Lebanese Financial Markets React Negatively to Govt. Formation Impasse

Lebanese Financial Markets React Negatively to Govt. Formation Impasse

Wednesday, 5 September, 2018 - 09:00
A man counts Lebanese pounds at an exchange shop, in Beirut, Lebanon. (AP)
Beirut - Ali Zeineddine
The Lebanese financial markets responded to the failure of Monday’s meeting between President Michel Aoun and Prime Minister-designate Saad Hariri to overcome obstacles hindering the formation of the new government, by recording further decline in the prices of traded shares and bonds.

The continuous decline in prices for the third consecutive week did not result in a noticeable increase in demand, reflecting the expectation of institutions and individuals of further declines in the wake of the escalation of political disputes and the repercussions of regional developments on the domestic situation.

The markets did not react favorably to the latest report of Standard & Poor's, which kept Lebanon’s rating at B-/B and a “stable” outlook for short and long-term government debt.

This also underscores the strong impact of internal conditions on market performance and the focus on the Central Bank of Lebanon’s preventive measures.

The measures include financial engineering operations and the management of liquidity surpluses in Lebanese pounds, in addition to the continued provision of incentives to attract capital and foreign deposits in hard currencies to maintain high reserves of about $45 billion, in order to ensure monetary stability.

The central bank seems to be moving towards more measures that cover the country’s financial needs and pay its dues without having to resort to direct issuances in international markets.

International bond prices (eurobonds) further declined and tumbled on the first trading day of the week, to continue their downward trend, which was recorded last week, amidst foreign exposures on long-term securities and following a downward trend in bond prices in emerging markets.

Local traders recorded a low demand for short-term securities without any significant price improvement.

Shares on the Beirut Stock Exchange also went downward, with the listed market capitalization losing $100 million in two days to reach $9.861 billion.

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