THE LEBANON BRIEF. ISSUE 092 Week of January 2015

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1 Your Investment Reference THE LEBANON BRIEF ISSUE 092 Week of January 2015 ECONOMIC RESEARCH DEPARTMENT Rashid Karame Street, Verdun Area P.O.Box Beirut, Lebanon T (01) F (+961) research@blominvestbank.com

2 The Lebanon Brief Page 2 of 17 TABLE OF CONTENTS FINANCIAL MARKETS 3 Equity Market 3 Foreign Exchange Market 5 Money & Treasury Bills Market 5 Eurobond Market 6 ECONOMIC AND FINANCIAL NEWS 7 BoP Deficit Stood at $1.29B Up Until November Registered New Cars Increased by 4.55% y-o-y by Lebanon s Commercial Banks Assets Rose by 4.48% y-t-d by November 8 Kafalat Guarantees Dipped to $109.55M in Port of Beirut Revenues Decreased to $210.89M in Airport Passengers Progressed by 4.86% y-o-y in Number of Tourists Rose 4.83% y-o-y by October 11 CORPORATE DEVELOPMENTS 12 Libank Receive Approval for $25M Fund 12 FOCUS IN BRIEF 13 What the Year 2014 Meant for Stock Markets 13 This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

3 The Lebanon Brief Page 3 of 17 FINANCIAL MARKETS Equity Market Stock Market 16/01/ /01/2015 % Change BLOM Stock Index* 1, , % Average Traded Volume 151, , % Average Traded Value 1,126,507 1,533, % *22 January 1996 = 1000 BLOM Stock Index HI: 1, Banking Sector LO: 1, Jan-14 May-14 Sep-14 Jan-15 Mkt 16/01/ /01/2015 % Change BLOM (GDR) BSE $9.98 $ % BLOM Listed BSE $8.81 $ % BLOM (GDR) LSE $10.10 $ % Audi (GDR) BSE $6.50 $ % Audi Listed BSE $6.04 $ % Audi (GDR) LSE $6.30 $ % Byblos (C) BSE $1.62 $ % Byblos (GDR) LSE $76.50 $ % Bank of Beirut (C) BSE $18.40 $ % BLC (C) BSE $1.70 $ % Fransabank (B) OTC $22.00 $ % BEMO (C) BSE $1.79 $ % The Beirut Stock Exchange (BSE) recorded a decrease for the second week in a row, dropping 0.54% to 1, points. Trade activity dropped over the week, with an average of 151,024 shares worth $1.13M being traded each day, compared to an average volume of 244,425 shares worth $1.53M the previous week. As for the market capitalization, it narrowed by $53.26M to $9.78B. Among its regional peers, the BSI lagged the S&P Pan Arab Composite Large Midcap Index, the S&P AFE 40 Index, and the Morgan Stanley Emerging Markets Index (MSCI), which increased by 1.83%, 1.55% and 0.12%, respectively. In the Arab World, the Egyptian stock market was the best performer surging by a weekly 6.81%, after Exchange Traded Funds (ETFs) were allowed to be traded for the first time, starting Wednesday the 14th of January. Dubai s financial market followed, adding 4.58% after many companies recorded positive fourth quarter earnings. Muscat s bourse came in third, increasing by 4.24% from last week. In contrast, Qatar s financial market was the worst performer, dropping 3.60%, followed by the BSE and Amman s bourse which declined by a weekly 0.23%. Banks Preferred Shares Index * Mkt 16/01/ /01/2015 % Change % Audi Pref. E BSE $ $ % Audi Pref. F BSE $ $ % Audi Pref. G BSE $ $ % Audi Pref. H BSE $ $ % Byblos Preferred 08 BSE $ $ % Byblos Preferred 09 BSE $ $ % Bank of Beirut Pref. E BSE $26.25 $ % Bank of Beirut Pref. I BSE $25.90 $ % Bank of Beirut Pref. H BSE $26.25 $ % BLOM Preferred 2011 BSE $10.20 $ % BLC Pref A BSE $ $ % BLC Pref B BSE $ $ % BLC Pref C BSE $ $ % Bemo Preferred 2013 BSE $ $ % Back to the BSE, the banking sector contributed 86.62% of total traded value, followed by the real estate sector and the industrial sector with respective shares of 13.26% and 0.12%. In the banking sector, Byblos listed shares and BLOM GDR and listed shares improved by 1.25%, 0.60%, and 0.11% to $1.62, $9.98, and $8.81, respectively. Meanwhile, Audi listed shares dropped 3.51% to $6.04.

4 The Lebanon Brief Page 4 of 17 Real Estate Mkt 16/01/ /01/2015 % Change Solidere (A) BSE $11.25 $ % Solidere (B) BSE $11.11 $ % Solidere (GDR) LSE $11.05 $ % Manufacturing Sector Mkt 16/01/ /01/2015 % Change HOLCIM Liban BSE $15.00 $ % Ciments Blancs (B) BSE $3.50 $ % Ciments Blancs (N) BSE $2.75 $ % In contrast, the BLOM Preferred Stock Index (BPSI) showed a slight weekly increase of 0.02% to points, due to the 0.49% growth of Audi preferred shares class H to $ On the London Stock Exchange (LSE), the Global Depository Receipts (GDRs) of Solidere increased by 0.45% to $ In contrast, the GDRs of BLOM and Audi lost 0.98% and 4.11% to $10.10 and $6.30, respectively. Funds BLOM Cedars Balanced Fund Tranche A BLOM Cedars Balanced Fund Tranche B BLOM Cedars Balanced Fund Tranche C Mkt 15/01/ /01/2014 % Change $7, $7, % $5, $5, % $5, $5, % BLOM Bond Fund $9, $9, % In the real estate sector, Solidere shares classes A witnessed a weekly progress of 0.27% to $ Meanwhile, Solidere B closed at last week s price of $11.11, after it reached $11.93 at the start of the week. In the industrial sector, Holcim shares and Ciments Blancs bearer shares dropped 3.23% and 6.67% to $15 and $3.50, respectively. Looking forward, the BSE is forecasted to recover, especially if Banks publish positive fourth quarter financial results. Retail Sector Mkt 16/01/ /01/2015 % Change RYMCO BSE $3.23 $ % ABC (New) OTC $27.00 $ % Tourism Sector Mkt 16/01/ /01/2015 % Change Casino Du Liban OTC $ $ % SGHL OTC $7.00 $ %

5 The Lebanon Brief Page 5 of 17 Foreign Exchange Market Lebanese Forex Market 16/01/ /01/2015 % Change Dollar / LP 1, , % Euro / LP 1, , % Swiss Franc / LP 1, , % Yen / LP % Sterling / LP 2, , % NEER Index** % *Close of GMT 09:00+2 **Nominal Effective Exchange Rate; Base Year Jan 2006=100 **The unadjusted weighted average value of a country s currency relative to all major currencies being traded within a pool of currencies. Nominal Effective Exchange Rate (NEER) Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Money & Treasury Bills Market Money Market Rates 16/01/ /01/2015 Change bps Overnight Interbank BDL 45-day CD BDL 60-day CD Treasury Yields 16/01/ /01/2015 Change bps 3-M TB yield 4.39% 4.39% 0 6-M TB yield 4.87% 4.87% 0 12-M TB yield 5.08% 5.08% 0 24-M TB coupon 5.84% 5.84% 0 36-M TB coupon 6.50% 6.50% 0 60-M TB coupon 6.74% 6.74% 0 Demand for the dollar subdued over the week, as reflected by the Lebanese pound s peg against the dollar that went up from $/LP 1,510-1,514 with a mid-price of $/LP 1,512 to $/LP 1,508-1,512 with a mid-price of $/LP 1,510 this week. Foreign assets (excluding gold) at the Central Bank dropped a monthly 2.25% from $38.73B at end-november to $37.86B by end-december. Meanwhile, the dollarization rate of private sector deposits stood at 65.68% in November 2014 compared to 66.13% in December The euro depreciated against the greenback after increasing possibility that the European Central Bank will implement quantitative easing policy, in addition to the Swiss National Bank (SNB) deciding to dispose of their euro cap. The euro weakened against the dollar by a weekly 1.61%, ending the week at /$ The persistence of low inflation rates in the U.S, in addition to the increased volatility of the currency after SNB s decision, caused an increase in demand for gold. The price of gold swelled from $1,208.63/ounce on Thursday 9th of January 2015 to $1,261.16/ounce this week. By Friday January 16 th, 2015, 12:30 pm Beirut time, the dollarpegged LP appreciated against the euro, rising from /LP 1, the prior week, to /LP 1, The Nominal effective exchange Rate (NEER) gained 0.84%, over the week to points, while its year-to-date gain reached 2.20%. During the week ending January 1, 2015, broad Money M3 increased by LP 342B ($227.01M), to reach LP 177,298B ($117.61B) with a 5.81% year-on-year growth. In contrast, M1 retreated by LP 85B ($56.22M) due to the drop in demand deposits by LP 171B ($113.43M), while money in circulation increased by LP 86B ($57.05M). Total deposits (excluding demand deposits) rose by LP B ($283.23M), given the rise in deposits denominated in foreign currencies and term and saving deposits in domestic currency by $156M and LP 191B, respectively. Over the above mentioned period, the broad money dollarization rate remained almost stable, moving from 58.65% last week to this week s 58.67%. According to the Central Bank, the overnight interbank rate stood at 2.75% at the end of October In the TBs auction held on the 8 th of January 2015, the Ministry of Finance raised LP B ($176.52M), through the issuance of bills maturing in 6M, and 3Y notes. The highest demand was achieved on the 3Y notes that took a share of 87.97%, while the 6M bills accounted 12.03%. The 6M bills yielded 4.87%, while the average coupon rate for the 3Y notes stood at 6.50%. Maturing T-bills exceeded new subscriptions by LP 31.78B ($21.08M).

6 The Lebanon Brief Page 6 of 17 Eurobond Market Eurobonds Index and Yield 15/01/ /01/2015 Change Year to Date BLOM Bond Index (BBI)* % 1.66% Weighted Yield** 5.17% 5.21% Weighted Spread*** Eurobonds Lebanese Government 15/01/2015 Maturity - Coupon Price* Weighted Effective Yield of Eurobonds 6.00% 5.50% 5.00% 08/01/2015 Price* Weekly %Change 15/01/2015 Yield 08/01/2015 Yield Weekly Change bps 2015, Aug % % 3.62% 4.00% , Jan % % 3.99% 4.00% , May % % 4.07% 4.12% , Mar % % 4.41% 4.38% , Jun % % 4.83% 4.86% , Mar % % 5.37% 5.45% , Apr % % 5.60% 5.64% , Oct % % 5.76% 5.79% , Jan % % 5.82% 5.88% , Dec % % 6.05% 6.13% , Nov % % 6.17% 6.25% , Nov % % 6.22% 6.32% -10 *Bloomberg Data 4.50% Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 After standing as a safe haven currency for investors since the escalation of the Eurozone debt crisis, the exchange rate between the Swiss franc and the euro is no longer capped at 1.20 euros by the Swiss National Bank. The unexpected Swiss move has boosted demand in global bond markets all around the world, which was partly reflected on the Lebanese Eurobonds market this week. In details, the BLOM Bond Index (BBI) added a weekly 0.20% to points. The local security uprisings in North Lebanon also enhanced demand for safe assets in the country, driving the 5Y and 10Y yields on the Lebanese Eurobonds down by 14 basis points (bps) and 9 bps to 5.14% and 6.02%, respectively. In the U.S., investors appetite for Treasuries also went up ahead of the publication of an inflation report showing that consumer prices eased in December In fact, the 5Y and 10Y yields decreased 28 bps and 26 bps to reach 1.22% and 1.77%, respectively. Correspondingly, the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark widened by 14 bps and 17 bps to 392 bps and 425 bps, respectively. Despite the positive effect of the Swiss currency decision on global bonds markets, speculations of the Chinese government implementing additional steps to boost economic growth have sent Chinese stocks towards an 8-Year high. This was partly behind the subdued weekly performance of the JP Morgan Emerging Markets Index that posted a marginal 0.01% slip to points. Lebanon s credit default swaps for 5 years (CDS) were last trading on Friday at bps, narrowing from bps recorded a week earlier. In regional economies, and while the 5Y insurance premiums on sovereign debt widened by a weekly average of 9 bps in Dubai to bps, it remained flat at bps in Saudi Arabia. As for emerging economies, CDS quotes in Brazil and Turkey were last trading at bps and bps compared to their respective previous bps and bps quoted a week ago.

7 The Lebanon Brief Page 7 of 17 ECONOMIC AND FINANCIAL NEWS BoP Deficit Stood at $1.29B Up Until November 2014 Balance of Payments up to November (in $B) The Balance of Payments (BoP) registered a deficit of $1.29B during the first eleven months of 2914 tightening from 2913 s level of $1.66B. Net foreign assets (NFA) of the Central Bank (BdL) increased $4.57B by November 2014, while those of commercial banks retreated by $5.86B. Despite the persisting trade deficit and the deteriorating tourism activity, the BoP s deficit managed to tighten in the first eleven months of 2014 mainly on improving capital inflows and remittances from the Lebanese expatriates However, in November alone, the BoP recorded a deficit of $424.4M, substantially higher than the $192.0M deficit recorded in November Source: BdL Total Car Registration by December 42,000 41,000 40,000 39,000 38,000 37,000 36,000 35,000 34,000 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19,000 18,000 17,000 16,000 15,000 Source: AIA 34,752 36,097 34,522 37,662 38,387 40,135 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Cars Number (LA) Cars Growth Rate (RA, In %) Registered New Cars Increased by 4.55% y-o-y by 2014 According to the Association of Car Importers in Lebanon (AIA), there was a 4.55% year-on-year (y-o-y) increase in the number of registered new passenger and commercial cars to 40,135 cars. This was due to the 4.73% y-o-y surge in the registration of new passenger vehicles to 37,816 and in the number of registered commercial cars by 1.80% y-o-y to 2, % of the registered cars are small cars with selling prices less than $15,000, while luxury cars, with selling price above $100,000, represent only 3.5%. During the same period, imported used cars decreased by 1.31%, imply that used cars lost market share. Looking at the car sales brand breakdown, Kia topped the list with a 22.10% share of the total, followed by Hyundai (18.86%), Toyota (12.87%), Nissan (12.61%) and Renault (3.47%). As for the top five distributors in Lebanon by December, NATCO SAL had the highest share of 20.80% of the total, followed by Century Motor Co (18.13%), BUMC (13.08%), RYMCO (13.25%), and Bassoul Heneine (7.41%).

8 The Lebanon Brief Page 8 of 17 Percentage Composition of Commercial Banks Assets by November 2.7% 13.1% Lebanon s Commercial Banks Assets Rose by 4.48% y-t-d by November The consolidated balance sheet of Lebanon s commercial banks revealed a 4.48% year-to-date (y-t-d) increase in assets to $172.21B by November, which translated in to a 6.36% year-onyear growth. Source: BDL 21.7% 26.2% 36.4% RESERVES CLAIMS ON RESIDENT PRIVATE SECTOR CLAIMS ON PUBLIC SECTOR FOREIGN ASSETS FIXED ASSETS UNCLASSIFIED ASSETS On the assets side, loans to the private sector augmented 8.59% since the end of December to $45.07B, of which 72.67% were denominated in foreign currencies (FC). In details, FC claims displayed a 7.79% y-t-d growth to $32.75B, while the local currency loans improved 10.79% to $12.32B. Loans to the non-resident private sector declined by 7.43% y-t-d, leading the loan s dollarization rate to decrease from 76.54% in December 2013 to 75.62% by the end of November Meanwhile, claims on the public sector, which are primarily composed of Treasury Bills and Eurobonds, posted a 1% y-t-d decrease to $37.29B, as the 4.56% rise in T-bills denominated in local currency was more than offset by the 7.42% drop in Eurobonds. As for commercial banks liabilities, resident private sector deposits, edged up by 4.96% y-t-d to $113.06B by the end of November Almost 60% of these deposits were denominated in foreign currencies, which improved by 4.46% since the start of the year to reach $67.86B. Deposits denominated in local currency also increased by 5.71% y-t-d to $45.21B. Simultaneously, non-resident private sector deposits went up by 4.20% since the start of the year to $29.68B. The growth of non-resident private sector deposits denominated in local currency outpaced that of deposits denominated in foreign currencies, with respective changes of 12.74% and 3.06% y-t-d to $3.79B and $25.89B. Consequently, the dollarization rate of resident and non-resident private sector deposits slightly edged down from 66.13% at end-2013 to 65.68% by November 2014.

9 The Lebanon Brief Page 9 of 17 Kafalat Guarantees Dipped to $109.55M in 2014 Annual Breakdown of Kafalat Guarantees by Sector Agriculture Industry Advanced Technology Tourism Crafts Source: Kafalat Kafalat issued 838 guarantees during 2014, with a total value of M, compared to 871 guarantees worth $118.16M in Hence, the average value per loan edged down from $135,664 in 2013 to $130,731 this year. Agriculture was the main sector to benefit from Kafalat guarantees with a share of 47.61%, followed by industry and tourism, with respective shares of 35.20% and 11.69%. The guarantees of the agriculture and industry sectors increased 25 guarantees and 2 guarantees to 399 and 295, respectively. Meanwhile guarantees in the tourism sector declined by 44 to reach 98, caused by the poor political and economic environment. As for the regional breakdown, Mount Lebanon continued to grasp the majority of guarantees, with a 42.24% share, followed by respective shares of 20.17% and 11.81% for the Bekaa and South regions. The guarantees issued in Mount Lebanon rose up to 354 guarantees, from a previous 348, while the Bekaa and the South witnessed declines from 188 and 117 guarantees to 169 and 99 guarantees, respectively, by end of In December alone, Kafalat issued 42 guarantees, down from 74 guarantees in the same month last year. The value of loans guaranteed by Kafalat totaled $6.27M in December 2014, compared to $10.7M in December Accordingly, the average value per loan stood at $149,315 up from $144,146 per loan in December 2013.

10 The Lebanon Brief Page 10 of 17 PoB Revenues by December (in $M) Port of Beirut Revenues Decreased to $210.89M in 2014 Activity on Lebanon s main port continued to defy economic conditions, and sustained 2913 s increase, where total container activity including transshipment jumped by an annual 8.33% to 1,210,41 twenty-foot equivalent units (TEU). Transshipment was the main reason behind this increase, swelling by 24.11% to 445,886 TEU, after Port of Beirut (PoB) became the alternative hub for other ports in troubled countries. Hence, CMA CGM s transshipment volume grew by 37.17% y- o-y to 186,430 TEU. Likewise, that of MSC also increased, by 18.80% to 242,554 TEU. However, container activity excluding transshipment, i.e destined to the local market, remained flattish, edging up by 0.85% y-o-y to 764,527 TEU. Source: PoB Regarding imported and exported goods through the maritime harbor, total volume of merchandise added 0.15% to 8.28M tons. Imported cars decreased by 1.31% to 91,761 cars, by December. The number of vessels docked at the country s main port plunged by 7.19% y-o-y to 1,962 vessels. Collected revenues from PoB revenues shrank 3.75% to settle at $210.89M by end of Airport Passengers Up to December 5,651,474 5,649,411 5,464,391 6,265,528 6,569,984 Airport Passengers Progressed by 4.86% y-o-y in 2014 Rafic Hariri International Airport (RHIA) activity improved during 2014, where the total number of passengers increased by 4.86% year-on-year (y-o-y) to 6.57M. The number of arrivals added 3.44% to 3.22M. During the same period, departures rose by 6.34% y-o-y to 3.33M. In contrast, transit travelers dropped by 7.86% to 14, Taking the month of December alone, the total number of airport passengers inched up by 12.32% yearly to reach 573,231, partly due to the stability of the security situation during the festive season. Arrivals increased by 11.37% to 272,389, and departures jumped 13.62% reaching 272,389. Transit travelers went down from 1,684 to 1,333 in December Source: RHIA

11 The Lebanon Brief Page 11 of 17 Number of Tourists Rose 4.83% y-o-y by October Number of Tourists Rose 4.83% y-o-y by October 400,587 According to the Ministry of Tourism, the number of tourists visiting Lebanon as of October 2014 has displayed a 4.83% year-on-year (y-o-y) improvement, bringing the total number up from 1,080,374 tourists to 1,132, , , , , ,358 This increase remains greatly affected by the number of Iraqi incomers, most of whom are escaping the security threats in Iraq. Their numbers surged by 26.68% compared to the same period last year, and reached 149,121. Excluding these incomers, the total number of tourists still displays a 2.15% y-oy increase to 982,686. This increase reveals the scope of recovery of Lebanon s tourism sector and its ability to withstand political uncertainty. 415, , , , , , , , , , , , , , Africa Oceania Asia and Others Europe Arab Countries America Source: Ministry of Tourism European tourists, who represented 33.65% of all tourists by end-october 2014, revealed a 2.51% y-o-y increase to 381,176. This increase is mainly due to the increasing number of the French and German tourists, who augmented 2.05% and 11.67% to 102,642 and 59,806, respectively. Incomers from Sweden, Italy and England also increased by respective 20.38%, 13.36% and 0.92%. In contrast, tourists from Turkey displayed the only decrease, as the number of incoming tourists was reduced by 39.00% to 12,950 as a result of increased security and political concerns at the Turkish-Syrian borders. Arab tourists formed the second largest tourist group and accounted for 33.16% of the total, increasing by 10.93% y-o-y to reach 375,526 by October Simultaneously, Egyptian tourists rose by 7.97% y-o-y. In fact, only the number of Jordanian tourists posted a decline, by 6.85% y-o-y to 62,373. In contrast, American travelers continued to increase, and rose by 7.37% y-o-y to 192,547 tourists. In October alone, tourism reflected a 10.75% uptick compared to the October 2013, heavily influenced by the 20.60% y-o-y climb in Arab tourists.

12 The Lebanon Brief Page 12 of 17 CORPORATE DEVELOPMENTS Libank Receive Approval for $25M Fund Allocation of Fund across Equity Markets Share Value ($M) Lebanese 50% 12.5 U.S 35% 8.75 Asian 15% 3.75 Source: Businessnews Levant Investment Bank (Libank) has received approval from the Capital Markets Authority (CMA) regarding a new $25M fund to be launched in April that will focus on middle income investors. Half of the fund s portfolio will be allocated to mainly Lebanese fixed-income securities, with the remaining 50% to be distributed between U.S and Asian equities, with respective weights of 35% and 15%. The Asian equities will focus on Australasian equities, and will disregard Japanese equities.

13 The Lebanon Brief Page 13 of 17 FOCUS IN BRIEF What the Year 2014 Meant for Stock Markets 2014 is a live testimony that one event can mean different things in different areas of the globe. The supply glut on the oil market slashed prices by half since June For the US, this meant lower oil prices at the pump and therefore higher consumer confidence but it also means less pressure on inflation and therefore more time until the Federal reserve decides to increase interest rates. This same event threatened Saudi Arabia s public finances and its stream of hefty oil revenues has also extended the gaps that were drawn back in While the Federal Reserve brought its quantitative easing program to a halt in 2014, talks sparked about the ECB starting its own bond-buying program to avoid the risks of deflation. While the US economy has shown signs of a strong recovery with unemployment falling below 6%, Europe continues to struggle to regain economic momentum. These gaps have been mirrored on equity markets. The S&P 500 grew by 11% to end the year at 2,059 points while the Euro Stoxx 50 shed a yearly 8% to close at 1,405 points. For Chinese equities, the year 2914 was described under the titles of a super-bull and irrational exuberance by the Economist. The Shanghai Composite Index skyrocketed by a yearly 53% to end the year 2014 at 3,235 points. Many reasons lie behind the excitement on the stock market: The looser monetary policy, the cut in interest rates and the opening of the Chinese market to foreign investors through the Shanghai-Hong Kong Stock Connect Program (previously the market was only open to certain institutional investors). However, 2015 holds the answers to the key concerns over this rally: First, investors are using borrowed money and second this upward climb is much similar to the picture painted back in after which the market crashed. The Japanese stock market seems to have reacted positively to Abenomics with the Nikkei Index rising by 7% to 17,451 points at end The surprise increase in the emergency stimulus program, according to which the Bank of Japan buys most of the bonds issued by the government in order to allow it to revive demand through increased spending, sent positive vibes across the market. Russia s stock market was driven by politics and by economics. The Micex ended the year with a 7% yearly drop mainly on the back of Russia s intervention in Crimea and the energy crisis which weighed negatively on the Russian Ruble. Since energy is a main component of Russia s exports, lower oil prices, (Brent Crude Energy Future contracts shrunk from $ at the end of 2013 to $57.33 at the end of 2014), the Russian Ruble lost ground against the dollar. Arab bourses also posted contrasting performances. The biggest winner for 2914 was Egypt s EGX 39 with a 31.6% yearly upturn. In fact, the EGX30 is finally approaching its 2008 levels after Egypt formalized a reform plan (Housing, removing oil subsidies etc), an essential step towards getting the country back on its feet after the Arab Spring upheaval. The second best performer of the year was Qatar with an 18% upturn and was followed by Bahrain with a 14.2% increase. Meanwhile, the biggest loser was Kuwait with a market drop of 13.4%, followed by the Muscat Exchange which shed 7.2%, and Saudi Arabia following with a loss of 2.4%. As for Lebanon, the main market movers continued to be the political and security situations. The BLOM Stock Index (BSI) ended the year 2014 at 1, points, constituting a timid 1.75% yearly upturn. Over the past year, the BSI has had many ups and downs depending on the political and security developments. These movements are detailed below.

14 The Lebanon Brief Page 14 of 17 Performance of the BLOM Stock Index in ,260 1,240 1,220 1,200 1,180 1,160 1,140 1,120 1,100 Source: Blominvest Research Department Monthly changes in the BLOM Stock Index 5.06% H % 1.32% 0.10% -0.38% -1.97% Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 1% 1% 0.34% H % 0.29% 0% -1% -1% -2% -2% -3% -1.59% -1% -3% -3% Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Source: Blominvest Bank Research Department

15 The Lebanon Brief Page 15 of 17 The first half of 2014 (H1 2014) was a positive one for the BSI as it registered a solid 6.24% gain. The main boost came from the first two months of 2014 where the anticipation and the eventual formation of a cabinet set a positive tone on the Beirut Stock Exchange and led to the BSI gaining a monthly 5.06% in January and 2.10% in February. The negative series of events that followed weakened the BSI but were not enough to reverse the positive performance over the entire first six months of the year. For the rest of H the BSI either slid in the red or barely inched up as clashes in Tripoli, the new rent-law controversy, the pay scale issue for public sector employees and the end of President Michel Sleiman s term with no successor in-sight, dampened market optimism. Most of the gains recorded in H were erased in H2, where the BSI posted a 4% loss. Indeed, the Beirut Stock Exchange suffered from the precarious political, security and economic backdrops. The June bombings of Dahr el Baydar and Tayyouneh were priced in the BSI during the month of July where the index posted a 3% monthly drop to 1, points. The subdued tone of the market was also the result of political stalemate which prevented the election of a president for the second consecutive month. The month of August also had its share of turmoil as clashes erupted between the Lebanese army and militants in Arsal and as some Lebanese soldiers were held captive. The BSI posted minor upward and downward movements during the month, signaling an obvious sense of hesitancy and unease on the market. The BSI managed to end the month of August with a timid monthly uptick of 0.34% to 1, points. Whatever strength the Lebanese gauge held on to during the month of August was gone in September as an 11 th failure to elect a new president dampened sentiment on the Beirut Stock Exchange. The presidential seat had remained vacant since the end of the ex-president s term on May 25. Moreover, on September 29 th, two army soldiers were killed near the border with Syria. The BSI closed at 1, points in September, a 1.59% downturn. October can be described as a status quo month, where no major advancements have been made on the political front. This is what may have allowed the BSI to recoup some of the losses it recorded back in September. At the end of October, the BSI gained 0.54% to close at 1, points. The index failed to record a similar or higher gain in November as political hurdles prevented the scheduled parliamentary elections to be held which eventually led to the parliament extending its own mandate. The BSI therefore ended the month of November at 1, points, a 0.29% gain only. The index closed in the red for the last month of 2014 with a monthly loss of 1.15% and a value of 1, points. As the year came to a close, givens have not changed but were worsened. The presidential seat remained vacant and the security situation continued to be threatened and fragile. On December 6 th, Al Nusra front announced the killing of a Lebanese soldier in captivity. The presidential seat and the issue of the Lebanese soldiers held hostage by extremists remain unresolved at the time of writing. By the end of 2014, 29 stocks were listed on the Beirut Stock Exchange as compared to 28 stocks the past year. The market capitalization rose by a yearly 6.25% to end the year at $9.78B. In 2014, the number of outstanding shares amounted to 1,552,168,084. In the first half of 2014, 200,000 BEMO Bank preferred shares class 2006 were de-listed, 350,000 Bank BEMO preferred shares 2013 were listed and 476,260 additional Audi GDR shares were listed. As of September 30, 2014 /50,000,000/ additional common shares were issued by Bank Audi SAL. As of October 16 th, /4,762,000/ Bank of Beirut Priority Shares Class 2014 were listed on the stock market. The Beirut Stock Exchange decided to list, as of December 1, 2014, an additional /13,021,942/ GDRs linked to the shares of Bank Audi SAL. These GDRs will be added to the previously listed /102,493,911/ GDRs, therefore, the total number of listed GDRs linked to the shares of Bank Audi SAL becomes /115,515,853/.

16 The Lebanon Brief Page 16 of 17 The top three performing shares were BLOM GDR, gaining 11.36% to $9.80, BLOM Listed shares, rising by 6.67% to $8.80 and Ciments Blanc Bearer shares with an upturn of 7.14% to $3.75. As for the worst performers, they were Ciments Blanc Nominal with a loss of 15.12% to $2.75, BLC listed shares which shed 12.82% to $1.79 and Rymco s listed shares which declined by 7.71% to $3.23. From a technical point of view, the relative strength index (RSI) for the BSI stood at on January 16 th Since the RSI is between the 30 and 70 mark, the BSI is neither overvalued nor undervalued. The future movements of the index will yet again be dependent on political and social developments in the country.

17 The Lebanon Brief Page 17 of 17 Research Department: David Achdjian Lana Saadeh Riwa Daou Mirna Chami Marwan Mikhael Your Investment Reference