Go forth and privatise

In the third part of our series on world stock markets, Liam Robb examines the very different fortunes of Ecuador and Egypt
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The Independent Online

Although boasts 115 quoted companies - spread between the Guayaquil and Quito stock exchanges - six of the top 10 are banks. "Diversity is not the ian equity market's strongest suit," says Miles Brockbank of the institutional broker Latinvest.

Convertibility of the currency - the sucre - to the US dollar begins this July and is at the heart of President Bucaram's new economic policy. He will also need to address inflation (currently running at 25 per cent) and the fact that 60 per cent of the population of 12 million live in poverty.

On a more positive note, the country is the world's largest banana producer and a net exporter of oil.

Privatisation of the oil and electricity sectors is a priority (plans to float Petro are already afoot) and the recent abolition of an 8 per cent tax on deposits, coupled with new legislation permitting a majority instead of a minority stake in the utilities to pass into private hands, may help stimulate demand for equities later in the year.

However, with the entire market (which posted gains of around 10 per cent last year) worth only around $3bn, illiquidity remains the biggest deterrent to foreign investment.


"Over the past few months, Egypt has been the international investor's best friend," says Salomon Brothers' David Hatt. The country attracted more than $750m of foreign investment in 1996 (compared with only $50m the year before) and the 746 stocks listed on the Cairo stock exchange have returned 35 per cent over the past year, catapulting Egypt into the top rank of the world's best-performing stock markets.

An IMF programme which has trade liberalisation at its core lies behind much of the success and is being implemented against a backdrop of a strong Egyptian pound, predicted GDP growth in 1997 of 5 per cent and a solid balance of payments record. Oil and gas from the Red Sea and the Sinai are the country's most valuable resources and the massive Aswan Dam provides the bulk of hydroelectricity.

Under President Nasser, Egyptian economic policy was inspired by the Soviet model and resulted in one of the largest public sectors of all developing countries.

Egypt is, by nature, a nation of traders and this has ensured that a strong domestic equity culture is already beginning to develop. However, as in all developing countries, the stock market relies on the support of international players and analysts have expressed disappointment that the government has stymied the recent pounds 105m bid by a French conglomerate for a stake in Egypt's Ameriya Cement Company. As a result, doubts persist over the government's resolve to move to a truly open market.

Successful recent new issues include Commercial International Bank and Suez Cement - the latter, valued at nearly $1bn, was five times oversubscribed. More positive news - the IFC has finally included Egypt in its emerging markets index. This will ensure that emerging markets fund managers will be obliged to have exposure to the region and should ensure Egypt's continued run of form.

Performance statistics: Datastream

Most regional Latin American unit and investment trusts retain a small exposure to . Many emerging market funds now have exposure to Egypt.

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