Angus Blair
Head of Research
Beltone Financial

Mohamed El Nabarawy
Head of Research
Rasmala Investment Bank

How do you think the Egyptian stock market will perform during the first half of 2010?

Given Egypt’s interconnectedness with the global economy – exports, tourism and the Suez Canal, for example – sentiment looking ahead will, to an extent, be governed by whether global growth momentum deepens (particularly in the EU). If this happens, then we should expect to see the stock market index move ahead positively in the first half of 2010. However, we need more creative thinking across government ministries and more thorough action to tackle longstanding bottlenecks and constraints to private sector development. And the private sector needs to be more creative and risk-taking to support rising confidence and, hence, a more broadly based market rally.

The EGX 30 index is up 33.4 percent year-to-date, and Egypt is one of few MENA economies to record growth in real and nominal GDP in 2009. Real GDP is expected to grow at 5 percent in FY 2009-10. Despite a negative outlook on exports that were hit by the global recession, domestic demand remains strong. With the Dubai debt situation, the market will be favored by international investors given its relatively low economic links with the Gulf Cooperation Council (GCC) countries. The Egyptian market could capture investment flows from the GCC, in particular the UAE.

What sectors, fundamentally or technically, have the highest potential for growth in the first half of 2010?

I still like the consumer sector. I really like the story behind the sector despite ongoing inflation levels that remain too high and endemic. High inflation is a key concern going forward. Car sales are likely to be skewed to the first half of each year for the next decade, given that tariff cuts occur early in the year, but they are set to show solid demand, as are other consumer goods. While the real estate sector has been hard hit, I would expect to see some recovery, though possibly not until the second half of 2010.

Defensive plays and, in particular, telecoms, are in favor now. The Egyptian telecom sector is attractive on the back of high dividend yields, no exposure to foreign exchange fluctuations and relatively low mobile penetration rates.

Would you advise clients to buy and hold stocks, or has short-term trading become the less risky path to profits?

The marketplace uses both technical and fundamental research (the retail market likes technical analysis), but if I offer advice I would review a client’s profile first, since clients can utilize a number of strategies. However, since the question is not specific with regard to clients or stocks, the advice has to be general, too. Realistically, it is better to buy stocks where one likes the fundamental story of a company and hold the shares for the long term.

Investors are usually advised to buy and hold stocks. In fact, short-term trading can become very risky when a market’s volatility rises. Long-term investment, which requires holding the stock for at least a year, means that investors should not be worried about the occasional dip of stock prices.