CAIRO: Egypt, Qatar and Saudi Arabia's stock markets are expected to outperform others in the Middle East and North Africa region in 2011, according to a recent report. In its “Arab Stock Markets Review” released last week, Cairo-based investment bank Beltone Financial forecast accelerated economic growth for the MENA region through 2011/12, “based on higher hydrocarbon revenues and a region-wide infrastructure program.” Despite challenges of intense global competition for capital and as seen in 2010, there are expectations for double-digit growth in Qatar, accelerated growth in Saudi Arabia and slightly improved growth in Kuwait. “We expect Dubai, Lebanon, Kuwait and Tunisia to underperform in 2011,” the report added. Developments in Tunisia over the past two weeks have negatively affected regional markets — Cairo's stock index tumbled to an 11-week low on Wednesday. Cairo's main benchmark has fallen 6.7 percent this week, wiping out all the gains of late 2010, Reuters reported, yet Egypt remains attractive as a macroeconomic play. “There's a big buying opportunity for traders over the next few days because stocks are cheap and well supported by decent dividend yields,” Angus Blair, Beltone Financial's Head of Research, told Reuters. Mohamed Rahmy, a Beltone research analyst, told Daily News Egypt, “We have taken into account the political and economic stability of the region in our forecasts.” The report outlined concerns including the fragility of global economy recovery, particularly sovereign debt issues in the Eurozone, and the amount of refinancing required in 2011. For Egypt, the investment bank expects real GDP growth to accelerate steadily over the medium-term due to “reforms, strong fundamentals of the Egyptian economy and resilient domestic demand.” “What is happening in Tunis and in the region did not really prompt us to change our macro-economic forecast as our estimates are already more conservative than the government's,” Rahmy added. According to the report, the Egyptian pound weakened in 2010, stemming from concerns over a rising current account balance and a higher political risk equation over parliamentary elections and the forthcoming presidential elections in the third quarter of 2011. The Egyptian pound amounted to around 5.8180 to the dollar, Tuesday, strengthened against the US dollar after concern over political turmoil pushed it on Monday to its lowest level in nearly six years, Reuters reported. However, they expect the growth of the economy to remain sub-par unless there is “faster and more even implementation of planned reforms and bottlenecks that hinder growth from reaching its potential are eliminated and rising food prices with seasonal and one-off factors determining future inflation levels are controlled. Headline CPI inflation published by CAPMAS on January 10 decelerated by 0.68 percent month on month in December following the 0.82 percent month on month decline in November. Despite the monthly decline, the annual rate remained broadly unchanged at 10.28 percent in December due to unfavorable base effects from last year, according to the central bank website. “Food price inflation in Egypt remains a concern for us, faster implementation of fiscal reforms are necessary in light of rising food and energy prices, globally” the report said. Beltone says Egypt's central bank is unlikely to adjust interest rates in response to one-off and seasonal changes in prices unless they start to have a knock-on effect on other (non-food) items. “Stability in core inflation and growth levels are the key to future changes in interest rates,” the report finds. The report includes positive expectations concerning Egypt's budget deficit which they expect to narrow over the medium term, “driven more by acceleration in revenue than a deceleration in expenditure growth.” The positive trends also include a recovery in Egypt's tourism, Suez Canal, foreign direct investment and remittances, but the report points out that these remain subject to the global economic performance. The current account is expected to widen despite improvement in services receipts with strong domestic demand implying robust growth in imports and widening in merchandise trade deficit, according to the report. The economic analysis concludes that the Egyptian pounds is expected to depreciate, going forward, mainly by virtue of the widening deficit. Future changes in the dollar/euro will determine the pace at which the Egyptian pound depreciates. Sector specific The report also included a sectoral analysis of the Egyptian economy. “We are positive about the long-term prospects of the banking sector in Egypt, because of the large population base, low financial penetration and high liquidity within the sector. “We estimate that lending amongst private sector banks will continue to deliver healthy growth in the range of 20–25 percent, driven by corporate lending and higher penetration of retail lending,” the report read. For consumer goods and services, Beltone expects demand to pick up in most product categories, particularly total passenger car sales volumes, retail sales, white goods sales volumes, food-related products, mobile and internet subscriptions, or hotel occupancy rates. It also cites favorable demographics present in countries such as Egypt as reasons to be bullish about the performance of the region's infrastructure sector. “Egypt plans to increase its annual infrastructure spending to 7 percent as a proportion of GDP in the medium term, compared to 5.5 percent in 2010 (at an estimated $50 billion for the next five years and focusing mainly on roads, utilities and hospitals),” the report said. “The government rolled out an ambitious program of 15 PPP's (public-private partnerships), inclusive of schools, hospitals, utilities, roads and highways,” it added. The main reason given for Egypt's expected growth is that penetration rates of power, steel and copper remain low on a per capita basis, against regional and global emerging market peers, providing room for growth within the Egyptian construction sector. Egypt has 10 percent of the UAE's power consumption per capita, and 9 percent of the UAE's steel consumption, the report said. In the real estate sector, the report said that 2011 is all about deliveries and launches of new projects, focusing on Egypt's main developers. Beltone expect the highlights of the upcoming year to be the resolution of the Madinaty land case for Talaat Mostafa Group by the government finalizing a new land law, the delivery of SODIC's Allegria and the launch of new products from the Egyptian developer as well as the re-launch of Palm Sokhna in the first quarter of 2011 by Palm Hills Developments. Outlining recommendations, Beltone's report called MENA governments to prioritize improving mass public transport to help boost mobility, cut customs duties and other bureaucratic hurdles to improve competition and bring prices down, prevent oligopolies, decrease bureaucracy to help small and medium-sized enterprises, and improve educational standards. The report concludes with the top MENA stocks to buy, such as Etihad Etisalat's (Mobily). On the Egyptian Exchange, Beltone recommends Telecom Egypt. “Telecom Egypt is uniquely positioned, as it has exposure to all sides of the Egyptian telecommunications sector, including mobile (through its 45 percent stake in Vodafone Egypt), fixed, high-speed broadband data services and information technology infrastructure and the healthy prospects for the wholesale (submarine cable systems) and data segments of revenue (fixed broadband), as well as the strong dividend yield.”
