OBG talks to Nader Azar, Acting CEO, Amman Stock Exchange (ASE)

Interview: Nader Azar

What levels of activity are expected in the Jordan-ian stock market in 2013?

NADER AZAR: This year is expected to be a promising one for the ASE. Since the beginning of 2013 we have seen sub-stantial positive growth in market activity indicators and investor appetite has come on very strong. There was a 41% increase in value traded in the first quarter of 2013, compared to 2012. The number of traded shares went up 29% and the number of executed transactions rose 15% in the first quarter.

Given that 2012 was a difficult year for the exchange, I attribute the current rebound in the bourse to the polit-ical stability of the kingdom. Despite the rather bleak political scene surrounding the country, investors have placed a great deal of trust in the Jordanian market and, in my opinion, liquidity is just around the corner due to the renewed confidence in the market.

To what extent are efforts being made to broaden the target audience both in terms of listed compa-nies and investors? Is the focus tilted more domes-tically or externally?

AZAR: Both local and international investors are tar-gets. The market capitalisation of the ASE is around $27bn, of which non-Jordanian ownership constitutes about 51%, which is an encouraging sign. This owner-ship is generally made up of Arab governments, insti-tutional investors, individuals and different types of funds and affluent families. Arabs own approximately 33% of the market through investment funds, mutual funds and families. Furthermore, non-Arabs own 17% of the market, with participation from over 100 nation-alities. Given the difficulties in 2012 as well as the polit-ical turbulence, we would have expected to see more foreign investors exiting the exchange. On the con-trary, we did not see an exodus of international investors in Jordan. In fact, over the past three years, non-Jor- danian ownership has actually increased. Market seg-mentation; marketing campaigns that emphasise the attractiveness and security of the ASE; enhancement of transparency; disclosure; and corporate governance practices have all helped attract and retain investors.

How has the regional unrest affected initial public offerings (IPOs) and other market activity?

AZAR: The primary market is affected by the perform-ance and productivity of the secondary market, which in turn, is affected by company performance, as well as international economic and political developments.

The IPO market in Jordan witnessed a boom in activity between 2003 and 2008, and we had a high volume of IPOs within this timeframe. The negative effects of the global financial crisis as well as the regional impact of the Arab Spring, compounded by domestic political challenges, have all had a negative effect on the level of activity and valuation in the secondary market. This has directly affected IPOs. When you have a prosper-ous secondary market, there is an incentive for com-panies to be established or for existing companies to increase their capital. Looking ahead, I believe there could be more IPOs on the horizon.

What has the investor response been to the seg-mentation of the market into three tiers?

AZAR: The creation of the third tier was a very positive step for the exchange and the response has been encouraging on both a market and investor level. The third market was introduced based on the idea of hav-ing more stringent listing requirements in the first tier for blue chip companies. By isolating this third market, potential investors can now have a more acute aware-ness of the types of companies that they are investing in, and this has created an impetus for third-tier com-panies to put their financials in order so that they can be more attractive for active investors. The sharehold-ers’ equity in third-tier companies is below 50% and the time for trading in this segment is limited to 20 min-utes. First-tier companies enjoy more flexibility, and movement of up to 7.5% a day is allowed, whereas there is a cap of 5% volatility in the third-tier market.