Regain Jordan’s MSCI’s emerging market ranking

Amman - Ameer
(File photo: Ameer Khalifeh/Jordan News)
Amman - Ameer

Hamzeh S. Al-Alayani

The writer is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.

Capital markets are essential to promoting economic activity worldwide, as they facilitate and diversify the access of firms to finance. At the Jordanian macro level, deepening capital markets, which have ample liquidity and developed secondary markets, will create a robust financial system that will help the economy grow, create jobs and raise the standard of living of its residents. اضافة اعلان

Jordan is presently ranked as a “frontier” market under the Morgan Stanley Capital International (MSCI) Market Classification. Before 2008, Jordan’s economy was classified as an emerging market economy. MSCI ranking is based on four critical criteria: openness to foreign ownership, ease of inflows and outflows to foreign direct investors, the efficiency of the operational framework, and stability of the institutional framework. This ranking is important as it provides a shorthand due diligence result for firms considering entering this market.

It is essential to note that the world economic and financial geography has shifted toward emerging markets. The frontier market only produces 3.5 percent of the world’s GDP, and makes up 1 percent of the global stock market capitalization, with only 81 stocks, compared to 3,000 in the All Country Index and 1,400 in the Emerging Markets Index.

Jordan has implemented comprehensive economic reforms to spark growth and development, and recently launched the Economic Modernization Vision to revive export-driven economic growth by investment, particularly export-supporting foreign direct investment (FDI) toward catching-up economies with market potential, whereas asset-seeking FDI is aimed at securing access to new or complementary capabilities

Restoring FDI and exports is central to the effort to increase productivity, competitiveness, and employment opportunities, which results in higher economic growth. At the same time, reopening borders with Iraq and Syria presents potential opportunities for Jordanian companies that need a well-developed and articulated investment strategy and securities regulations.

The results at the Amman Stock Exchange (ASE) show an increase in the semi-annual profits after tax, with 96 percent out of 168 listed companies having achieved a 139.3 percent financial improvement in the year 2022. Developing an appropriate digital exchange hub infrastructure will accelerate ASE economic diversification and enhance its financial services sector, attracting a more comprehensive range of investors and issuers worldwide, and creating a dynamic capital market environment.
Economic sustainability will require continued fiscal consolidation to achieve faster growth. Therefore, Jordan should incorporate the investment framework into an economic complexity analysis to achieve comparative advantages.
The Social Security Investment Fund and Jordanian wealthy family businesses have substantial funds to invest in ASE. Therefore, the ASE should embrace the rise of Dual-Class IPOs. Almost 30 percent of IPOs in 2017–2019 had dual-class structures, including Snap, Twitter, and Dropbox. The dual listing can achieve synergies to enhance market liquidity and promote innovative products, and help investment flows into emerging markets.

A market status upgrade can be beneficial to Jordan in varied ways. It improves financial flows by attracting foreign investors; in particular, pension funds and institutional investors with significant capital funds could utilize market classifications to make investment decisions. It would also secure a more substantial policy commitment to reform.

Moreover, index-tracking investors, who invest in portfolios replicating an index’s movements, would also be interested in the Jordanian market. It may entice investors and could positively affect capital flows into Jordan, impacting future growth prospects.

Jordan’s market needs qualification criteria to ensure the achievement of the Sustainable Development Goals, which is bound to encourage pension funds and sovereign wealth funds to invest.

Economic sustainability will require continued fiscal consolidation to achieve faster growth. Therefore, Jordan should incorporate the investment framework into an economic complexity analysis to achieve comparative advantages.

It will need to maximize the growth potential of its most significant asset (human capital), which is an important prerequisite for growth and competitiveness of a country, and should be carried out jointly by the public and private sectors.

Hamzeh S. Al-Alayani is a board member of a Jordanian public-sector government investment management company since 2019. He is currently the Business Development Director at Edgo, he worked with Petrofac, an international EPC company in various positions and countries in the Middle East, North Africa & UK region. Alayani holds a BSc in Mechanical Engineering (2006) and an MBA from the University of Aberdeen, UK (2021).

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