“…Mohammed al-Hashemi remembers how excited his mother was when she bought shares in the Baghdad Softdrinks Company 27 years ago.

Najat al-Kadi was one of a select group of Iraqis keen to participate in the country’s privatisation programme during the mid-1980s, which saw stakes in several state-owned companies being offered to the public. She snapped up 173,000 shares at ID1 each – the equivalent of about $3 a share at the time.

Almost three decades later, ID1,000 buys 85 cents and Mr Hashemi, the executive director of Invest AD Asset Management, is encouraging others to put their money into the country’s listed banks and industrials through the Iraq Opportunities Fund and take advantage of the rising value of the Iraq stock exchange.

Launched in October, the fund is up 11.1 per cent in the year to date, making it one of the region’s best performers.

Convincing investors to buy into the fund has not been easy. “Inevitably, people’s idea of Iraq was images of war and chaos on CNN and they were concerned about the political instability,” he says.

Trading on the ISX is growing. The average daily volume is about $3m, compared with the typical $1m to $2m recorded last year.

Foreign investors – who were net buyers throughout April – represented as much as 26 per cent of trade in the last week of the month, up from 10 per cent at the beginning of April.

“Investors are always looking for the next untapped opportunity and Iraq has provided that,” Mr Hashemi says. “The country has already experienced its revolutions and so it isn’t being affected by the unrest that is taking place in the region, and it really has turned out to be one of the last frontiers in emerging markets.”

Baghdad’s small pool of investors is waiting for the country’s mobile phone operators to carry out initial public offerings as they are required to under the terms of their licence agreements. The three – Zain Iraq, Korek and Asiacell – were supposed to have listed by August this year but have been delayed.

“That deadline is not going to be made. But, based on our conversations with the regulators and the government, it is likely to be in 2012. It is fairly imminent,” says James Hogan, chief executive of Dar Es Salam Investment Bank, the HSBC affiliate in Iraq.

Dar Es Salam plans to open a custody business to cater for domestic and, importantly, international investors on the ISX.

Efforts to rebuild Iraq’s capital markets began in earnest in 2003 after Paul Bremer, who led Iraq’s Coalition Provisional Authority for 13 months after Saddam Hussein was toppled, pushed through market reforms.

The pace of progress accelerated in 2006 as investment laws were internationalised.

Unlike many neighbouring counties, equities in Iraq are open to all international investors, with no restrictions.

But the ISX still only has about 85 listings as of the end of February, with a combined market capitalisation of about $3.4bn. The Muscat Securities Market in Oman, a country of fewer than 3m people and containing a fraction of Iraq’s hydrocarbon reserves, is capitalised at more than $18bn.

That means the Baghdad market is still too small to be on the radar of international brokerage houses, but Mr Hashemi believes this will change as oil production increases and Iraq’s dilapidated infrastructure improves, helping to promote economic expansion.

High oil prices, coupled with more consistent production, meant that Iraq’s revenues in March were the highest for the country since 2003, easily exceeding the previous high of $6.1bn set in January, he says.

Mr Hashemi adds that Invest AD is seeing growing regional and international investor interest in Iraq. “The Iraqi equity market is still quite small by regional standards but from small beginnings come big opportunities,” he says. “We expect our fund to grow in line with this.”