A walk down misery lane: A history of stock prices and policymakers. Feb 13,2023

A common observation and complaint in Jordan is that policymakers are hardly ever held accountable for their performance while in office. One way to evaluate policy leaders’ successes and failures is to examine the impact of their policies or terms in office on the value of stocks in the Amman stock market — more than half of which is comprised of the savings of Jordanians. A quick review of what happened to market capitalization of the domestic companies listed in the Amman Stock Market from 2007 to 2020 is illuminating.

One reason that market capitalization is a reasonable indicator of performance is that the stock price encompasses several variables in addition to the performance of the firm, such as relative optimism, positive or negative expectations, the level of trust in the institutions of the country, harmonization between fiscal and monetary policies, and the impact of external shocks on the supply and demand sides of the economy.

The losses in numbers

In 2007, the market capitalization stood at around JD29 billion. After many government executives decided that Jordan should become a victim and partake in the global credit crisis (and hence began to use this as an excuse for their many policy failures), the market capitalization value dropped to JD19.3 billion in 2011. Note that this was before the onset of the Arab Spring, during which Jordan was among the least-affected countries in the Arab world. The loss to stock-market investors at the time was close to JD10 billion, or 34 percent of the value of their investments.

However, the losses did not stop there. From 2012 until 2016, the drop in capitalization totaled JD1.7 billion. Then, from 2016 to 2018, the loss in capitalization slowed down to JD1.3 billion, only to rise again in 2019 by JD1.2 billion, and in 2020 by JD2 billion.

Questioning the cause

What should irk everyone is that the total loss of savings of people who invested in the capital of companies in the stock market reached JD16 billion, which is 56 percent of their initial investment. But did anyone raise a red flag here or there? No, many of the so called “experts”, which is a common designation in Jordan, blamed it on speculation, not knowing or basically ignoring that speculation is a huge factor in any stock market, especially among non-institutional buyers.

So, were executives held accountable? Not at all! Was such a decline in capital due to monetary or fiscal policies? I believe both, but I am not aware of any research into this. Were the reasons behind the losses domestic or external? Most external factors actually led to gains, as in the case of the influx of rich émigrés and industrialists who increased supply and demand in the country. If domestic reasons were to blame, then, which ministerial cabinet caused the most damage, and was it rewarded or punished? The numbers spell out the answer, there is no need to highlight the obvious. All were rewarded, and none were chastised.

Beyond blame throwing, mudslinging, and name calling, what is the solution? Recall that the present state of denigrated market capitalization and perished savings is but a result of many flows. Is it about time that policy makers pay attention to the plight of the millions who lost billions? I think it is. 

Published in Jordan News on Feb 13, 2023

https://www.jordannews.jo/Section-36/Opinion/A-walk-down-misery-lane-A-history-of-stock-prices-and-policymakers-26976