October 10, 2008 / 12:49 PM / 9 years ago

Tunisia stocks succumb to global credit crunch

TUNIS, Oct 10 (Reuters) - Tunisian stocks have fallen this week, succumbing to the global financial crisis after resisting the downturn for months on optimism the small north African country was a safe haven due to strong economic growth.

The benchmark TUNINDEX .TUNINDEX rose 29 percent between the start of 2008 and mid-September but then dropped, narrowing its gain this year to 19 percent. The index fell 1.5 percent to 3,065.32 points on Friday.

Even after this week's declines, the TUNINDEX is still strong compared to a 41 percent slump by the MSCI index of the world's leading stock markets .MIWD00000PUS.

Local analysts said the Tunis market had managed to buck the global trend this year because it was largely cut off from world markets by regulatory barriers that discourage capital flight.

Foreign investors represented only 25 percent of the local market and tended to be in for the long haul as Tunisia's economic growth is forecast to accelerate in coming years.

They blamed this month's declines on investor sentiment but said the Tunis market downturn could continue, while playing down the risk of local bank failures.

Karim Blanco, a financial analyst at Amen Invest said: "A feeling of fear will push investors to quit their positions as soon as possible to escape the disaster and so they will participate themselves in the market downturn."

Tunisia's government said this week it expected growth to quicken to 6 percent next year from an estimated 5.1 percent in 2008 as investor-friendly reforms boost private sector activity.

The country is positioning itself as a low-cost manufacturing and services platform on Europe's doorstep and is benefiting from falling trade barriers with its most important markets in the European Union.

But with recessions forecast around Europe, financial analysts said it was inevitable that Tunisia would be affected.

"If Europe's economy is hit it will directly influence local growth," said one analyst who asked not to be named.

INSULATED

Analysts said Tunisian banks did not invest significant amounts outside the country and were not listed on foreign stock exchanges, so were less integrated into the world economy.

However, local market watchers said there was a risk that Tunisia's status as a safe haven could be damaged as foreign investors try to offset losses on other markets by selling emerging market stocks.

Banks represent half of the Tunis bourse's capitalization and have powered the market to new heights this year.

Their earnings have continued to grow as they clear up bad debts, sign up new clients and seek to conform to Basel II financial reporting rules to make the most of growing demand for consumer credit and mortgages.

Amen Bank AB.TN is up 24 percent this year, Banque de Tunisie BT.TN 20 percent and UIB UIB.CS 19 percent.

Reporting by Sonia Ounissi; Writing by Tom Pfeiffer; Editing by Sharon Lindores

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