CAIRO: Morgan Stanley upgraded its rating of the Egyptian stock market to "overweight , adding Egypt to the ranks of China, Russia, Brazil, India, Malaysia and Poland as markets in which investors should acquire stock. Morgan Stanley Capital International (MSCI) Barra calculates global stock market ratings for every country in its All Country World Index (ACWI), and includes Egypt in MSCI's Emerging Market (EM) Index. The MSCI EM Index is a free-float weighted equity index; its 0.9 percent rise on Friday compared to only 0.4 percent increase seen by the MSCI World Index of securities from 23 developed countries. Egypt's upgrade follows a streak of optimism for emerging markets, although Michael Ganske, head of emerging-market research at Commerzbank AG in London, advised caution. "Emerging markets are a strong, structural story. [But] today's movement is a reaction to the market being quite depressed over the past couple of days. We are facing a period of higher volatility rather than a long-term, sustained rally, Bloomberg quoted Ganske. "There could be further to go in terms of a reversal in sentiment toward emerging markets, said analysts Shanthi Nair and Rishav Dev at Nomura International Plc. "Valuations for emerging markets have still not moved into attractive territory, stated the London-based analysts, according to Bloomberg, which added that "valuations in emerging markets remain expensive. Alarm that global recovery in 2010 remains slow has contributed to volatile markets worldwide. However, expectations for Egypt in 2010 remain robust. Reham El Desoki, chief economist at investment bank Beltone Financial, commented on MSCI's bullishness on Egypt. She told Daily News Egypt, "Most international organizations have been reporting positively on Egypt's economy and its financial market, with the better than expected growth and the better financial performance compared to other emerging markets. We believe this could serve to attract more investors to Egypt in the short term, especially as organizations like the IMF and ratings agencies release positive views on Egypt. MSCI's upgraded rating of Egyptian stock follows similar confidence expressed by Credit Suisse, which had upgraded its Egypt rating to "overweight in September. In a report released at the time, Credit Suisse credited Egypt's "attractive static and historic valuation levels relative to other emerging markets; third highest GDP growth rate for 2009 among emerging markets; expectations for the continuation of an expansionary money cycle. Credit Suisse's preferred stock picks were Orascom Telecom, Orascom Construction, Telecom Egypt and EFG Hermes. In February Credit Suisse's EMEA strategist Alex Redman maintained his 'overweight' stance. Credit Suisse also cited Moody's positive assessment of Egypt's investment outlook. Although rising inflation in 2008 had caused the investor's service to lower Egypt to a "negative rating, as early as August 2009, Moody's had upgraded Egypt to "stable. Although rampant inflation has been assuaged, according to Tristan Cooper, Moody's Head Analyst for Middle East Sovereigns, inflationary pressure remains a concern. This, combined with slower growth and rising unemployment, continues to present challenges in light of the country s poor social indicators, he explained following the release of Moody's improved rating. Moody's listed the government's ability to contain its deficit despite stimulus measures as a motivating factor for confidence in Egypt. Furthermore, Egypt was able to come through the global economic crisis due to a "moderate level of economic openness, a solid external position a well-diversified economy, and stable banking system with limited foreign exposure. However, on-going deficits and public debt burdens, credit concerns, and weak public finances are among the anxieties that prevent Moody's from appearing as bullish on Egypt as some other rating agencies. A note released Feb. 25 by investment bank EFG Hermes reported, "Having been the best stock market performer globally (up 12 percent) in the first seven weeks of 2010 . the market has fallen over the past week. This recent downslide was attributable to local factors, "rising valuations, lower local cash positions, and worsening retail investor sentiment. The note explained that foreign investors bought heavily in early 2010, and therefore EFG Hermes anticipated short-term weakness while profits are taken. Regarding the lack of retail investors, EFG Hermes gave two reasons: "ongoing and pending rights issues have reduced retail investors' available cash positions . and retail investor sentiment has soured due to regulatory investigations into a number of local brokerages and small-cap stocks. EFG Hermes corroborated optimism in Telecom Egypt and Orascom Telecom, though admitted to possible high volatility especially for Orascom Telecom, which is still embroiled in an ownership dispute with France Telecom over mobile subscriber Mobinil. EFG Hermes recommends companies engaged in the government's plans for infrastructure development. El Sewedy Cables and Orascom Construction are recommended, despite their relatively low upside potential, or likely stock price increase. Analysis of Egypt's 2010 forecast continues to call for GDP growth of 5 percent, with the caveat that internal consumption and government strategies will become unsustainable, should international investment fail to pick up.
