The Iraqi-focused Babylon fund is one step closer to its long-term goal of being a catalyst in the development of the war-torn country’s financial markets. The hedge fund-like mutual fund, which was launched last September by Godvig Capital Management, is finally able to trade directly on the Iraqi Stock Exchange through trust agreements with brokers.
“For the first six months, we didn’t have all the agreements in place for trading directly on the Iraqi exchange, so what we did is invest in Iraqi-dependent securities,” explains Björn Englund, who manages the $10 million fund out of his offices in Luxembourg and Sweden. “But the sexy stuff is really Iraqi equities.”
So what stocks are Englund and his colleagues in Baghdad—Ismail al-Rashidi and Fouad Cheragwandi—buying on the ISX?
“Mainly banks and companies in the financial services sector,” says Englund, adding that 75% of the country’s $2 billion market cap is in the financial services industry.
“There are no oil stocks. In fact, when you take exposure on the Iraqi stock exchange, what you don’t get access to is the big Iraqi story, which of course is the oil,” he says.
Most oil is owned by the Iraqi government and is not publicly traded.
“In order to link up the exposure to the oil story, we expect we will see a trickle down effect,” says Englund. “Whatever is good for the oil sector will benefit all of the equities you see on the stock exchange.”
While Englund sees Iraq as having potential for staggering growth (the IMF predicts double-digit growth every year for the next three years), he isn’t putting all of his eggs in one basket. He also runs a mutual fund that trades solely in the S&P500.
“It’s very hard to sell Iraq, but we know we have a good case and we hope people will join us, or even compete with us,” he says.
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