Among the emerging markets in MENA region, Egypt is a developing story and Egyptian equities stand to gain from the economic reforms in recent years, according to according to white paper co-authored regional and global asset managers.
The paper, titled “Emerging Market Equities: Index Upgrades and the Middle East”, provides an analytical overview of the regional equity market in 2018, focus markets and sectors for asset allocation, and what an MSCI upgrade really means for Saudi Arabia.
In the joint white paper, Emirates NBD Asset Management and UK’s Jupiter Asset Management highlighted the upside potential of Egyptian equities. According to the study, the stabilisation of the Egyptian economy, which is expected to experience a period of relief over the next 12-18 months, with a range of factors supporting growth in the medium- to long-term. After peaking at 33 per cent in July 2017, inflation has started to normalise, decreasing from 13.1 per cent in April 2018 to 11.4 per cent in May (year-on-year).
With a stable Egyptian pound (EGP) supported by strengthening foreign reserves, other factors supporting Egypt’s economic growth will include improved performance of the local stock market and the country’s recent move to secure gas self-sufficiency. Meanwhile, lower interest rates will lend support to the local equities market, particularly in sectors such as real estate.
Analysts said the outlook for Egyptian equities is positive, with the EGX30 index expected to trade back to its 2014 high, offering potential returns of 40-50 per cent over the next two years. In addition, as the EGP strengthens, companies reliant on imports are set to benefit from improved earnings.
“Looking ahead, we think Egyptian banks will continue to do well, taking excess liquidity by loading up treasuries generating substantial net interest margins (NIMs). The consumer sector is also set to benefit from falling interest rates and rising wages, and real estate companies will take advantage of falling interest rates, improving affordability. Meanwhile, industrial companies will attract increased FDI as the next phase of growth, which will see exports kick into full gear,” said Salman Bajwa, Senior Executive Officer at Emirates NBD Asset Management.
While current valuations and upside potential looks attractive, Investing in Egyptian stocks comes with some risks, as rising oil prices are likely to create upside pressure on inflation. A further sharp devaluation of the Egyptian pound will negatively impact USD-based returns, while escalated geopolitical risk may hamper investor sentiment.
Source: Gulf News