Cairo's reputation as a well-run exchange grows apace, and with positive signs for Egypt's economy the success story looks set to continue. Egypt is not correlated with any major market, so the bleak news from Asia has failed to have any major impact.

Part of the success, says David Edgeley, general manager of Alliance Capital, based in Istanbul, can be put down to improvements in market infrastructure and administration. Aladdin Saba, managing director of Hermes Fund Management in Cairo, agrees: The market is now embarking on a major overhaul of the system which hopefully will lead to a state-of-the-art regulatory process."

The analysts see the government's economic plans remaining on track. "There are two dominant themes," says Edgeley. "Firstly continued privatisation, both new partial issues and the move of some partially privatised entities to full private ownership. We have also seen dramatic improvements in the management of these companies once the private sector gains control of the boardroom."

Privatisation has been universally popular, with shares being reserved for Egyptians. Local mutual funds have been enthusiastic investors and play a vibrant role in a market growing deeper and broader, claims Edgeley.

Saba also picks up the theme of privatisation, pointing out that the past year has seen some major developments in this area, with a consequential boost to the government's coffers and a knock-on effect for spending plans. "I detect a steady flow of private companies coming to the market and going public. This confirms that the infrastructure developments are being matched by the enthusiasm of the private sector."

Both men pick out the cement and construction industries as stocks to watch, while Edgeley likes consumer durables.

The confident development of the equities market is not matched by the fixed interest market.

Hishan Ramez, deputy general manager of treasury and capital markets at Egyptian Gulf Bank in Cairo, is upbeat, but critical of the market. "The local side of treasury is sure to see growth, not as spectacular as the equity market, but there is a lot of potential there. The major problem, especially for foreign investors, is that we do not have enough products, and consequently not enough trading."

He points out that the money market is very short-term orientated, adding that this cannot change without the help of the central bank. "We need them to issue more three- to five-year bonds to encourage more long-term trading." Mostafa Assal at EFG-Hermes agrees, but doubts that there will be any immediate change in central bank policy. "Domestic demand is huge, but there is a lack of supply of the kind of products which interest most foreign investors. I believe that there is a lack of knowledge within the bank of trading this kind of paper."

This controversial view is echoed by Ramez. "There needs to be a change in the traditional view of the role of treasury. But there are good bankers in Cairo, and change will come when banks look to be awarded international ratings. Discrepancies such as the fact that the interbank rate is a full two points lower than the rate offered to customers cannot continue."

Nonetheless, the political stability and good macro indicators for Egypt suggest that the bond and foreign exchange markets will expand in the medium term. Kevin Hall"