The security situation in Iraq hasn’t looked this bad in quite a while. Following the killing of at least 36 Sunni protestors in Hawijah on April 23, people are now even talking about a possible partition of the country. “It is wrong to say we are getting close to a civil war,” one Iraqi politician told the Guardian. “The civil war has already started.” (See this story.)
Yet Iraq Stock Exchange (ISX) investors don’t seem to have noticed. If a return to the sectarian conflict of 2006-2007 were imminent, Iraqi stocks would have crashed. Yet since the Hawijah massacre the Rabee Securities RSISX index has risen 2.8% (as of May 9). It’s up 11.6% year to date.
The market seems to agree with Joel Wing’s assessment in a recent piece for Foreign Policy. He argues that “growing support for the wider insurgency does not mean that Iraq is heading towards a new civil war” because:
(1) “Most operations by militants are in specific cities, and even then only affect a small percentage of the population” and
(2) “So far, the Shiite community is relying upon the government to take care of security rather than taking matters into their own hands.”
As long as these two points are correct, it’s easy to see why ISX investors should be unfazed. Sporadic terrorist bombings and gun battles between the Iraqi army and insurgents in particular neighborhoods result in tragic loss of life but don’t add up to a ‘civil war’. And as long as most Iraqis remain unaffected, increased levels of violence just aren’t going to have any material effect on GDP growth and the earnings of the listed companies.