The Iraq Stock Exchange began the quarter on a very sour note, due to the general shortage of liquidity in the country and a continued selling pressure from local and foreign investors. However, the recovery in oil prices in 2016 is significant for Iraqi stocks as government spending will be on the rise, boosting liquidity in the system. The market did consolidate in May and June, forming a bottom pattern, and at the time of this writing had staged a strong rally of over 10%. We have over the past months seen re-ratings in offshore listed Iraqi companies, strength in the local currency and bonds, so the disconnect between oil prices and the ISX might finally have come to an end.

On the security side, things are improving as ISIS are continuing to lose ground in both Iraq and Syria. Falluja was recently liberated and the Iraqi forces are now pushing north in order to flush out ISIS from Mosul, their only stronghold left in Iraq. With a recovery in oil prices and expansion in oil production we look forward to the country’s post conflict recovery. From the corporate earnings we can see some signs of improvements already. The portfolio´s core holding, Baghdad Soft Drinks, reported yet another set of impressive earnings with sales up +8% and profit before tax skyrocketing +48% y/y. Data source: Bloomberg