BSE: Market Entry Needs Improvement
In its annual assessment of the market accessibility of 78 Developed, Emerging and Frontier equity markets, global portfolio analytics and indices provider, MSCI Barra maintained Lebanon in its Frontier Markets category and evaluated the country's stock market based on four accessibility criteria that are openness to foreign ownership, ease of capital inflows and outflows, efficiency of the operational framework, and stability of the institutional framework.
It said that the four criteria reflect the views of international institutional investors, which generally put a strong emphasis on equal treatment of investors, free flow of capital, cost of investment and country specific risk, as reported by lebanon This Week, Byblos Bank economic publication.
In terms of openness to foreign ownership, it said that there are no limits to foreign ownership on the Beirut Stock Exchange except for Israeli nationals whom are formally prohibited from investing in Lebanese companies.
It noted the need to improve equal rights to foreign investors as company-related information is not always readily available in English. Lebanon was one of two frontier markets with a 'no major issues' rating in terms of investor qualification requirements, one of 15 markets with the same rating in terms of equal rights to foreign investors, one of 21 frontier markets with a 'no issues' rating in terms of foreign room level, and one of 16 markets with the same rating in terms of foreign ownership limit. Regarding capital inflows and outflows, it said there are no restrictions on capital flows, but noted that there is no offshore currency market and there are constraints on the onshore currency market, as foreign investors are not allowed to hold Lebanese pound balances.
Lebanon was among 21 frontier markets with a 'no issues' rating in terms of capital flows restrictions, and one of nine markets with an 'improvements needed' rating in terms of liberalization level of the for- eign exchange market.
Regarding the efficiency of the operational framework, it said market entry needs improvement, as registration is mandatory and may take up to five days. Also, not all regulations can be found in English, and the flow of information needs improvement as detailed stock market information is not always disclosed in English. It added that clearing and settlement procedures can be improved, as there is an absence of a real DVP system on the Beirut Stock Exchange, while there is no nominee status and no omnibus structures.
In terms of custody, MSCI Barra said there is no formal segregation between custody and trading accounts for transactions on the Beirut market. In addition, there is only one active custodian available to foreign investors. It added that investors would welcome improvements in this area. Lebanon was among nine frontier markets that received a 'no major issues' rating in terms of market regulations and one of five markets to get the same rating in terms of information flow.
In parallel, it said that not all listed shares are dematerialized in terms of registry and depository, and in most instances the central depository acts as a central registry. It added that there are now lower trading costs in Lebanon due to a higher level of competition among brokers, while in-kind transfers and off-exchange transactions are prohibited. Finally, MSCI Barra said that Lebanon, like most Emerging and Frontier Markets, exhibits some shortcomings but "no major issues" in the stability of the institutional framework, and in particular in the enforcement of the rule of law.
Lebanon is one of 25 stock markets worldwide that fall under MSCI Barra's definition of Frontier Markets. The other such markets in the region are Tunisia, Bahrain, Jordan, Kuwait, Oman, Qatar, and the UAE. In November 2007, MSCI Barra included Lebanon in its MSCI Frontier Markets Index, a fully investable index for frontier equity markets. The index contains stocks from 25 developing mar- kets in Asia, Emerging Europe, the Commonwealth of Independent States, Africa, and the Middle East.
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