The demonstrations seen throughout Iraq over the past two weeks have so far had no discernable effect on the ISX. As of February 24, the RSISX index had risen 19% year-to-date to a new high for the year. Iraq is now the region’s top performer.
This strong performance is not hard to understand. In contrast to their counterparts elsewhere in the region, Iraqi demonstrators are not advocating radical political change. Indeed many of the reforms people have been calling for in other countries occurred in Iraq years ago following the overthrow of Saddam Husein. Nor, given the continuing influence of the United States, is the army likely to take advantage of the situation by staging a military coup, as appears to have been the case in Egypt.
At the moment, there doesn’t really seem to be that much potential for political instability. And investors long inured to mass casualty terrorist attacks can hardly be expected to turn bearish following the deaths of a relatively small number of protestors.
The relationship between protest movements and the year-to-date relative performances of regional markets is in any case not entirely straightforward. (See chart. Red bars indicate countries where demonstrations have occurred.) As you might expect, Egypt and Tunisia have been the worst performers. But the UAE and Turkey, which so far have not had any demonstrations, have fared worse than Kuwait and Jordan.
Or consider Bahrain and Saudi Arabia. The former is still up 0.5% year-to-date, despite a violent crackdown on Shia protestors demanding concessions from its Sunni ruling family. The latter has so far been an oasis of calm. Yet the Saudi market is nonetheless down 5%, apparently in part because of the risk that Bahraini unrest could spread across the causeway connecting the two countries!
Like Iran, the region’s second best performer, limited links to the international financial system make the ISX relatively immune to contagion from other markets. The main effect of regional disturbances on Iraq so far has been a rise in oil prices. As long as this continues to be the case, while events may trigger occasional corrections the bull market should remain solidly on track.