As the winds of a leap year weather storm continued to blow through Lebanon, Beirut stocks were staging their own leap. The BLOM Stock Index grew 3.1 percent in February and 0.42 percent to 1,201.1 points during the week ending March 2, marking the longest streak of gains in over a year.
The rise, however, fell significantly short of exceptional performance at most regional stock exchanges. “Syria and Lebanon’s economies are linked through trade, finance and tourism, so the Lebanese economy felt more the repercussions of the Syrian and Egyptian events than other regional players and that impacted investor expectations,” economist Elie Yachoui said in an interview.
The BSI’s 2.1 percent year-to-date gain in 2012 is overshadowed by Egypt’s 46 percent and Dubai’s 27 percent index increases. The S&P Pan Arab Composite Index, which measures the average performance of select MENA market indexes, is also up 10.5 percent through March 2.
Still, Lebanese market indicators remained strong during the latest week, with average daily traded shares jumping 22 percent to 111,653. Block trading in BLOM GDR and Byblos represented the bulk of trading on the BSE with the first advancing 0.9 percent to $7.82 and the latter holding its ground at $1.65.
Bank Audi, Lebanon’s biggest and most profitable bank, continued to top market performance as its listed shares advanced 1 percent to $6.25 and its GDRs hit $6.55, up 1.6 percent for the week. On the other hand, Solidere’s shares showed mixed results although both remained above the $14 level. Class A shares rose 0.8 percent to $14.11 while the Class B ended the week down 1 percent to $14.1.
With a market cap of $10.62 billion, the Middle East’s smallest stock market remains highly sensitive to political developments and to the performance of the banking and real estate sectors, all of which have deteriorated in the past 18 months.
“Day in, day out we hear clients saying they are pursuing a cautious approach to the BSE awaiting clarity on business in Syria,” said Tarek Bassil, equities trader at Byblos Bank, in an interview.
Bassil attributed the outperformance of Gulf markets to higher oil prices emanating from elevated frictions between Iran and the international community. He still sounded a positive note for the banking and real estate sectors although he said it would take time for the results to materialize.
“Lebanese banks will outperform regional peers, but that is being delayed by the regional situation. The real estate sector is also poised for growth because demand is still strong across various categories. Some investors have tactically slowed their activities at the peak until a correction takes place and now the market is starting to look more attractive,” said Bassil.
Listed Lebanese banks had reported weaker growth in profits in 2011 on higher provisions for regional operations ahead of what industry leaders expect will be a challenging banking environment in 2012.
Domestically, data by Banque du Liban showed the central bank’s balance sheet grew 1 percent to $73.07 billion in the final two weeks of February, up 4 percent so far in 2012. Foreign assets – excluding gold reserves – grew 0.14 percent to $32.28 billion in the first two months of the year, a 6-percent increase over February 2011.
However, Yachoui expressed concern over a weak balance of payments in 2011, signaling negative ramifications on the banking sector. In 2011, the balance of payments posted a $2 billion deficit, the first since 2001 according to data provider Economena Analytics. “This means capital outflows exceeded inflows which is a bad indicator for the banking sector in Lebanon,” said Yachoui.
Despite macro-economic risks, Lebanese banks still offer lucrative dividends yields as analysts predict similar distributions to 2011 with depressed prices. “If banks already took the required provisions, which by the way are more than they need, and still delivered similar or higher profits than last year, then I would think they will pay the same dividends this year,” said Bassil.