Maintaining our buy on Egypt
Comment of the Day

September 12 2012

Commentary by Eoin Treacy

Maintaining our buy on Egypt

Thanks to Emad Mostaque for this edition of his always educative report for Religare. On this occasion he focuses on Egypt. Here is a section.
Reserve reversal: Reserves now ticking up on economic recovery (Suez Canal, remittances, tourism) and significant foreign aid after being drawn down to protect the currency. Qatar is leading the way with $20bn committed over 5 years, ~33% of external funding needs and will look to support the Muslim Brotherhood as their main backers, but total FDI and prospective aid thus far is more than we have seen in prior years with the momentum sustaining the EGP

Stability: Infrastructure largely intact, security situation increasingly stable, a highly pragmatic government that has made peace with the army and a new parliament/constitution soon

Our main concern: Food inflation a concern and subsidy reform needed, but any shortfall will be more than matched in the coming year (thereafter more of an issue)

Equity option: Equity market has done great ytd (+54%), but there is still (in our opinion) 35-40% potential upside in select names with Commercial International Bank, Telecom Egypt, Talaat Mustafa Group, Centamin and Orascom Telecom in our model portfolio (+43% ytd). Only OCI looks fully valued and we remove it completely as it hits our price target pre de-merger.

Eoin Treacy's view While the Arab Spring has had some very different outcomes depending on which country one refers to, Egypt appears to have found equilibrium at least in the short term. The equity market bottomed late last year and found support at a progressively higher level in June. While somewhat overbought at present, a sustained move below 500 would be required to question medium-term recovery potential.

Of the GCC focused funds in the Chart Library, the Makaseb Arab Tigers Fund is one of the better performers. It is listed in Bahrain, has a 2% management fee, 2.5% front end load and 10% performance fee. The fund found support in the region of the 200-day MA in June and continues to extend its advance.

The Qatar Investment Trust is listed in the UK and has been largely rangebound since early 2011. A sustained move above $1 will be required to confirm a return to medium-term demand dominance.

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