{"id":559960,"date":"2021-02-10T03:50:28","date_gmt":"2021-02-10T03:50:28","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2021\/02\/10\/the-year-ahead-according-to-efg\/"},"modified":"2021-02-10T03:50:28","modified_gmt":"2021-02-10T03:50:28","slug":"the-year-ahead-according-to-efg","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2021\/02\/10\/the-year-ahead-according-to-efg\/","title":{"rendered":"The Year Ahead, according to EFG"},"content":{"rendered":"

<\/a> Egyptian equities are inexpensive and under-owned \u2014 and the economy needs <\/strong>more policy momentum. <\/strong>Those are EFG Hermes\u2019 takeaways (in a nutshell) on Egypt\u2019s macro profile in its annual Year Ahead report. While the IMF-backed reform program made the economy \u201cfar more resilient than it was five years ago\u201d<\/strong> and helped cushion the blow of covid-19, stimulus is much needed, the region\u2019s leading investment bank said.<\/p>\n

The right type of stimulus: <\/strong>This includes \u201ca mix of macro and microeconomic policies that would act as a catalyst for growth,\u201d such as making doing business easier, setting incentives for productivity, and \u201cpressing ahead with privatization.\u201d<\/p>\n

EFG is overweight on Egypt<\/strong>, saying that \u201ca market sell-off combined with the Central Bank of Egypt\u2019s rate cuts meant that stocks began to look very [affordable], with the earnings yield rising above the riskfree yield for the first time since the 2016 devaluation.\u201d Egyptian bellwether CIB is at its lowest valuation multiple in years<\/strong>, EFG notes, and \u201cother stocks are also inexpensive\u201d and so could benefit if \u201cfurther cuts in real rates increase local liquidity.\u201d<\/p>\n

Retail investors are driving trading right now<\/strong>, as they are in KSA, with the average daily value traded by day traders more than doubling to c. USD 61 mn in 2H2020 compared to the first half of the year.<\/p>\n

Foreign investor interest a double-edged sword \u2014 for the moment: <\/strong>The firm notes that while Egyptian equities benefit from interest on the part of active investors, that means we could see selling pressure EM fund managers themselves face redemptions.<\/p>\n

Four of EFG\u2019s top 20 picks in MENA are Egyptian equities<\/strong>, including CIB, EK Holding, real estate developer TMG and education outfit CIRA. CIB and TMG also make EFG\u2019s wider list of 15 frontier and emerging market picks.<\/p>\n

Disappointing EGX returns: <\/strong>The EGX\u2019s annualized growth rate, in EGP, was only 8.4% over the past four years as the stock market, as a whole, delivered \u201cdisappointing returns\u201d since the November 2016 currency float. This is the case because institutional investors are getting more from fixed income as the real interest rate in Egypt is among the highest in the world (and this is why Egypt remains a carry trade<\/a> darling).<\/p>\n

A shift in market dynamics: <\/strong>Local behaviour changed since the March lockdown. The pandemic-induced sell-off, combined with aggressive policy action by the CBE, brought stock valuations to attractive levels. This guided the earnings yield (earnings per share over a 12-month period) to its highest level since 2016 and led to a sharp increase in retail trading. Retail average daily trading volumes more than doubled to USD 61 mn in 2H2020 from 1H2020. Retail interest was heavily geared toward small-cap stocks. Those stocks, tracked by the MSCI Egypt Small Cap Index, delivered a return of 52.8% from the March bottom. The rising popularity of retail investing was a common theme in many markets throughout the pandemic.<\/p>\n

EFG\u2019s top Egypt picks by sector: <\/strong><\/p>\n