Steep uphill ahead for Amman Stock Exchange recovery

ASE performance from Jan 2010 to Jan 2020. (Photo: Jordan News)
AMMAN — The return to normal in Jordan bumped the Amman Stock Exchange (ASE)  index up. Its free-floating shares on the ASE100 reached 2118.6 points at the end of 2021, a 27.8 percent increase from 2020. This marks the highest annual percentage increase achieved at the ASE since 2005; the ASE20 saw an increase of 33.2 percent compared to last year. اضافة اعلان

The ASE100 and ASE20 indicate the performance of 100 and 20 leading company stocks respectively; the ASE has 174 publicly traded companies in total. An impressive performance compared to last year only, most experts agree. 

The ASE is still 17 percent lower in points from its early January 2010 levels, meaning the ASE not only has not recovered 14 years after the global financial collapse in 2008, it has in fact lost value. 

While Jordan’s ASE was once a leading performer that lent its operational DNA and expertise for structuring regional financial markets, it has been regressing ever since. Now the leading stock exchanges are in Saudi, UAE, and Egypt.

The stock market in Amman is inherently sensitive to regional events, and especially so to those in neighboring Syria and Iraq. The liberalization and improvement of Saudi Arabia and UAE financial markets helpsed them compete with the ASE, diverting Jordanian investments away from the local financial market.

The underlying main cause of continued weak ASE performance since the financial crash of 2008 is naturally the anemic injection of fresh capital, Mohammed Ali Qaryouti, an active entrepreneur and investor, and a former Housing Bank executive, told Jordan News.

The recent rise in the ASE is merely the result of bluechip stocks’ performance, which have just recently come out from a long pandemic-related lockdown.

“Such companies as the Arab Bank, Capital Bank, Housing Bank as well, the phosphate and potash companies and the Jordan Petroleum Refinery Company, among some others, are the key movers of the Jordanian financial market and these companies float a tiny percentage of their stocks for trading. This is why when their shares go up in value, the ASE, in my opinion, is giving a false economic activity indicator,” added Qaryouti.

To fairly judge the Jordanian economy, Qaryouti added, we should not rely on the ASE indicator.

“Instead we need to assess the performance of Jordan-centric economic sectors, such as real estate, automotive, information technology, health and contracting… these traditional industries are a better gauge for our economy and most of them are not listed in the stock market,” he said.

Jordan’s largest companies, such as Nuqul Group, Munir Sukhtian Group, Manaseer Group, Sayegh Group, among others, are family owned business. 
Chairman and CEO of National Portfolio Securities Mohammad Belbeisi believes another factor diverting capital away from the ASE are bank interest rates, which compete with the low dividend rates that public companies are offering.

“This is pushing people to savings accounts.” 

“These hurdles and the fact that no IPOs have taken place in the ASE since 2008 are not only scaring off local investors but also pushing away foreign investors,” he added.

“Last year we saw foreign funds leave because capital liquidity was not good enough”.

While bank deposits are high in Jordan, banks are not committed to investing in the ASE, and neither are other funds at associations and the Social Security Corporation, according to Belbeisi.

“Capital gains from investing in the ASE are also subject to taxation, making the ASE unattractive. If we do not change the tax regulation, the ASE will remain caged.”

Recent financial regulatory changes allowed Jordanian brokers to trade in foreign stocks, further complicating recovery at the ASE. Belbeisi believes that these licenses for trading in international exchanges and financial markets will divert liquidity away from the ASE. 

Belbeisi’s own company has recently been licensed to sell international stocks to Jordanians.

“Regional and international markets are easily accessible via the internet to anyone sitting at home,” he said.

Basem Hamarneh, a daily trader who once spent hours at the ASE flipping stocks, said he no longer invests in a single stock.

“I stopped trading after I lost most of my principal capital and I do not intend on increasing my investment; the market now is dead and I will be quite happy recouping my former losses.”

Volumes dropped dramatically
at  the ASE.
“When I was a frequent trader, the first five minutes from market opening turned over JD100 million. Today, the total volume does not exceed JD10 million for the entire trading period,” he added.
To compare, the Saudi financial market turns over JD1 billion in one day.
“Some Saudi companies distribute dividends four times a year against once a year in Jordan,” Hamarneh added.

According to Hamarneh, most Jordanian traders now search for companies that offer fair dividends at year’s end and these companies are few.
“We stopped judging stocks by their potential for future growth.

I think Jordanian regulators need to dig deeper when monitoring publicly traded companies to ensure higher transparency in corporate financial management and reporting. While public companies at the ASE do follow financial disclosure practices, the game is probably played at the corporate board level, where salaries, bonuses, compensation and dividend payouts are decided,” Hamarneh said.

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