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Forget the Riots and Invest in This Country Now
By Jeff Opdyke, Editor of The Sovereign Individual Dear Sovereign Investor Subscriber,
About a week ago, 49 representatives of companies such as Boeing, Coca-Cola, ExxonMobil, Google, Oracle, PepsiCo and Microsoft made a trip to the Middle East. They're all interested in investing in what I consider to be one of the most promising emerging-market countries … though I know many will see it as scary, at best.
The gaggle of companies had a face-to-face meeting with government leaders to discuss the business and investment environment. And they were happy with what they heard. The government spoke of an "economic overhaul" consisting of more free-market policies to attract foreign investors.
The mainstream media, biased towards sensationalism, disasters and bad news in general, is too busy reporting on the country's riots and ongoing political turmoil, so very likely this is the first time you're hearing about this story.
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As an investor, you're almost always better off ignoring the media and focusing on the underlying fundamentals a country or a company has to offer. And in this case, the opportunities hiding beneath all the negative coverage are big.
The Most Promising Country in the Middle East If you've watched TV news this past week, I'm sure you saw the images of protestors – who allegedly were angered by an anti-Islam video produced in the U.S. – climbing the walls of the U.S. Embassy in Cairo and burning the American flag. Such images help reinforce the overall perception that Egypt is just too unstable for investors.
You would have to be crazy to invest over there, right?
But here's a shocker: Egypt is the best performing stock market so far this year.
I'm not surprised. I've long viewed Egypt as one of the most opportunistic countries to put money to work. The place is packed with a growing base of emerging consumers whose incomes are rising. And it's loaded with companies that are serving not just the locals, but also various markets across North Africa and the Middle East.
I've put some of my own money to work in Egypt, opening a brokerage account in Cairo several years ago that's now stuffed with companies in plastics, telecom, dairy, finance and oilfield services.
Far from a no-go zone, I see Egypt as a fantastic country to place a small bet on a brighter future. Those who invest in Egypt today – and who have the willpower to ignore the day-to-day news events – will see meaningful returns over the long-term.
One of the ways you can measure the potential of emerging consumers is by looking at the country's GDP per capita – the gross domestic product divided by the number of people in the country.
The lower the GDP per capita, the lower the standard of living. But the flipside to a lower standard of living is the higher-than-average growth in the consumer sectors as the middle class emerges … and that's the sweet spot in what I call "demographic investing."
In terms of GDP per capita, Egypt ranks behind markets like China, Peru, Colombia, and even El Salvador. Its GDP per capita is equivalent to 13% of the U.S. standard and 29% of the world's average.
In other words, Egypt is relatively poor, but with tremendous growth potential.
In fact, its GDP per capita has already grown by nearly 60% in the past decade, as you can see in the chart below. I expect this trend to continue.
Egypt's GDP Per Capita is Rising Quickly 
See larger image That's a beautiful trend. It's exactly what you look for as an investor in emerging and frontier markets. Hook into one of these trends, pick the right consumer stocks, and you can really fire up a portfolio's returns over time.
Best of all, Egypt has great demographics underlying that trend line. With 80 million people, it's the largest population in the Middle East by far, and more than 60% of that population is currently under the age of 30. This young population will be a driving force for economic growth in the coming years as economic reforms begin to move the country onto a better path. Now is the Time to Buy No doubt that 2011 – the year of the Arab Spring – was tough for Egypt. The revolt ousted President Hosni Mubarak after a three-decade reign, and the Egyptian stock market tumbled 55%. The country saw an exodus of capital, as investors flew away.
I flew in. I sent more dollars into my Egyptian account last year to snap up companies trading at ridiculous valuations – like a leading dairy company at less than 10 times earnings and growing those earnings at 15% or more each year.
Since the new and freely elected president took office, life and the economy have been slowly improving. The new leader's message is that Egypt is now open for business. He views foreign investment as a key pillar to promote economic growth.
The U.S. has pledged a $1 billion debt relief package. And the country is working with the International Monetary Fund to get a $4.8 billion loan by the end of November. Qatar has also pledged $18 billion of investments in the county. As a result, investor confidence is on the rise.
Of course, like in any other major political transition, the country still faces lots of challenges. But I believe in three to five years Egypt will be a much more stable place to invest and will have a stronger economy. By then, though, Egypt's stock market will be markedly higher than it is today.
Before the recent change of regime, Egypt had been growing at a steady 5%-6% per year for the past few years. That's the kind of growth you can expect when things stabilize. The time to buy is now.
Though Egypt isn't the easiest market to trade for Americans who don't have an account in Cairo, you will find that some very good Egyptian companies trade as global depositary receipts, or GDRs, in London. One I'm particularly fond of is Orascom Telecom (London: OTLD), one of the largest mobile phone companies in the Middle East and North Africa. The company's footprint covers 415 million people in places like Egypt, Pakistan, Algeria and Bangladesh.
Mobile phone penetration in those markets is a combined 48%, meaning Orascom has tremendous growth potential as emerging consumers in those markets increasingly move into a cellular world. The company has faced concerns that Algeria will nationalize the service Orascom owns, but those fears appear to be fading, which, in turn, could serve as a catalyst to push the shares higher.
Orascom shares, which are priced in U.S. dollars despite trading on the London exchange, are a buy up to $3.25.
Despite the massive rally this year, the Egyptian market is still trading on a price-to-earnings ratio of just 8, a discount of 30% to the broad MSCI Emerging Markets Index. Although the market has already risen by more than 50% this year, it still has to climb another 30% just to reach the level it was trading at before the political turmoil.
My advice to you is this: Turn off the TV and invest in Egypt today while it's still cheap.
Until next time, stay Sovereign…
Jeff D. Opdyke
Senior Editor, The Sovereign Individual
P.S. Just like Egypt, there is another emerging market that's been going through some radical changes that I've been keeping a close eye on. After being isolated from the world for the last 50 years, Burma is finally opening its borders to outside investors. My Emerging Market Strategist subscribers picked up a 34% gain in just three weeks on my first Burma play earlier this summer, and I'm ready to put them in again. To find out how you can get in early as this economy starts to take off, click here for my special report.
Chart of the Day
The Dollar is Toast Sell the dollar, and buy everything else. Follow this simple advice, and it's very likely you will make money in the next few weeks.
A couple of months ago, I did not think the Fed would implement QE III because the market was already booming. We all know that QE doesn't really help the economy, but it's great for financial assets. So I thought there was really no need for more money-printing.
But last month, the Fed started to send signals that it would print more money. And last week, it delivered.
I never actually thought Bernanke would be crazy enough to implement another round of money-printing with the market already trading at 52-week highs. I guess I underestimated his level of insanity.
This round of money-printing is a little different than the previous two rounds. This time nobody really knows the size of QE III. With QE II, the Fed bought $600 billion worth of securities.
The Fed will start with $40 billion a month this time, with the flexibility of increasing the size of purchases if the economy weakens. If the Fed keeps that pace, it will take a little more than a year for QE III to match the size of QE II.
In the long-term, I have no doubt his policies will cause major capital misallocations that will result in other crises and bubbles around the world. In the short-term, we shouldn't fight the Fed. It's time to trash the dollar and buy pretty much everything else
The Dollar Will Suffer Another Double-Digit Drop, Thanks to the Fed
See larger image The chart above shows the FXCM dollar index, which measures the performance of the buck against four other major currencies, the euro, the British pound, the Japanese yen and the Australian dollar. The previous rounds of QE were followed by a double-digit drop in the dollar. I expect a similar drop this time.
Regards, 
Evaldo Albuquerque
Senior Analyst
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