Democratising Access to Finance
In June of 2023, Jordan Kuwait Bank (ticker: JOKB) successfully issued 2 perpetual bonds1 , 25.2 million JODs and $90 million, following the example of Capital Bank’s issuance in Dubai2 last year (they are known as non-convertible Additional Tier 1 Capital or AT1 bonds).
The coupon on the JOD bond is 8.5% for the first 2 years followed by CBJ + 1.25% for the following years. 8.5% is currently higher than the highest deposit rate paid by the bank itself. However, the everyday person could not purchase these bonds immediately (primary dealers won’t sell in the secondary market) and at 100,000 JODs blocks making the threshold to entry highly inaccessible.
Two months prior to the bond issuance, Jordan Kuwait Bank paid out 4% in dividends. That is, if you owned 100 shares or 1,000,000 shares of the bank, every shareholder gets paid 4%. What’s more, dividends in Jordan are tax free3 and one could sell their shares at a profit and not pay any income tax.
Despite all these advantages, one still has to ask the question: why is the Amman Stock Exchange in this current sad state of affairs?
Past Performance Is No Guarantee of Future Results
“The turkey found that, on his first morning at the turkey farm, he was fed at 9 a.m. Being a good inductivist turkey he did not jump to conclusions. He waited until he collected a large number of observations that he was fed at 9 a.m. and made these observations under a wide range of circumstances, on Wednesdays, on Thursdays, on cold days, on warm days. Each day he added another observation statement to his list. Finally he was satisfied that he had collected a number of observation statements to inductively infer that “I am always fed at 9 a.m.”.
However on the morning of Christmas eve he was not fed but instead had his throat cut.”
Bertrand Russell
2008 was the best and worst year for the Amman Stock Exchange.
During the first 6 months of the year, the market was up 30%, reaching its peak on June 16th. Market Capitalisation of ASE was 3 times bigger than the entire GDP of the country. It went from 7.7 billion JODs in 2003 to 30 billion in 2008.
However the bubble burst and ASE index closed at -25% by end of year.
More importantly, the value traded went from less than 1.8 billion JODs in 2003 to 20 billion in 2008. In 2022, trading volume was back down to 1.9 billion JODs4 despite a stellar bull market (+18% vs S&P 500 -19.4%) led by the fertiliser companies (who have dethroned both Arab Bank and Housing Bank from their top spots).
Why is trading volume important? That’s how the Social Depository Center, Jordan Securities Commission, and the Amman Stock Exchange get their income. Through fees5.
Things were so good back then, with hopes that they will get even better, that the Capital Markets decided on building a new Jordan National Financial Center (at the initial cost of 22 million JODs6) based on the same revenue. Just like the turkey, the markets learned a good lesson. The projects is still “on hold”. Trading volume is currently too low to cover current expenses7 let alone expand to other capital projects. Trading volume needs to double at minimum if not more by attracting more investors.
Back then, there were 69 brokers serving ASE. Now it is down to 52.
How to Resuscitate a Zombie Market
Here are my top suggestions that can be easily implemented:
1- Quarterly Dividends
If you don’t follow me on Twitter/X8 (and you better hurry before it is shut down), I wrote about the “Dividend Rally” that takes place every year on ASE. Basically retail investors rush to buy shares of companies, wait for the dividend pay out, sell their shares at the end and repeat the year after. Market Index and trading volume rise in the first 6 months before quieting down for the rest of the year.
If ASE wants to keep the attention of the retail investors, there is no better way than to encourage publicly traded firms to distribute dividends on a quarterly basis instead of a yearly basis. I know it requires a bit more work, but investors have more reasons to hold on to their shares for a little longer. Most firms in developed markets do this.
2- Secondary Bond Market9
Corporate Bonds and Treasury bills are not traded on the secondary markets. We the people deserve a piece of that lucrative pie. Yields on most of these bonds are higher than anything you can find elsewhere.
Jordan Strategy Forum wrote about that here.
3- Fintech Innovation
Nowadays you can open a bank account from you phone. But to open a brokerage account requires you to go to the broker’s office in Shmeisani (or if they have good customer service, they will send out someone to let you sign papers at your location). Can’t they create a way to open an account online with KYC using Sanad’s API? And now the ASE has XBRL10 which can make it easier, more accessible, and most information machine readable. Jordanian Expats should have access to the ASE when abroad.
There are also other fintech products and wealth management applications that could benefit both investors and the markets. They could use the current trend of “gamification” of apps (like Tinder & TikTok) where people can just swipe their money away. However I would like to point an important thing: investing in the stock market is not gambling. It is not like the crypto casino and the quick rich schemes/scams11 we see currently. There are laws and regulations, supervising bodies to protect investors, etc.
[Personal note: 6 years ago I worked on an AI/Robo advisor to invest in the Amman Stock Exchange. Oasis500 passed it down. When I approached the great late Emile Qubeisy, he was shocked to find that the product was even created in Jordan (which was a hint on what most “entrepreneurs” in Jordan were working on). ]
4- Positive Feedback Loop
Selling begets Selling
The ASE goes on trips (also known as investor roadshows) abroad to market the Amman Stock Exchange to foreign investors. But I am reminded of the below:
Basically good news attracts even more good news. The ASE is currently not attractive.
ASE should encourage the PR & Marketing departments of each public firm to be more proactive (news announcements, new products launched etc.).
There should also be more Merger & Acquisition activity.
I wrote that the ASE should encourage more IPOs12 (in 2022, our neighbour Saudi Arabia saw 30 direct listings on their markets - ASE had ZERO!), have a bigger diversity.
We also need a star company that lifts the whole market up (look at Apple AAPL 0.00%↑ and how it contributed on its own to the last bull market cycles from 2009 - 2023)
5- More Liquidity from liquid firms
a-I wrote about the 3 different investment strategies in the market (passive, active, and activist)13. SSIF should stop being a passive investor and become an active/activist one. By active I mean inject liquidity on a monthly basis (say 25 million JODs/month?). By activist I mean having representing board members show up with good ideas.
b-Insurance companies (despite the recent bankruptcies) are also very liquid. Instead of investing in long term deposits, they could invest in the stock market (with little leverage/risk/exposure).
c-Change the tax regulations for investment funds (but limit their size to avoid reaching the Asset management phase of capitalism where for e.g. Blackrock, Slatestreet, and Vanguard own most of the U.S.A. market).
Conclusion
A hardline communist once told me that in a communist world, there would be no stock markets. I disagree. It is through stock markets that workers can own the means of production.
More reading: Capital Market Development Strategy and Road Map 2017 (JSC & EBRD). Link
I will leave you with 2 classic cartoons on the stock market to enjoy during this hot weekend:
Article 4 of Income Tax Law 2015