Market Review: The Economy Continues to Hum Along

By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

June's heat wave continued into July with temperatures this year continuing to exceed recent averages (chart below), which combined with the onset of summer holidays, led to a lull in the market with the Rabee Securities RSISX USD Index down 0.8% for the month, and up 23.3% year-to-date.

Baghdad Temperature Graph July 2021 in Celsius

(Source: Accuweather, data as of July 30th)

While market turnover slowed down considerably with a decline of 24% month-on-month (excluding block transactions), the market's overall positive momentum continued in which this month's decline maintained the recent uptrend (chart below), and the market continues its consolidation after the strong year-to-date gains.

(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital, data as of July 28th)

Economic activity continues to support the market's consolidation thesis as can be seen from recent economic indicators, and from anecdotal observations from a recent fourth-month sojourn in Baghdad (photos below).

The first economic indicator is the continued expansion in the money supply, with broad money up 22% year-over-year in May paced by strong oil sales - that in Iraqi Dinar (IQD) terms approached the recent highs of 2018 and are within reach of the all-time highs attained during the last period of very high oil prices pre-2014 (chart below). This expansion in broad money is a function of the sizeable liquidity injections in 2020 as outlined in "On the Economics of Coiled springs, Crouching Tigers, and Chicken Lickens", and of the continued growth in lending to the private sector as outlined in "Private Sector Deposit & Loan Growth Continues".

(Source: Central Bank of Iraq, Ministry of Oil, Asia Frontier Capital, data as of May)

The second economic indicator is Google's mobility data (below chart) which shows that economic activity, in particular activity in the crucial sectors of retail and grocery has recovered by up to 55-150% above the levels that prevailed pre-2020's great lockdown - supported by the return of the workplace and residential sub-indicators to pre-lockdown normal. The dips in early June and late July coincide with the two one-week Eid holidays - the first after the end of the fasting month of Ramadan, while the second came after the end of the pilgrimage season.

(Baseline is the median, for the corresponding day of the week, during January 3rd -February 6th 2020.
Source: Google, data as of July 28th

Given that Google's mobility data provides a picture of economic activity but not transactions, the third economic indicator can be glimpsed indirectly from the volumes for USD-IQD transactions as conducted by the Central Bank of Iraq (CBI) in its weekly USD sales (transfers to facilitate foreign trade transactions as indicated by green bars and to satisfy the need for physical USD for Iraqi's travelling abroad as indicated by the red bars). Demand for USD in the CBI's transactions is a reasonable proxy for consumer demand given the country's high dependence on imports to satisfy domestic consumption of goods and services. The figures in the last few months, expressed in IQD terms, show the extent of the recovery in demand for USD over comparable figures in 2020 (chart below), and imply that the rise in activity as seen from the Google mobility data have been accompanied by increased transactions. More details are available at "On the Economics of Coiled springs, Crouching Tigers, and Chicken Lickens".

(Source: Central Bank of Iraq, Asia Frontier Capital, data as of July 28th)

The above economic indicators are supported by anecdotal observations from a four-month sojourn in Baghdad that ended in early July. The first of these observations is the resumption of the 2019 revival in construction activity - discussed in AFC's Iraq travel report "Significant social and economic transformation". The economic crisis in the wake of COVID-19 for most of 2020 had put a halt to these activities, however they resumed in the recent economic rebound following the recovery in oil prices and increased domestic liquidity. This resumption in construction activity seems to include both commercial and residential construction as can be seen from the three photos below.

Qadysaia Expressway, Qadysaia District, Baghdad

(Work on this development has progressed considerably since 2019 as can be seen from an earlier photo of this development in AFC's 2019 travel report cited above)

Four-Streets Boulevard, Yarmuk District, Baghdad

(Construction of new restaurants and shops next to "Hundreds" restaurant, and Razan Cake in Yarmuk district's trendy Four-Streets Boulevard . Many such shops and restaurants have been constructed and opened across Baghdad to meet consumer consumption demand revival)

Karadah District, Baghdad

(The construction activities extend to the build-up of individual housing units witnessed all over Baghdad)

The second of the anecdotal observations is a significant increase in discretionary consumer consumption across all sectors, but especially in the retail and hospitality areas, as can be seen from the two photos below.

Sinak Bridge Road, Sinak, Baghdad

(Bazars all over Baghdad have seen a revival in visits and purchases by consumers)

Babylon Rotana Hotel, Karada District, Baghdad

( "Helo Ya-Hawa Baghdad" shopping festival in early July - for a more information check out the first and second days 1-minute videos by one of the participating companies)

Finally, to end the string of photos with a night-time photo of Baghdad as activity winds down ahead of the 9 pm night-time lockdown in April.

Karada District, Baghdad

(View from the rooftop of the Babylon Rotana Hotel, with the rising new CBI headquarter tower, designed by famed Iraqi architect Zaha Hadid, in the background, and the Tigris river on the right)

Please click here to download Ahmed Tabaqchali's full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Comments are closed.