Iraq Stock Exchange trades in dreams of riches

[ISXme]

BAGHDAD -- Gunfire and bombs resound regularly in Baghdad, and a patchy electrical grid plunges the city into darkness almost every night. That means little to Talib Al-Tabatabaie, chairman of the board of governors of the just-opened Iraq Stock Exchange. For him, Iraq is a potential gold mine where investors can make a killing -- the kind that has nothing to do with ammunition and explosives.

"If I am permitted to dream, Iraq will develop like Japan or Korea," declares the diminutive stock broker, casting his eyes around the small trading room of the exchange's trading floor. "It needs only the effort to redevelop it again, and this will be one of the richest countries in the Middle East."

Moments after Tabatabaie rang the opening bell at 10 a.m. on Sunday morning -- the exchange opened on June 24 -- brokers began to tear back and forth across the green-tiled floors. They scribbled their bids on white boards that hung from the market's wall, one each for the 27 companies listed on the exchange.

With no electronic brokerage system in Iraq and Internet trading still years away, traders are armed with the few tools needed to trading on the floor: white-board markers, calculators, and cellphones.

Trading occurs only for two hours on Wednesday and Sunday mornings, and many Iraqis do not yet know the market has opened.

But brokers say the pent-up demands of investors shut out of trading for nearly 16 months appear to have exploded.

"There were no shares to trade in after the government collapsed," said Ali Hassan Ali, 40, a broker who has traded shares in Baghdad since 1992. "There are so many people now who want to invest."

Within seconds of Sunday's opening bell, Ali elbowed his way through the packed trading floor to scribble his big buy of the day: hundreds of shares of Baghdad Soft Drink Co., which bottles the most common Baghdad beverage, Pepsi. Cans of Pepsi are sold from iceboxes on almost every street corner and appear to be consumed by the millions during summer, when daytime temperatures reach about 120 degrees.

Eight minutes into Sunday's trading session, the share price for the company had nearly doubled in value, from 26 dinars -- about two pennies -- to 45 dinars.

Brokers crowded around the board and scrawled notices to sell, sending the price plummeting back to 26 four minutes later.

For Ali, it was the moment to jump back in. Sweat pouring from his face, he yelled to a client into his cellphone above the din of the trading floor: "A lot of dealers have sold. This stock's going to go way up!"

Indeed, within minutes, the stock began to edge upward.

The new exchange was created with US funds earmarked by Congress for Iraq's reconstruction. The American occupation authority made the creation of free markets a centerpiece of their mission, after decades of the Ba'ath Party's nationalized economy. Underscoring that same message, the small brass bell that opened Sunday's trading session was donated by the Philadelphia Stock Exchange, which had added the engraved words on its wooden stand: "Let Freedom Ring."

In a move that brought criticism from some Iraqi businessmen, US officials last fall pushed through Iraq's first law allowing full investment by foreigners in all sectors other than oil.

So far, few foreigners seem tempted, and the setting of the exchange partly suggests why.

It's surrounded by wrecked buildings, and the brokers' cars are searched for bombs by police posted outside the parking lot. The exchange is so well hidden -- down a garden path and behind a tall barrier -- that a Globe reporter got lost on her second visit. At the front door, armed American and Iraqi security forces frisk each person.

None of that inhibits trading, however. These same brokers, after all, were buying and selling shares in the final hours before US troops invaded Iraq on March 19 last year.

While most Baghdad residents were packing their belongings and fleeing to the countryside, or scrambling to stockpile food, the brokers continued trading to the end, convinced that fortunes would be made the moment the war ended.

"The brokers were all waiting for the bombs to start dropping," said Siro Pedros, 50, of the Nineveh Brokerage Co., who has been a stockbroker in Baghdad since 1997. "Everyone thought that billions in reconstruction would flood the country after the war."

Overseen by Saddam Hussein's Ministry of Finance, the old Baghdad Stock Exchange halted trading if a stock rose or fell in value by more than 5 percent within a session. In theory, the rule was a safety valve against rampant speculation of the kind currently fueling the new Iraq exchange. It also ensured the Hussein family and senior Ba'ath Party officials -- who owned large portions of listed companies -- were not outbid by other investors. The large portfolios owned by Hussein and his officials were confiscated after the war.

Within days of the war's end, the Baghdad Stock Exchange was stripped by looters, "down to every last light bulb," said an American consultant to the Iraq Stock Exchange, who did not want to be named.

The brokers say they miss the old exchange, which resembled a Middle East souk, or street market. With no cellphones in Iraq until a few months ago, customers would pour into the market on trading days and knock on brokers' windows, demanding shares. "No one can come in here now," Pedros said, eyeing the armed guards outside the window.

With prices far undervalued, investors are apparently buying tens of thousands of shares through telephone orders. About 10 million shares were estimated as having traded during Sunday's breathless two-hour session. In the first trading session of the new exchange nearly four weeks ago, just 51 shares were traded in only six companies.

Unable to speak above the hubbub of the narrow trading space on Sunday, Tabatabaie stepped briefly outside to call a client, who wanted to invest in the burgeoning new banking sector.

"How many shares to you want? Five hundred?" he asked, standing outside the door. "Come over to my place tonight and give me the money," he said.

If American brokers seem puzzled by the trading scene in Baghdad, Tabatabaie says Iraq's brokers are equally bemused by Wall Street's currents trials, some of which are aired on satellite television. Tabatabaie said he watched Martha Stewart's sentencing in New York last week. "It was very strange. I cannot understand how a woman gets sentenced to jail and then her stock goes up."

Then with a laugh, he ran back inside to buy 500 shares of the United Bank of Investments.

http://www.boston.com/business/markets/articles/2004/07/20/iraq_stock_exchange_trades_in_dreams_of_riches/

[john holmes]

old news........2004