For listed companies, intermediaries, and investors to view the Amman Stock Exchange as an anachronism these days - well, they can hardly be blamed.
The ASE ranked 6 out of the top 10 best performing stock markets in the world in 2001 and again 8 out of the top 10 best performing in 2008 – please see table below.
The ASE used to trade around $ 120 million a day compared to today's average daily of around $ 8 million. The Jordanian exchange lost its emerging market status in late 2008 which caused a large amount of international passive funds to leave, most of which have not returned. The progression of its index since then (below) is indicative.
Developments in stock markets worldwide enable Jordanian companies to list on exchanges outside Jordan, in their pursuit of growth capital and higher liquidity for their listed shares - which translates into higher valuations. The ASE did not have any new listings since 2009.
A disclosure shy culture continues to dominate and corporate governance best practices still have some ways to go. Equity research on listed companies is in short supply. Advances in technology have enabled Jordanian investors to trade regional and international markets, taking liquidity away from the ASE. The ASE has not undertaken any investor roadshows for years.
So, is the Amman Stock Exchange a dud ?
Au contraire, mon frère. It is not that every country should have a stock market - that business model is no longer valid. The ASE has important roles to play, locally and in the region.
The Amman Stock Exchange's importance emanates from Jordan's regional role - an anchor of stability in an increasingly turbulent part of the world. Having a strong capital market with a vibrant stock exchange at its core is part and parcel of Jordan's armor, which serves both regional and international interests.
SME access to finance is fast becoming a critical issue for Jordan. SMEs account for more than half of GDP and a similarly large percentage of job creation. With official unemployment figures in the 20s%, and youth unemployment nearing 50%, the ASE has an important role to play in supporting the country's SMEs - by enabling them to list securities to raise growth capital; and to be there as an exit option, facilitating venture capital and private equity investments into Jordanian SMEs.
Jordan's infrastructure needs are multiplying and the country's debt and budget deficit levels are limiting the ability of successive governments to deploy public funds in infrastructure development. Setting up a Jordan Infrastructure Development Fund and listing it on the ASE, open to local, regional, and international investors, would go a long way in helping meet infrastructure capital needs. Such a Fund would also allow Jordanian citizens to have a vested interest in the economic development of their country, thus supporting democratic processes and decreasing a sense of economic alienation that some feel.
Listed companies on the Amman Stock Exchange present good investment opportunities. Some sectors are ripe for consolidation - such as banking and insurance. Jordan is endowed with some of the world's largest reserves of phosphate and potash. The Free Trade Agreement with the United States opened up a vast market for Jordanian manufacturers.
If the closing days of 2008 marked an end of an era for the ASE, 2023 can certainly mark the beginning of a new one – but how to go about this?
Investor protection and liquidity are the two pillars upon which successful capital markets rest. Investor protection is typically the responsibility of the securities commission (the regulator) while liquidity is the raison d'être of a stock market.
The Jordan Securities Commission (JSC) is the regulator and flag carrier of Jordan’s capital market. The Amman Stock Exchange (ASE) is the market where wealth is stored, growth capital is raised, and financial assets are bought and sold. The Securities Depository Center (SDC) is where securities ownership is documented and transferred and where clearing and settlement between brokerage firms take place – important risk management functions.
What follows is a series of recommended short, medium, and long-term actions that could be fashioned over an 18-month period to be undertaken by both the JSC and the ASE, with support from the Government of Jordan.
The aim is to further develop Jordan’s capital market by making it, to borrow the words of Mark Mobius, more Fair, Efficient, Liquid, and Transparent – FELT.
Recommended Actions:
1) Strict enforcement of disclosure and corporate governance requirements for ASE listed companies with a new emphasis on ESG, gender, and climate best practices.
2) Procure and utilize a world class trade surveillance system to monitor trading violations and ensure investor confidence.
3) Review the Securities Law, bylaws, and regulations and iron out inconsistencies and parts not in accordance with international best practices - including Jordan’s Sukuk Law.
4) Catalyze the emergence of Exchange Traded Funds (ETF) – capitalize on the launch of the ASE 20 index and incentivize commercial banks to offer this product to clients.
5) Set up a Jordan Chapter for the Middle East Investor Relations Association (MEIRA) so that listed companies upgrade communications skills needed to communicate with investors.
6) Organize International Investor Roadshows to investment hubs like London, New York City, and the GCC - go to where the investors are and present the equity growth stories of ASE listed companies.
7) Launch a local investor education program to make retail investors partners in developing the capital market.
8) Facilitate the publication of equity research reports on ASE listed companies so that investor decisions are less based on sentiment and word of mouth.
9) Incentivize family companies, private shareholding companies, and government owned enterprises to list on the ASE - explain the benefits of listing and provide corporate income tax incentives for a limited time to encourage companies to list.
10) Set up a Sharia compliant investment window at the ASE.
11) Introduce market makers - set up a light framework for market makers appropriate to a screen-based trading environment to increase liquidity of listed shares and allow for more market depth (less price fluctuations).
12) Remote access regional and international brokers - allow select brokers from outside Jordan to remote access the ASE via sponsorship arrangements with Jordanian brokers.
13) Catalyze the emergence of a professional class of asset managers – encourage the Social Security Investment Fund to request proposals (RFP) and award four asset management contracts, each JD 5 million, to select asset managers to invest the funds in ASE listed companies and regional exchanges, with performance measured against benchmarks.
14) Facilitate the issuance, listing, and trading of corporate bonds and municipal bonds – provide issuers with tax incentives.
15) Encourage ASE listed companies to issue global depository receipts to be listed on international exchanges to raise capital and attract international investors.
16) Regain Jordan’s MSCI Emerging Markets Status to attract international portfolio investments.
17) Set up an SME and Entrepreneurs Stock Market segment – establish a strategic partnership with a regional or an international exchange to obtain the business model, technology, and brand to launch this specialized market segment to facilitate SME and entrepreneurs’ access to finance and growth capital. The Aqaba Special Economic Zone would be an ideal location for this specialized market, helping turn Aqaba into a vibrant regional financial hub.
18) Establish a Jordan Infrastructure Development Fund and list it on the ASE to address Jordan’s infrastructure finance needs and create investment opportunities for Jordanian citizens in support of Public Private Partnerships.
19) List ASE shares on its own platform, opening the door for Jordanians to own shares in their national exchange, and work to attract a regional or international stock market as a strategic partner for the ASE.
Of late, Jordan’s capital market has been underutilized by Jordanian companies and the Government when it comes to raising funds. By undertaking needed actions, the ASE will be able to function as an effective node, connecting Jordan’s fund seekers to local, regional, and international fund providers, serving the interests of citizens, corporates and public entities.
The author is a Board Member of the Amman Stock Exchange representing the Government Investments Management Company, owner of the Exchange.