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UBS is something other than thrilled with the Israeli stock market at present. The Switzerland-based investment bank today issued a report rating it Neutral.

Generally speaking, stocks and bonds of emerging markets started 2006 on the right foot, the investment bank says. There have been negative developments in several countries on the list, but the developments are manageable, say the analysts.

They reserve their outperform investment ratings for bonds of Brazil, Mexico, Russia and - wait for it - Iraq, noting the results of elections there and the installation of a new regime. Iraq is in the process of reorganizing its debt, as part of which it is issuing new bonds.

The new bonds shot up in their first days of trade but the analysts feel there is room for more gains, for two reasons. One is that despite the risk, Iraq's debt is well managed. The other is the spreads.

The analysts believe these spreads will be narrowing even more than Argentina's and possibly even more than Nigeria's, considering that Iraq gets (much) more credit than these countries, which should attract institutional investors.

The upshot is that UBS began covering Iraq with an outperform rating.

Underperformers in UBS' book include Egypt, Hungary, Poland, Tunis, India and Ukraine.

Neutrals include Argentina, Chile, the Dominican Republic, Ecuador, Indonesia, Panama, Peru, the Philippines, Romania, South Africa, Turkey and Venezuela.

UBS didn't even mention Israel's bond market.

The investment bank notes the powerful performance of stock markets in emerging during the first days of 2006, but also notes the downtick with oil prices soared anew. The Asian markets were the main casualties. Yet as of yesterday, the average returns of these markets was 6.9%.

Korean stocks remain attractive, UBS says, but they're starting to lose their  allure after their mad race in 2005. The analysts repeated an outperform rating for Korea, but still think investors should lower its weight in their portfolios.

Among Asian markets UBS' favorite is Thailand, and Brazil tops all.