The Amman Stock Exchange (ASE) closed with a big bang in 2007. The surge in activity buoyed by trading in stocks of the relatively large listed companies and trading contracts, enabled investors to recoup some of the losses sustained in 2006 (although 2005 remains the star year as far as the performance of the ASE is concerned). The outlook for stocks in 2008 is mixed albeit positive; however, the overall economy paints a different picture.
The ASE General Weighted Price Index rose by 36 percent and market capitalization increased by 13 percent from the previous year. The number of listed companies expanded from 227 in 2006 to 245 in 2007. Trading volume reached JD12.3 billion (JD=$1.41, pegged since 1995), a decrease of 13 percent from the trading volume of the previous year, while the number of traded shares increased from 2006 by 9 percent to reach 4.5 billion shares. Market value of the listed stocks in the ASE rose to JD29.2 billion (representing 289 percent of GDP) by the end of the year, a sustained increase of 39 percent over the same period in 2006.
But such a marked improvement in performance is still a far cry from that of 2005, which was a great year for anyone who dabbled in the stock market.
In 2005, market capitalization doubled to more than triple GDP, value traded and daily turnover more than quadrupled, number of traded shares doubled, turnover ratio was close to 100 percent, the change in ASE General Weighted Index almost doubled, the price/earnings ratio was up 30 percent and so forth. In short, the market was a jackpot for anyone with some change to spare and spare it they did. Even non-Jordanians, wanting a share of the pie, contributed 45.3 percent of total market investment that year. Accordingly, the stock price index closed in 2005 at 9500 points, compared to 7519 in 2007.
The strong performance of the ASE in 2007 was not in synch with the GDP growth rate, which was lower in 2007 than in 2006, according to initial estimates that place GDP growth at 5.8 percent compared with 6.3 percent in 2006. Such a de-buckling may be viewed as paradoxical if it weren’t for the fact that the Jordanian economy is heavily affected by regional developments and the price of oil.
Petrodollars from the Gulf countries have continued to find their way into the ASE as oil prices continued to skyrocket in 2007. Almost half the market capitalization is owned by non-Jordanians, the majority from Gulf countries.
Net investment by non-Jordanians increased to JD469 million by November 2007 compared with JD181 million by the end of 2006. Also, non-Jordanian ownership increased to 48.2 percent in 2007, compared with 45.5 percent in 2006.
Another factor that contributed to the growth in the ASE in 2007 had more to do with the deceleration in the real estate market and falling levels of liquidity, which shifted investors from the real estate market to the stock market in search for quick turnaround and short term liquidity gains.
Additionally, investors went for the large companies instead of the smaller speculative stocks, an indication that money was being more selective and sophisticated in 2007 than in previous years and that small investors have shied from trading in 2007.
The outlook for the ASE in 2008 remains positive, even though there is evidence that it may be a difficult year for the economy as a whole. One reason for the expected positive performance of the ASE is that inflation will be higher in 2008, which will reflect in higher stock prices. In 2007, the average Jordanian household consumed 20 percent more than it earned, the disparity between rich and poor grew to an alarming rate, and even though prices of oil derivatives were not increased, the prices of other basic commodities, consistent with the world trend, increased in spite of the introduction of some price controls. Also, failing to evaluate the JD against the US dollar added to the inflationary pressure in an economy that is a net importer with a trade deficit that reaches more than half of GDP, the majority of it in currencies that have appreciated against the US dollar.
Inaction by the government will most likely lead to a greater erosion of the purchasing power, increase stock prices, distance small investors from the market, and increase the disparity between those who have and those who have not. A mixed bag indeed.
Yusuf Mansur is the managing partner of the Envision Consulting Group (EnConsult) and former CEO of the Jordan Agency for Enterprise and Investment Development. This column is published by DAILY NEWS EGYPT in collaboration with bitterlemons-international.org
