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MENA Stock Tips

By Maya Sioufi
March 2012

Regional investment dons give their insider insights
The markets began to regain ground last month, and by mid-February the S&P 500 Index had gained 7 percent and the Dow Jones 5.6 percent since the start of the year. Despite the rise in the markets, economic fundamentals remain weak, leaving investors worried about whether these upward movements are just a correction or the beginning of a recovery. For a more nuanced view on recent market movements, Executive speaks to Nadi Barghouti, head of asset management at Shuaa Capital and Elias Feghali, head of capital markets at Middle East Capital Group, a subsidiary of First National Bank.

Nadi Barghouti

Thoughts on global markets? Barghouti believes the strong performance of the bourses so far this year was not justified by solid fundamentals and he expects a pullback in the markets. He is being very cautious due to numerous global issues both political and economic. He would stay in defensive sectors and in domestic names with limited exposure to the global economy.

Favorite asset classes? Barghouti would not ignore equities despite his conservatism and recommends exposure to defensive sectors such as retail, pharmaceuticals and food and beverages. He likes some exposure to fixed income, and is also fond of commodities, though not a huge fan due to the volatility of the sector.

Key concerns? Barghouti stresses that there are a multitude of issues affecting the markets. On the European sovereign debt crisis, he believes that "it is just one issue and it will not be solved this year. It is just the start of worse things to come." As for regional markets, he highlights several economic and political issues. For instance, economically, there are lingering issues of transparency, corporate governance, liquidity and foreign ownership. Politically, several countries in the region remain unstable and the geopolitical crisis in Iran will affect the markets negatively, he deems. Barghouti says he believes that some of these risks can be addressed and some are systematic and affect the entirety of the market. He is less concerned about the economic issues, as he is seeing a lot of positive signs such as new projects and an increase in government spending. "In my opinion, the risky part is the political. I am conservative because of the political issues," says Barghouti.

Favorite asset classes in the Middle East and North Africa region? Barghouti likes equities in Saudi Arabia as he believes they will yield the highest return this year. He also highlights Qatar as an interesting investment opportunity due to its growth potential. He likes the value proposition in the United Arab Emirates as it enjoys solid fundamentals but he is concerned about the lack of liquidity. He believes Egypt is an interesting market to invest in but he would not buy into it today as it already had a good run and he would wait for a pull back to buy again.

Your top investment recommendations in the region? Again, he stresses investment in defensive sectors. He highlights the retail, food and beverage and pharmaceutical sectors in Saudi Arabia and the UAE.

Elias Feghali

Bullish or bearish? Feghali does not trust the markets, as he believes the recent upward trend is just a short-term correction and that we are going into 'overbought' territory. "You have to be bullish in the short term," says Feghali and he highlights several reasons for this, such as the presidential elections in the United States, as each candidate will try to prove that they are good for the markets, as well as the announcement by Federal Reserve Chairman Ben Bernanke that he will not be raising interest rates until 2014.

Key concern going forward? While Feghali is encouraged by some positive economic indicators coming out of the housing market in the US, he does not believe it will last and his key concern going forward is inflation. "With all the money printing, inflation will pick up and its just a question of time," says Feghali.

Your favorite asset classes? Feghali likes high-yielding stocks such as US tobacco companies Philipp Morris and Altria. He also has a preference for defensive sectors like consumer staples. He highlights Coca-Cola, Wal-Mart and McDonalds because even in times of economic crisis, they perform well.

Will Facebook's upcoming listing help the markets? Feghali believes that the aura around Facebook's upcoming initial public offering will help the market, as "even people who don't understand and who don't originally invest in the stock market, will be interested in buying Facebook." Feghali recommends buying any stock which would benefit from Facebook's IPO, such as the social network game developer Zynga. He highlights that there are strong IPOs in the pipeline, with talks of Twitter being next, though the timing depends on the performance of the markets. With gloomy markets, IPOs will be postponed according to Feghali.

Your thoughts on the Middle East and North Africa markets? Feghali does not have much appetite for the region due to the revolutions in the Arab countries and the ongoing crisis in Iran. He prefers to invest in the US and in Europe for the time being. If he had to invest in the region, he would also go with high-yielding stocks and he highlights First Gulf Bank and National Bank of Kuwait.

Your thoughts on Lebanon? Feghali likes to invest in Lebanese securities as some stocks are very cheap, but he would be cautious with the banking sector for now due to it's exposure to Arab countries in turmoil. He would invest in Solidere at a level below $14. He does not believe it would move much but it offers a dividend yield of 7 percent, which he sees as attractive. He would not buy Lebanese bonds now unless there is an interesting new issue. "Whoever owns a Lebanese bond should keep it but I wouldn't buy more now. For less risk, you can get a better return in the region and in the US," says Feghali.

Your favorite stocks? He would buy one stock exposed to gold and silver, one stock that would benefit from the Facebook IPO and one defensive stock such as McDonald's or Altria.

Building virtual fortunes

Zynga is a social network game developer based in San Francisco. Its games are developed on a standalone basis but also as applications on social networking websites such as Facebook and Google+. As of November 2011, Zynga's games on Facebook had more than 200 million monthly active users. Its most famous games are CityVille, CastleVille, Texas HoldEm Poker, FarmVille and Empires & Allies. It listed on the Nasdaq in December 2011 by raising $1 billion, making it the biggest US Internet listing since Google. It was valued at $7 billion when it listed and it now had a market capitalization of $9 billion as of February 27. Zynga stock price benefited significantly from Facebook's IPO filing on February 1, as Facebook revealed that 12 percent of its revenues came from Zynga.

© Executive 2012

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