FMG Iraq Fund gained +4.5% in the 1st Quarter of 2017

The Iraqi stock market rally that began in the summer of 2016 continued during Q1. For most of the quarter the ISX was the best-performing market in the world, but in March much of the gains were wiped out as oil prices plummeted. The largest positive contributor to performance were the 2nd tier banks, led by a 90% rally in North Bank after being suspended from trading for two quarters.

Fitch Ratings revised the outlook on Iraq’s rating from Negative to Stable and affirmed the rating at B-. Fitch’s outlook reflects on the following drivers: “Iraq’s fiscal position has improved relative to 2015 and 1H16 because of higher than expected oil prices and reduced government spending. The IMF program agreed in July 2016 is providing a useful policy framework and has helped Iraq’s financing options. In 2017 we forecast that the deficit will narrow further, to 5.1% of GDP, with higher average oil prices driving strong revenue growth. On the spending side, we forecast 12.1% growth in expenditure after three years of substantial spending declines.”

We are getting closer to the reporting season and expect several blue-chip companies to announce strong dividends. We believe the positive market trend will continue after the breather in March and reach new highs over the coming months. Despite the sharp rally over the past quarters the index is still 50% below the levels when IS gained a foothold in Iraq. Today the group has lost almost all of its territory in Iraq and around 90 percent of Mosul has been liberated.

Sources: Bloomberg