Libyan Stock Market Catches The Eye Of Intrepid Frontier Market Investors

Courtesy of The Financial Times, an interesting article on the promise of Libya’s fledgling stock market in light of the recent changes in the country.  As the report notes:

“Libya’s fledgling stock market is attracting investor attention as the country’s new rulers aim to relaunch it after a wartime shutdown of more than six months.

Analysts excited by high-risk frontier bourses with growth potential are eyeing with interest an exchange that was a late creation of Colonel Muammer Gaddafi’s regime and had just 12 listed companies by the time this year’s successful uprising against him began.

While no one foresees an immediate surge in business, bullish observers hope a more favourable political climate, a speeding up of privatisation plans and a push to issue shares to Libyan citizens could boost the size of the $3bn market significantly.

“I believe it will grow. Libya is going to be very interesting,” says Mark Möbius, executive chairman at Templeton’s emerging markets group.

The market has returned to investors’ radar as Libyan officials have talked about opening it as soon as this month, although others have said it would not be until next year. 

Nagib Abdel Salam Obeida, head of the Benghazi exchange, told Reuters last month that he expected the market to restart in October and that he hoped to see an increase in foreign participation.

If peace in Libya is fully established and maintained, the bourse’s capitalisation could increase by as much as 10 times to about 30 per cent of gross domestic product in a few years, according to Emad Mostaque, Middle East and north Africa strategist at Religare Capital Markets. It could grow even more “if they aggressively push it”, says Mr Mostaque.

One reason for the market’s potential is that it is starting from such a low base, given the size of the Libyan economy. Held back by a 42-year Gaddafi regime that swung between suspicion and outright hostility to private business, the stock market opened only in 2007 with its very limited number of traded companies – one of which is the bourse itself.

Banks and insurance groups dominate the listings, leaving room for companies from other sectors, notably the oil industry that dominates the economy. The political environment under the ruling National Transitional Council is also seen as likely to be more pro-business than the Gaddafi regime, allowing the non-oil economy to expand in new directions.

A third reason for investor optimism is the will of the wider world to help Libya develop its economy and make its post-Gaddafi institutions work. The London Stock Exchange even signed a co-operation deal with its Libyan counterpart in 2007, although the LSE has said this did not develop.

Analysts admit there are plenty of potential troubles that may yet stymie the Libyan market, from guerrilla war to bureaucratic paralysis or the emergence of a dominant political group not wedded to the western capitalist model. There may also be a need to restructure the market – not least its unusual practice of simultaneous trading in Tripoli, the capital, and the eastern city of Benghazi.

“I suspect the Libyan opportunity is five to 10 years out – assuming all goes well on the restoration of functional government,” says Daniel Broby, chief investment officer at Silk Invest in London.

This entry was posted on Wednesday, October 12th, 2011 at 4:16 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.