Monday, January 30, 2006

The "irrational exuberance" of the Beirut Stock Exchange

The Beirut Stock Exchange is exploding. The price earning ratios of some stocks cannot be explained. A ceramics company has a P/E of 234, the average P/E of banks is above 20 and Solidere, the largest company on the BSE, has a P/E of 76, (a bit much for a real estate equity).

Given the bad state of the Lebanese economy (its Gross Stock of Debt reached 178 percent of GDP in 2004, according to the IMF), the BSE seems to be on another planet. Of course there is excess Arab capital flowing in and of course there is so much positive feeling for a better Lebanon after the Syrian military withdrawal.
And there are international funds that are buying mostly Solidere and bank shares.

But after looking at the facts, whether political or economic, and analyzing them, any rational investor would rather invest in Zimbabwe than in the country of Najah Wakim and Zaher El Khatib. But then again when it comes to stockmarket "exuberance" everything is possible.
The financial community is talking about Solidere reaching $40 a share or ten times its price a little more than a year ago.

With a total daily volume of trades barely exceeding $50 million, the BSE can be easily manipulated by a few big investors. But as long as someone in Lebanon is making money I am happy, even if it is not me. "Sahtein" (or to your good health).

5 Comments:

Blogger JoseyWales said...

This comment has been removed by a blog administrator.

31 January, 2006 19:36  
Blogger ghassan said...

Zadigvoltaire,
Your observations about the state of affairs at the BSE is one that I share. But what is even more important is the fact that many of the large investment banking firms on Wall Street and The City expect a precipitous drop in the equity values in all the shares in the ME in general and the Gulf in particular. You are absolutely correct in suggesting that most and maybe all of these share prices are discounting the potential earnings centuries in advance and at a zero discount rate for that matter.
Having said that, however, I must hasten to add that I do not know of a firm that is recommending selling the shares short because this "irrationally Exuberant market" is being driven by liquidity. For those that believe in peak oil then the price of oil is only going higher and the economies of the region have a very limited absorptive capacity. One outlet for this execess liquidity in real estate and share prices. It pays to remember the adage that a fool and his money are soon parted. All share exchanges in the ME are badly regulated ,suffer of poor liquidity and are very thin. Avoid them like the plague if you are an investor but enjoy the game if you are a nimble short term trader with deep pockets.

01 February, 2006 03:19  
Blogger Mustapha said...

One should not forget the relative leniency of the Arab financial establishment with laundered money, as a major reason why most Arab investors still prefer investing in an overvalued Dubai/Lebanese stock than in an undervalued stock elsewere.

01 February, 2006 11:57  
Blogger Ms Levantine said...

In 1974 the price of a square meter of land in Hamra was higher than that of a square meter on 5th ave. in NY. It made the headlines of all Lebanese newspapers. Things went down from there. It was after the 73 oil embargo, and Arab funds were flowing to our country. But in those days the Palestinians in the camps were restless, south Lebanon was not under government control, Syria was pressuring us, and sectarian problems were emerging. Thankfully, the situation is very different today.

01 February, 2006 23:03  
Blogger shahana atuil said...

Wow ! This is a wonderful and informative website about financial market.It is a very useful for us. So, I like it very much. Many many thanks for make this website. If you want more informastion about stock quotes to visit stock quotes To get a stock quote, a quote on a mutual fund, or other security, you only need to key in a ticker A stock quote refers to the price of a stock at which a broker agrees to buy or sell a certain number of shares. A stock quote is classified into portfolios. symbol into the input box and click the Go button. If you do not know the ticker symbol of the particular security you want to search a stock quote for, you can use the Symbol Lookup tool to find it.

15 January, 2014 11:23  

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