The conditions for investment are gradually improving in Jordan, making it increasingly desirable for ordinary Jordanians to become involved in capital market investing. Buying stocks, while certainly risky, can benefit the individual, the economy and the country in general and there are convincing reasons to get involved, say industry leaders. However, security investing has traditionally been the domain of only a few.
Bassam Saket, CEO of the Jordan Securities Commission (JSC), believes only about 3 percent of Jordanians participate in the stock market, with the rest choosing the traditional course of buying land or saving in the bank. But says Saket, “developing the capital market is a national effort.”
Those in the capital markets will explain, land is not a liquid investment, meaning it's hard to turn it into cash quickly without loss of value.
Meanwhile, bank saving is secure and liquid but the fixed rate of return, or interest, is typically below the rate of inflation. This means that over a period of time the rate of inflation depreciates capital in real terms. Your money is actually worth less when you withdraw than when you put it in, despite the gains of interest, they say.
But investing in shares is another story. Shares are liquid and can be converted to cash quickly while also acting as a hedge against inflation. Typically, profits made from stock markets are above the prevailing rates of inflation, which means invested money grows in value over time, rather than being diminished.
The increase (growth rate) on your investment, can happen two ways, through capital appreciation — as the share price is traded at a higher rate that you originally paid, and through profit dividends, systematically paid out by the company to its shareholders. When all this is taken into account, securities investment is an interesting and attractive alternative.
Financial horizons
But before becoming an investor it is important to know ones rights and do research, then, get a good broker, and begin a dialogue on expectations. Jalil Tarif, CEO of the Amman Stock Exchange (ASE), wants to help potential clients make the best use of his market. “The ASE is there to help people put their investment in the hands of experts,” he says. “Understand the type of investment they want and the type of publications available,” he adds, referring to the ASE website (www.ase.com.jo) and the literature on hand at the ASE offices.
Omar Masri, managing director of Atlas Investment Group, explains that a first time investor should understand first his net worth and from there, consider investment horizons. What is your age, are you married, do you have kids, are you planning to send them to college? “After that, see what's left in terms of the financial pie,” says Masri. The question is, “can you afford to take a 10 to 15 percent slice of your liquid worth,” he says.
Naser Amad, general manager of United Financial Investments (UFI), warns that many people who begin investing consider themselves experts, “don't issue orders to your broker,” he says, “trust in their objectivity.” UFI for example, also provides extensive literature for research on companies listed at the exchange. “The right information at the right time is the key to keep up with the shifts taking place,” reads the document, this information exists to “rationalise the investment decision” and make the educated investor an effective investor. Sources like this can be invaluable for hard facts on investing and conversely, rumours and gossip can be the kiss of death when it comes to sound decision-making.
Samir Jaradat, CEO of the Securities Depository Centre (SDC) explains that for his agency, “We have homework to do to educate people.” He stresses that an investor should know his basic rights and track the actions and movements of their broker through the documentation provided by the SDC.
Jaradat also reflects on his 17-year career as a broker himself. “Know your broker, as the company he represents and as an individual,” he counsels. “Read the contract and make sure your rights and obligations are spelled out clearly.” “Stay in touch with what's happening,” says Jaradat referring to newspapers, brochures and keeping an eye on prices. Finally, when the investment has been made, don't get greedy.
“When you achieve your goal, get out,” says Jaradat, referring to an Arabic expression of not getting married to the share.
Through reasonable expectations, some caution, optimism and a little time, things can be good when investing in capital markets. However, there is also truth to the expression that you have to learn to spend some money before you can make money.
So what to choose from?
The ASE has three separate tiers of stocks being traded. The three-tier system was established so that an investor can readily know the status of the company to be invested in and the requirements it has fulfilled. The first market trades securities that comply with certain requirements. Companies listed in the first tier must have made a profit for at least two out of three years before being listed. They must also have given out cash dividends or bonus shares at least once over the last three years.
Second market securities have fulfilled the requirements to become a listed company, but have yet to fulfil the requirements needed to move up to the first tier, meaning no profits or cash dividends, yet. Securities traded in the third market are not listed on the exchange and have few disclosure requirements, which means risky! They're waiting to fulfil requirements to become a listed company. However, this also means that hidden within the threat of new, untested companies lies the opportunity for something big.
As always, knowledge is power and by listening, reading and consulting with professionals, the capital market can be a rewarding place. — ( Jordan Times )
By Owen Clegg
© 2001 Mena Report (www.menareport.com)
