CAIRO: With a neutral outlook for markets of the Middle East and North Africa region (MENA) in the first half of 2012, Beltone Financial predicts some chances of improvement in the second part of the year, according to its latest report.
“Cloudy with a chance of sunshine” is how Beltone Financial described the market forecast in 2012 for the MENA region, predicting that global economic recovery and a clearer Euro debt situation along with demand for oil are key factors in improving the region’s economic troubles.
Although Egypt’s current political situation is extremely volatile, the Cairo-based investment firm upgraded its outlook for Egypt to “neutral” from “underweight,” as the country’s first parliamentary elections after the ouster of former president Hosni Mubarak seem to be on track.
Egypt currently has seen a 45.1 percent year-to-date decrease in its market, a substantial drop.
“We, however, remain cautious since the economic scene continues to face challenges,” the company said in its report. “We continue to advise investors to build positions in defensive stories and stocks that were over-penalized by the political noise.”
The economic forecast in Egypt will remain obscured by the political situation, the report predicts, as the country’s political transformation stretches out.
“While private consumption will act as a buffer in the short-term, external aid can compensate for lack of much-needed investments to jump-start the economy and solve most of the current challenges,” the report said.
The pressing challenges facing Egypt today include a widening fiscal deficit and rising costs of financing this deficit, along with constrained strains on the capital account and limited foreign currency reserves, as well as rising unemployment.
Unemployment is currently at 11.8 percent, while the budget deficit is about $134 billion dollars.
According to the Central Bank of Egypt, inflation is also on the rise, surging 0.66 percentage points to monthly inflation in November as prices rose by 3.65 percent. Overall, headline core inflation increased by 1.0 percent in November following the 0.33 percent increases recorded just a month before in October.
The annual rate in November rebounded to 9.07 percent after falling to a four-year low of 7.10 percent in the previous month, according to the bank.
The country also will be struggling to pay for imports as foreign reserves decline at a rate of almost $2 billion dollars, falling to $20 billion at the end of November.
These negative signals along with several challenges facing the private sector in Egypt could cloud the performance of stocks, according to Beltone.
Changes in tax policy, land issues, inflationary pressures, possibility of import restrictions, and labor strikes demanding higher wages are all issues affecting performance of the private sector.
Potential depreciation of the Egyptian pound, which has currently just hit a seven-year low, is also a deciding factor.
However, Beltone expects some more investments in the retail sector, specifically in Egypt, which offers “strong demographics and is based on the fact that overall investment in retail development is very low.”
Cairo is among the top cities in the region with retail penetration, according to Beltone.
Regional outlook
Egypt’s political and economic developments in the first half of 2012, Dubai debt, and the Lebanese market correlation to geopolitical tensions, especially those stemming from Syria, are also deciding factors expected to highly affect economic situation in the region, Beltone said.
Despite some “attractive” assessments, Beltone’s predictions on most regional markets in the first half of 2012 are “neutral;” however, the company predicts improved performance in the second half of the year.
Oman’s market is the only country in the region expected to continue providing “attractive valuations” and prospects for growth as it enjoy a more stable political environment with fewer risks.
Beltone has maintained an “overweight” and positive outlook on Qatar, “relative to its earnings growth potential and profitability.”
“Qatar was the top performer amongst MENA markets in 2011, being the only market to witness positive year to date growth of about 1 percent as of December 2011,” the report stated. “The market is inexpensive, compared to Saudi Arabia and the UAE, whilst offering higher growth prospects and low political risk.”
Kuwait, on the other hand, has an “underweight” outlook for 2012 as political overhang continues to cloud economic development.
“Implementation of the development plan would provide a strong stimulus for domestic demand and the overall growth outlook, although with the continued political stalemate between parliament and government, accelerated progress on the development plan is unlikely to be seen,” the report said in reference to Kuwait’s recent political unrest.
Also, Kuwait’s market is seen as expensive, according to Beltone, despite trading hitting historical lows.
“The Kuwaiti market does not offer attractive multiples yet.”
