Kuwait Energy has announces that the Royal Court of Jersey has approved the acquisition of the company by Gold Cheers Corporation Limited, a wholly-owned subsidiary of United Energy Group Limited (UEG), by means of a scheme of arrangement.

The consideration to be paid under the transaction will be US$477,248,630.20 which equates to a per share price of US$1.46400797821.

Completion of the acquisition remains subject to delivery of the Act of Court sanctioning the Scheme to the Registrar of Companies in Jersey. This is expected to occur on or before 22 March 2019 (the “Effective Date”), at which time the Scheme will become effective.

Payments to shareholders should be dispatched within 14 days of the Effective Date, as detailed in the scheme document dated 15 November 2018 relating to the Scheme.

In Iraq, Kuwait Energy has interests in the Mansuriya, Siba, and Block 9 fields.

(Source: Kuwait Energy)

Kuwait Energy has announces that the Royal Court of Jersey has approved the acquisition of the company by Gold Cheers Corporation Limited, a wholly-owned subsidiary of United Energy Group Limited (UEG), by means of a scheme of arrangement.

The consideration to be paid under the transaction will be US$477,248,630.20 which equates to a per share price of US$1.46400797821.

Completion of the acquisition remains subject to delivery of the Act of Court sanctioning the Scheme to the Registrar of Companies in Jersey. This is expected to occur on or before 22 March 2019 (the “Effective Date”), at which time the Scheme will become effective.

Payments to shareholders should be dispatched within 14 days of the Effective Date, as detailed in the scheme document dated 15 November 2018 relating to the Scheme.

In Iraq, Kuwait Energy has interests in the Mansuriya, Siba, and Block 9 fields.

(Source: Kuwait Energy)

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.

The Iraqi market, as measured by the Rabee Securities RSISUSD Index, declined by -9.7% in February, taking the year to date decline to -12.5%.

February’s decline takes the index below the multi-year lows made in May 2016, for a decline of ­-70% from the multi-year highs of January 2014 to February 2019, versus the -68% decline from the same highs to May 2016. However, the severity of the decline and the immediate triggers are the only things that the two months have in common, while all other indicators, both fundamental and technical, are diametrically opposed.

The immediate trigger for the decline in the last two months was a foreign portfolio liquidation, the same trigger behind that of the period leading into May 2016. However, the similarity ends there, as the current foreign liquidation is that of a relatively small single portfolio vs. the massive multi-month liquidation witnessed then as the chart below demonstrates.

(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital)

The above chart is an index of the absolute level of foreign selling & buying with their respective moving averages, clearly showing the contrast between the two periods (both highlighted in light orange). The main reason for the similarity, in effect of the selling on the index, is due to the extremely low liquidity in the current market- a low level that has been discussed in “Volumes and Reversion to the Mean”.

The average daily turnover per month since late 2014 (chart below) shows the association of low turnover with the index levels. Moderate selling in such an environment of extremely low liquidity exerts a strong downward pressure on prices, which coupled with low prices turns a few price increments into much larger percentage moves. A case in point is Bank of Baghdad (BBOB) which started the month at IQD 0.280 per share. Due to selling it declined to IQD 0.250 by month’s end. This is equal to three price increments (the minimum price increment is IQD 0.010), yet it is a -10.7% decline from 0.280 to 0.250, which in turn accounted for a -1.2% downward move in the index. Another issue of low liquidity is how it affects higher priced stocks, resulting in them trading in much larger price increments, with the end result producing the same percentage change effects as for the lower priced stocks.

(Source: Iraq Stock Exchange (ISX), Rabee Securities, Asia Frontier Capital)

The macro picture between 2016 and now couldn’t be more different. In 2016 Iraq’s economy was being crushed by the double whammy of collapsing government revenues, due to falling oil prices, and the sharply increasing cost of the ISIS war- a war that many international commentators believed marked the end of the Iraqi state. However, the end of the ISIS war cemented Iraq’s integrity and its position as a key player in the Middle East. This is evidenced by the high number of heads of state and high-level official visits to Iraq over the last few months as relationships which were forged during the ISIS-conflict are being developed into future economic relationships.

On the other hand, the economy in 2019 is gradually benefitting from the expansionary effects of the reversal of the forces that crushed it. In particular, the healing effects of higher oil revenues over the last two years is beginning to filter down into the broader economy with the first signs being seen in the recent recovery in broad money, or M2 which acts as a proxy for economic activity, as can be seen in the chart below.

(Source: Central Bank of Iraq, Iraq’s Ministry of Oil, Asia Frontier Capital)

(Note: M2 as of Nov with AFC est.’s for Dec; Oil revenues as of Feb)

The period leading to the May 2016 low witnessed multi-month declines in oil revenues that had a massive negative effect on economic activity as first seen in the stagnation of M2, followed by a decline as manifested in the onset of a severe economic contraction. It was natural then that these effects would negatively impact corporate earnings and ultimately lead to a marked decline.

A mirror image reversal is taking place in 2019 as multi-month increases in oil revenues have revived M2 which points to an economic recovery. The early signs of this is evidenced in the growth of customer deposits (consumers, businesses and government) with banks, which can be seen in the chart below through the growth of the IQD Current Account (C/A) component of banks’ reserves with the Central Bank of Iraq (CBI) – the recovery of which accelerated in May 2018, with the latest data as of early February indicating a continuation of this trend.

(Source: Central Bank of Iraq, Asia Frontier Capital)

(Note: M0 as of Jan, IQD C/A component of bank’s reserves as of Jan)

Other signs of economic recovery can be seen from the recent earnings reports of consumer spending related companies such as Pepsi bottler Baghdad Soft Drinks (IBSD) and mobile operator AsiaCell (TASC). Of the two, the data from TASC is promising, as the company is especially leveraged to the economic recovery given the severe hits its profitability took due to the ISIS conflict which were discussed fully in “Telecoms Dial up Recovery

The drag on the economy thus far in 2018 and 2019 has been due to the political paralysis before, during, and after the May 2018 parliamentary elections. This led to a torpidity in government spending, but a silver lining of the government inaction has been the steady growth in the government budget surplus that is estimated to be about USD 24.5 bln in the two years ending in 2018. This paralysis in government spending has finally come to an end with parliament’s approval of the 2019 budget in mid-January.

The 2019 budget’s non-oil investment programme is about USD 12.5 bln, which would be equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019. While it is highly unlikely that this would be immediately spent, yet the spending should start with a trickle but grow as investment spending gets underway.

Just as the negative fundamental forces in 2016 were the reason for the market’s decline, their reversal and the early signs of economic recovery should lead to an economic growth which must find its way into corporate earnings’ recovery- which in turn should lead to a rising market. Logically, this ought to mean an end to the market’s divergence from its past close relationship with oil revenues (a proxy for the forces driving the economy) which is currently at the widest it has been for the last few years (see below).

(Source: Iraq’s Ministry of Oil, Rabee Securities, Asia Frontier Capital)

(Note: Oil revenues as of Feb)

In conclusion, the fundamentals seen in the prior charts surely argue that it’s only a matter a time before the liquidity in the broader economy finds its way into the Iraqi equity market, the reigning ugly duckling of frontier markets, to turn it into a swan or at least into a duck that flies.

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.

By John Lee.

A Chinese company has reportedly won a contract to build a natural gas liquids (NGL) plant in Basra.

According to Xinhua, China’s Petroleum Engineering and Construction Corporation (CPECC) signed the contract on Wednesday with Iraq’s Basra Gas Company (BGC).

As a result of the new plant, BGC will increase its gas production capacity by 40 percent.

The Basra NGL facility will be built in Ar-Ratawi area in west of Basra and is scheduled to complete at the end of 2020.

CPECC is a subsidiary of the China National Petroleum Corporation (CNPC),

(Source: Xinhua)

Iraq strengthens its reserves of gold and revealed its quantity

2/19/2019

{International: Euphrates News} World Gold Council data revealed that Iraq Iraq has strengthened its reserve of gold.


The World Gold Council’s latest report showed that central banks around the world bought around 651.5 tonnes of gold in 2018, noting that Russia and Turkey had raised their reserves at the expense of the dollar.

Countries such as Iraq, India, China and Kazakhstan were among the top gold buyers in 2018. According to data, Iraq increased its reserves last year by 6.45 tons, bringing its total gold holdings to 96.3 tons.

He pointed out that the reserves of Iraq reached the end of the third quarter of 2018 about 96.3 tons, which allowed him to progress on Arab economies rich in precious metal reserves.

The geopolitical and trade tensions coupled with Washington’s sanctions policy have shaken confidence in the US dollar in recent years, prompting a number of global central banks to increase their purchases of gold.

http://alforatnews.com/modules/news/…storyid=188983

Iraq rejects a Saudi proposal to create a "new OPEC"


2/7/2019

{International: Euphrates News} US newspaper revealed an Iraqi rejection of a Saudi proposal to establish a new organization to manage oil.


The newspaper "The Wall Street Journal", that Russia and Iraq rejected a proposal to establish a new OPEC alternative oil.

According to the report issued on Tuesday evening, the proposal of the new Petroleum Organization submitted by Riyadh to Russian Energy Minister Alexander Novak in December, but was rejected.

"Such a decision is beyond his powers and he will turn it into the Russian foreign minister and the Kremlin presidency office," Novak said.

The proposal calls for transforming the current "loose cooperation" between OPEC and Russia into a "oil union" between two blocs, one led by Russia and the other by OPEC, which is dominated by Riyadh.

According to RT television reported on December 29, Russian Minister Novak said about the Saudi proposal "there will be no new oil organization," adding that it would risk creating more monopoly and bureaucracy and making decisions.

Riyadh, which has been criticized by US President Donald Trump over the past year for rising oil prices, is seeking to protect Russia from American anger and blame Moscow for rising
prices.In contrast, Moscow is aware that the Saudi decision will remain close to Washington,

They will not win Riyadh, but they want In its exploitation of Russia’s energy strategy by dominating the decision and directions of OPEC, without any legal obligations on its part, because Moscow avoids engaging in a conflict with the United States.

This "proposed union" or so-called "new OPEC" will be built from two groups, the OPEC member group, and the group of Russian-led countries that include former oil-exporting states of the former Soviet republics and other countries under Moscow’s cloak.

Namely the 10 countries that cooperated with the Petroleum Organization in reducing production and allowing prices to rise after the painful collapse cycle.

According to Wall Street, Iran and other members of the group also rejected the proposal because of concerns over Moscow’s and Riyadh’s dominance of oil policy.

The proposed oil union seeks to restore Riyadh’s ability to steer oil prices amid rising US rock oil production, which in recent years has become a "weighted product" that sets oil market trends and prices.
And the role of "weighted product", previously played by Riyadh and setting the price target for a barrel of oil.

This new proposal is a relaxation of an earlier plan put forward by Saudi Arabia and the United Arab Emirates to create a "completely new oil organization", of which Russia becomes a member, which has been floated by the Saudi government.

In June, Saudi Crown Prince Mohammed bin Salman, through Oil Minister Khalid al-Faleh, proposed a plan to create a completely new oil organization with new members.

According to the "Wall Street Journal" of OPEC officials. However, the proposal put forward in Vienna raised the concern of some Member States, particularly Iran, Iraq, Nigeria, Angola and Algeria.

The former Iraqi oil minister Thamer Ghadhban has openly criticized the plan, where he said al-Faleh at a meeting in Vienna that "OPEC was established in Baghdad"

Riyadh, which faces a range of oil crises and still relies more than 80 percent on oil in budget revenues, seeks to raise oil prices and fight rock oil without bringing American anger to it. The only way is to try to persuade Moscow to play this role.

The danger.

But Moscow, which has already suffered from dumping Saudi Arabia into oil markets and putting it in a political crisis that ended with the disintegration of the Soviet Union, is not prepared to play this role. According to the report, Riyadh will go to put the plan again at the meeting in Vienna on February 18.

Riyadh has put its budget at $ 84 a barrel at a time when prices are around $ 60 a barrel. Riyadh, which accounts for more than 80 percent of its income, suffers from a huge deficit that will have to be heavily leveraged this year amid harsh conditions and conditions that will not be comfortable for it and its major companies such as Aramco and its sisters.

Oil fell 1 percent on Wednesday after the US crude inventories report showed signs of concern over the impact of US sanctions on Venezuela on global supply.

Concerns about weak global economic growth and the China-US trade dispute continue to weigh on the morale of major oil traders.

Oil fell on Tuesday after a survey showed business growth in the euro area almost stopped in January. London Brent crude <LCOc1> fell 62 cents to $ 61.36 a barrel, after rising 15 percent in January. US crude fell 48 cents to $ 53.18

http://alforatnews.com/modules/news/…storyid=187534

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.

The Iraq Stock Exchange (ISX), as measured by the Rabee Securities RSISUSD Index, started the year not with a bang but with a whimper, as befits the ending of the Chinese year of the Dog, by going mostly sideways on a continuation of the low turnover of the last few months. However, the emergence of a moderate foreign seller took the index down to about -5% for the month before buyers emerged to absorb some the selling, taking the market to a decline of -3.1% for the month.

The real economy on the other hand is showing increasing signs that liquidity is returning as the healing effects of higher oil revenues over the last two years are having a positive effect. As reported last month, this was seen in the recent recovery in broad money, or M2 which acts as a proxy for economic activity. Driving the recovery in M2 has been the growth in the monetary base M0-defined as “the sum of currency in circulation and reserve balances in Iraqi Dinars (IQD) held by banks and financial institutions with the Central Bank of Iraq (CBI)”.

The clearest evidence of this nascent recovery is seen in the IQD Current Account (C/A) component of banks’ reserves with the CBI, which has been behind the recovery in M0 as seen in the chart below.

(Source: Central Bank of Iraq, Asia Frontier Capital)

(Note: M0 as of Nov, IQD C/A component of bank’s reserves as of Dec)

The IQD C/A component of banks’ reserves with the CBI, reversed its multi-year decline in late 2017 and began a recovery that picked-up momentum in May 2018, with the latest data as the end of December 2018 showing a continuation of this trend. This in turn is driven by the level of customer deposits (consumers, businesses and government) held with the banks. The early evidence of increased private sector deposits was discussed a few months ago in “Of Banks and Budget Surpluses”, however the granular data for private sector deposits is only available for end of 2017. The rise in deposits for 2018 is likely to have been driven by government deposits, which should lead to a rise in private sector (consumers and businesses) deposits as the government begins its spending programme as discussed later in this report.

The current trends indicate a continuation of this recovery, and as such to a continued recovery in M2. The latest M2 figures from the CBI for October and estimates for Novemebr (based on MO figures for November and recent M2/M0 multiplier figures) support this as can be seen from the chart below.

(Source: Central Bank of Iraq, Iraq’s Ministry of Oil, Asia Frontier Capital)

(Note: M2 as of Oct with AFC est.’s for Nov; Oil revenues as of Dec with AFC est.’s for Jan)

The prospects of increased economic activity got a boost with the end of the government’s spending paralysis, as parliament finally approved the 2019 budget in mid-January. The budget, however, is heavily skewed towards current spending, as opposed to investment spending, as both of parliament and government are under pressure to appease the population with some immediate rewards from the end of conflict and the recovery of oil prices. (for a review of the budget see the appendix in this report).

The government’s financial firepower is considerable, as the latest Ministry of Finance (MoF) budget report of October 2018 shows a surplus of USD 21.5bn for the first 10 months of 2018. As such, in addition to the surplus of USD 1.5bn for 2017, this means that the government could easily achieve the estimates made here over the last few months—a two-year surplus of USD 24.5bn by end of 2018.

The immediate consequence of government spending would be improvements in consumer and business sentiment leading to a pick-up in consumer and business spending, and subsequently an economic recovery as the multiplier effect works through the economy. The long term sustainably of the upcoming economic recovery would be driven by the implementation of the government’s non-oil investment programme for 2019 of about USD 12.5bn, which would be equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019.

The recovery in M0 that is leading to a gradual recovery in M2 seems to be happening in a mirror image of Ernest Hemingway’s phrase on going broke, i.e. “Gradually and then suddenly” (attributed in error here in the last few months to Mark Twain), and so the next few months should see this translate into actual economic recovery.

If we are to go on similar experiences in other frontier markets (of declining markets while fundamentals show gradual recovery following a long basing period) then the market’s declining trend of the last few months should be followed by a sharp reversal and the beginning of a new trend.

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.

By John Lee.

Iraq’s Ministry of Oil has signed a contract with the China National Offshore Oil Corporation (CNOOC) to carry out seismic surveys of two oil exploration blocks.

One of the fields is in the territorial waters of Iraq in the Gulf, while the second in the city of Faw (Fao).

(Source: Ministry of Oil)

Iraq allocates 7 billion dollars as receivables to foreign oil companies by the budget of 2019
1/12/2019

"The draft federal budget for Iraq for the current year 2019 allocated between 6 to 7 billion dollars, as annual financial dues paid to foreign oil companies operating in Iraq on the cost of development and operational projects," Ihsan said in a press statement on Friday.

The Iraqi parliament is studying these days the draft federal budget for Iraq, where the draft budget was built on the price of a barrel of Iraqi oil $ 54 per barrel, and the rate of exports from southern and northern Iraq, the rate of three million and 880 thousand barrels per day, mostly from the southern ports.

Foreign oil companies, notably Exxon Mobil, British Petroleum, Shell International, Lukoil, PetroChina, Malaysia’s Petronas, Japan’s Gapex, Gazprom and others, are investing in a number of large and medium oil fields in southern and central Iraq.

http://alghadeer.tv/news/detail/88561/

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.

December 2018 was probably the worst month in a decade for global equities, however the month’s sharp declines are eerily similar to those that drove the markets lower in December 2015 with the similarity extending to almost a replay of the start of 2019 to that of 2016.

The reasons, now and then, are fears of a slowing world economy with the world’s engine, China, showing signs of a meaningful slowdown. But the drivers of the slowdown this time are increasing evidence of the damage from the US-China trade war, echoing the Iraqi saying that “while reasons are many, death is the same”. However, now and then, the slowdowns were months in the making, but the markets ignored them until late in 2018.

The Iraq Stock Exchange (ISX), as measured by the Rabee Securities RSISUSD Index, on the other had quietly eked out a modest gain throughout the month to end up +1.9%. A gain which came despite sharp declines in the price of oil for the month that took Brent crude prices down about –40% from the October multi-year peak.

The ISX’s negative –15.0% return for 2018 marked the fifth year-over-year decline, on the back of declines of –11.8% in 2017, –17.3% in 2016, –22.7% in 2015, and –25.4% in 2014. The ISX further spent most of the last two years trying to break out; only to revisit the major May 2016 lows as each year came a close. This contrasts sharply with most global equities as the December sharp sell-offs took them down to about –20% off recent multi-year highs. This makes the risk-reward profile more attractive for the ISX vs. these markets as portfolio allocations are rebalanced in the light of the changed global environment.

Supporting the risk-reward profile for the ISX is the prospect of a recovery in corporate earnings. Iraqi equities should emerge from a multi-year severe economic contraction with the Telecoms being the first to emerge. Two of the major mobile operators out of three national operators reported Q3/2018 earnings that displayed the markers of recovery in earnings, margins and profits. Of the two, AsiaCell (TASC), listed since 2013, has a reported earnings span of 2012-2018 reflecting the operating environment before, during and after the ISIS conflict.

For TASC, the recovery started in late 2017 with the liberation of Mosul and the gradual return of customers lost since the 2014 ISIS invasion of a third of the country. As reported last month, TASC signalled its confidence in its future outlook with a distribution of a 12% dividend on the back of last year’s dividend yield of 14% –which in absolute terms is about a third higher than last year’s dividend. (See “Telecoms dial up Recovery” for further details on TASC).

The recovery for TASC extended to its stock price, which ended 2018 up +47%, following declines of –17% and –11% for the prior two years. TASC was joined by Baghdad Soft Drinks (IBSD), which was up +34% in 2018 on the back of 2017’s increase of +7%. IBSD is unique among the ISX’s listed companies as it continued to churn out healthy earnings growth through the downturn. Earnings for IBSD grew +13% in the first nine months of 2018, on the back of growth of +11% in 2017, +25% in 2016 and +37% in 2015 (pre-tax earnings).

TASC and IBSD’s performances stand in stark contrast to those of the banks which, as a group, had a dismal performance with the leading bank, the Bank of Baghdad (BBOB) down –52% in 2018 on the back of declines of –33% and –22% for the last two years. Other banks fared just as poorly with declines for a selected group ranging from –63% to –4% for the year. These negative returns don’t include income from dividends –which were quite high for some banks such as Mansour Bank (BMNS) or Commercial Bank Of Iraq (BCOI) that ended the year with dividend yields of 8% and 10% respectively. (See “Of Banks and Budget Surpluses” for more details on the banks).

Looking to 2019, the recovery of the banking sector would hinge on an economic recovery and a return of liquidity to economic activity, which for most of 2018 were held back by political uncertainties surrounding the May parliamentary elections.

Political uncertainty before the May 2018 elections was followed by indecisive election results, which in turn resulted in further uncertainties as the different political parties entered lengthy negotiations for the formation of a coalition government. Adding to these uncertainties was the eruption of massive demonstrations in the south demanding reform and investment into basic services. Things became clearer in early October with the promising appointments of a president and a prime minister in a fashion that broke the failed mould of the past. These were followed with the formation of a working government, which while still incomplete, can begin to act on the needed spending for a post-conflict recovery.

Paradoxically, while the political uncertainties paralyzed the government process, the government’s revenues soared with the recovery in oil prices, which has put the government on course for a two-year accumulated surplus of up to USD 24.5bn by the end of 2018. The oil markets decline from the un-sustainably high levels of the summer however are an un-welcome development but should not alter the country’s improving financial position as long as the government continues with the fiscal discipline brought on by the IMF’s 2016 Stand-By Arrangement (SBA). Moreover, Brent crude prices in a range of USD 50-60/bbl, would ensure that the government maintains this fiscal discipline and focus on reinvestments, a focus and discipline that are normally forgotten during periods of high oil revenues.

The healing effects of higher oil revenues over the last two years should begin the filter down into the broader economy over the next few months. The first evidence of this comes with the recent recovery in broad money, or M2 which acts as a proxy for economic activity, as can be seen in the chart below: –

(Source: Central Bank of Iraq, Iraq’s Ministry of Oil, Asia Frontier Capital)

(Note: M2 as of Sep. with AFC est.’s for Oct., Oil revenues as of Dec.)

While the October M2 figure is an estimate, it is based on actual M0 figures for the month and the recent M2/M0 multiplier figures. As can be seen M2 was moving sideways since oil revenues recovered in January 2016, but it began to accelerate in June 2018-Septemebr 2018 –and estimates for October suggest a continuation of this trend.

As such, this could mean that liquidity has finally begun to filter down into the economy – which should accelerate as the new government begins to act on its investment programme. Ultimately, this should filter down into the stock market, which should bring to an end the market’s divergence from its past close relationship with oil revenues – which currently is at the widest it has been for the last few years (see chart below).

(Source: Iraq’s Ministry of Oil, Rabee Securities, Asia Frontier Capital)

(Note: Oil revenues as of Dec.)

Recovery, in frontier markets, is a mirror image of Mark’s Twain’s phrase on going broke, in that recovery happens gradually and then suddenly. If similar experiences in other frontier markets (declining markets while fundamentals show gradual recovery following a long basing period) then the trend of the last few months could be followed by a sharp reversal.

However, for Iraq significant challenges remain with the huge demands for reconstruction, winning the peace, defeating a likely emerging ISIS insurgency, and controlling violence. In particular, the fragmented politics of the new parliament will continue to be a marker of risk for the government’s future stability, which would in turn pose a risk to economic recovery.

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.