One year after Egypt floated its currency, the stock market is recording historical gains, with market capitalisation increasing EGP 363bn, its best yearly gain in almost a decade, according to bourse data.
Since the flotation of the pound, the main index (EGX) grew 68% with a turnover of EGP 250.5bn.
The EGX saw increases ranging between 80% and 90% since the pound’s flotation.
EGX70 surged 129% with a turnover of EGP 60bn since the flotation of the Egyptian pound.
The bank sector topped the sectors that benefited from the liberation of the Egyptian pound’s exchange rate, followed by the real estate and financial services sectors.
These three sectors are expected by analysts to maintain their positive results, with the real estate sector expected to lead the EGX’s sectors by the first quarter of 2018.
A recent report issued by Fontera Research said that foreign investors seeking exposure in Egypt could invest in ETFs that offer diversification through investment in a single US security.
Alternatively, investors wanting direct exposure could consider ADRs of Egyptian companies listed on US stock exchanges.
The most popular ETF for US investors is the Market Vectors Egypt Index ETF (EGPT). With assets under management of $57m, it offers concentrated exposure to companies that derive at least 50% of their revenues from Egypt.
Financials is the top sector with 34% of assets, followed by telecommunications, basic materials, and consumer non-cyclicals.
The fund is up 26% over the last one-year period. Investors could also consider investing in the Wisdom Tree Middle East Dividend Fund (GULF) or the Van Eck Vectors Africa Index ETF (AFK). These funds invest 4.5% and 9.7% of their holdings in Egypt based companies, respectively. YTD, these ETFs have gained 9% and 0.6%, respectively.
The EGX is expected to attract more investors in the coming period, after the gradual reduction of interest rates, the analyst added.
All the EGX’s sectors benefited from the pound flotation, except for those that depend on importing, such as GB Auto.
Also, the companies that rely on crediting were the most affected party by both the pound floatation and the decisions to raise interest rates, data showed.
The main index may target 13,200 points and 14,500 points until the end of 2017, and it will keep growing in the long-term.
The main index EGX30 is testing 14,000-point resistance, and by breaking above, which it can target 14,400 points and 15,000 points with support from the flotation and the anticipated government offerings, the analyst commented.
Cairo’s Naeem Brokerage stated, “While we expect a market-wide correction as an immediate reaction to the increased opportunity cost of capital, the impact should be felt more on companies that are excessively leveraged.”
Last year, S&P Global raised its outlook on Egypt (EGPT) from negative to stable after the country floated its currency.
In a report to investors, S&P stated, “We are revising our outlook on Egypt to stable from negative and affirming our ‘B-/B’ long and short-term sovereign credit ratings on the country. The stable outlook balances Egypt’s external and fiscal vulnerabilities against likely IMF support following the government’s upfront delivery on programme reforms.”