Fuelled by expectations of the imminent opening of the hitherto closed doors of the ISX to non Iraqi investors, the market continued its upward surge for the eleventh trade session this month

ISX, Market value slips to $1.5 billion, October 23 2007

The downward spiral chipped today another 0.33% of total market value of the small Iraqi bourse bringing its total value close to the floor of $1.5 billion. The downward trend started from early August coinciding with opening up the exchange to foreign traders. In these three months market value has plummeted by 17% from a high of $1.8 billion. Likewise the officially published ISX price index has fallen by 7.5% from a high of 40.000 to today’s figure of 37.000.

In all, the shares of only 31 of the 93 listed companies were traded today. Thirteen of those traded stocks ended the session down; twelve resisted the downward pressure maintaining previous close prices and only six companies managed a small rise. Some 514 million shares were traded in 304 small contracts whose total value was equal to ID831 million, $664,000, which is well below the average ID1000 million.

Analysts attribute the decline to several factors. Last July the market swiftly gained 20% in anticipation of the August move to open up doors to foreign investor, hitherto banned from dealing in the ISX. Foreign money into the ISX has only come in little but rising drops leading to a natural correction, reversing the July spike.

More fundamental factors are also to blame. Prime among these is the continued political and security concerns in the country as witnessed lately by the rising tensions on Iraq’s northern borders with Turkey.

Other analysts point to discouraging monetary factors, such as soaring interest rates, net 14%, offered by the banks on ID deposits. This has led to a flight of liquidity from the ISX to the banking sector. With borrowing from the banking sector standing now at over 20%, margin trading has been severely hit leading investors to liquidate their portfolios even at a loss to cut on interest payments.

The capital market is also very hungry for liquidity with so many companies seeking to expand their financial base through both initial public offerings and new subscriptions. For example, Baghdad Beverages, the main soda bottler company listed in the exchange, is asking now shareholders to come up with ID 24 billion, $18 million, to raise the paid up capital of the company from ID 60 billion to ID 84 billion through the issue of new 24 billion shares at ID1 per share. Some shareholders are being effectively forced to liquidate other positions in their possession to finance the subscription. This has the net effect of forcing market prices down.

	current session	previous session	%change
Market Volume Traded (shares million)	514.34	2439.24	-78.91
Market Value Traded (ID m)	831.00	5578.73	-85.10
Market Capitalization (ID billon)	1884.65	1890.97	-0.33
Number of Transaction	304	236	28.81
Market Value Traded ($m)	0.6648	4.46298	-85.10
Market Capitalization ($billon)	1.508	1.51	-0.33

Other real factors are also working to force prices down. Poor performance of listed manufacturing companies has been reflected in fall in the price of their shares. Many manufacturing companies have been hit hard since 2003 resulting in red balance sheets. Most of these companies have production bottlenecks attributed to disruption in basic utilities such as availability of reliable sources of energy especially electricity. Most of these companies now face fierce competition of imports given the removal of import bans and the reduction to protection tariffs to 5%.

After an initial recovery in 2003, the hotel business has also been hit hard with falling demand due to security problems in the capital Baghdad. Hotels such as the Palestine Meridian and Ishtar Sheraton, both listed in the ISX, have seen occupancy rates falling drastically in more recent times. These hotels are also in need of substantial capital to refurbish their 30 year old premises to bring them to international standards. Such factors have naturally found their way to reflect on the prices of the shares of hotels in the ISX.

DISCLAIMER: This document has been compiled and issued by Kubba Consultants, which has obtained the information from sources it believes to be reliable, but Kubba Consultants makes no guarantee as to either its accuracy or completeness and has not carried out an independent verification. Kubba Consultants accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this report. This document is not an offer to sell or solicitation to buy any securities. The opinions and estimates expressed herein are those of the issuer.