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MENAFN - Oxford Business Group - 17/02/2010

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(MENAFN - Oxford Business Group) As the Damascus Securities Exchange (DSE) prepares to celebrate its first birthday on March 10, traders and staff alike will be heartened by figures that demonstrate a continued rise in trading volumes on the bourse.

According to local business publication The Syria Report, volumes surged 55.7% in the first week of February to S157m (3.5m), a record for the exchange. The DSE had already posted one new high in 2010, when trading volume hit S130m (2.9m) in the third week of January. The growth in volumes is impressive, considering that weekly trade figures in December were as low as S33m (750,000). The increase seems to suggest that investors are greeting the New Year with renewed enthusiasm for the bourse, following a slow start to trading when the DSE opened in 2009. Trading volumes for the first month of operation were a modest S13.6m (300,000), spread over only nine sessions.

With eight companies listed initially, low volumes were to be expected. By October, after moving from two to three sessions a week (Monday, Tuesday and Thursday), and with an additional three companies joining the exchange in the interim, monthly volumes had risen more than twenty-fold to S284m (6.2m), or an average of S23.6m (500,000) per session. By January, average volume had risen to S28.4m (600,000).

If the latest figures are supported (they have not yet been published on the DSE's website), average volume per session for the first week of February would have hit S52m, or just over 1m. The average number of trades per session has also jumped from only 16 last April to 107 in January, while volume of shares traded has grown from an average 1660 per session to 22,500 (a small drop from October's average of 25,400).

Joining the positive trading statistics was news that a DSE-listed company has broken the S1bn mark in terms of the accumulated value of shares traded. The Syrian International Islamic Bank (SIIB) recently hit S1001.34m (21m) in value traded, despite being a latecomer to the DSE, and indeed being registered on the secondary "growth" market (designed for smaller companies).

The growth in market activity suggests that a few of the teething troubles experienced by the market in its opening months are being resolved. Initially, a 2% cap on price movements, coupled with limited trading of only four hours a week, led to an absence of liquidity on the bourse and a lack of appetite for trading. By the middle of last year, of 37,000 registered investors in the 11 listed companies on the exchange, only 1200 had actually engaged in any trading.

Despite the recent increases, trading remains modest and confined to a few particular stocks; behind SIIB the next highest traded stock is the Bank of Syria and Overseas at S375.4m, or less than half the volume, while only three companies out of 12 have broken the S200m mark. While forming a trading culture will take time and regulations may indeed remain overly cautious, the biggest barrier to greater activity is nonetheless an absence of listed companies.

In an attempt to attract new listings in December the authorities reduced minimum capital requirements for the main market from 6.5m to 2.5m. Time will tell whether the move will have a significant impact; currently, a major barrier to Syria's myriad family-owned corporations listing on the exchange is not so much an absence of capital as an absence of necessary financial disclosure. Changing accountancy procedures, which may require further reform of the tax code, is arguably the most pressing requirement to increase the number of listings.

Market appetite though is clearly in favour of new IPOs. An IPO by the local subsidiary of Bahrain's Al Baraka last November was oversubscribed 3.4 times, with S7.67bn (167m) of capital chasing a 35% stake running to S1.75bn (38m). The news suggests that Syria's financial institutions, which currently make up the large majority of listed companies, may succeed in meeting new regulations to raise capital from 30m to 200m (300m in the case of Islamic banks) over the next three years. That in itself would represent a significant advancement in the DSE's standing, as the bourse continues to evolve into a cornerstone of the new economy.


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