Global portfolio analytics and indices provider MSCI Barra maintained Lebanon in its “frontier markets” category, according to its annual assessment of the market accessibility of 82 developed emerging and frontier equity markets.
It 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 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.
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 who 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, and one of 13 markets with the same rating in terms of equal rights to foreign investors, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.
It came also as one of 21 frontier markets with a “no issues” rating in terms of foreign room level, and one of 17 markets with the same rating in terms of foreign-ownership limit.
Regarding capital inflows and outflows, it that said there are no restrictions on capital flows to and from Lebanon. But it noted that there is no offshore currency market and that there are constraints on the onshore currency market, as foreign investors are not allowed to hold Lebanese pound balances.
Lebanon was among 17 frontier markets with a “no issues” rating in terms of capital flows restrictions, and one of 10 markets with an “improvements needed” rating in terms of the liberalization level of the foreign exchange market.
Regarding the efficiency of the operational framework, it considered that market entry needs improvement, as registration is mandatory and may take up to five days.
Further, it said that not all regulations are available in English, and that the flow of information needs improvement, as detailed stock market information is not always disclosed in English.
Lebanon was among 11 frontier markets that received a “no major issues” rating in terms of market regulations and one of seven markets to get the same rating in terms of information flow. In addition, it said that almost all market infrastructure indicators need improvements. It indicated that clearing and settlement procedures can be improved, as there is no real DVP system on the Beirut Stock Exchange, as well as no nominee status and no omnibus structures.
In terms of custody, MSCI Barra said that there is no formal segregation between custody and trading accounts for transactions on the Beirut market. It added that there is only one active custodian available to foreign investors.
In terms of registry and depository, it indicated that not all listed shares are dematerialized, few securities are registered at the issuer level, and that the central depository acts as a central registry in most instances. It added that 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 found “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 24 stock markets worldwide that fall under MSCI Barra’s definition of Frontier Markets. The other markets in the region are Bahrain, Jordan, Kuwait, Morocco, Oman and Tunisia. 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 24 developing markets in Asia, emerging Europe, the Commonwealth of Independent States, Africa, the Middle East and the Americas.
