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Monday, 11 July 2016

Equities rise as traders look forward to devaluation of the EGP

Egyptian equities are rallying in anticipation of the devaluation of the EGP following remarks last week by Central Bank of Egypt Chairman Tarek Amer, Bloomberg suggests. “Traders are betting the country may weaken the [EGP] as soon Tuesday, when the central bank holds its weekly sale of [USD] to local lenders, according to Arqaam Securities Brokerage.” Bloomberg adds that real estate equities are among the biggest winners of the expected central bank action, with the EGX 30’s real estate index up around 11% since last week. The EGX 30 was up 4.66% yesterday.

Research analysts speaking with Al Borsa expect we’ll see devaluation in the 12% range, meaning we’re facing EGP 10.00 to USD 1. Who’s tipping what?

  • CI Capital’s Hany Farahat thinks anything less than 12% would be “useless.” Farahat expects the devaluation, coupled with easing FX restrictions and increasing liquidity for banks, will help break the speculation driving the runaway parallel market.
  • Pharos’ Radwa El-Swaify thinks the CBE has two options: Devalue about 24% to match the parallel market or pace it with inflation and hold the rate at EGP 9.95. Any move to devalue, she adds, must be accompanied by a significant injection of liquidity into the banking sector.
  • EFG Hermes’ Mohamed Abu Basha believes the government is looking to drive inflows through a range of measures that include an IMF facility, additional grants and deposits from the GCC countries, and the IPO of state-owned banks. New liquidity will allow the CBE to manage FX policies instead of tightly regulating it at a time in which Egypt needs to be flexible with its monetary policies.

Against that backdrop, caution prevailed on parallel market yesterday as the EGP weakened marginally in the parallel market to EGP 11.12 to the USD 1 on the first working day after the Eid break, dropping from EGP 11.10 on Saturday, Al Mal reports.

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