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Local markets await the pains of government formation and the path of the French initiative
The financial markets of Beirut are awaiting the development path of the French rescue initiative with international support and the scope of the local response to the formation of the new government within a period of 15 days ending “in principle” at the end of this week, as markets regained a fraction of their vitality in the week of the selection of Ambassador Mustafa Adib to head the government. However, the outlook remained blurry in the foreign exchange market, pushing from the contraction of foreign exchange reserves at the Central Bank to critical levels.
The main market operators told “Asharq Al-Awsat” that the signs of improvement in the prices of international debt securities in recent days were actually limited to foreign markets, as foreign investors registered a relative participation to buy various segments of the portfolio of “Eurobonds” issued. From the Lebanese government. Although the local stock market did not experience notable developments, with the exception of the shares of Solidere (Emaria, Beirut Center) retaining its special appeal that it gained as a refuge for many savers due to the strict banking operations and the prevention of withdrawals and transfers in foreign currency.
On the other hand, internal deals in general on international bonds, whose domestic portfolio amounts to about $ 11 billion held by banks and about $ 5 billion with the central bank, were characterized by many reserves, awaiting the course of the consultations to form the next government. Dollar prices in the parallel market also rose to around 7,500 pounds per dollar at the end of the week, after they had declined to around 7,100 pounds per dollar after the mandate, which was almost unanimous and reached around 90 parliamentary votes. out of 120 (8 resigned).
The hesitation seemed overwhelming in the anticipations of local experts due to the discrepancy in the leaked information on the desire of the appointed president to harmonize with the content of the French initiative to minister specialists from outside the parties and parliamentary blocs, while the positions Policies showed demands for participation in the “ fat ” ministries or with the authority to sign important decrees and decisions. This is what brings back the disappointing impressions that accompanied the performance of the government of Prime Minister Hassan Diab, who is currently in charge of the interim functions.
The impact of the participation of foreign investment in the purchase of Lebanese government securities that were presented at their lowest levels in international markets was evident. The various portfolio segments, the total size of which is approximately $ 32 billion, half of which is held by banks, institutions and external funds, have registered average increases of almost $ 1.8 per bond, leading the price average bond from $ 16.6 to approximately $ 18.7. Noting that the earliest maturing bonds posted the highest price levels.
The increases are not expected to drive prices above 30 percent of their issue value, or 100 percent in full. This is related to previous estimates that the change of government will not lead to a significant change in the trend of deduction from the original value of the state’s foreign exchange portfolio, after the current government decided in early March to suspend the payment of bonds. and past due interests. Then I attached it a month later to announce that the same measure would apply to the entire Eurobond portfolio.
Therefore, the determination of the deduction rate will determine future trade margins. It is expected to be positive in the event that a financing program agreement is signed with the International Monetary Fund, and CEDRE’s aid and financing are restored. In addition to the French promise to hold a new international conference to coordinate international aid over the next month, if the government’s launch and its explicit commitment to comprehensive structural reforms accelerate, the accounting and criminal audit of central bank accounts begins and the restructuring of the banking system begins.
As for the Beirut Stock Exchange, the statistics collected showed a decline in the number of shares traded by 54.56 percent annually to around 86.59 million shares through August this year. This is automatically due to the deterioration of the economic situation, the paralysis of banking operations and the quarantine imposed by the outbreak of the Coronavirus. The value of the shares traded also decreased by 85.96 percent on a cumulative basis, to approximately $ 114.86 million. However, the book value weighted average price (P / Bv) of the listed shares increased slightly to 0.849 from the original issue value due to the notable rise in Solidere’s share price.
The value of BDL’s external assets also decreased by 26.42 percent, or $ 10.22 billion, compared to the level at the end of August last year, which amounted to $ 38.68 billion at that time. moment. While the value of gold reserves increased by 28.75%, or $ 4.05 billion, compared to the level recorded in the same period, which was $ 14.08 billion at the time. In general, total reserves “theoretically” (foreign assets and gold reserves) constitute about 44.49% of total public debt and 49.3% of net public debt. Covers about 162 months of debt service.
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