A crocus in Iraq

By Greg Richards

It is not the season for crocuses, the harbingers of spring and thus of new life, but we seem to have had one push its head up last week. The Baghdad Stock Exchange trades twice a week. In its first session of last week, on July 10, the ISX, the Baghdad Stock Exchange Index, scooted up 11%, a very large move for one day, even in a secondary and illiquid market like Baghdad. Was this a fluke? It doesn't appear so, since it was confirmed by slightly higher prices n the second weekly trading session on July 12.

Is there any significance to this move? I think so. The move last week brings the ISX back to its level of February 20, 2006. Does this date ring a bell? It is two days before the Golden Mosque of Samarra was demolished by al-Qaeda in Iraq (AQI), essentially setting off AQI's war against the Iraqi umma under the guise of revolutionary assistance to the Sunni minority.

From January to February last year, the ISX dropped almost 50% from the mid-40's to approximately 25, a very sharp drop. For the rest of 2006, the ISX traded in a range from 25 - 30. It rose in December 2006 - January 2007 which at the time - and now - appeared to be a vote of support for the new strategy. It pulled back to 25 in the May - June timeframe and now has surged to above 30, where it has not been since February 20, 2006.

The Iraq Stock Exchange has a capitalization of about $1.5 billion, very small by international standards, but still not nothing. It trades about 500 million shares per session. About 80% of its capitalization is in banks

The state of the economy remains one of the critical vectors in the Iraq story. Unemployment is reported to be in the 60% range, a catastrophic level. Doubtless, our concept is that if/when order can be established in the country, the economy can take off rapidly and absorb the workforce. That is not happening yet so far as we know. But we now have this move in the ISX which is it impossible to interpret negatively and may be significant.