The LEBANON WEEKLY MONITOR -...

1Week 21 May 14 - May 20, 2012

MAY 14 - MAY 20, 2012

WEEK 21

Bank Audi sal - Audi Saradar Group - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected]

CONTACTS

RESEARCH

Treasury & Capital Markets

Micky Chebli(961-1) [email protected]

Nadine Akkawi(961-1) [email protected]

Emile Shalala(961-1) [email protected]

Private Banking

Toufic Aouad(961-1) [email protected]

Corporate Banking

Khalil Debs(961-1) [email protected]

Marwan Barakat(961-1) [email protected]

Jamil Naayem(961-1) [email protected]

Salma Saad Baba(961-1) [email protected]

Fadi Kanso(961-1) [email protected]

Nathalie Ghorayeb(961-1) [email protected]

Sarah Borgi(961-1) [email protected]

Nivine Turyaki(961-1) [email protected]

LEBANON MARKETS: WEEK OF MAY 14 - MAY 20, 2012

The LEBANON WEEKLY MONITOR

Economy___________________________________________________________________________p.2 PRIVATE CONSUMPTION RESILIENT DESPITE CLOUDY CONDITIONSAccording to the latest statistics on consumption patterns in Lebanon, residents showed a sustained propensity to spend, be it in the private component and to a somewhat lesser extent, in the investment component.

Also in this issuep.3 Kafalat guarantees down by 15.5% annually in the first four months of 2012 p.3 Construction permits down by a yearly 10.5% p.4 EIU maintains Lebanon’s real economic growth at 3.2% in 2012

Surveys___________________________________________________________________________p.5 LEBANON RETREATS IN TRADE LOGISTICS The World Bank issued its 2012 edition of Connecting to Compete report in which it noted a decline in Lebanon’s global and regional rankings in terms of the trade Logistics Performance Index (LPI).

Also in this issuep.6 Software piracy remains a pressing issue in Lebanon

Corporate News___________________________________________________________________________p.7 BANK AUDI AND MOROCCO’S SAHAM FINANCES INK AGREEMENT FOR THE ACQUISITION OF A MAJORITY INTEREST IN LIA INSURANCE'S CAPITALBank Audi sal – Audi Saradar Group announced that it has concluded a deal with Morocco’s Saham Finances according to which the latter mentioned entity would acquire 81% of the capital of LIA Insurance.

Also in this issuep.7 Fitch affirms Bank Audi and Byblos Bank’s ratings and withdraws BLOM Bank's support ratingsp.7 SGBL eyes sale of Bank of Gambia p.8 MENA Capital to unveil its new gated community 'Belle Casa' p.8 Balance sheet of financial institutions grows by a yearly 6.0% to US$ 1,107.9 million at end-March 2012

Markets In Brief___________________________________________________________________________p.9 WAIT-AND-SEE MOOD ON THE BOND MARKET ON EUROPE’S DEBT CONCERNSLebanese capital markets were marked by a foreign offer on the Eurobond market and a tiny decline in prices on the equity market. In details, the Eurobond market saw some foreign offers, within the context of adverse local political developments, concerns about Greece’s political outlook and its ability to sustain its membership in the Euro area, and following a downgrade by Fitch to Greece’s credit rating to “CCC”. Activity was yet very shy on the market due to the prevailing wait-and-see mood. Under these conditions, the average bond spread widened by 11 bps to 323 bps, and Lebanon’s five-year CDS spread rose from 435-455 bps last week to 450-480 bps this week. As to the equity market, the price index retreated slightly by 0.3%, while the total trading value amounted to US$ 12 million versus a weekly average of US$ 8 million since the beginning of the year 2012.

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ECONOMY_____________________________________________________________________________PRIVATE CONSUMPTION RESILIENT DESPITE CLOUDY CONDITIONS

According to the latest statistics on consumption patterns in Lebanon, residents showed a sustained propensity to spend, be it in the private component and to a somewhat lesser extent, in the investment component. In fact, total spending measured by the aggregation of cleared checks, POS and ATM transactions edged up by 3.1% year-on-year to reach a total of US$ 19.2 billion in the first quarter of 2012. This follows a growth of 1.5% posted in the same period of 2011.

With regards to the private component, the data recently published by the Central Bank showed that cash withdrawals through ATMs by Lebanese residents edged up by 7.9% annually to reach US$ 1,370 million during the first quarter of 2012, compared to a total of US$ 1,270 million registered in the same period of 2011. As to the value of POS purchases inside Lebanon, it rose by 24.6% on a yearly basis to hit a total of US$ 449 million. The higher demand for consumption products is also revealed by the 30.5% year-on-year rise in total imports in the aforementioned period of 2012, during which it attained US$ 6.0 billion with imports of consumption products reporting a rise of 50.4%, as per the Higher Customs Council. Despite the fact that such patterns are coming from a relatively low base, Lebanese consumers have maintained a propensity to enhance expenditures adjusting to atypical conditions that started at the beginning of 2011 and are still prevailing in 2012, be it on a local or regional basis.

In parallel, the investment component of consumption was up, yet at a comparatively lower pace. Indeed, the appetite to initiate investment projects remains more or less reduced within the context of a wait-and-see mood resulting from spillover fears from neighboring countries, coupled with some instability on a local basis. Accordingly, imports of investment products went up by 2.3% year-on-year in the first quarter of 2012. Also, cleared checks are sustaining a relatively slow increase. In fact, banks’ clearings, as per statistics published by the Association of Banks in Lebanon, amounted to US$ 17,370 million during the first quarter of 2012, up by 2.3% from the same period of 2011 when they had registered a slight rise of 0.4%.

Sources: Central Bank of Lebanon, Association of Bank in Lebanon, Bank Audi's Group Research Department

TOTAL SPENDING (FIRST QUARTER OF THE YEAR, US$ MILLION)

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_____________________________________________________________________________KAFALAT GUARANTEES DOWN BY 15.5% ANNUALLY IN THE FIRST FOUR MONTHS OF 2012

Figures released by the Kafalat Corporation showed that loans extended to small and medium sized companies under the guarantee of Kafalat reached US$ 44.5 million in the first four months of 2012, down by 15.5% from US$ 52.7 million a year earlier. The number of loan guarantees totaled 328 during the aforementioned period of 2012, dropping by 15.2% from 388 guarantees in the same period of 2011.

Mount Lebanon accounted for the majority of extended guarantees in the first four months of 2012, with 139 guarantees, or 42.4% of the total, followed by the Bekaa area with 51 guarantees, the equivalent of 15.6% of the total, the North with 49 guarantees (14.9%), the South with 43 guarantees (13.1%), Nabatieh with 24 guarantees (7.3%), and Beirut with 22 guarantees (6.7%).

As for the distribution of extended guarantees by sector, the industrial sector captured the lion’s share of extended guarantees with 126 guarantees, or 38.4% of the total , followed by the agricultural sector with 120 guarantees (36.6%), tourism with 63 guarantees (19.2%), handicrafts with 16 guarantees (4.9%), and specialized technologies with 3 guarantees (0.9%). _____________________________________________________________________________CONSTRUCTION PERMITS DOWN BY A YEARLY 10.5%

During the first four months of 2012, construction activity posted a slowdown as revealed by the second consecutive yearly drop of total permits. Indeed, the latter is attributed to the wait-and-see mood impeding investors from initiating new projects on the back of spillover fears from neighboring countries. According to the latest figures released by the Order of Engineers in Beirut and Tripoli, the area of newly issued construction permits reached 4,716,030 square meters in the first four months of 2012, down by 10.5% relative to the same period of 2011. Last year, the appetite for commencing construction projects was more evident as revealed by the 3.1% year-on-year increase during the first four months of 2011. During the month of April 2012, construction permits witnessed a year-on-year decline of 26.5% relative to the same month of 2011, pursuing a downward trend observed over the previous months of the year.

During the first four months of 2012, most of the demand for construction permits originated mainly from Mount Lebanon which captured a share of 53.4% of total permits. This is in fact in line with the growing demand for property in Mount Lebanon by Lebanese residents, as prices in that area are more

Sources: Order of Engineers in Beirut and Tripoli, Bank Audi's Group Research Department

CONSTRUCTION PERMITS BY REGION (FIRST FOUR MONTHS OF THE YEAR)

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Sources: Economist Intelligence Unit, Bank Audi's Group Research Department

LEBANON'S REAL GDP GROWTH

affordable than prices in the capital. It was followed by the North with 16.0%, the South with 9.7%, Bekaa with 7.9%, Beirut with 7.7% and Nabattiyeh with 5.3%. _____________________________________________________________________________EIU MAINTAINS LEBANON’S REAL ECONOMIC GROWTH AT 3.2% IN 2012

The Economist Intelligence Unit (EIU) issued its latest country report on Lebanon in which it indicated that its real GDP growth would reach 3.2% in 2012 as the country adjusts to instability across its border, and private spending and investment recover. Real GDP growth is projected to reach 4.7% in 2013 and to average almost 6% over the remainder of the forecast period (2014 – 2016), led by rising investment (including into the energy sector) and increased regional demand for Lebanese services. However, there are significant downside risks that could potentially drag down Lebanon’s economy.

With regards to public finances, the EIU anticipates a structural deficit over the forecast period (2012 – 2016), weighing significantly on debt burden as interest payments account for roughly one-third of GDP. As the 2012 budget has not been ratified yet, the EIU does not expect any serious fiscal reforms, except for the energy sector. Spending on reforming Lebanon’s electricity sector will be a major component of capital expenditure over the forecast period. The deficit would narrow from 7.6% of GDP in 2012 to 5.5% of GDP in 2016. This decline assumes that there will be progress on fiscal reforms, such as liberalizing some sectors and expanding revenue collection and that growth will not be affected by political unrest.

As global economic conditions remain soft in 2012, the EIU expects inflation, which rose to an average of 5.1% on the back of higher oil and food prices in 2011, to fall to an average of 4.1%. Inflation will be modest in 2013-14 as non-oil commodity prices dip slightly, but it will pick up towards the end of the forecast period.

Lebanon will continue to record wide current-account deficits in 2012-2016, averaging 21.7% of GDP, as it relies on imports of energy, industrial raw materials and food. However, the deficit would narrow slightly over the forecast period, from an estimated 27.3% of GDP in 2011 when high oil prices drove up import costs and the economy struggled. Services credits will suffer further as the crisis in Syria continues, causing some Arab tourists to avoid visiting Lebanon out of a fear that the unrest could spill over the border. Remittances will help to offset the trade deficit (although remittances may decline, as the UAE has hardened its visa policy towards Lebanese nationals). Low returns on Lebanon’s stock of foreign reserves and high external debt payments will keep the income balance in deficit. The current-account deficit is normally covered by capital inflows (direct investment from other Arab countries and purchases of foreign-currency government bonds), although many of these inflows are unrecorded.

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SURVEYS_____________________________________________________________________________LEBANON RETREATS IN TRADE LOGISTICS

The World Bank issued its 2012 edition of Connecting to Compete report in which it noted a decline in Lebanon’s global and regional rankings in terms of the trade Logistics Performance Index (LPI). With a score of 2.58 points out of 5, the World Bank placed Lebanon 96th globally amongst 155 nations, down from the 33rd position in the previous survey conducted in 2010, and 12th amongst 17 Arab nations, down from the 3rd place in 2010.

This stalled improvement likely reflects conditions that shifted the government’s priorities away from logistics reform such as the global recession and the European debt crisis or even the Arab turmoil which struck the region in 2011 and led to a drop in regional trade as supply chains were disrupted.

The LPI is a multidimensional assessment of logistics performance which rates countries on a scale of 1 (worst) to 5 (best). The ratings are based on 6,000 individual country assessments by nearly 1,000 international freight forwarders, who rated the eight foreign countries their company serves most frequently. The index is composed of six sun-indicators.

The first sub-indicator is customs or the efficiency of the clearance process (speed, simplicity and predictability of formalities) by border control agencies. Globally, Lebanon ranked 124th in this year’s survey down from 29th in 2010 and scored 2.21 out of 5, also down from 3.27 out of 5 in the previous report.

The second sub-indicator is the quality of trade and transport related infrastructure (ports, railroads, roads, information technology). Within this component, Lebanon’s global rankings declined from 41st in 2010 to 102nd in 2012. Its score also went down from 3.05 out of 5 points in the previous survey to 2.41 out of 5 in the current one.

The third sub-indicator measures the ease of arranging competitively priced shipments. Lebanon’s ranking dropped by 16 notches from 2010 to reach the 85th spot globally with a score of 2.71 out of 5 points in 2012 against 2.87 out of 5 points in 2010.

MENA SCORES AND RANKINGS IN THE LOGISTICS PERFORMANCE INDEX

Sources: World Bank, Bank Audi's Group Research Department

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The fourth sub-indicator gauges the competence and quality of logistics services (transport operators, customs brokers). Lebanon scored 2.38 out of 5 points against 3.73 out of 5 points in 2010. Its international rankings declined from 19th in the previous report to 119th in the current one.

The fifth sub-indicator assesses the ability to track and trace consignments. Within this component, Lebanon scored 2.61 out of 5 points which places it in the 91st position globally. This follows a score of 3.16 out of 5 and a ranking of 49th recorded in 2010.

The sixth sub-indicator is measures frequencies with which shipments reach the consignee within the scheduled or expected delivery time. Lebanon score 3.11 out of 5 points and ranked 86th globally, versus a score of 3.97 out of 5 and a global rank of 29th in the previous survey. _____________________________________________________________________________SOFTWARE PIRACY REMAINS A PRESSING ISSUE IN LEBANON

Business Software Alliance (BSA), an international association representing the global software industry, in partnership with market research firm IDC and Ipsos Public Affairs, announced its ninth annual global software piracy study, tracking PC software piracy rates in more than 100 economies. From 2010 to 2011, installations of unlicensed software on personal computers (PC) in Lebanon declined from 72% to 71%, after sustaining the same rate for two consecutive years. The commercial value of this illegal software amounted to US$ 52 million in 2011, up from US$ 49 million in 2010.

BSA’s efforts to reduce software theft in Lebanon are making a significant difference but still have a long way to go. A piracy rate of 71% is far from acceptable, as per BSA, which indicated that it would continue to engage with government, businesses, and consumers about the risks of stealing software, and the true impact that software piracy has on Lebanon’s economy.

Amongst 15 countries within the MENA region, Lebanon retains the sixth highest piracy rate after Libya (90%), Yemen (89%), Iraq (86%), Algeria (84%) and Tunisia (74%). Its piracy rate surpassed that of Morocco (66%), Oman (61%) and Egypt (61%). With regards to the commercial value of illegal software, Lebanon had the tenth highest value and was surpassed by Saudi Arabia (US$ 449 million), UAE (US$ 208 million), Egypt and Iraq (US$ 172 million each), Morocco (US$ 91 million), Algeria (US$ 83 million), Kuwait (US$ 72 million), Qatar (US$ 62 million) and Libya (US$ 60 million).

SOFTWARE PIRACY RESULTS FOR LEBANON

Sources: Business Software Alliance, Bank Audi's Group Research Department

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CORPORATE NEWS_____________________________________________________________________________BANK AUDI AND MOROCCO’S SAHAM FINANCES INK AGREEMENT FOR THE ACQUISITION OF A MAJORITY INTEREST IN LIA INSURANCE'S CAPITAL

Bank Audi sal – Audi Saradar Group announced that it has concluded a deal with Morocco’s Saham Finances according to which the latter mentioned entity would acquire 81% of the capital of LIA Insurance. Completion of the transaction is subject to the required regulatory approvals.

Both parties have agreed to sustain and enhance the existing cooperation between Bank Audi and LIA Insurance in the field of bancassurance with the latter entity’s management remaining in place.

Saham Finances sa is currently present in 15 African countries (including Morocco) through its ownership of 20 insurance companies, 1 reinsurance company and 2 support companies. Saham Finances sa recently admitted into its shareholding the International Finance Corporation (a member of the World Bank Group) and ABRAAJ Capital, and intends to use Lebanon as its main hub to support its expansion strategy in the Middle East._____________________________________________________________________________FITCH AFFIRMS BANK AUDI AND BYBLOS BANK’S RATINGS AND WITHDRAWS BLOM BANK'S SUPPORT RATINGS

Fitch Ratings recently took rating actions on the top three Lebanese banks, namely Bank Audi, BLOM Bank and Byblos Bank.

With regards to Bank Audi, the agency affirmed its long-term issuer default rating at “B” with a stable outlook and its viability rating at “b”. According to Fitch, Bank Audi’s long-term issuer default rating and viability ratings mirror the significant linkages between the sovereign and bank risks resulting from its sovereign exposure, coupled with the atypical local and regional operating environment. The agency also takes into consideration Bank Audi’s strong franchise, skilled management practices, sound asset quality, resilient profitability as well as the stable and large depository base.

Concerning Byblos, Fitch Ratings has affirmed the Bank’s long-term issuer default rating at “B” with a stable outlook, its short-term issuer default rating at “B” and viability rating at “b”. Byblos’ long-term issuer default rating reflect the strong correlation between sovereign and bank risks due to its exposure to the Lebanese sovereign and the difficult local and regional operating environment. Byblos’ strong domestic franchise, resilient profitability and large depository base are included in Fitch’s assessment. The Bank’s outlook is supported by economic and political developments on a local and regional basis.

As to BLOM Bank, Fitch Ratings has affirmed and simultaneously withdrawn BLOM Bank’s support rating at “5”. The affirmation reflects in Fitch’s opinion, the likelihood of the bank receiving support from the Lebanese sovereign, should this become necessary._____________________________________________________________________________SGBL EYES SALE OF BANK OF GAMBIA

Société Générale de Banques au Liban (SGBL) is reportedly eying the sale of Bank of Gambia in a deal that would be worth around US$ 8 million, as per newswires. The same sources added that Ghana’s government expressed its interest in acquiring the African bank but so far, no agreement has been concluded with SGBL.

SGBL had acquired Bank of Gambia through the purchase of Lebanese Commercial Bank. Yet, it considered that it has no interest in maintaining the entity in its portfolio and thus started looking for sale opportunities, as per newswires.

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_____________________________________________________________________________MENA CAPITAL TO UNVEIL ITS NEW GATED COMMUNITY 'BELLE CASA'

MENA Capital, a real estate developer in Lebanon, will launch its first gated community project 'Belle Casa', the first such community to be built in Beirut. Constructions works are set to start in June 2012 and would finish in the second half of 2015.

The project consists of three towers and is surrounded by over 5,000 square meters of landscaped areas. It will include a running track, a gym, swimming pools and a playground. With regards to the residential space, buyers can look for one, two or three-bedroom apartments ranging from 120 square meters to 264 square meters and two to three-bedroom lofts and penthouses ranging from 184 square meters to 389 square meters._____________________________________________________________________________BALANCE SHEET OF FINANCIAL INSTITUTIONS GROWS BY A YEARLY 6.0% TO US$ 1,107.9 MILLION AT END-MARCH 2012

Central Bank statistics showed that the consolidated balance sheet of financial institutions in Lebanon reached US$ 1,107.9 million at end-March 2012, up by 6.0% from US$ 1,045.6 million at end-March 2011. Liabilities to the private sector went down by 5.9%, from US$ 277.6 million at end-March 2011 to US$ 261.2 million at end-March 2012.

Liabilities to the financial sector increased by 15.6%, from US$ 394.9 million at end-March 2011 to US$ 456.6 million at end-March 2012. Further, the aggregate equity capital of financial institutions reached US$ 320.1 million at end-March 2012, up by 20.8% from US$ 265.0 million a year earlier.

On the assets’ side, financial institutions’ cash and banks item reached US$ 413.7 million at end-March 2012, up by 15.1% from US$ 359.3 million at end-March 2011. Claims on the private sector amounted to US$ 562.6 million at end-March 2012, slightly down by 0.2% from US$ 563.9 million a year earlier. Claims on the public sector stood at US$ 111.7 million at end-March 2012, against US$ 99.6 million at end-March 2011.

BALANCE SHEET OF FINANCIAL INSTITUTIONS (US$ MILLION)

Sources: Central Bank of Lebanon, Bank Audi's Group Research Department

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CAPITAL MARKETS_____________________________________________________________________________MONEY MARKET: EXPANSION IN MONEY SUPPLY (M4)

The money market continued to be marked by abundant local currency liquidity during this week, which translated into stability in the overnight rate at its low official level of 2.75% set by the Central Bank of Lebanon. As to Certificates of Deposits, no subscriptions were made during this week. Accordingly, total subscriptions since the beginning of the year 2012 stood at LP 519 billion and were distributed as follows: LP 25 billion in the 45-day category and LP 494 billion in the 60-day category. Interest rates on the 45-day and 60-day CDs categories remained stable at 3.57% and 3.85% respectively.

At the monetary aggregates level, figures for the week ending 3rd of May 2012 released this week showed a rise in local currency deposits of LP 256 billion, as a result of a growth of LP 182 billion in LP time deposits and an increase of LP 74 billion in LP demand deposits week-on-week. Deposits in foreign currencies contracted by US$ 3 million. These weekly variations compare to an average weekly increase of LP 155 billion in LP deposits, and an average weekly rise of US$ 63 million in foreign currency deposits since the beginning of the year 2012. Total money supply in its large sense (M4) expanded by LP 572 billion week-on-week. This compared to an average weekly growth of LP 247 billion since the beginning of the year.

On a cumulative basis, money supply in its large sense (M4) expanded by LP 6,223 billion since the beginning of the year 2012. This is the result of a rise in local currency denominated time deposits of LP 4,507 billion, an increase in foreign currency deposits of LP 1,682 billion (the equivalent of US$ 1,116 million), a contraction in money supply (M1) of LP 262 billion, and a growth in Treasury bills held by the public of LP 296 billion.

_____________________________________________________________________________TREASURY BILLS MARKET: NOMINAL SURPLUS OF LP 140 BILLION

The latest auction’s results (May 17, 2012) showed stability in the average yields on the one-year and three-year categories at 5.35% and 6.50% respectively, while the average yield on the two-year category increased by four basis points to 5.84%.

On the other hand, the auction results for value date May 10th, 2012 released by the Central Bank of Lebanon showed that total subscriptions amounted to LP 249 billion and were distributed as follows: LP 119 billion in the three-month category, LP 74 billion in the six-month category, and LP 56 billion in the five-year category. These compare to maturities of LP 109 billion, resulting in a nominal surplus of LP 140 billion.

INTEREST RATES

Source: Bloomberg

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TREASURY BILLS

Sources: Central Bank of Lebanon, Bloomberg

_____________________________________________________________________________STOCK MARKET: SMALL DECLINE OF 0.3% IN PRICE INDEX

The Beirut Stock Exchange saw a small decline in prices week-on-week, as reflected by 0.3% decrease in the price index to 110.41. The total trading value amounted to US$ 11.8 million versus US$ 7.1 million last week and an average weekly trading value of US$ 7.6 million since the beginning of the year 2012. The average daily trading value rose from US$ 1.4 million last week to US$ 2.4 million this week, which resulted into a 66.3% surge in the trading volume index to 98.18.

_____________________________________________________________________________FOREIGN EXCHANGE MARKET: STABILITY IN BDL’S FOREIGN ASSETS

Depositors continued to convert their foreign currency holdings into Lebanese Pound holdings during this week, in higher volumes relative to the previous week. Within this context, the Central Bank of Lebanon intervened on Wednesday and Thursday as a buyer of the US Dollar surpluses at the lower end of its intervention bracket (LP 1,501). Commercial banks traded the green currency at a rate hovering between LP 1,501-LP 1,501.5 versus LP 1,501-LP 1,502 in the previous week.

The Central Bank of Lebanon’s latest bi-monthly balance sheet ending 15th of May 2012 showed that foreign assets contracted slightly by US$ 22 million during the first half of May to stand at US$ 33.0 billion at mid-May. The BDL’s foreign assets covered 82.5% of LP money supply, with this coverage ratio rising to 118.4% when accounting for gold reserves estimated at US$ 14.4 billion. In addition, the Central Bank’s foreign assets covered 18.4 months of imports. These ratios reflect the BDL’s strong ability to defend the currency peg and meet demand for foreign currencies.

EXCHANGE RATES

Source: Bank Audi’s Group Research Department

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EUROBONDS INDICATORS

Source: Bank Audi’s Group Research Department

The banking shares captured 82.7% of the total trading value. Bank Audi’s “listed” share price decreased by 0.8% to close at US$ 6.00. BLOM’s GDR price remained stable at US$ 7.85. BLOM’s “listed” share price nudged down by 0.1% to US$ 7.79. Byblos Bank’s “listed” share price dropped by 1.3% to US$ 1.58. Solidere shares accounted for 17.2% of activity. Solidere “A” share price decreased by 1.4% to close at US$ 13.18, while Solidere “B” share price edged up by 0.1% to reach US$ 13.23. On the other hand, the Beirut Preferred Fund’s share price increased by 1.0% to close at US$ 104.10.

All in all, the decline in prices on the Beirut Stock Exchange was lower than that in other emerging and Arabian markets, as shown by a 6.5% fall in the S&P Emerging Market Composite Index and a 1.8% drop in the S&P Pan-Arab Composite Index.

_____________________________________________________________________________BOND MARKET: AVERAGE SPREAD EXPANDS BY 11 BPS WEEK-ON-WEEK

The Eurobond market reversed the trend that prevailed over the past couple of weeks when foreigners were demanding Lebanese debt papers, as it started to see some foreign offers within the context of adverse local security developments, concerns about Greece’s political outlook and its ability to sustain its membership in the Euro area, and following a downgrade by Fitch to Greece’s credit rating from “B-” to “CCC”, the lowest possible grade for a country that is not in default.

Within this context, the average bond yield increased by seven basis points to 4.33%, while the average spread expanded by 11 basis points to 323 basis points due to stability in international benchmark yields and a rise in Lebanese yields. For instance, the five-year US Treasury yield remained stable at 0.75%. In fact, US Treasury yields dropped earlier this week as Europe’s resurgent debt crisis boosted demand for the perceived safety of US debt, yet they rose later on as investors bet price gains were overdone before the US sells US$ 99 billion of coupon-bearing debt next week.

As to the cost of insuring debt, Lebanon’s five-year CDS spread rose from 435-455 basis points last week to 450-480 basis points this week on the backdrop of unfavorable local and global developments.

AUDI INDICES FOR BSE

Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department

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INTERNATIONAL MARKET INDICATORS

Sources: Bloomberg, Bank Audi's Group Research Department

___________________________________________________________________________DISCLAIMER

The content of this publication is provided as general information only and should not be taken as an advice to invest or engage in any form of financial or commercial activity. Any action that you may take as a result of information in this publication remains your sole responsibility. None of the materials herein constitute offers or solicitations to purchase or sell securities, your investment decisions should not be made based upon the information herein.

Although Bank Audi Sal Audi Saradar Group considers the content of this publication reliable, it shall have no liability for its content and makes no warranty, representation or guarantee as to its accuracy or completeness.

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