ISX ready for lift-off

The Iraq Stock Exchange ended the year with a bang last month, with Rabee Securities’ RSISX index rising 8.8% in the final two weeks of trading. Having been down as much as 10% year-to-date in early October, this index actually managed to close 2010 up 1.7%. Volume in the final week rose above IQD 10 bn for the first time since May to IQD 11.9 bn (US$ 10.2 mn), more than double the previous week’s IQD 4.5 bn.

During the holiday shortened first week of 2011 (consisting of only January 4 and 5) there were more positive signs. In just those two days the RSISX rose a further 6.7%, while volume came to IQD 12.9 billion, of which Baghdad Soft Drinks (IBSD) accounted for 72%. IBSD has been limit up for three days in a row, starting on December 23 (the last trading day of 2010), when the shares finally resumed trading following a six month suspension due to a capital increase.

Even more exciting market action can be expected in 2011. With the formation of the new government now a done deal, the stage has been set for a return to the pre-insurgency peaks of 2004-2005 when IBSD got as high as 8.55, compared to just 1.33 today, INCP, now only 4.45, reached 27.22, and BCOI, which last traded at 1.39, peaked at 7.78. (Old highs are adjusted for subsequent capital increases. See my November 2 post for more examples.)

And there’s no reason prices should stop at those levels. This time there will be much more money chasing Iraqi stocks as investors from Iraq’s oil-rich neighbors and the Iraq funds now being marketed around the world scramble to get in. But the supply of stock isn’t going to be all that much greater than it was five years ago. These buyers may start out cautiously, trying not to push too hard while filling enormous orders, but will soon find that they have no alternative but to bid wildly. Then the market will truly go ballistic, gapping up over a series of weeks until the supply-demand equilibrium is finally reached at some stratospheric new level.

15 Responses to ISX ready for lift-off

  1. Stew 7th January 2011 at 09:29 #

    Mark DeWeaver... good stuff. A few questions if you don't mind.
    When you say “old highs are adjusted for capital increases” and you say IBSD was as high as 8.55 compared to 1.33 today.
    I’m familiar with “Market Cap” which is # of shares X price = Market Cap.
    Are you saying IBSD’s “Market Cap” is currently about 1/8 of what it was at its high?
    I’ve seen articles about ISX stocks “increasing capital”, and I’m not sure I understand it.
    Does “increasing capital” mean they are issuing more shares?

    Also… I know people that have opened Bank accounts in Iraq and are investing in the ISX through those accounts. At one point through a proxy I believe because foreigners weren’t allowed to participate in the ISX. I assume it now ok for foreigners to buy and hold Iraqi stocks?
    If E-Trade wont allow me to buy ISX stocks, and I’m a little uncomfortable sending money to Iraq to open an Iraqi bank account… what are the safest ways for the average Joe to invest in the ISX?

  2. EMMET 7th January 2011 at 10:49 #

    Good post Mark Weaver...Can you shed light how much it will take to get in the market?

  3. stan 7th January 2011 at 11:21 #

    Nice, news, but.... how can iraq do any real growth without a internationally recognized currency. ???

  4. EMMET 8th January 2011 at 01:59 #

    All I know is the people that to the risk to invest in the begin should reap the highest reward. Your talking about investors that made the leap when Iraq had nothing to offer and anyone espeically the banks.

  5. Lolapaluza 9th January 2011 at 12:24 #

    And what this could mean to the RV? Anyones knows

  6. peter 9th January 2011 at 13:57 #

    HI Mark,great article ! And I LOVE that 'Stratospheric' word..I'll be more than happy to sell to them at those levels..yehaa !!

  7. DeWeaver 10th January 2011 at 08:52 #

    Thanks Peter.

  8. DeWeaver 10th January 2011 at 09:02 #

    Actually you don't need much at all. Consider HSBC subsidiary BDSI for example, which today (Jan 10) traded just 50,000 shares worth IQD 335,000. Whoever did that trade didn't even need US$100.

  9. DeWeaver 10th January 2011 at 11:47 #

    Hi Stew:

    Good question!

    In Iraq capital increases take the form of bonus and rights issues. In a bonus issue, retained earnings are capitalized and the corresponding number of new shares is issued to existing shareholders for free. In a rights issue, new shares are sold to existing investors (always at par value, IQD 1). In both cases, the number of shares the shareholder can get is proportional to the size of his/her holding.

    Adjusting historic prices is a matter of figuring out what price per share today, after new shares have been issued, would be equivalent to the old price, when the new issues where still in the future. Suppose, for example, that a company had an old high of ID 10 and later had a 100% bonus issue and a 100% rights issue. If you had bought one share at the high, never sold, and subscribed to the rights, you'd now have 3 shares that cost you a total of ID 11 (ID 10 for the original share, ID 1 for the rights issue share, and nothing for the bonus share). This would be equivalent to buying 3 shares today at ID 11/3 = ID 3.67--so paying ID 10 for a share that will subsequently have a 100% bonus and a 100% rights issue (at ID 1) is equivalent to a paying ID 3.67 after the ex rights date has already passed. The adjusted old high is thus ID 3.67.

    In the case of IBSD, I should first mention that in the capital increase history section of Rabee Securities' most recent report on the company, the ratio for IBSD's 2005 rights issue has been corrected from 100% to 120%. This results in an adjusted old high of ID 7.92 rather than the ID 8.55 figure I mentioned, which was based on one of Rabee's older reports. At the time of the (unadjusted) old high of ID 36 in July, 2004, the company would have had 25 billion shares in issue, so the market cap would have been ID 36 * 25 bn = ID 900 bn. Today (following their most recent rights and bonus issues) there are 125 bn shares, so at ID 1.33, the market cap is ID 1.33 * 125 = 166 bn.

    So the ratio of today's price to the adjusted old high is: 1.33/7.92 = 17%, while the corresponding market cap ratio is: 166/900 = 18%. These ratios are close in this case but I don't know that this will be true in general.

    As for buying Iraqi stocks, this is actually quite straightforward as there are no restrictions on foreign ownership. It's also very easy to open an account with a broker and trade yourself. Alternatively, you could invest in a fund, though many of them will have high minimums (e.g. $ 200,000) and require that you be a high net worth individual. I don't know if there are any that accept smaller amounts. It seems to me I once read of one that could accept as little as $10,000 but I can't remember the name of it.

  10. Sharon 10th January 2011 at 12:21 #

    Can anyone recommend at least 3 brokers to register with? I hear Rabee Securities mentioned a lot.

  11. Emmett 10th January 2011 at 15:58 #


    You last post was interesting but pretty complicated. See a rv will help in number of ways cause the share prices currently are complicated too, Lastly if one invested during the crisis around 2005 to 2008 those investors might prove to have the biggest lose and gain. Most of the avgerages were around 20 to 35 dinars. Investors that bought in then got dupped but should have dividens forever.

    If a investor buys in now splits might not apply to them like the investors the bought earlier?

  12. DeWeaver 11th January 2011 at 09:35 #

    Yes, if you buy in now the old capital increases don't affect you. Today's prices simply reflect the fact that there are many more shares in issue.

  13. Stew 11th January 2011 at 10:25 #

    Thanks for the info Mark... lol... I think I need pictures.

  14. frank a bouchet 15th January 2011 at 22:09 #

    Sir; If the Iraqi dinar revalues at $1,how will the ISX adjust for this.If no adjustment a stock like IBSD will have more value than most of the companies on the US stock exchange? In my opinion,the ISX will have to "lop" the shares.

  15. EMMETT 23rd January 2011 at 03:49 #

    ISX HAS JUST HIT 114.00