Despite the political chaos and the economic obstacles facing Egypt, the country’s benchmark stock index has rallied almost 40 per cent this year, amid expectations that the election of Abdel Fatah El Sisi will end three years of chaos and allow companies to grow again.
This year’s advance makes the EGX30, a measure of 30 listed Egyptian companies, the third-best performing equity measure in the world following gauges in India and Argentina.
That comes as Mr El Sisi starts taking measures such as reducing energy subsidies to put public finances in order.
The gains this year have been led by Commercial International Bank, the biggest publicly traded lender in Egypt, Talaat Mustapha Group, the largest listed property developer and EFG-Hermes, the biggest securities broker in the country. Together, the bank, the developer and the broker account for almost 50 per cent of the weighting of the benchmark index.
Many analysts say they are still bullish on Egypt after the spectacular gains this year and say a recent dip in the market in the past two months is a buying opportunity.
“We see recent weakness as an opportunity to add Egypt exposure,” says Simon Kitchen, the Cairo-based chief strategist at EFG-Hermes.
“Egypt has outperformed the Middle East and North Africa and emerging market aggregates in 2014 but we do not believe that the market is expensive,” he adds.
Egyptian stocks trade well below their 10-year average on a price-to-book basis,” Mr Kitchen says, referring to the price of a stock divided by its assets.
The EGX30 dropped 49 per cent to a two-year low in December 2011 after the revolt that ended in the ousting of the former president Hosni Mubarak in February of that year as the country’s economy stalled amid labour strikes, power outages and a lack of security on the streets of Egypt.
Still, in dollar terms the index has only gained 53 per cent in the past two years, compared with 73 per cent in Egyptian pound terms.
That is because the pound underwent a severe devaluation as the country’s foreign reserves dwindled by half.
The gains this year have mainly been boosted by local investors as foreign buyers have by and large remained on the sidelines, waiting for more clarity on how the central bank plans to make the black market for US dollars disappear.
“Fixing [the] currency would be a big step in bringing back foreign investment into Egypt,” says Simon Williams, the chief economist for central and eastern Europe, the Middle East and Africa at HSBC in London.
mkassem@thenational.ae
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