Egyptian stocks has signalled a recovery in 2012
Egyptian stocks suffered last year amid the turmoil that followed the toppling of its president. But 2012 has signalled a recovery in their fortunes, notwithstanding a recent wobble on concerns that
a dispute between the interim government and parliament threatened to derail talks on a loan from the International Monetary Fund, yet to be secured.
In calmer times, it is economics rather than politics that will drive share price performance, of course. In second place, Vietnam’s benchmark Ho Chi Minh Index seems to have broken its downward trend, up more than 35pc so far.
What was last year one of the worst Asian performers certainly had room for a bounce back. The index plunged in 2011 on worries that tight monetary policy to fight double-digit inflation would hurt economic growth and corporate earnings. Inflation has since been slowing however, and the market has picked up.
Vietnam is seen as a “frontier” market, one of those economies which are smaller than developing or emerging markets and offer a worse environment for business and in terms of corruption.
Their small size tends to signal increased volatility and, at times, reduced liquidity – so it comes as no surprise that they make up much of the losers, as well as the winners, seen so far this year.
But they do offer growth opportunities. The Ho Chi Minh Index surged four-fold from 2006 to 2008 to touch a high of more than 1100 – before crashing during the 2008 financial crisis. It now trades at about 470. The current hope is that Vietnam will lure manufacturers from China as labour costs in its bigger neighbour rise. Investors say taking the long-term view is the best way to cope with volatility in these smaller markets.
The third biggest riser so far this year has been Pakistan’s benchmark Karachi 100, which this week reached its highest level in four years.
Figures showed that offshore investors increased their holdings of local stocks. “There are a number of foreign investors increasing positions in Pakistani shares and locals are following,” Ahmed Rauf, a trader at JS Global Capital, told Bloomberg.
If so, it looks a risky bet. The International Monetary Fund has described Pakistan’s economy as “highly vulnerable”. While it is growing, it is under threat from power blackouts and political tensions.
China’s benchmark index is also worth a mention, with a climb of more than 15pc making it the eighth biggest riser so far this year. The CSI 300 Index tracks listings in Shanghai and Shenzhen. It has been outperforming a rival Chinese index due to its weighting towards large cap stocks, which are seen as well-placed to benefit from moves by regulators to shore up the markets.
The Chinese property sector has been doing particularly well after feeling the worst of the slump last year. Its pick-up suggests investors are expecting that, as China’s runaway economic growth rate slows, Beijing will loosen policies which have kept a cap on building.
The General Market Index in Cyprus is also in trouble. The Cypriot banking system was badly hit by losses on the Greek government debt write-down which formed part of the second bail-out for Athens.
Cyprus is still reeling from that blow. As recently as Monday, its outgoing central bank chief said he had disagreed with the decision to accept the write-down and accused the government of ignoring him over the issue.
In addition, Cyprus has had home-grown economic troubles, due to an explosion at a naval base on the island which last year knocked out its main power plant, triggering blackouts.
The Eurozone debt crisis also cast its long shadow over Spain’s benchmark index, the Ibex, which has fallen around 20pc since the start of the year.
Madrid’s insistence that Spain cannot be classed alongside stricken euro economies have fallen on increasingly deaf ears. Recent figures put Spain’s unemployment rate in the first quarter at 24.4pc, the highest in the industrialised world. With the government now admitting the recession-hit country is in crisis, economists cannot rule out that Spain will need to be bailed out by international lenders.
No surprise that the Mib in Italy, the third largest Eurozone economy, is another major faller. Worries might be focused on Spain but investors are not convinced about Italy’s prospects either.
Further afield, rising interest rates, the rupee’s depreciation, and slowing economic growth have acted as a check on the Colombo All-Share Index, the benchmark gauge, in Sri Lanka.
Elsewhere, the Merval, Argentina’s main index, was already on a downward trend as the economy slowed, even before the government recently seized oil company YPF from Spain’s Repsol.
Edenor, Argentina’s biggest energy distributor has been a major faller, amid speculation that the government may nationalise other energy companies. There is also suspicion that a freeze on power rates will be extended, to Edenor’s detriment.
The year to date has also seen new markets open up, with Cambodia last month celebrating the start of trading in its brand-new stock exchange. Its aim, shared by other fast-growing Asian economies, is to draw in foreign investment and to help the government privatise assets.
The first and only stock traded is water company Phnom Penh Water Supply Authority. Enthusiasm to invest among Cambodians and the previously state-owned company’s steady reputation meant its float was 17-times oversubscribed. Since then, some of the excitement has worn off.
At less than a month old, however, it is too early to call whether the Cambodia Securities Exchange will join the year’s winners or losers quite yet.
As for the FTSE 100, the UK’s blue-chip index? Despite the increased economic gloom in recent weeks, it is up a modest, but respectable, 1.5pc for the year to date – representing £21.4bn “wiped on” to the pension fund staple.