Mohamed Helmy
Vice President and Head of MENA Sales
HC Brokerage

Mark Rorison
Group Director
CI Capital Research

Do you think Morgan Stanley’s “overweight” rating of the Egyptian stock market at the end of February will positively affect trading in the current period?

Morgan Stanley’s upgrade is ill-timed for reasons such as the fact that emerging markets have already done well in the last few months due to the weakness of the dollar. Also, if the Dubai debt issue is resolved, investors who moved to Egypt will shift back to the UAE and Gulf Cooperation Council (GCC) zone as quickly as they pulled out. Egypt’s macroeconomic situation is not as strong recently because of sluggish foreign direct investment (FDI); high inflation, which might force the Central Bank of Egypt (CBE) to raise interest rates (bad for growth); and the recent announcement that the government is going to further tackle international markets to fund domestic spending.

Not necessarily. Egypt is overweight and has been for some time from a number of major investment banks, and its performance has been the best in the region. If this is the consensus call, then you wonder where the marginal cash flow comes from. It will therefore add to the positive voices, mine included.

According to reports, Egypt’s stock market performance – which was up 12 percent – during the first seven weeks of 2010 was the best globally. Do you think this momentum will continue over the next three months? Which sectors do you see as attracting the most international investors post-recovery?

If the market breaks the 6,850 level on the EGX 30, it should continue to perform well. That said, the market still could head south. Generally, the market is not showing a lot of momentum and has a 60 percent probability of being bullish in the coming three months. The best recovery should continue on a stock as opposed to sector basis; previous months’ stock outperformers should continue to do well in the coming months as well. CIB, SKPC and ETEL would be among those leading stocks, given their defensive nature during the downside moves.

I don’t think it was the best globally. It was the best in the MENA region and second best in Africa. Markets such as Ukraine and Estonia have had much higher performance. The year-to-date performance means Egypt is no longer cheap, but on consensus price/earnings ratio and growth rates it looks relatively attractive. International flows attracted by strategic decisions usually move to the majors, not necessarily sectors. Nonetheless, the bank sector has more potential; and later in the year consumer stocks should move into fashion as demand rises on the back of house completions.

The New Urban Communities Authority recently warned that requested land plots would be withdrawn from individuals if they did not obtain construction permits by May 31. To what extent do you think this will affect building material stocks in the market?

It will have minimal affect. Major developers that bought such land are on schedule with construction plans. Individuals who have not obtained construction permits are already just holding on to the land with no construction happening in the first place. If the land is actually withdrawn and given to others who intend to build, that would have a positive impact on building material stocks. It is important to note that such an impact is subject to specific details regarding how much land would be withdrawn.

This is not something new. It is an attempt to stop (individual) land speculators who do not build on the land. Therefore, this should not affect the building material stocks in the market... The major part of demand for building materials comes from large house builders/developers, and, if anything, their activity has picked up.