Egyptian stocks have gone on a furious bullish run since the country devalued its currency and agreed on a $3 billion loan from the International Monetary Fund last month, giving investors more confidence to capitalize on cheaper shares.
The benchmark EGX 30 Index has posted a run of weekly gains since the pound was devalued for the second time this year in October. The gauge has soared more than 47%, in local currency terms, from its July low and is the best performing benchmark globally since the devaluation late last month.
The North African nation has faced surging import bills and an exodus of foreign money due to the fallout from Russia’s invasion of Ukraine. Agreements with the IMF and other international partners to help finance Egypt’s external funding gap have fueled investor confidence in the nation’s equities.
Investors are taking advantage of valuations, which have been battered over the last three years, said Allen Sandeep, director of research at Naeem Holding. “It could take a few more months” for confidence to be fully restored, he added.
The EGX 30 trades at around 6.4 times forward earnings, below the average of 9.2 times over the past decade and far from the MSCI Emerging Markets Index ratio of 11.2.
Investments from Persian Gulf nations could also be supporting the market. Abu Dhabi wealth fund ADQ is snapping up stakes in key listed Egyptian companies. Also, Saudi Arabia’s sovereign wealth fund has started a company that will invest in swathes of Egypt’s economy.
Commercial International Bank of Egypt has led the rally with a gain of more than 30%. Citigroup Inc. analyst Rahul Bajaj said it will benefit from higher interest rates after the central bank lifted borrowing costs, while valuations are still “quite compelling,” in a note earlier this month. Exporters such as Abou Kir Fertilizers & Chemical Industries have also topped gains, boosted by a weaker currency and as investors seek to protect their savings.
To be sure, investors using the greenback have had smaller returns. The Egyptian benchmark is up 13% from the July low and is still down 32% this year in dollar terms. In that capacity, the EGX 30 has been underperforming the MSCI Emerging Markets Europe, Middle East and Africa Index from 2019 through this year.
“Foreigners are waiting to see if there’s full light at the end of the tunnel,” said Sandeep. “All this is a step in the right direction but there’s still a way to go.”
