Syria’s Extraordinary Stock and Currency Markets

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Global stock markets sold off this week on fears that the civil war in Syria would escalate with the US and its allies intervening. The sell-off has been particularly acute in Middle Eastern stock markets which are down around 5% on the week (check out market performance at our Market Dashboard). But amidst the panic in regional markets, one country’s stock market stands out as a bastion of stability and sizable returns: Syria.

The Damascus Securities Exchange (DSE)

Unbeknownst to most investors, Syria has had its own stock market since 2009 in the Damascus Securities Exchange (DSE). With Syria’s rocky recent history complete with protests, political instability, and international sanctions, the DSE is well off its highs. From March 2011 when protests first started, until May 2012 when elections were held, the DSE dropped over 43%:

Stock market graph 2010-2013
Damascus Securities Exchange 2010-2013

However, what is most surprising is that despite the country still being split due to the ongoing civil war, the DSE has rallied over 55% in 2013 to be one of the best performing markets in the world this year! The market has not shut despite the conflict and has continued to operate the past week even after allegations of chemical weapons being used. In fact, this 2013 rally has been driven by the highest volumes ever seen on the DSE culminating in almost 485,000 shares trading in mid-July, although over the past week volumes have averaged under 100,000.

For a market barely 4 years old and situated in such a conflict-ridden zone, it’s development has been extraordinary. There are 22 publicly listed companies on the exchange comprising 5 main sectors. With the rally this year total market capitalization has reached over 113 trillion Syrian pounds (SYP), equivalent to just over $1 billion USD. Furthermore its lack of shutdowns has been nothing short of amazing given the events happening locally, and their website remains well maintained and updated daily, a feat unmatched by many of the other frontier markets we follow.

So given the circumstances in Syria, why are markets roaring higher? A look at the currency markets provides a clue:

The Syrian Pound (SYP)

The SYP has been destroyed since the protests began. In March 2011, the SYP was trading at 47 to the USD, a level that had been kept since 2008. As of August 28, 2013, the SYP is officially trading at 127 to the USD according to the central bank, a move of over 170%!

If that wasn’t bad enough, the rate of 127 is merely the official rate used by the central bank. Like many other developing countries facing large capital outflows, the SYP actually trades as a two-tiered market: the official spot market set by the central bank, as well as a black market where the true value of the SYP can be seen. In the black market the SYP is trading at 240 right now and has actually recovered from lows of 345 seen last month. This difference between the two markets stems from the strict capital controls in place in Syria, where using foreign currency has been made illegal with jail times for those found guilty of not paying with SYP.

Conclusion

The stunning collapse of the SYP of over 400% since March 2011 is inline with what you would expect a country going through civil war would experience. This weakening in the SYP has caused any assets priced in SYP to become incredibly cheap, the stock markets included. This is not exclusive to stocks; property markets have also seen demand returning despite an ongoing war. Simply stated by a realtor in this article, “Those with dollars can now afford the property of their dreams”.  While it seems that while most people in Syria are understandably getting as much money out of the country as possible, there are also enough intrepid investors that have instead viewed this conflict as a buying opportunity.

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