FMG spots resurgent Iraq equities as Mosul heads for liberation

Jonathan Boyd
clock • 2 min read

The military battle to free Mosul, one of Iraq’s biggest cities, from Isis, is leading to a significant resurgence in valuations on the Iraq Stock Exchange, according to Malta based manager FMG.

“The Iraq Stock Exchange started a decline when Isis conquered Mosul back in June 2014,” the manager said in a note sent to investors.

“However, over the past quarters much has improved and we have seen a resurgence in activity on the Iraq Stock Exchange. Isis have lost over 2/3 of its territory and much of its income and the last bastion of defense – Mosul – is expected to be liberated by year end.”

ISX performance

Source: FMG, ISX Index 2015-11-09 to 2016-11-09 Source:

FMG has offered an Iraq fund since 2010, available via distributors including Old Mutual International, Irish Life, Friends Provident International, Generali, RL360 and Standard Life. Volatility in the portfolio saw FMG report losses of 2.5% in the third quarter, and 11.2% in the second quarter this year. However, the manager argues that the fundamentals of the market beyond the political risk are compelling.

FMG points out that Iraq has the world’s third largest oil reserves, that it has demographics on its side with 70% of the population below the age of 30, and that it expects it to be the second fastest growing economy globally over the next decade.

“Despite recent years’ turmoil, Iraq has managed to ramp up oil production to almost 50% of what Russia and Saudi is producing. Iraq is targeting 6mbpd in the near future and with the increase in oil price of over 20% year-to-date, the economic outlook has greatly improved. We are excited about what looks like the beginning of the next bull market.”

Recently, FMG noted that it was able to buy a PepsiCo franchise, the Baghdad Soft Drinks company, at “8x trailing in a growth market”. It compared that to multiples of 23x for PepsiCo and 14x for Pepsi Philippines.

“PepsiCo Inc has shown no revenue growth and 2-3% EPS growth over the past five years. Baghdad Soft Drinks, on the other hand has doubled its revenue in six years and almost doubled its net profit in four years, and this in a very tough environment. This is the largest position in the FMG Iraq Fund and we remain overweight compared to the index,” FMG said in September.