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HC Securities and Investment Research Department released its latest report about Egypt’s macro economy. They assured that they are positive on the Egyptian economy, which fared better-than-expected in light of COVID-19, on IMF and government supports.
- Private sector pickup materializing on monetary easing, moderate inflation, and stable EGP
- We are positive on the Egyptian economy, which fared better-than-expected in light of COVID-19, on IMF and government supports
- We are bullish on real estate, financials, and select industrial and consumer names, filtering through to 9 high-conviction picks
HC’s research team explained: “Our 2021e macro assumptions entail moderate inflation, stable EGP, and further 100 bps policy rate cuts: Despite COVID-19 concerns, we are bullish on the Egyptian economy in 2021 following a total 400 bps policy rate cuts in 2020, our expected 100 bps rate cut in 2021, inflation moderating to an average c7%, and EGP stability, in our view. Starting July 2020, the Egyptian government eased COVID-19 restrictive measures, highlighting its unwillingness to impose any curfews or lockdowns during a second pandemic wave. Despite this, the health system remained under control, which has helped Egypt to record positive GDP growth of 3.6% in FY19/20, while the IMF estimated all MENA countries to record negative GDP growth in 2020. While the FY19/20 GDP growth was supported by a 5.4% growth in final consumption (public 7.2% vs. 5.2% private), we expect an FY20/21e GDP growth of 2.8%, supported by 6.2% growth in total investments (public 7.0% vs. 5.6% private). We expect slashed tourism receipts to result in a wider current account deficit of c4% of GDP in FY20/21e from c3% in FY19/20 despite Egypt recording an oil trade balance surplus in FY20/21e, and worker remittances increasing c10% y-o-y in FY20/21e, on our estimates. That said, Egypt’s carry trade remains appealing, offering a 12M positive real interest rate of 4.1%, on our calculations. We hence see robust portfolio inflows, which–together with Eurobond issuances and the IMF loans –should finance Egypt’s debt repayment and help the BOP reverse to a surplus of USD1.70bn in FY20/21e, from a deficit of USD8.59bn in FY19/20, in our view.”
HC’s analysts concluded: “Against this macro backdrop, we stick to 9 high-conviction picks in real estate, financials, and select industrial and consumer names, based on which we present our proposed equity investment portfolio with the highest risk-adjusted return: Considering our macro view, we prefer sectors benefiting from a low-interest-rate environment, pent-up demand, stable EGP, private consumption recovery and a pickup in private investment. These criteria lead us to pick stocks in real estate, financials, and select industrial and consumer names. Last year we preferred stocks with limited downside risk. However, going into 2021e and in light of our economic view, we currently recommend shifting to higher beta stocks and stick to 9 high-conviction picks. Our picks are Orascom Construction in the industrial sector, Eastern Company, and GB Auto in the consumer sector, Commercial International Bank, Abu Dhabi Islamic Bank Egypt and EFG Hermes Holding in the financial industry, and TMG Holding, SODIC and Orascom Development Egypt in the real estate sector.”
