Foreign investors see robust 2012 for Iraq's bourse

December 28, 2011

Foreign investors net buyers in 2011


* Political crisis not seen stemming investor appetite

* Iraq's small stock exchange robust in global slowdown

By Aseel Kami

BAGHDAD, Dec 28 (Reuters) - Foreign interest in Iraq's
fledgling stock exchange is expected to rise in 2012 after its
main index jumped more than 30 percent this year and investors
say a political crisis that threatens to increase sectarian
discord will not deter them.

Tensions came to the surface within the Iraqi government
immediately after the last U.S. troops left 10 days ago, opening
the door for a possibility of sectarian strife that drove the
country to the brink of civil war a few years ago.

The crisis erupted when Iraq's Shi'ite premier moved against
two senior Sunni leaders and a slew of bombings that killed
dozens in mainly Shi'ite areas in Baghdad also rattled nerves.

But foreign investors, who were net buyers and snapped up
$150 million worth of shares on the local bourse this year, say
the latest political turmoil and security concerns have done
little to affect their appetite for the frontier bourse.

"We are still committed to the Iraqi market ... our views
won't change just because of what is happening now," said Sherif
Salem, a portfolio manager with Invest AD, an Abu Dhabi
investment company that has invested $18 million in the ISX
since November 2010.

"We are probably counting on investing more money towards
the beginning of next year when the market opens, so it (the
current situation) does not change our outlook," he said.

The ISX held its last trading session on Dec. 20. The total
number of traded shares in 2011 stood at 492 billion with a
volume of $753 million, compared to 255 billion shares with a
volume of $377 million in 2010, according to the ISX.

Foreign investors bought 82.7 billion shares at a volume of
$150 million and sold 18.7 billion shares with a volume of $41.7
million.

Foreign trading on the ISX, which has a market cap of around
$4 billion, was almost nil a few years ago.

"Iraq will be the fastest-growing important economy in the
world by far for the next decade, and we expect to see this
reflected in the country's public companies," said Northern Gulf
Partner's Bartle Bull, a portfolio manager of Iraq Investment
Partners I fund.

"Foreigners will undoubtedly continue to be net buyers of
Iraq in 2012. Where else can investors find world-leading GDP
growth and resource wealth at post-war prices?"

TELECOMS IPOS

The ISX, which sits in a compound surrounded by blast walls
and armed guards in central Baghdad, is a bold example of steps
taken to broaden Iraq's state-centric economy and attract
foreign investors as the OPEC member tries to rebuild its
battered infrastructure after years of war and sanctions.

Although violence in Iraq has ebbed dramatically since the
height of sectarian fighting in 2006-07, bombings, killings and
other attacks still occur on a daily basis.

The ISX, which started operating in 2004 and has 86 listed
firms on it, is one outpost of private investment outside of the
oil industry in a country still dominated by state firms.

The banking sector is the largest on the bourse, which also
lists industrial, insurance, hotel and agriculture firms.

While Iraq's bourse is tiny compared to other regional or
international stock markets, the ISX has proved more robust in a
global economic slowdown as one of the few markets with
potential for huge growth.

The ISX closed at 136.03 points in its last trading session
of 2011, up 34.7 percent from its last trading session of 2010,
which was at 100.98 points.

Foreign investors say changes in Iraq's economic climate are
more likely to influence their decisions although they are
taking heed of the political climate.

"While we will continue to watch political developments
closely, our decision to enter the Iraqi market is based on
economic factors," said Hussein Qaragholi, a managing partner at
Phoenix Capital, which has invested in firms listed on the ISX.

"In 2012 we expect to deploy significant capital into assets
on the ISX."

Investors say one of the main factors that will drive
investor sentiment towards the ISX in 2012 is the expected
listings of Iraq's three main mobile phone operators.

Zain Iraq, a unit of Kuwait's Zain, Asiacell, an affiliate of Qatar Telecom and Korek, part-owned by France Telecom SA and Kuwait's Agility all missed an initial Aug. 31 deadline
in their contracts to list, which now look likely to go ahead sometime
next year.

"Any one of these (listings) could double the entire market
capitalisation of the ISX, and would bring extensive analyst
coverage and liquidity into the market," said Bull.

"Should one of these IPOs get off the ground, we could be
looking at 100 percent or more returns in 2012 -- in U.S. dollar
terms. If these IPOs don't happen, we're looking at another
modest 20-40 percent (in the) year, with the really big growth a
little farther down the road."

(Additional reporting by Amran Abocar in Dubai; Editing by
Serena Chaudhry)