Baring Frontier Manager Avoids Egypt Stocks as IMF Talks Stall

Baring Asset Management, the money manager once owned by the bank brought down by Nick Leeson, is shunning Egyptian stocks until the country’s talks with the International Monetary Fund for a $4.8 billion loan conclude.

“Valuations in our opinion aren’t discounted enough to make us feel comfortable with taking positions in the market,” Michael Levy, a London-based frontier fund manager at Baring, said in an April 25 telephone interview. “We are waiting to see what happens with the IMF and the political issues.”

Egypt’s efforts to sign a deal with the IMF have been hurt by violence between supporters of the country’s new Islamist government and its opponents. That’s made it more difficult to implement IMF-backed changes after declines in the country’s main sources of income, such as tourism, choked the economy.

Egypt’s benchmark EGX30 Index has dropped 4.9 percent this year after rising 51 percent in 2012. International investors are also concerned that a slumping local currency will diminish the value of their holdings, according to Wael Ziada, head of research at Egyptian investment bank EFG-Hermes Holding SAE.

The EGX 30 Index has a price-to-earnings ratio of 18.6 times, versus 12.2 times for the MSCI Emerging Markets Index, which has declined 1.5 percent this year, according to data compiled by Bloomberg.

Still, “If we’re talking about 10 years time, Egypt should be a success story,” Levy said. ”It’s got the demographics, political transition, resources and it’s got under penetration of goods and services.”