2020 was not a good year to be an investor in public equities in Egypt, but there are glimmers of hope that suggest 2021 could be a different story. (Insert here your preferred waffle words and caveats about exogenous shocks, acts of God, pandemics and your legendary stock-picker friend who still managed to beat the market many times over.)

How bad was 2020? Egypt is in the running with Bulgaria, Costa Rica, Mauritius and Jamaica in the sweepstakes for world’s worst-performing exchange — the EGX30 is down 23.1% year-to-date with only today’s trading session left to go. Among large, investable markets, Morningstar’s index shows us the world’s third-worst performer behind Brazil and Colombia, but ahead of Hungary and Peru.

Regionally, the Kuwait Stock Exchange (-12.6%) and Dubai Financial Market (-8.7%) are the next-worst performers. The Nasdaq Dubai is down about 2.7%, while Saudi’s Tadawul (+4.3), and the Abu Dhabi Exchange (+0.5%) could still close the year in the green.

The world’s top-performing exchanges according to data cobbled together from Bloomberg: Nigeria (+47.0%), Denmark (+29.4%), South Korea’s Kospi (29.0%), Turkey (+27.2%), Iceland (+23.9%) and Argentina (+23.1%).

The pandemic may have emerged from China, but it’s done little to dent their stock markets: The Shanghai Composite is up 11.6% in trading today, while the Shenzen Component is up 36.0%.

What happened in Egypt? Foreigners sold out of the market at the start of the pandemic and they’ve largely sat out the year. The story is clear when you look at the brokerage rankings: Trading on the EGX is usually dominated by EFG Hermes (with a market share that is sometimes in the high teens, and usually in the low-to-mid-20s) and CI Capital (in the teens). It’s simple math: Together, own the lion’s share of the foreign institutional inflows into Egypt. That shifted as 2020 wore on. Last month, EFG had a 17.4% share, followed by Pharos (just under 6%), CI Capital and Beltone (each at about 5%) and Pioneers (just over 4%).

But volumes are up, right? Yes. In fall 2019, total turnover on the EGX was in the EGP 400-500 mn per day range. This past fall, it was well north of EGP 1 bn most days — but the players were largely retail and local institutions, and trades have been spread out over the dozens and dozens of small brokerages who have clung to their licenses for years despite anemic business (did you know there are 130 licensed, active brokerage firms registered with the EGX — and 142 if you include the ones whose licenses have been suspended?).

Where did the foreigners go? They pulled out of the market — all the (emerging) markets. The EGX30 was down just 5.5% for the year at the end of February — then came the Great Global Emerging Markets Selloff of 2020, and Egypt got hammered the same as every other EM. By mid-March, we were down more than 37% for the year, and foreign investors have largely sat on the sidelines since. It could have been much, much worse: A lot of the local appetite to play the market came after things were grim enough that the Central Bank of Egypt stepped in with a nearly unprecedented share buying program. Foreign investors were net buyers last year and net sellers this year. And as EM were melting down, the US Federal Reserve was engaged in precedented support of financial markets stateside. Repo facilities, direct lending to securities firms and a host of other active market operations ensured that liquidity was sucked back into the US market — giving investors a chance at higher returns with reduced risk in a classic flight to safety in a riskoff.

One thing foreign and domestic investors are looking for in ‘21: New paper. Simply put, it needs to come into the market after two years in which IPO flow has been abysmal. Rameda Pharma and fintech darling Fawry were the only two IPOs in 2019 after Hassan Allam Holding and Carbon Holding pulled hotly anticipated transactions. The flap over Beltone’s handling of Sarwa’s EGX debut in late 2018 sapped momentum for many companies that were considering going public, and the state’s privatization stake sale ran late for reasons domestic (think: bureaucracy) and international (selling pressure on EM), but EGX boss Mohamed Farid still started 2020 with at least three IPOs in the pipeline and some government stake sales planned.

Then: Covid, which wiped out Egypt’s pipeline. High-profile transactions like Banque du Caire’s hotly anticipated IPO postponed, and the state’s stake-sale program was kicked back once again.

Covid outright killed at least two IPOs, possibly forever: Nile Air pulled the plug on its offering after the tourism and aviation industries cratered, and Qalaa Holdings has reportedly postponed the 1H2021 sale of a 30-40% stake in energy distribution player Taqa Arabia. Word on the street is that Qalaa will also put off the listing of the Arab Refining Company, parent company to its Egyptian Refining Company, whose financials came under pressure after covid wiped out oil prices (briefly sending them into negative territory).

Small-cap real estate player Emerald was the only IPO of 2020, in an EGP 202 mn offering on which parent company Odin was financial advisor and Mubasher the bookrunner.

More interesting: Speed Medical became the first company listed on the Nilex to make the jump from the baby bourse to the EGX when it completed an EGP 222 mn capital increase earlier this month.

So, how do things look for 2021? Egypt looks compelling — the question is what happens with global markets. Let’s take that piece by piece, shall we?

First: Foreigners say they’re coming back. Our friend Rami Sidani, head of frontier investments at Schroders, told us a couple of weeks ago that “2021 is going to be the year for Egypt. We think the stars are aligned in terms of lower rates (the lowest in a decade) that will spur investment and accelerate credit growth. We’re going to see tourism pick up as the world normalizes. … We also see Egypt reaping the fruits of all of the investment the government has been doing to connect cities and build out infrastructure.” (If you haven’t already done so, our chat is worth reading in full.). You would also have to assume the Fed will cool-off its support for financial markets to avoid overheating the US economy. Investors would then be pushed to find market-beating returns in other markets and asset classes.

The sell side likes Egypt, too, whether that’s our friends at Pharos here at home — or RenCap and Credit Suisse abroad. All of them like Egypt in the new year.

Second: The government is sending signals that stake sales are in the cards as it looks to sell chunks of Alexandria Containers, Abu Qir Fertilizers and Sidi Kerir Petrochemicals. The offerings are promising enough that institutional investors and DFIs are all closely watching.

Third: The country’s “real” pipeline of equity capital market transactions is as healthy as it has been in years. We maintain an internal tracker of IPOs and stake sales on which we note every detail imaginable about any company whose CEO or beneficial owner has ever muttered that they may, one day, like to go public or sell additional shares.

Lots of these pronouncements are bull[redacted] designed to gin up some media attention. There’s little our colleagues in the domestic press like more than an easy IPO story. With that in mind, we assign every musing an ERR — Enterprise Realness Rating. A zero means there’s a snowball’s chance in hell that company will ever make its debut on the EGX. A 5 means we know with a high degree of confidence that they’ve retained advisors.

Only 15 out of 85 companies on our tracker have an ERR of 3 or more. Set aside the aforementioned stake sales, and we figure there’s a 2021 pipeline that is anchored by:

• Taaleem Educational Services, which CI Capital is taking public in the first quarter.
• London-listed Integrated Diagnostics Holdings, which is seeking shareholder approval for a transaction that it hopes will allow it to pursue a dual listing on the EGX.
• Agrifood player Galina Holding, which is looking to sell as much as 49% of itself in its EGX debut early in the New Year. RenCap is quarterbacking the transaction.
• Non-bank financial services player Ebtikar could sell a 25-30% stake and is targeting a 1Q2021 listing. EFG Hermes is said to have been hired for the job.
• e-Finance has confirmed that it, too, is looking at 1Q.

Keep your eye on: Macro Pharma, the fast-growing cosmeceuticals outfit controlled by private equity player Alta Semper. Reports in the local press yesterday suggest that Macro has tapped CI Capital and Renaissance Capital to quarterback the IPO, which is now slated for 1H2021.

The wild cards: Banque du Caire, whose hotly anticipated IPO is on the shelf with no date in sight by which it might get off life support, and Ghazl El Mahalla, the sports club, which was talked up as an IPO prospect late this month.

SOME GOOD NEWS YESTERDAY- Companies that have filed IPO paperwork and then put their transactions on hold are getting another six months to pull the trigger and go public. The Financial Regulatory Authority (FRA) decided yesterday to push the deadline for companies that have listed their shares on the bourse but haven’t yet begun trading to 30 June 2021, from December 31 2020, according to a statement.

The curveball: Military-owned companies are really unlikely to go to the EGX this year, but policymakers are adamant that a small handful will offer significant chunks of equity to the private sector in 2021, possibly opening them to IPO in the future. First in the chute: Safi, the bottled water brand. Wataniya Petroleum is also said to be in the Sovereign Fund of Egypt-led program, but there has been less news there.

Still other curveballs: New exchanges to play on, including boards on which to trade commodities and futures. Hope also springs eternal that we may one day see a secondary market for corporate bonds.

Now, what about those global markets? Chatter about a global equities bubble has picked up again in the past week, with the New York Times musing about “levels of froth reminiscent of the dot-com boom.” We’ve seen this story before, and it’s a play in three acts:

• Talking heads and the financial press alike basically “will” a correction to happen, often with a fairly real macro shock as the trigger and the Fed taking a step back from its active role;
• Investors in global EM pull back — they may still see pockets of value, but they get swamped with redemptions, leaving them less capital to invest;
• Egyptian IPOs get put on the shelf, no matter how compelling the company’s fundamentals.

How bad could it get? A 75% sell-off is in store for stocks in early 2021 following a final “melt-up,” warns David Hunter, the chief macro strategist at Contrarian Macro Advisors and a 47-year market veteran, in this somewhat breathlessly headlined piece by Business Insider.

Want a more nuanced view on risk in 2021? Go read the Financial Times’ survey of the buy side: What can go wrong? Investors’ views on the big risks to markets in 2021.