With a year-to-date return of 14.6% as of February 7, the Rabee Securities RSISX index is the region’s second best performer so far this year. Only Iran’s TEPIX index, up 16.4%, did better.
Regional stock markets have generally mirrored the lackluster performance of the Morgan Stanley global emerging markets index, which is down 1.8% year-to-date. The main headwinds, both in the region and around the world, are coming from the threat of rising inflation and higher interest rates. For all the talk of political uncertainty following the protests in Egypt, these have had little impact so far. Markets like Saudi Arabia and Jordan initially took big hits on the Egypt news, but most of those losses have since been made up.
While Iran and Iraq have had similar returns so far, the two countries face dissimilar macroeconomic situations. The Iranian economy is hampered by international sanctions and declining oil production, while year-on-year food price inflation reached 18.9% in December (the last reported month). This compares to the situation in Iraq, where foreign investment is growing rapidly, oil output is expected to double or triple over the next decade and December CPI was only 3.3%.
The two stock markets are quite different as well. The Tehran Stock Exchange has been operating since 1967, has a market capitalization of about US$ 90 bn and 420 listed companies. The history of the Iraq stock exchange only goes back to the mid-1990s. So far there are fewer than 100 listed companies with a combined market cap of around US$ 2 bn.
And the Iranian market has already been rising for quite a while. It was up 68% in 2010. The ISX ended last year basically flat. Its bull market has only just begun.
It shouldn’t be hard for Iraq to take over the top spot.