OBG talks to Adel Kasaji, CEO, AB Invest

Interview: Adel Kasaji

How are investors assessing the level of political risk in Jordan amid regional instability?

ADEL KASAJI: Different classes of investors assess the political risk in Jordan differently. Foreign investors usually look at the MENA region as a whole rather than individual countries, and in doing so they raise the risk level in Jordan to that of the region. Regional and local investors who are aware of Jordan’s unique landscape understand that the country’s political risk is much lower than that of its neighbours. A clear indicator that investors are not overly worried about the political risk in Jordan is that the foreign ownership in the Amman Stock Exchange remained unchanged at around 51% throughout 2011 and in the first quarter of 2012.

However, even local and regional investors do not discount the political risk in Jordan totally. After all, there are social pressures to make changes to the governance style that are mostly related to economic factors. This fact can be seen in the large fall in trading activity over the past year. Moreover, there was a significant drop in the performance of the market in 2011. However, in looking at the performance and the activity of the market and the economy, one must understand that it is difficult to isolate the effect of political risk, and we must always remember the array of other powerful factors that investors take into consideration when they make investment decisions.

What opportunities exist for investors willing to make bets on companies that may be undervalued?

KASAJI: The most obvious opportunities are companies that are trading at a price-to-book ratio of less than one. There are a number of such companies in Jordan, and many of these enterprises hold assets, especially in real estate, that can be liquidated to generate a profit. Moreover, there are firms that were affected by the general slide in the economy despite their individual strong performances. Several pharmaceutical, mining and extraction companies come to mind, in addition to some banks. Finally, there are opportunities for investors who can provide liquidity, as some companies have solid long-term business models but are facing some short-term liquidity challenges, mostly due to the restrictive lending policies adopted by local banks.

What regulatory improvements might encourage more activity in Jordan’s capital markets?

KASAJI: The regulatory changes that could increase the activity of the local capital market can be divided into several classes. The regulator must improve and more efficiently apply rules concerning financial reporting and transparency. As an example, all publicly traded companies, and not only the ones listed on the first market, should be required to report on a quarterly basis. Moreover, the regulator might ask firms to add more details to their financial reporting, especially in the management section. This could also be extended to brokers and investment banks.

The regulator should also issue rules that would improve the ability of brokers to facilitate trading by guaranteeing their right to control portfolios in cases involving legal trouble and liquidation. Finally, the regulator should take steps to introduce measures that improve and increase the portfolio of available investment vehicles, such as investment funds, derivatives, the debt market and Islamic investments.

What is your view on a government sukuk market?

KASAJI: The 2012 budget is restrained and the government is trying to avoid further borrowing. However, social demands continue to raise salaries and maintain subsidies, and the government might be forced to borrow. In order to avoid more foreign debt, the government might find it more beneficial to explore the sukuk market to a greater extent. However, I feel developing the sukuk market is not an appealing short-term goal because of the long backlog of more important regulatory needs and the limited appetite among investors. The main bond market is not well developed and that is more important to develop than sukuks.