It was a good moment to reflect on the performance of the market over the previous year, its best on record. Flotation of the currency in January 2003 proved the boost that investors needed as the economy started to emerge from its five-year downturn - devaluation has lent a competitive edge to local exporters, and small cap stocks such as cement and steel have provided ready returns. At the beginning of June, the broad-based Hermes Financial Index (HFI) was up by 24.3 per cent on the previous year.

The surge of activity in August, which saw net equity volume for the market climb back to £E 2,619 million ($423 million), shows that investors' patience during the summer months has been amply rewarded. The reshuffle of the cabinet in mid-July saw the creation of a new economic triumvirate at the heart of government and an unambiguous message that structural reform, privatisation and a shake-up of the regulatory environment are key priorities for Cairo's policy-makers in the year ahead.

The response has been striking. 'Since the change of government you've seen a huge rise in the percentage of foreign investors, and brokers are saying that a lot of clients who have been away for a while are coming back,' says a Cairo-based economist. 'The HFI has seen three new all-time highs in the last two months, and the positive economic signals have been backed up these last few weeks by the release of companies' financial results - telecoms, in particular, and small caps stocks such as cement have been moving quickly.'

Buoyed by a strong revenue and profit performance in 2003/04, Orascom Telecom (OT)continues to buoy trading in telecoms stocks, with daily turnover reaching £E 23 million ($4 million) at the close of trade on 31 August. Other blue chips such as Mobinil, Vodafone Egypt and Media Production Cityhave also put in strong performances, although in the short term companies with a high domestic exposure are likely to see a certain volatility in trading. OT, along with its sister company Orascom Construction Industries, have the benefit of generating more than 65 per cent of their attributable revenues outside Egypt, and can count on a greater degree of liquidity. But as the economy continues to show signs of improvement, cyclical stocks - particularly those in the building materials, construction and banking sectors - are likely to be the beneficiaries of the renewed interest from abroad, as foreign investors look beyond short-term returns to take longer positions in the market.

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