BSE market accessibility needs improvements.
BEIRUT: Global portfolio analytics and indices provider MSCI, Inc. maintained Lebanon in its Frontier Markets category in its annual assessment of the market accessibility of 82 developed, emerging and frontier equity markets, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.
"Lebanon is one of 24 stock markets worldwide that fall under MSCI's definition of Frontier Markets. The other Arab markets in the same category are Bahrain, Jordan, Kuwait, Morocco, Oman and Tunisia," said the report.
The report explained that MSCI evaluated the country's stock market based on five accessibility criteria that are openness to foreign ownership, ease of capital inflows and outflows, efficiency of the operational framework, the competitive landscape and the stability of the institutional framework.
"It said that the five criteria reflect the views of international institutional investors, which generally put a strong emphasis on the equal treatment of investors, the free flow of capital, the cost of investment, anti-competitive practices and country specific risks," according to the report.
In terms of openness to foreign ownership, MSCI said that there are no limits to foreign ownership on the Beirut Stock Exchange, except for Israeli nationals who are formally prohibited from investing in Lebanese companies, the report said.
"It noted the need to improve equal rights to foreign investors, as company-related information is not always readily available in English," the report said.
"As such, Lebanon was, along with Sri Lanka, the only frontier market with a "no major issues" rating in terms of investor qualification requirements, as the remaining countries have a "no issues" rating. Also, it was one of 13 markets with a "no major issues" rating in terms of equal rights to foreign investors," it added.
MSCI noted that Lebanon was one of 22 frontier markets with a "no issues" rating in terms of foreign room level, which is mainly the proportion of shares still available to foreign investors, the bank's report said. "It was also one of 19 markets with the same rating in terms of foreign ownership limit," it added.
Regarding capital inflows and outflows, MSCI said that there are no restrictions on capital flows to and from Lebanon, the report said.
"But it noted that there is no offshore currency market and that there are constraints on the onshore currency market, as foreign investors are not allowed to hold Lebanese pound balances," it said.
"As such, Lebanon was among 17 frontier markets with a "no issues" rating in terms of capital flow restrictions, and one of nine markets with an "improvements needed" rating in terms of the liberalization level of the foreign exchange market," it added.
Regarding the efficiency of the operational framework, MSCI considered that the market entry process needs to improve, as registration is mandatory and may take up to five days, said the report.
"Further, it said that not all market regulations are available in English, and that the flow of information can be improved, as detailed stock market information is not always disclosed in English," it added.
The report noted that Lebanon was among 11 frontier markets that received a "no major issues" rating in terms of market regulations, and one of seven markets to get the same rating in terms of information flow.
"In addition, it said that almost all market infrastructure indicators need improvement, except for trading where Lebanon has a "no issues" ratings," it said.
In terms of clearing and settlement procedures, MSCI noted that there is no real DVP system on the Beirut Stock Exchange, as well as no nominee status and no omnibus structures, according to the report.
In terms of custody, it indicated that there is no formal segregation between custody and trading accounts for transactions on the Beirut bourse.
"It added that there is only one active custodian available to foreign investors," it said.
"In terms of registry and depository, it stated that not all listed shares are dematerialized, few securities are registered at the issuer level and that, in most instances, the central depository acts as a central registry. In terms of transferability, it said that in-kind transfers and off-exchange transactions are prohibited," the report added.
The report said that MSCI found "no major issues" in the stability of the institutional framework in Lebanon, similar to the ratings of 18 other frontier markets. But it did not rate Lebanon's competitive landscape.
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|Publication:||The Daily Star (Beirut, Lebanon)|
|Date:||Jun 20, 2016|
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