CAIRO: Forecasting turbulence for the global economy in 2008 - stemmed by a credit squeeze, downgraded growth and sticky inflation - Merrill Lynch advises investors to hold on to their cash and be on the lookout for opportunities. Merrill Lynch's Global Wealth Management Outlook for 2008 predicts that the global economy will start the year on a weak note after losing momentum in the final quarter of 2007. It expects returns across many asset classes to be modest. "Many opportunities in 2008 will arise from picking undervalued assets that have already discounted economic fundamentals, said Gary Dugan, author of the report, which he presented at a press conference in Cairo on Wednesday. "Vital to investing next year will be retaining cash in the portfolio and keeping an open mind to investing in asset classes that have been underperforming. On a global level, Dugan sees opportunity in banking and pharmaceutical assets that have been slipping for quite some time. "That is why, about six weeks ago, we were advising people to buy in banks because they have fallen too far, he explained. "We also encourage people to look at things like pharmaceuticals globally, which have seen very poor performance for the last two or three years. You have to be opportunistic. Dugan - chief investment officer for Merrill Lynch Global Wealth Management EMEA - presented his regional and global outlook for 2008 in a press conference Wednesday. He said that while valuations in developed markets look more compelling, global growth needs to improve for Merrill Lynch to take a more aggressive buying stance. "Opportunities that are starting to arise are for the braver investors, Dugan stated. While economists are reducing forecasts for GDP in developed countries, many expect emerging market economies to continue growing at a robust rate. Zeroing in on Egypt, the outlook for 2008 seems to be quite good, but still, Dugan advises investors to have "realistic expectations. "In 2007, Egypt has been making 45 percent return on two major indices. But in 2008, returns are going to be modest at around 10-15 percent, he pointed out. "International interest in the market could increase in respect to problems we see in the US market. With a growth rate of 7 percent, and inflation that could moderate if Egypt allowed interest rates to fall, companies can expect good news from Egypt in 2008. "As a package, it's good news, and it will maintain both retail interest and also institutional interest from overseas investors, Dugan said. "People do look at Egypt as still in its earlier stage of development; therefore, growth rates are more assured. Safest sectors to invest in Egypt are those linked to building and construction. Also, since global trade remains strong, shipping companies which have done well can expect to see more good performance. Dugan expects the uptrend in the Egyptian market as well as other emerging markets to remain in 2008. "People want to stay in emerging markets . in places like China and India, which have done particularly well. But investors are also looking in other places like the Middle East and Egypt, which have been somewhat ignored until recently. That is why some of this international money is finding its way here. Interest in emerging markets appears to be intensifying, as Merrill Lynch finds clients wanting to put money in Africa, thinking it is going to be a new emerging part of the world. "It shows that there is a lot of capital wanting to find new investment in emerging markets, Dugan confirmed. "In the past, people used to invest [in emerging markets] and then go back and take it all out. This time . there is continuity [and] long-term commitment to emerging markets. On the other hand, high inflation in emerging economies might stimulate appreciation of currencies - with expectations that the Egyptian pound will steadily appreciate by five percent over the dollar in the next few years. "Inflation is a risk, but it would be more of a problem if Egypt had a particular inflation risk while the rest of the world didn't. The whole world has an inflation problem today, so I don't think anyone will pick on Egypt in particular. It is bad news for the whole world, Dugan clarified. "The Egyptian government is trying to control inflation somewhat through subsidies, but I think there is some relief in the future because we are expecting oil prices to moderate and some of the metal prices to fall back . so that should help the government in its fight to bring inflation down. Merryl Lynch is one of the world's leading wealth management, capital markets, and advisory companies.
