Amman Stock Exchange: Boom to Bust

The madness of Jordan’s stock market gold rush is the focus of a new book by the celebrated economic journalist, Yousef Damra.

By Sadad Talhouni

The spectacular rise and fall of the Amman Stock Exchange is a fast-fading memory for the many Jordanian investors who almost lost the shirts off their backs in the frenzied rush for shares that roughly stretched between 2005 and 2008. But with modest signs that our economy is finally picking up again after the global economic downturn, have any lessons been learned from those manic years leading up to the crash, when everyone was somehow convinced the stock market party would never end?

Yousef Damra, the head of Al Ghad’s economic desk, attempts to answer this question and others in his new book, The Years of Glory and Regression.

Why did you decide to write this book?

I witnessed both the boom and decline of the Jordanian stock market firsthand. Financial markets go through the same cycles roughly every 10 years, and people tend to make the same mistakes every time. Right now, for example, there are cheap stocks people can invest in, but nobody jumps on the opportunity because they follow a herd mentality. And that was at the heart of the research: how can we not make the same mistakes another decade from now?

What issues does the book tackle?

The Amman Stock Exchange is small. It is categorized as a pre-emerging stock market, not as an emerging stock market. This is despite the fact that some of its neighboring stock markets, like the UAE’s and Qatar’s, which were set up and overseen by Jordanian experts, are now considered emerging stock markets. Jordan did not develop a financial industry advanced enough to keep up with these markets. There is negligence in legislation enactment, failure in regulation procedures, and a shortage of investment and financial tools. There are no investment funds, for example. If people want to establish a fund, they go to Bahrain and trade from there in Jordan’s stock market. Calling the ASE a stock exchange is inaccurate: it is nothing but a stock market. The Amman Bourse Index is a sum number that goes up and down. People can’t trade or buy based on it. Individual investments are what control the ASE. Individual investors can come together and affect a specific bond. Companies are run by boards without real governance, by individuals as if they are small farms. They are more sophisticated than the regulatory bodies; Today, for example, we have the concept of insider trading. Regulation bodies in America continuously update their regulations to keep up with such things. They follow through investigation procedures that take years, and can issue fines that costs millions of dollars. We have yet to record a violation of this kind in Jordan.

What about the external factors that affect the ASE? Do you think they have bigger effect on the market’s performance than internal factors?

Most of our problems up until now, in terms of effects on the investment atmosphere, have been external: the Amman bombings, the 2008 global recession, the crises in Greece and Dubai, and the Arab Spring. But internal factors definitely affect the market more. Our internal environment is very limited, and only a few companies, maybe 70 out of around 250 companies, are not considered weak.

Does the number of companies listed on the stock market affect its performance?

The quantity doesn’t matter. The quality does. The mistake that regulation bodies made, and part of that blame falls on the Companies Control Department, was that they concentrated on the amount, not the type of companies. So we ended up with pseudo-companies in the Amman Bourse that were easily destroyed at the first sign of trouble. The few sectors that are “envied” in the market are the banking sector, and some companies in the insurance, extraction industry, and communications sectors.

How much has the ASE fallen, and how long will it take to bring it back up?

The value of companies in the market reached JD42 billion. Today it is JD19 billion. The ASE fell from 160 percent of the market value of the GDP, to 80 percent today. But it has to go back up. The progress will be slow. We are currently in a stable period. The index oscillates between 200 and 250 points. The Arab Bank is a big influencer in the Amman Bourse. Once the New York trial procedures are over, and once we implement the economic reform program, then there might be some hope. Of course, we have to take the geopolitical problems into account, because it increases the state of uncertainty, and an investor who remains uncertain does not participate in investments. It might take 10 years.

In your book, what solutions do you offer to help the ASE get back on its feet, and have any of them been implemented?

The securities laws have to be amended so that they are compatible with what is going on with the financial markets and protect brokerage firms and banks. Of course, anything that comes out of legislative amendments has to increase the number of investment funds, which will help eradicate the ability of individual investments to control the market. These will all help restore confidence in the market. In the book, I also recommend creating a legislative environment for sukuk trading, and while that has been established, no company has been enlisted yet. That will take some time.

What do you think of the way the government handles the problems that arise in the ASE?

One of the biggest mistakes the Jordan Securities Commission makes is interfering with the ASE. The stock market must be allowed to progress naturally. The government is already in debt and has a chronic deficit; it doesn’t have the capability to enter the stock market. The government’s role at the ASE must be restricted to creating and regulating a governing legislative environment and nothing else. During the global financial crisis, instead of calming everyone down, the opposite happened.

How should the government have handled it?

First, the government should have lowered its budget during that exceptional situation instead of assuming that local revenues were going to be the same as they were during the boom period. Companies should have held Extraordinary General Meetings and lowered the values of their companies, as they did in the United States. But as it seemed, some of these companies did not want this framework and continued taking on loans. This delayed the process of recovering from losses, which have accumulated to where we are today. Only a few months ago did companies start to lower their capital value. This should have been implemented in 2009 or 2010. The rest of the Arab world did not handle it this way; Look at how quickly Dubai bounced back. We did not handle it on the basis that time has a price.

What are the most important points you want readers to learn from the book?

There were two purposes for this book. First, to deliver a message to interested parties at the ASE that the market is in need of constant development; that we are still not catching up with neighboring markets despite the fact that the Jordanian market is more important than many of the markets that have been established. The other part was intended for investors. They have to be more aware of what’s going on in companies and not listen to rumors. Speculation will always exist, but during times of stagnation, it’s a losing business.