Egypt's stock market looks set to be one of the most promising in the Middle East for the rest of this year, Western fund managers say. Views on Turkish equities are mixed, while some are looking with new interest at Tunisia. The main spur to market growth in most places will be a mixture of privatisation offerings, more liberal investment rules and improvements to the infrastructure of stock exchanges.
The Egyptian stock market has weakened since the end of a bull run in February and most fund managers expect it to stay in the doldrums till the end of the summer. 'I think Egypt will pick back up after September when privatisations resume and more private companies come to the market,' says Alliance Capital Management's regional fund manager David Edgerly, voicing a common view. Alliance Capital has about $250 million invested in the Middle East, mostly in Turkey, Egypt and Israel.
Edgerly is bullish about Turkish stocks: he believes investors have already factored in bad macroeconomic news, such as a sharp rise in forecast inflation. 'The market's still up 40 per cent this year,' he says. 'Barring some external shock, I think the market will be buoyed more on the basis of individual corporate earnings.' Not everyone is as sanguine. UK investment bank BZW says that a combination of political uncertainty, a growing fiscal deficit and a public debt repayment squeeze early next year mean that the market will remain highly volatile. 'In general, a low profile is warranted in Turkish equities,' the bank said in a recent briefing paper, adding that some 'first-rate' companies should still appeal.
Some managers think that Morocco, one of the best-performing markets of last year, is losing its shine and is now over-valued. By contrast, Tunisia - long considered by foreign investors to be expensive - has become more attractive as a new electronic trading system adds to liquidity and allows share prices to be revalued downwards. Framlington of the UK, which has $45 million invested in Morocco and Tunisia, may increase its relative weighting in Tunisia to about 10 per cent from about 6 per cent now. 'I think Tunisia is poised to go up,' says fund manager Dominic Baker.
By contrast, Alliance Capital's Edgerly believes Tunisia has a long way to go. 'There's no real move on the part of the government to make the market more attractive,' he says, comparing Tunisia with Jordan and Oman. Last year Oman cut taxes on companies with foreign shareholders, while Jordan has just abolished a 50 per cent limit on foreign ownership of listed firms. However, Tunisia raised the limit for foreign investment to 49 per cent this year.
Some fund managers are also eyeing the stock markets in the Gulf states which are starting to open up to foreign investment, such as Saudi Arabia. Qatar's newly-established stock exchange is also attracting interest. 'I'd say Qatar is going to be one of the prime ones. It's selling at a fairly low valuation,' says Khaled Abdul-Majid of the UK's Blakeney Management, which manages about $150 million invested in the Arab world. The market, which has risen by 35 per cent in the last year, is currently restricted to Qatari citizens but is expected to be opened gradually to foreign money.
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