Central Bank Covering the 1826 issuance of government treasury bills with a value of 35 million dinars. bahrain September 23, 2020. MANAMA.

… EURHRK= Croatian <EURHRK= 7.5475 7.5435 -0.05% -1.35% kuna > EURRSD= Serbian <EURRSD= 117.500 117.6000 +0.09 +0.06% dinar > 0 …

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

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

Market Review: “The Dog Days of Summer”

The subdued “dog days of summer” were further subdued this year as the month of August was shortened by an Eid holiday that rolled into an extended lockdown at its start, and the beginning of the annual 40-day Arbaeen pilgrimage at its end.

The market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), rose 3.8% during August’s 12 trading days, and is up 30.6% from the multi-year lows in April. The market’s daily turnover continued to gradually increase after the declines following the lockdown starting in March – an increase encouraged by the market’s better tone since then (chart below).

Banks, which led the market’s recovery, were mostly flat, after their recent strong performances, and will likely experience some profit-taking during September given the expected slowdown in activity coinciding with the Arbaeen pilgrimage which finishes in the first week of October. While the pilgrimage will likely be more low-key than normal this year, given social distancing rules, early reports on the activities of pilgrims are mixed on the adherence to these rules.

(Source: Iraq Stock Exchange, Asia Frontier Capital, data as of August 31st. Turnover excludes block transactions)

The Iraq Stock Exchange (ISX) continued with its investors’ Zoom conference calls initiative in which ISX-listed companies discuss their recent earnings results and outlook for the year. Among the leading companies recently presenting were Pepsi bottler Baghdad Soft Drinks (IBSD) in late July, mobile operator AsiaCell Communications (TASC) and Commercial Bank of Iraq (BCOI) both in August.

The initiative, a first for the ISX and its listed companies, has been promising in increasing investor understanding of the companies, their business plans, and outlooks – especially taking into account the effects of the disruptions to economic activities post-lockdown. This is a welcome development that is vastly different from the usual dearth of meaningful information beyond the annual reports and spartan quarterly reports which has traditionally led to rumours filling the information vacuum. The ISX intends to continue this initiative over the coming quarters and for the ISX-listed companies to proactively engage with investors.

Economic activity this summer seems to have mostly returned to pre-lockdown levels as can be seen from the Google mobility chart below. Encouragingly, this happened even after taking into account the effects of two Eid holidays in which each holiday was bundled into a 10-day lockdown, and the recent rolling Thursday-Saturday lockdowns which cut the working week to four days from five.

(Baseline is the median, for the corresponding day of the week, during January 3rd – February 6th,

Source: Google, data as of August 28th)

This recovery in activity built up gradually over the last few weeks as can be seen above, and it would have likely contributed to the healing of the economy from the shock brought about by the lockdown. However, it should be noted that the decline in activity as a result of the initial lockdown in March-May would have likely been more precipitous than shown in the above chart as activity in the retail, transport and hospitality sectors was subdued during the baseline period given the chilling effects of the dramatic events at the beginning of the year. More so, these events came on the back of a slowdown induced by the continued countrywide demonstrations since October 2019. Nevertheless, the recovery in economic activity is a positive development should it be sustained.

While there isn’t any new economic data that might provide a fuller picture, the decline from 4.8% to 3.1% in the premium of the market price over the official price of the Iraqi Dinar (IQD) versus the USD is a positive added to the mobility data above – even though the current premium is much higher than the 1.2% that it averaged in 2019. Moreover, it is too early to conclude whether the decline in the premium is due to an easing of the flight to safety, i.e. the hoarding of the USD, or, if it’s due to weak demand for imports – an important indication of economic activity and consumer confidence given the high dependence on imports to satisfy consumer demand.

(Source: Central Bank of Iraq, Iraqi Foreign Exchange Houses, Asia Frontier Capital, data from January 1st to August 28th)

The market’s recovery over the last four months notwithstanding, arguably, the claim made here in May still stands that the ‘worst-case’ prognosis for Iraq in the wake of the carnage brought about by COVID-19 will not be as bad as originally feared, however the market continues to price it in.

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

Mr Tabaqchali (@AMTabaqchali) is the CIO 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.

The post Market Review: “The Dog Days of Summer” first appeared on Iraq Business News.

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 27th Aug 2020).

Please click here to view a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD642 (+0.4%) / $672 (+0.4%) (weekly change) (-2.6% and -4.2% YTD change, respectively). The number of week traded shares was 38.7 bn and the weekly trading volume was IQD31.8 bn ($25.6 mn).

Note: ISX will be closed on Sunday (Aug. 30, 2020) due to religious holiday, 10th Day of Muharam “Ashura”. The next trading session  will be held on Monday (Aug. 31, 2020).

ISX Company Announcements

  • As a continuation of the efforts made to achieve sustainability in the application of quality management standards, the Central Bank of Iraq completed the second annual review procedures to renew the quality management system in accordance with the international standard ISO 9001: 2015. It is noteworthy that the company specialized in this field granted the CBI in 2018 a certificate in effect for three years after internal audit in the field of cash management and its full implementation of the requirements of the international system. (CBI)
  • ISX will suspend trading of Modern Sewing (IMOS) starting Sep. 17, 2020 due to the AGM that will be held on Sep. 22, 2020 to discuss and approve 2019 annual financial statement.
  • ISX will suspend trading of Zain Al-Iraq Islamic Bank for Investment (BZII) starting Sep. 10, 2020 due to the GA that will be held on Sep. 16, 2020 to elect 7 original and 7 alternative board members.
  • ISX will suspend trading of Ashur International Bank for Investment (BASH) and Modern Sewing (IMOS) starting Aug. 31, 2020 if the companies fail to explain why the prices touched the higher limit on Aug. 26, 2020 and Aug. 27, 2020.
  • National Islamic Bank (BNAI) resumed trading on Aug. 25, 2020 after being suspended for its AGM in which they discussed and approved 2018 annual financial statements.
  • Iraq Noor Islamic Bank for Investment (BINI) resumed trading on Aug. 24, 2020 after being suspended for its AGM in which they discussed and approved 2019 annual financial statements and distributing 1.04% cash dividend (IQD0.0104 dividend per share, 1.04% dividend yield).
  • Trans Iraq Bank for Investment (BTRI) disclosed on Aug. 23, 2020 that the ownership of Moayad Hassan Ali Aleidy has declined from 9.9% (26.1 bn shares) to 6.0% (15.9 bn shares) due to cross transaction orders.
  • Cross transactions: 22.4 bn shares of Trans Iraq Bank for Investment (BTRI) on Aug. 23, 24, 25 and 26, 2020, which represent 8.5% of BTRI’s capital. 6.5 bn shares of Iraq Noor Islamic Bank for Investment (BINI) on Aug. 27, 2020, which represents 2.6% of BINI’s capital.

The post Iraq Stock Market Report first appeared on Iraq Business News.

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 20th Aug 2020).

Please click here to view a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD639 (-2.1%) / $669 (-1.7%) (weekly change) (-3.0% and -4.6% YTD change, respectively). The number of week traded shares was 46.3 bn and the weekly trading volume was IQD24.0 bn ($19.3 mn).

ISX Company Announcements

  • The ISX will organize the ninth Zoom meeting on Saturday with Commercial Bank of Iraq (BCOI) for the company to disclose financial results for the investors and participants. BCOI’s meeting will be held on Saturday (Aug. 22, 2020) at 4:00 pm (Baghdad time), and the speaker will be CFO, Mustafa Hawas (For BCOI’s Zoom Meeting Link, please CLICK HERE, Zoom Meeting ID: 868 9677 2501, Password: 534369). The participation will be free and the recording of the Zoom meeting will be shared on the ISX website.
  • The Central Bank of Iraq calls all citizens to deal with banks and licensed brokerage companies for large cash exchanges instead of keeping at homes. The CBI seeks, through this, to preserve the money supply of citizens, avoid cases of theft and fraud, and promotion of counterfeit currencies. The bank stresses the need to reduce trade exchange in paper currencies, in which medical studies have proven to be an effective vector for viruses and bacteria, especially as the country is going through a crisis of the spread of Coronavirus. The Central Bank adopts mechanisms of spreading financial inclusion in Iraq, which enhances the banking culture and the shift to monetary exchange through banking in all its advanced civilized forms. (CBI)
  • ISX will suspend trading of Kharkh Tour Amusement City (SKTA) starting Sep. 2, 2020 due to the AGM that will be held on Sep. 7, 2020 to discuss and approve 2018 annual financial statements.
  • Original shares of Ahliya for Insurance (NAHF) resumed trading on Aug. 19, 2020 after being suspended for its AGM in which they discussed and approved 2018 annual financial statements, decided to increase the company’s capital from IQD2.5 bn to IQD7.0 bn through 180% rights issue and elect 5 original and 5 alternative board members.
  • ISX suspended trading of National Islamic Bank (BNAI) starting Aug. 16, 2020 due to the AGM that will be held on Aug. 19, 2020 to discuss and approve 2018 annual financial statements.
  • Kurdistan International Islamic Bank (BKUI) announced that the percentage share of Ms. Khan Adil Dsko Al-Barzani decreased from 9.9% to 8.5%.

By Dr Amer K. Hirmis, Capital Business Strategies Ltd. – UK.

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

Iraq’s PM meets the President of the United States…
What outcome…for the Iraqi economy?

 Introduction

This Thursday, August 20th, the “President Donald J. Trump will welcome Prime Minister Mustafa Al-Kadhimi of the Republic of Iraq to the White House…As close partners, the United States and Iraq will look to expand (their) relations across a range of issues, including security, energy, health care, and economic cooperation.[1]

The question is: what does each side expect, indeed wish, the outcome of the talks and negotiations should be?

Here, some aspects of the potential for ‘economic cooperation’ between Iraq and the U.S., in the near/medium term are covered.

A likely U.S. perspective

Contextualising the US perspective, one could speculate that its strategic interests in Iraq, and the Middle East generally, can no longer be secured by exchanging oil for political support and the export of arms. The last 100 years have shown that this is not a sustainable position, and it must change. Stability in Iraq, though, is critical for securing US’s strategic interests. Having invested enormous human, financial and political capital in Iraq, the US would encourage the establishment of a diversified, “free-market”, economy based on increased employment in productive sectors (thus alleviating poverty), good governance and rule of law. The US could help in tackling pervasive corruption (a major economic cost and hazard to doing business in Iraq) in part by deploying advanced technology.

More specifically, The US recognizes the existentialist economic challenges facing Iraq in light of these three crises: the post-2003 disastrous economic policies that nurtured widespread corruption, increased the economic power of (Iran-backed) influential personnel within/without the state apparatus and the (armed and well-financed) Hashd militias; the COVID-19 pandemic; and, finally, the severe decline in oil prices, in March/April of this year.

The US also recognizes that Iraq should enact fundamental economic reforms, which, from a US view point should consider:

  1. The 2008 Strategic Framework Agreement (SFA) with Iraq. The fourth point in the Preamble emphasizes “the building of a diversified and advanced economy that ensures the integration of Iraq into the international community.” This is echoed in Section V of the SFA. Section V (point no. 7) which goes further to say “Facilitate the flow of direct investment into Iraq to contribute to the reconstruction and development of its economy.” The US would assert that the 2008 SFA is a reasonable and rational vehicle to do so, providing there is a strong political will, and public acknowledgement of the constructive part both parties should play, without which democracy in Iraq will not take root in the long-run;
  1. Making use of US economic advisors to work directly with the Government of Iraq to help advance international support for Iraq’s reform efforts, including from the international financial institutions. They know that Iraq may not concur on all parts of this point; there is already a wealth of research by economic experts pointing to what needs to be done to initiate economic development in Iraq. The time now is for action – i.e. policy implementation, and soon. Iraq might argue that this (al-Kadhimi’s) government needs to demonstrate its worth for the people of Iraq, given the planned general elections in June 2021;
  1. The enactment of ‘firm plans for fundamental economic reforms’ soon; the enactment of these plans by parliament is a pre-requisite for US involvement in investment projects in Iraq. Arguably, Iraq must soon create the conditions for foreign investment to take place on a wider scale, and reverse the recent decline of FDIs in Iraq, as the 2019 UNCTAD report indicated. The conditions for doing business in Iraq must change soon, and become favourable – these, as the 2020 World Bank’s ‘Doing Business in Iraq’ report shows, are diverse. To pick one example, the US side might point to the weakness of the banking system, let alone its near-impossible conditions for extending credit to potential investors. These huge problems facing investment in Iraq are also well-known to, and appreciated by, the Minister of Finance, Ali Alawi, and senior civil servants, including those working at the PM Office; and,
  1. Petrochemicals and electricity might be priority investment fields from a US perspective, as they might be able to make a swift impact on the domestic market, though this would require dealing with reported corruption within this sector including in the areas of illegal connections to the grid, and contracts awarded for distribution/transmission of electricity. This means that Iraq would need to swiftly deal with the ‘deep state’ that engenders corruption in this and other sectors of the economy.

Finally, the US side might argue that its support must not be one-sided. It must be reciprocated by effecting tangible changes in the economy and political system, amongst other things. Otherwise ‘the potential for investment projects involving world-class U.S. firms in the energy and other sectors’ might not proceed.

To survive, it is imperative for any economic/political relationship to be based on some common ground – in this case, a real commitment for change to initiate economic development in Iraq must be demonstrated by Iraq and the U.S. So what would Iraq’s government hope to get out of the negotiations?

A likely Iraqi perspective

The Iraqi Prime Minister, Mustafa al-Kadhimi, and the team accompanying him are fully aware of the challenges they face: be they political, economic, social or environmental.

Soon after being appointed, al-Kadhimi set out his ‘Government Programme’ on May 6th, in which Article 3.1 states that in the short term, the government intends to handle the ramifications of the oil price crises by rationalizing public expenditure and stemming unnecessary expenditure. It also intends to develop the tax and tariff collection system. (see: https://www.pmo.iq/press2020/6-5-202002.htm). The Programme goes on to say (in Article 3.2) that a ‘Development and Investment Board’ would be established, this will provide a comprehensive plan for investment in infrastructure etc. al-Kadhimi’s team might also point out that since his government is fully aware of the weaknesses of the banking system, the CBI (Central Bank of Iraq) has been asked to handle this problem within a specific timescale! Finally, the Programme also points out that a comprehensive reform of the administrative system will be undertaken, youth employment in the private sector will be encourages, etc.

More recently, on August 3rd, al-Kadhimi has pointed out that a ‘White Paper’ is being prepared dealing with the wider economic issues. His Finance Minister, Ali Alawi, had in several occasions indicated the government’s awareness of the problems and promised that these will be dealt with appropriately! (see: https://www.france24.com/en/20200622-without-urgent-reform-iraq-economy-will-face-irreparable-shocks-minister-to-afp).

So the Iraqi side has a number of aspirational objectives to cover in their talks with the American side. They will, however, be well advised to be open about the long term problems Iraq’s economy has been suffering from (what is called ‘structural problems’ to do with the GDP’s composition). They should declare their vision/solutions which they might have in mind and the extent to which they think the U.S. side could, in the long-run, assist in transforming/diversifying the economy.

  1. One such chronic problem that the Iraq economy has been afflicted with is the historically acute negative balance of trade (when excluding the export of crude oil), as shown in the Figure below.
  1. Although inextricably linked to various (structural) aspects of the Iraqi economy, especially the recurrent deficits in the ‘Federal Budget’, the government might be well advised to bring this issue in the talks with the U.S. This provides a glaring example why it is imperative for Iraq to diversify its economy and why it will need U.S. assistance deploying the 2008 SFA, though the SFA itself might itself need to be reviewed, to be more specific in the capital investment field.
  1. The Iraqi delegation might be candid enough to go as far as admitting that the recurring budget deficit is not entirely due to excessive reliance on oil exports, it is perhaps mainly because Iraq hardly exports anything else of high-value-added that other countries might have a comparative disadvantage in and would otherwise import goods/services from Iraq.
  1. Now that is has been acknowledged by many experts that both the high rate of increase of Iraq’s population and the likely decline in oil prices as it becomes less in demand as an energy source, in the coming few decades, al-Kadhimi’s wisdom (or perhaps his survival instinct) might lead him to believe that this is a strategic priority for Iraq, and that if the U.S. is genuine in its desire to assist Iraq, this is where the emphasis should be – rectify the balance of trade (excluding oil) over the next 20-30 years, driven by the private sector with an enabling public sector.

Would al-Kadhimi opt for this direction of travel, and, if he did, will he adjust his thought process to make this the major strategic economic objective for Iraq?

The Joint-Statement

It is anticipated that the ‘joint Statement’ it issues will be drafted in the most diplomatic, courteous, and respectful manner. It is likely to postulate the existence of good relations between the U.S. and Iraq, with the former offering support and assisting to the Iraqi people to achieve their aspirations in establishing democracy, rule of law, good governance, and alleviating poverty, amongst other things (to be said in the Statement). It will probably acknowledge that the coming months will be critical in deciding the short-to-medium-term events in Iraq, given the depth of the resentment to al-Kadhimi’s government in some quarters whose interest are seen to be seriously threatened.

The Joint Statement doubtless will touch on the security partnership, the anticipated elections in June 2021, humanitarian aid, the significant progress made towards eliminating the ISIS threat, over the coming months, etc.

The two sides will reaffirm the ‘importance of the strategic relationship and their determination to take appropriate steps to enhance it in the interest of both countries and to achieve security, stability, and prosperity in the region.’

The time-honored dictum, though, will ring loud – that a combination of polity and economics that serves the people will thrive, and so will the country that upholds it. The polity and economics that does not serve the people will soon perish. The long history of Iraq, since early Mesopotamia, provides witness to the truthfulness of this dictum.

Both the current Iraqi and U.S. governments have now a new opportunity to choose one path or the other. We should find out soon!

Please click here to download Dr Hirmis’ full report in pdf format.

* Amer K. Hirmis, August 17, 2020

Dr Amer K. Hirmis is Principal at UK-based consultancy CBS Ltd. (2008-present). In October 2009, Amer began a 20-months assignment as Senior Development Planning Advisor to the Ministry of Planning in Iraq (funded under the DANIDA programme for ‘peace and reconstruction’ in Iraq). The posts Amer has assumed include Chief Economist and Head of Policy at the London Chamber of Commerce and Industry (1992-5), Economic Advisor to UK South West Regional Development Agency (1996-8) and Associate Director and then Head of Consulting and Research (Middle East) at the global firm DTZ (1998 to 2007).

Dr Amer K Hirmis is the author of ‘The Economics of Iraq – ancient past to distant future’ [https://www.amazon.com/Economics-Iraq-Ancient-distant-future/dp/1999824105] [Chapter 6 of the book is entitled ‘Monetary and Fiscal Policies’].

END

[1] (https://www.whitehouse.gov/briefings-statements/statement-press-secretary…-iraq/. The Press Statement was issued on August 7th).

In their June 2020 meeting, the respective teams preparing for the visit jointly stated that “The two countries reaffirmed the principles agreed upon by the two sides in the Strategic Framework Agreement (SFA), as well as the principles in the exchange of diplomatic notes and the letters of the Republic of Iraq to the United Nations Security Council…The United States reaffirmed its respect for Iraq’s sovereignty, territorial integrity, and relevant decisions of the Iraqi legislative and executive authorities.”  (see: https://www.state.gov/joint-statement-on-the-u-s-iraq-strategic-dialogue/ This was released on June 11, 2020).

 

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

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

Market Review: “Banks Lead Market Recovery”

The extreme summer heat in July, much hotter this year than usual, and rising COVID-19 infections were supposed to keep a lid on the market’s activities. But the reverse happened as a revived banking sector led to increased trading activity and rising prices across the board.

The market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), was up 8.4% for the month, and up 25.8% from the multi-year lows in April, but the market is still down 6.4% for the year.

The revival of the banking sector was driven by the Bank of Baghdad (BBOB) and the National Bank of Iraq (BNOI) – among the top-quality banks in the country. Both reported strong first half 2020 results (H1/2020) which were discussed over Zoom conference calls – a first for these companies and for the Iraq Stock Exchange (ISX) (links on the ISX organised calls for BBOB & BNOI in Arabic & English). BBOB was up 28.6% for the month on the back of an increase of 12.9% in June, while BNOI was up 36.0% for the month, but was flat in June.

The unaudited results of the two banks highlight different aspects of the recovery in the banking sector, each reflecting the different dynamics of the two banks. For BBOB, the gradual recovery continues from the hangover following the heady expansion during the boom years up to 2014. Customer deposits for H1/2020 were up 4.1%, following recoveries of 2.4% and 5.2% in 2019 and 2018 respectively.

Its loan book continues to decline, decreasing 4.5% in H1/2020, on the back of declines of 7.6% and 4.5% in 2019 and 2018 respectively. The results are consistent with the new management’s focus over the last few years on addressing the company specific issues and structural weaknesses that were exposed by the crisis of 2014-2017. Management’s success can be seen from H1/2020 pre-tax earnings which were 6.6% higher than the full year 2019 pre-tax earnings – which could indicate a doubling of full year pre-tax earnings should the second half of the year be a replay of the past.

For BNOI, growth continues to accelerate with customer deposits continuing to increase – up 66.2% in H1/2020, on the back of increases of 32.0% and 2.7% in 2019 and 2018 respectively. The loan book on the other hand was up 26.7% in H1/2020, following an increase of 119.9% in 2019 versus a contraction of 42.8% in 2018. Results were driven by management’s focus on growing the bank’s retail business where BNOI is emerging as a market leader.

BNOI’s pre-tax earnings were 14.6% higher in H1/2020’s than those for the whole of 2019 which could lead to 130% growth for FY2020 if BNOI maintains the same momentum for the whole year. The success of BNOI’s retail strategy in attracting sticky consumer deposits, and subsequently growing its retail loan book, demonstrates the potential opportunity from banking adoption in Iraq’s cash dominated economy.

While the two banks benefited from strong execution by new management teams, both were helped by the recovery in private sector deposits and loans that began in 2018, as can be seen from the Central Bank of Iraq (CBI) data as of end of March (chart below).

(Source: Central Bank of Iraq, Asia Frontier Capital, data as March 31st)

The data does not reflect the effects of the lockdown that began mid-March on deposits and loans – both of which would likely have deteriorated, especially deposits as the private sector would have used them to finance operations. Nevertheless, the data are encouraging given that the economic slowdown for Iraq began with the start of nationwide demonstrations in October, then made worse by the events early in the year with the US assassination of Iran’s top general in Baghdad and the subsequent Iranian rocket attacks on Iraqi military bases. The upshot is that any post-lockdown decline would take place from a higher base, which should alleviate the negative effect on banks.

Another tailwind for the banks in H1/2020, and probably for the rest of the year, is the increased spread between the official and market price of the exchange rate of the Iraqi Dinar (IQD) versus the USD, which benefits the banks’ FX spreads and thus their earnings. Interestingly, this is the mirror image of what occurred in 2018 (chart below) that hurt their earnings and led to accelerated selloff’s in the sector.

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

Typically, the market price of the USD trades at a premium to the official price, but spikes higher during periods of uncertainty or crises. The crisis of 2014-2017 led to a prolonged period of high premiums which was a boon to bank earnings during the difficult phase in which deposits declined and non-performing loans rose sharply. The end of conflict and a recovery of oil prices resulted in sustained premium declines which hurt banks’ earnings disproportionally as the sectors’ recovery was yet to take place. The momentous events at the start of the year, that raised the spectre of a US-Iran proxy war fought in the country, led to a spike in the premium, followed by a further spike to more elevated levels as the lockdown came into full effect. These elevated levels continued even though the full lockdown came to an end, as the government’s newly imposed rolling curfews on Thursday-Saturday as part of its COVID-19 containment efforts meant that the five-day working week has been cut down by one day, to Sunday-Wednesday.

The banks were not the only ones performing much better than feared, as both Pepsi bottler, Baghdad Soft Drinks (IBSD), and mobile phone operator, AsiaCell (TASC), declared strong dividends. IBSD increased its dividend by 50% year-over-year to yield 5.6%, and the stock rallied 11.1% for the month. TASC on the other hand, maintained its high dividend of the last few years and declared a 14.3% dividend yield. This compares to yields of 12.2%, 12.0% and 14.3% for the last three years. TASC was up 14.4% for the month.

The market’s recovery over the last three months notwithstanding, arguably the claim made here in May still stands: that the ‘worst-case’ prognosis for Iraq in the wake of the carnage brought about by COVID-19 was not as bad as originally feared, however the market still continues to price it in.

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

Mr Tabaqchali (@AMTabaqchali) is the CIO 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.