing 147.4% of gross GDP, well down on the 226% at the end of 2008.

At least in part, the weak performance of the past year or so has been a result of some of the foreign investors pulling out of the exchange. The ASE has traditionally had a high foreign ownership, with the level having risen from 38.5% in 2001 to just under half. As of the end of 2009 foreign investors held 48.9% of the total market value of shares in companies listed on the exchange, with investors from Arab countries holding 33.4% while non-Arab investors accounted for the remaining 15.5%. Non-Jordanian ownership is spread across the economy, representing 51.9% in the financial sector, 32.3% in services and 53.1% in industry.

Though strongly represented on the ASE, overseas shareholders staged a small retreat in 2009, with the net value of non-Jordanian investment decreasing by $5.4m, compared to the $440m increase posted in 2008. Overall, the value of shares bought by overseas investors last year totalled $3bn, representing 22.1% of the trading value for the year, while foreign-owned shares worth $3.04bn were sold.

This downward trend has continued into the new year, with the total value of shares bought by non-Jordanian investors in January being $119m, while shares sold by overseas traders amounted to $144m in value. The $25m decrease for the first month of the year compared to the $7.1m increase in January 2009.

Though the Jordanian economy is expected to expand by 4% this year, almost double the rate of 2009, a number of factors could hold back any major surge on the stock exchange. Foremost of these is a potential hesitancy among overseas investors, especially those in other Arab countries - by far the largest bloc of foreign players on the market - to put money into another economy when their own may be somewhat shaky.

Though most predictions are for a modest recovery across regional economies in 2010, uncertainty remains, with the debt levels of Dubai still a matter of concern and new fears arising over the health of eurozone economies such as Greece, Spain and Portugal. Any further unease could see even more investment drawbacks.

Another issue that has impacted the Jordanian economy, and thus activity on the ASE, is a lack of liquidity. According to a report released by the Central Bank Jordan (CBJ) at the end of January, money supply growth almost halved to 9% last year, compared to a record 17% in 2008. Domestic bank credit fell by 1.5% in 2009, the first decline in more than a decade, as local lenders became increasingly cautious.

This drying up of liquidity came despite efforts by the CBJ to keep credit flowing, reducing reserve requirements on commercial deposits, pumping an additional $5.6bn into the banking system and lowering interest rates by 200 basis points. While these measures have helped to improve the situation, credit is still tight, despite many banks posting strong increases in deposits and assets and solid, though in some cases lower, levels of profit last year than in 2008.

Though 2009 figures may have been below expectations, the ASE has continued to prepare for a brighter future. Having launched its new high-speed electronic trading system in March last year, Jalil Tarif, the CEO of the exchange, recently announced the ASE was working to create new financial instruments to further diversify and increase the market depth for investors while simultaneously expanding the investment base.

While these and other improvements will help the ASE trade faster and better, there will need to be signs of better health in economies both nearby and farther afield before upper barriers will again be tested.

Global Arab Network

This article is published in partnership with Oxford Business Group

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