The stock market in Lebanon

Beat Ernie - Tue 22 Aug, 2006

...You don't really think about the stock market in a country that has been on the news for the past month getting battered by missiles...But, of course, there is indeed an index representing the economic picture in Lebanon, called the BLOM index. Set up in 1996 by the Lebanese BLOM Bank (www.blom.com.lb) with its headquarters in Beirut...

 
 
You don't really think about the stock market in a country that has been on the news for the past month getting battered by missiles.
 
But, of course, there is indeed an index representing the economic picture in Lebanon, called the BLOM index. Set up in 1996 by the Lebanese BLOM Bank (www.blom.com.lb) with its headquarters in Beirut.
 
The bank has its roots in the 1951 foundation of the rather nice sounding "Banque Du Liban et D'Outre Mer". In 1981 this bank became the largest in the country, thanks to an extensive expansion strategy in Lebanon and in other countries.
 
The listed bank (ISIN US0936881095) was the largest bank in the relatively young country of Lebanon (which gained independence from France in 1943) until 2003. But it's been a great growth story. The customer assets of the BLOM bank have grown from US$566m in 1980 to more than US$10bn in 2005.  

The stock market in Lebanon: The attraction of Lebanese banks

For every passing year on 30 December, with the exception of 1981, the customer assets have always been higher than the previous year, signalling the attraction of Lebanese banks despite the often war-torn country.
    
Several sources compare the Lebanon to Switzerland because of its stringent bank secrecy and the high number of banks. Because of that - and also because of its snow-clad mountains in the north of the country, with peaks reaching over 3,000 metres - Lebanon is sometimes referred to as the "Switzerland of the Orient".
 
On January 22, 1996, the Lebanese All-Share- Index started at 1,000 points to compete for international investor attention. Following the terror attacks in New York, the BLOM Index was at its all-time low on October 23, 2001, down at
388.4 points.
 
A long sideline movement followed, reaching into the beginning of 2004. From early 2004 (430 points) to early 2006 (1,934 points) the index had almost multiplied by five in only two years, making the Beirut stock exchange one of the world's most profitable stock markets. In the two months of December 2005 to January 2006 the index doubled from just below 1,000 points (= the initial state in 1996!) to 1,934 points on January 30, 2006. Most investors missed this massive increase.
 
What "sincere" western European or US-American investor would have admitted to buying into the Lebanese stock market in 2004? They would have been seen as a fool.
 

The stock market in Lebanon: "Investing in Lebanon? Might as well go to the Casino..."

 
That's how most investors (and not just hard- to-convince and sceptical investors like a Beat Erni type!) would probably have thought about investing in Lebanon. I certainly admit that I was amongst those who completely missed this opportunity...
 
However, it again shows that the special performance gains are often made off the beaten track, exactly where they are not looked for by the average bank consultant...
 
On July 11, 2006, the day before the new crisis with Israel, the BLOM Index was at 1,506 points. Since then, it has lost about 20 percent of its value, and the prospect of a cease-fire agreement upped the index by 4% on August 14, 2006, to 1,260 points. Investments at the Lebanese stock exchange are currently not for the faint of heart, as the political factor must be taken into account in all trading strategies and "calculations".
 
Let's take a closer look at the BLOM Index of the Beirut stock exchange. In total, 15 companies with 20 different shares are listed in the Beirut All Share Index.
 
The titles with the largest percentage of the BLOM Index are Solidere A and B (Real Estate, 35.1% and 22.8%), Holcim Liban SAL (Cement goods, 11.1%), Banque Audi (Finance-/banking services, 9.6%), BLOM Bank SAL (Finance-/banking services, 6%), Bank of Beirut (Finance-/banking services, 3.7%), BLC Bank SAL (Finance-/banking services; 2.9%), Byblos Bank C and Priority (Finance/banking services, 2.7% and 2.6%).
 

The stock market in Lebanon: Switzerland of the Orient

Did you see the same I did? The high percentage of banking services is astonishing and it kind of makes sense that many consider Lebanon to be the Switzerland of the Orient. Except for the companies Solidere and Holcim all other companies are from the banking sector in this list. This list comprises 27.5% of the total index. Taking away the 58% share of Solidere and the 11.1% share of Holcim, basically the entire remainder is part of the financial services sector.
 
If the current cease-fire is not only temporary and the talks advance to a possible peace agreement between Lebanon and Israel (how many times has this been on the horizon already?), the reduced index could offer an interesting point of entry for the Beirut stock market.
 
Further market gains would be likely. On the other hand, the market is currently at the level of the year-end 2005, when the inhabitants of Lebanon dreamt of a future without wars. This fact makes me somewhat uncomfortable investing there at the moment.
 
The geopolitical risks in this area of the world remain extremely high. Investments on the Lebanese share market should only be done by tough and risk-tolerant investors. If our team finds a pearl amongst all the rubble, you'll obviously hear about it immediately from us – once we've done the full research. I can't help wondering how that cement company might perform once the rebuilding gets underway!

   
Best regards,
 
Beat Erni
for The Daily Reckoning
 

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