Egypt: Leading the Middle East by Parisa Veldman-Koops, Senior Financial Writer, ING IM

Europe
The economies of the countries around the Persian Gulf have benefited tremendously from the surge in oil prices of the past few years. Egypt, whose markets are strongly correlated to the Gulf region, occupies a special position. Although only a small net exporter of oil, this most populous country in the Arab world benefits from the accessibility it offers to foreign investors and from the government’s focus on reform. It is no secret that many equity markets in the Emerging Markets universe have shown impressive returns in recent years. Egypt is without a doubt one of the biggest success stories, with an equity market that added 126% in 2004 and another 162% in 2005. Egyptian Market Performance: A Crescent To Admire After having gained another 26% in January, the Egyptian equity market embarked on a correction from February onward. While this correction coincides with that of global Emerging Markets, it has been more pronounced, clearly illustrating the market’s above average volatility. Against the background of ongoing structural reform, however, the macro-economic picture continues to bring mostly good news: GDP growth is accelerating, as is foreign direct investment, while both interest rates and taxes were been cut. Egypt certainly remains worthy of investors’ attention. One of the elements behind its success has been a series of structural reforms, such as the change to the exchange-rate regime in 2003. The Egyptian pound, which had previously been pegged to the dollar, was allowed to float, a move that helped to stimulate exports and foreign investments in the country. This was followed by the appointment in 2004 of the pro-reform government of Prime Minister Ahmed Nazif. Privatization is one of the areas where the government has moved forward, creating opportunities for both domestic and foreign investors and further boosting the equity market. In this respect, it is important to mention that the Egyptian equity market is easily accessible to foreign investors. The situation is quite different in Saudi Arabia or other smaller Gulf countries. Many of them impose significant restrictions on foreign ownership, providing access to their equity markets only to domestic investors or to investors from the Gulf region. Egypt’s open market is therefore in a position to attract interest both from global investors and from investors within the region itself. Next to being major net buyers of securities of Western markets, Gulf investors also have a liking for investments within the Middle East, motivated by, among other factors, cultural and religious affinities. These investments are not restricted to equities only: the Egyptian property market is another prime target of Gulf oil dollars. For its neighbors, and for investors in the world at large, Egypt is a market that deserves close attention. Parisa Veldman-KoopsSenior Financial Editor, ING IM Europe

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