Baghdad's Stock Market Goes Modern

Located behind a series of concrete and barbed wire barricades in a Christian enclave of Baghdad, two things distinguish the Iraq Stock Exchange, the ISX, from its counterparts in New York, Hong Kong, Tokyo and London: the trading is done manually, and two cordial plainclothes guards at the white plastic table in the courtyard are happy to check your guns for you.

Inside the fortified converted hotel about a hundred middle-aged men in dark jackets jostle and speculate between 10 a.m. and noon three days a week. Since 2004, trading has been done the old-fashioned way, with pen and paper. Buyers shout at or call into their brokers, who stand around a series of white dry-erase boards that list each company's share buy and sell price. A man in the back takes out a pair of opera classes to read the writing on the wall. Once a sale is final, buyers wait 15 to 20 days for the stock certificate to be issued.

But all of that is about to change. Intrepid investors will not have to brave car bombs, checkpoints or interminable traffic jams much longer. In the next two months, all investors - foreign and Iraqi - will be able to buy and sell in a matter of minutes, once the ISX's computers and servers are switched on. Servers, computers and electronic boards have arrived but are not yet operational. Three back-up generators will make sure the market will be running non-stop, despite widespread electrical brownouts across the Iraqi capital.

"You will be able to buy at 10:00 in the morning and sell at 10:05," says CEO Taha Abdul-Salam, a short man with a buzz cut and a pistol holster under his jacket. The ISX is a private venture regulated by the Iraqi Securities Commission. It opened in 2004 with 15 companies. I hope to have thousands by the end of the year," says Taha. Realistically he expects maybe 20 more companies to sign on.

Currently the ISX represents 94 companies and works with 49 licensed brokerages. The total trading volume for 2007 was $354 million, a 250% increase over 2006. The ISX has a helpful website, with regular updates; Taha says the ISX has received 17 billion Iraqi Dinars, or $14 million in the past five months from investors in the region. Banks are 80% of the volume, followed by services, manufacturing, hotels and agriculture.

He expects some growing pains and adjustments when the automated system comes online. "It is an Iraqi tradition to see everything - we will not have a physical [stock] certificate anymore," says Taha, who expects that market capitalization of the index will increase 25% to 50% in the next year.

Down on the trading floor, eight hands suddenly reach for the whiteboard to trade shares of the al-Basra Bank, and then a moment later pull back. A female trader has just walked along the front of the room in elegant black boots and gold necklaces, chatting into her cell phone, pausing momentarily to scribble numbers in black marker on the wall.

In spite of the impending modernization, there is a cloud of gloom over the crowd of investors and spectators anxiously watching the board. Iraq is still adjusting to a free market economy from one where state-run socialism reigned supreme. Today the government doesn't protect industry; furthermore, goods coming from abroad undercut local manufacturing. This all happened suddenly and swiftly. "To be honest, the war destroyed us," says one elderly gentleman in a yellow scarf and round spectacles.

"Business is no good - the security affects the Iraqi economy and there is no management in the Iraqi companies. They are all raising capital but not increasing production," says Mohammad Ismail, who comes to the ISX three times a week. He gives the example of an electronics company that manufactures television sets that might have been competitive in the 1980s but have long since gone out of fashion. "These companies in Iraq cannot compete with these goods coming from China because the costs are very low for them and for us very high," says Haitham N. Elias, a broker.

At the same time he points out that share prices of many companies are undervalued, citing examples like al-Hilal Company - which manufactures air conditioning units - the Bicycle and Tube Company and Baghdad Hotels. "The prices for the shares of these companies are very low," says Elias. However he cautions against buying into the ISX to make a quick buck. The Iraqi market, he says, is a long-term investment.