Still Neutral On Levant Equities
We retain our neutral outlook on the Levant's equity markets, with neither Jordan's Amman Stock Exchange (ASE) nor Lebanon's BLOM Index showing any promise of breaking out of their sideways channels. We expect regional instability to continue weighing on investor sentiment in both markets for the time being, while the pace of economic activity in the Levant will remain lacklustre over the coming quarters. Low liquidity presents an additional challenge to investors, and given these factors we maintain our long-held regional preference for GCC equities.
The ASE stood at 2,185 at the time of writing, having remained close to that level since February. While a breach through key resistance of 2,270 could set the stage for higher gains, we see few catalysts in the near term. Although growth in the Jordanian economy will be driven slightly higher by solid construction activity over the coming quarters, and we expect the country's financial sector (which accounts for around 60% of the ASE) to remain resilient this year, a more substantial recovery in earnings remains off the cards for now.
Similarly, we expect the BLOM Index (dominated by banks and construction business Solidere) to trade sideways for now, from its current level of 1,203. Admittedly, valuations are cheap: the index trades at a price-to-book ratio of 0.83, the lowest since 2010 (and a P/E ratio of 6.33). Yet Lebanese equities are heavily influenced by the domestic and regional political outlook, which remains unpromising at present. While the formation of a new government in February helped to provide a short-term boost to Lebanese stocks, the cabinet faces a myriad of challenges, including the task of holding presidential elections before the end of May, and we see little prospect of a stabilisation in the political arena over the coming quarters. In technical terms, a break above the February 28 high of 1,233 would be a strong bullish signal, and could make us reconsider our view on the index.
|Showing Little Promise|
|Levant - Amman Stock Exchange (Left) and BLOM Index (Right)|