EGX-listed stocks are trading at a 50% discount to their recent five-year average, creating a good buy for investors, Hasnain Malik, head of equity research at Tellimer, tells Bloomberg (watch, runtime: 6:13). Undervalued EGX stocks represent a good “short-term trade” as the expected IMF loan, Gulf support, and a potential devaluation spur an economic recovery, Malik said.

Short term? Absent “root and branch” reform of how the Egyptian economy is structured, the country is unlikely to break the cycle of crisis and recovery, the prospect for which remains slim, according to Malik. “That’s why it’s a short-term thesis. It’s a trade around the stabilization of the macroeconomic indicators. It is not a root and branch reform.”

Another devaluation will be key for the return of portfolio investors, Malik said, joining calls on the CBE and its new governor to allow the EGP to depreciate further to help combat growing external imbalances. “Obviously as the IMF comes in, as Gulf funds come in, that will encourage portfolio investors to start reinvesting in Egypt, but not when there's a negative 2.5% real interest rate,” Malik said. “That's got to be fixed first.” Rising global interest rates as well as volatility in international financial markets have seen USD 20 bn in portfolio flows exit the country this year, putting pressure on the EGP, which has slipped almost 22% since March.

Double-digit deval? “I would expect a double-digit devaluation,” Malik said. “If you look at 12-month prices on the EGP you've got about a 15% further depreciation expected by the market.”