'All three IPOs this year - private airline Karthago, car battery firm ASSADand auto-filter company GIF- have been really successful,' says Hedi Ben Cherif, an analyst at Tunisie Valeurs. 'And foreign inflows of capital have increased: today, more than 50 per cent of trading is done by foreigners.'

Further IPOs are expected. Societe Immobiliere Tuniso Saoudienne (SITS), a small real estate company, is set to join the market by the end of the year, and telecoms installation company Societe Industrielle Tunisienne d'Electricite (SITEL)is expected to float in 2006. 'There will certainly be more than four IPOs in 2006,' says Ben Cherif. 'And it is a trend that is likely to continue - the government is pushing in that direction.'

The capital offering most eagerly anticipated by the market is that of Tunisie Telecom (TT), in which the sale of a 35 per cent strategic stake is currently under way. The government proposes to float a 10-15 per cent share on the Tunis bourse, which is forecast to raise about Eur 400 million-600 million ($467 million-700 million). The sale is expected in the second half of 2006.

The current undervaluation of the Tunisian market has its advantages. 'Compared with other markets, we are really cheap,' says Ben Cherif. 'A lot of other MENA [Middle East and North Africa] markets are in a kind of bubble. The Tunis market is still at a low value, which is why foreigners invest despite the market's liquidity problems. The market is interesting in terms of fundamentals, and liquidity will improve.'

Most of the foreign investors are from the Middle East region, and their investment choices are having a distorting effect on sector-by-sector performance.

'It is a two-speed market,' says Isaam Ayari, a director at Tunisie Valeurs. 'Some companies, such as GIF and ASSAD, maybe rally more than they should because of strong interest, whereas others, such as banks and breweries, have good fundamentals, but are undervalued because Gulf investors do not want to invest in them.'

Further inward investment could be on the horizon. Tunis is understood to be considering raising the limit on foreign ownership in Tunisian companies to 60-65 per cent from 49.9 per cent. 'If foreign participation rules are changed, the retail sector and the brewing sector will be among the best performers,' says Ayari. 'Particularly the retail sector, which at the moment is totally closed to foreign investment.'