MENA stock tips, September 2012

Regional investment aficionados put the chaos into context

Last month’s market news was tainted with scandals yet again, most notably British bank Standard Chartered was accused of hiding some 60,000 transactions facilitated for Iran, worth approximately $250 billion.

Despite this and the unresolved European sovereign debt saga, markets generally still managed to edge higher, with the Dow Jones up 1 percent near the end of last month. For investment recommendations this month, Executive sat with Sami Akhrass, chief executive of Arab Finance Corporation, and Alex Moujaes, head of capital markets at Bank of Beirut.

Sami Akhrass
Bullish or bearish? Akhrass sees the markets remaining range bound till the end of the year with no dramatic moves on the upside or the downside. He would avoid sectors such as financials and insurance in stressed situations, and would favor the luxury and pharmaceutical sectors. Akhrass also stresses to be selective within the sectors as there are huge disparities, giving the example of Research in Motion, the company behind Blackberry, which saw its stock price drop around 55 percent year-to-date, as users consider a switch to iPhone with Apple’s stock price increasing by more than 60 percent year-to-date.

More bad news to come from Europe? For investors with a high tolerance for risk and a long investment horizon, Akhrass recommends investing in Spanish or Italian debt, highlighting that the yield on Spanish 10-year sovereign bonds is an “attractive” 7 percent.

Favorite asset classes? He favors fixed income in Europe, both corporate and sovereign, but also believes that there are very interesting opportunities in United States corporate as well. He would also look into US and European equities.

Investments in Middle East and North Africa region? Akhrass would wait for all the political changes and for the upheaval to play out before deploying capital into the MENA region.

Investments in Lebanon? He would stay clear of Lebanon’s sovereign bonds. As for equities, while the valuation and the dividend yields of banks are attractive, he is concerned about the lack of liquidity and visibility. As for Solidere, Lebanon’s mammoth real estate company, he sees the risk as limited at this point, so while “it is difficult to see the rewards”, at the current price of $14, “it is a good entry point.”

Top three ideas for a retirement fund? 1) Stocks in pharmaceutical companies in the US and Europe, such as Bayer in Germany and Amgen in the US; 2) European sovereign debts, such as from Spain, Italy and France; 3) Financial corporate bonds such as the ones offered by Societe Generale, BNP Paribas, Morgan Stanley and Goldman Sachs.

Alex Moujaes
Markets to end up or down by the end of the year?
“Probably a slight rebound but it will be a very shy rally,” says Moujaes. He expects the markets to remain in a trading range and with a “complicated market to read”, and he favors defensive sectors such as consumer and utility.

Worst in Europe priced in?  We have seen much of the worst in Europe, according to Moujaes, but “there probably still is something to see [in terms of bad news]” and so he remains very cautious. As for Greece, he believes there are more chances to see it remain in Europe than exit.

Favorite asset classes? Bonds. He highlights bonds in the Gulf Cooperation Council such as Qatar and Abu Dhabi as they are stable countries, as well as bonds in Lebanon. He would stay clear of European sovereign bonds.

Favorite region to be exposed to? Moujaes likes Australia, an area Bank of Beirut made a huge bet on last year by investing $420 million and acquiring 85 percent of Australia’s Laiki Bank. He recommends exposure to the region through the equity or bond markets and also through direct investment. Besides Australia, Mouajes is concentrating more on Asia than on Europe and the US.

Thoughts on the MENA region? He is selective when it comes to the MENA region. He is looking at these countries with caution for now.

Thoughts on Lebanese securities? He would stay clear of Lebanese equities due to lack of liquidity but would invest in Lebanese Eurobonds.

Ideas for a retirement fund? 1) Deploy 45 percent of investment into money market vehicles that are very conservative and where you will be earning just an interest rate and preserving your capital; 2) deploy another 45 percent in the bond market and in fixed income funds, more specifically in Australia and Asia Pacific sovereign or high grade corporate bonds, and 3) deploy the remaining 10 percent in the equity markets to “get some peps”.

Maya Sioufi

Maya is a research consultant on Arab youth entrepreneurship and employment. She headed Executive's banking, finance and entrepreneurship sections from 2011 to 2013. Previously, she worked at JP Morgan in London in equity sales for three years. She holds an MSc in Accounting and Finance from the London School of Economics (LSE) and a BA in Economics from the American University of Beirut (AUB).