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Beirut Stock Exchange down 6.1 percent.

Byline: Regional Press Network (RPN)

Summary: The elections rally of the last 6 weeks on the Beirut Stock Exchange (BSE) stumbled on another round of the global equity sell-off ahead of earnings season in the US and on the Lebanese reality of a prolonged cabinet formation. The weekly decline of 6.1 percent brings the market back to the levels that preceded the smooth election.

Tamim Akiki

Regional Press Network

BEIRUT: The elections rally of the last 6 weeks on the Beirut Stock Exchange (BSE) stumbled on another round of the global equity sell-off ahead of earnings season in the US and on the Lebanese reality of a prolonged cabinet formation. The weekly decline of 6.1 percent brings the market back to the levels that preceded the smooth election of a speaker of the parliament, but more importantly, it crafts the largest drop since the crash in global equities in November 2008.

Equities on the BSE erased over $700 million in market value in one week to bring back the total market capitalization of the exchange for the first time since June 22 below $11 billion to $10.89 billion. The total number of traded shares and their traded value also fell 26 percent and 24 percent to 1.1 million shares and $27 million respectively.

Shares of Lebanon's real estate giant Solidere, the single largest stock by market capitalization on the exchange, were hit by a brutal sell-off on Thursday and Friday, slicing around 15 percent of the company's market value.

Speaking to RPN, Alexander Mouradian, deputy head of economic research at Blominvest Bank blamed "conflicting political interests in the formation of the new government" for the decline in Solidere's shares and the market. "This was delayed for a week due to the positive hype/rumors created of the imminence of the forthcoming government based on regional consensus," added Mouradian.

In addition to local factors, Mouradian added that "we need not discount the global downturn in stock markets and to a lesser extent the dividend distribution of Solidere."

In addition to the political headwinds facing Solidere, arbitrageurs moved in on Friday to take advantage of a $3 spread between Solidere's GDR and its locally-listed shares. "Historically, the spread has averaged $1.5 for Solidere, so at over $23, investors sold Solidere A and Solidere B shares and bought the company's GDR for $20 in London," Nancy Elias, financial consultant at FFA Private told RPN.

Elias said the loss of over 8 percent in Solidere's GDR value in London was due to "hedge fund selling." On the other hand, she attributed the drop in the local shares to "selling pressure from the slow cabinet formation and to profit-taking." Even following the decline during the week ending July 10, Solidere A and Solidere B shares are still up over 25 percent since the shares gained steam during the pre-elections week.

In fact, Solidere shares were no market exception during the week's trading. Bank Audi's GDR lost 5.88 percent during the week while Byblos Bank's listed shares and GDR fell 1.07 percent and 2.3 percent respectively.

Byblos Bank shares have in fact not shown much signs of a recovery since hitting a bottom in early March. This is contrary to Audi Bank shares which have climbed 54 percent since the bottom on March 9 compared to a 16.5 percent highly-volatile rise in Byblos Bank's shares.

The best performance came from Holcim Liban, the Swiss-based cement company, whose shares ended the week up 1.3 percent as no shares changed hands during the ugly Thursday and Friday trading days. BLOM bank's GDR and listed shares also posted gains of 0.9 percent and 0.13 percent respectively with the GDR rising as much as 6 percent through the middle of the week.

Equities on the BSE underperformed all other Middle Eastern and North African markets except the Cairo and Alexandria exchange where stocks fell 7.52 percent during the week according to available data. However, Lebanese equities remain the uncontested leaders on a year-to-date basis, up over 26.7 percent according to MSCI Barra. MSCI's Arabian Market Index is up 6.47 percent through July 10.

Aside from equities, preferred shares were flat for the week. The number of traded preferred shares fell 55 percent, and the value of all traded preferreds dropped 68 percent as BLOM Bank's Pref. Class of 2005 shares were not traded during the week. Similar to the company's listed shares, Byblos Bank's preferred shares fell 0.61 percent while Bank of Beirut's Pref. Class D shares declined 0.97 percent, both on very thin volumes.

Bonds inched higher despite the market uncertainty in Beirut with BLOM Bank's Bond Index posting a 0.6 percent weekly gain to reach a 3-year high of 104.82 points on sustained strong demand and weak supply for the country's Eurobonds, according to Blominvest Bank. Lebanon's Central Bank Governor, Riad Salameh, also expressed confidence in the country's economic and financial indicators despite the effects of the credit crisis abroad.

The outlook for the coming week looks just as grim if not grimmer, assuming no significant positive news comes out of the current consultations. Solidere's shares will be the compass as the market navigates the political uncertainties and formulas of a Lebanese cabinet formation. "The reality check came this week and is likely to continue given the receptiveness of Solidere to local political developments," said Mouradian.

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Publication:The Daily Star (Beirut, Lebanon)
Date:Jul 13, 2009
Words:923
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