Thursday, 28 July 2016

What’s next for the IMF package?

TL;DR

What We’re Tracking Today

Interest rate watch: The Central Bank of Egypt’s Monetary Policy Committee is due to meet today to discuss rates. Nine of 13 economists polled by Reuters, including EFG Hermes’ Mohamed Abu Basha, see rates being left on hold. Beltone Head of Research Hany Genena, Arqaam Securities economist Reham El Desoki, and HC Securities economist Sara Saada all expect rates to go up at least 50 bps.

“The on-the-run 3-month T-bill yield suggests that the market does not expect a policy rate hike at the upcoming MPC meeting. Nevertheless, with the recent rally in the parallel market USD/EGP rate, associated potential inflationary pressure, and limited tools currently at the CBE’s disposal, a 50 bps policy rate hike seems likely,” HC Securities wrote Enterprise to say.

NO CABINET SHUFFLE: In a statement yesterday after a cabinet-level meeting on the proposed USD 12 bn, three-year IMF assistance program, Prime Minister Sherif Ismail said that there is no cabinet shuffle in the offing, adding that any reports to the contrary are false. Speculation has been growing over the past weeks that a shuffle was on the horizon, with as many as a half-dozen ministers set to leave the cabinet table.

Wait, what? New electricity prices might be announced within two weeks, an Electricity Ministry source told Al Shorouk, denying reports earlier this week that July’s bills would reflect new prices. Cabinet had comments on the proposed price hikes, which are still being reviewed, the source said.

What We’re Tracking Next Week

Tuesday 2 August: The House of Representatives Planning and Budget Committee plans to continue its hearings on the value-added tax legislation with the business community, Al Borsa reports. The committee had met with representatives of over 50 companies and industry associations to discuss the legislation last Tuesday.

The House Economic Committee plans to hold a special meeting next week on the FX crisis, with an eye to issuing recommendations to the government on how to tackle it, Al Masry Al Youm reports.

The Rio Olympics officially get underway on Friday, 5 August and wrap-up on Sunday, 21, August.

** Saving Cairo from Itself

Egypt’s real housing sector: Market-based informality

With a population of over 90 mn people and an annual growth rate of c. 2%, Egypt’s demographics are the key driver of real estate demand. Every year, over 800,000 marriages take place, so it’s safe to assume that roughly the same number of homes is in demand annually. While demand may be strong, the real question is whether or not supply is keeping up.

The formal answer is, “No.” If we take Cairo as an example, the new, formally developed settlements and satellite cities on its outskirts are geared toward a certain type of consumer — a more affluent one that can afford to spend north of EGP 500,000 on what is now considered a reasonably-priced home. After all, government land auctioned in plots of 500 sqm, at a minimum, can only support a certain level of growth, not to mention luxury compounds and gated communities that are simply beyond the reach of your average Egyptian.

A widely quoted figure to validate the claim of undersupply is that the market currently suffers from a housing gap of some 3 mn units.

This is a staggering figure that, if true, should translate into a considerable population of street dwellers. Yet this is not the case. Take a drive along Cairo’s Ring Road and it becomes clear that the housing shortage in Egypt is not all that short. Thousands upon thousands of red-brick developments built on what was previously farmland provide for a much-needed pressure valve for demand pent-up by the shortfall of the formal real estate market. [ Tap here to read the rest of part two in the series. ]

** This is part two of a five-part series by SODIC, a leading real estate developer and proud sponsor of Enterprise. Here, SODIC shares its view on how business and government can work together to save Cairo — doing good for more than 20 mn people and making a reasonable profit at the same time. Subsequent instalments will appear each Thursday morning, exclusively in Enterprise.

** Did you miss part one in the series? Read it here: Why is your day in Cairo so hard — and what can we do about it?

Speed Round

Speed Round is presented in association with

The President weighs in on International Monetary Fund loan talks: President Abdel Fattah El Sisi wants the government to ensure there’s balance between the demands of the reform program the IMF will demand and providing Egyptians with social welfare needs during its talks for the three-year, USD 12 bn IMF loan. His statements followed a meeting with Prime Minister Sherif Ismail and the cabinet economic group on Wednesday, according to an emailed statement from Ittihadiya.

Prime Minister Sherif Ismail says it’s not clear how long it will take to reach an agreement with the IMF. In a statement issued after the cabinet meeting, Ismail was looking to temper the flurry of speculation in the media, where expectations range between cash being received “in weeks” to the expectation it will be something closer to November, all citing unnamed government sources.

(Deputy Finance Minister Ahmed Kouchouk did tell Al Masry Al Youm that the staff-level talks will take two weeks and are due to start on Saturday. The IMF delegation will meet with all senior economic ministers to discuss the reform agenda — which he says is 100% Egyptian in a bid to dispel talk of forced conditionality. Ismail tied to the talks to reform measures including passing the value-added tax, slashing spending, issuing FX-denominated bonds and the IPO of state businesses.)

On the VAT: Ismail said in his statement that he’s optimistic the legislation will pass in the House, where he suggested MPs were being generally cooperative.

How does the cabinet plan to tackle the FX crunch, you ask? Why, to rely on all of us, of course: “The government has many solutions to solve the FX crisis, but the best solution is in the hands of the people,” said Ismail. The PM called for an end to speculative trading in FX and an end to unnecessary imports. He called on Egyptians to “buy local” and cut their consumption of electricity as Egypt’s petroleum imports have reached USD 1 bn per month. The statement contained no new policy initiatives. However, “a source from the cabinet economic group” is claiming that the government will float the EGP once it has received the loan, AMAY reports.

That said, pursuing an IMF loan may have been enough to temporarily stem the downward spiral of the EGP, which is now fluctuating between EGP 12.80 and EGP 13.00 to USD 1 on the parallel market on the news of the talks, Al Borsa reports. The CBE is also intensifying its clampdown on FX traders, with banking sources telling Youm7, that the number of FX officers shuttered has now risen to 23 from under 20 at the beginning of the week.

EFG Hermes is suggesting the IMF facility could be concluded in September, provided the House of Representatives is on board, according to a research note yesterday by Mohamed Abu Basha and Simon Kitchen. With an IMF mission visit due to start tomorrow, “we believe a staff level agreement could be reached once the VAT law has been approved by Parliament … [and] the fund will also want a commitment on a more flexible FX policy. Such agreement would then need to be ratified by the IMF’s board, likely post implementation of the VAT in September, as well as by Parliament; only then would the fund start to disburse the money.” EFG Hermes estimates the funding gap at c. USD 30 bn, meaning “the GCC will have to play a large role” in plugging it. And don’t expect devaluation anytime soon, they warn, saying the move — while a likely condition of IMF assistance — will take place once the agreement is in place, not before. Tap here to read the full research note (pdf), including its strategy recommendations for foreign and domestic investors.

CIB became one the last banks in the country to cap foreign currency withdrawals and purchases abroad as it cut both monthly credit and debit card limits by half yesterday, according to information (pdf) sent to clients. CIB told them via text message: "Please note that starting from August 1, there will be a change to the limits for purchases made in foreign currency using the bank’s cards." Maximum monthly foreign currency limits for purchases on regular debit cards dropped to USD 750 and cash withdrawals USD 250. Monthly credit card purchase limits on Classic Cards hit USD 2,500 and cash withdrawals USD 250; on Platinum cards, the purchase limit is USD 12,000 and the cash withdrawal ceiling USD 1,500. NBE and Banque Misr similarly slashed limits last week, while Emirates NBD Egypt backtracked on a plan to suspend card use abroad altogether. The CBE has been pressing since early July for banks to limit cardholders’ transactions abroad.

CIB reported record net income of EGP 1.46 bn on revenues of EGP 2.79 bn as it released its second quarter 2016 results late last night, according to a company statement (pdf). Revenues were up 20% y-o-y in the quarter, while net income rose 28%. The bank “maintained its strong performance in the second quarter despite unfavorable economic circumstances, turning in record consolidated first-half top and bottom lines,” it noted with its earnings. “CIB continued to take a cautious approach in managing its capital base efficiently to ensure continuous compliance with CBE regulations. … The first half of 2016 witnessed a restructure in the Bank’s balance sheet in a way that would help lower volatility in the Bank’s capital base, especially in light of the current uncertainty in the interest rate environment. This was reflected in a lower balance sheet duration, which, together with the growth in expenses resulting from the acquisition of Citibank branches and retail portfolio and rapid network expansion, were the main reasons behind the increase in the Bank’s cost-to-income ratio.”

Power Minister to meet with FiT investors in two weeks: Electricity Minister Mohamed Shaker is expected to stand firm on domestic arbitration when he sits down with around 50 companies invested in feed-in-tariff (FiT) projects in two weeks’ time to discuss “the ministry’s vision” for the phase one and two of FiT projects, said Lamia Youssef, head of the FiT unit of the Egyptian Electricity Transmission Company. Prior to the meeting, the minister will sit down with the ministry’s policy committee on FiT to iron out every aspect of the government’s policies for the projects, including talks with international lenders, the FiT rate, and what the minister plans to present investors for phase two. Sources tell Al Borsa that domestic arbitration will remain the government’s position at the meeting, but don’t specify whether that will apply to phase two.

This meeting comes as phase one remains at risk due to government’s stance on domestic arbitration. UAE-based Access Power MEA informed the ministry that it is reducing its investments to a single 50 MW plant from an initial pledge of investment in plants with a combined generation capacity of 150 MW, as it could not obtain sufficient funding as a result of government’s position. The ministry had to postpone a tender for a phase one plant in Kom Ombo to October after Enel Green and Abdul Latif Jameel decided to exit Egypt, a ministry source said.

The European Bank for Reconstruction and Development (EBRD) has not yet decided whether to back out of funding FiT projects completely and is in talks with the government to resolve the situation, said EBRD’s Cairo Office Director Philip ter Woort, head of the EBRD’s office in Cairo. The bank would still like to be a leading lender to FiT projects, he added. He did fault the government and its insistence on domestic arbitration for the state of the FiT projects today. EBRD is one of multiple lenders we had noted was backing away from the FiT program over the state’s insistence on domestic arbitration. The bank had allocated USD 500 mn in financing for 10-15 renewable projects in Egypt.

FiT aside, The EBRD plans to pump more investments into Egypt in the coming years, Amwal Al Ghad reported. Country chief Philip ter Woort said during a meeting with Investment Minister Dalia Khorshid the bank would boost investment under the 2015 declaration of intent. Its investments are at about EUR 1.7 bn to date, ter Woort said during a meeting with International Cooperation Minister Sahar Nasr on Monday. Some 36% is directed toward the energy sector, 23% to the financial sector, 22% to the trade and industry sector and 20% to infrastructure, he said. EBRD’s website breaks down its project portfolio in Egypt in very nice detail.

Are investment incentives back for special economic zones? President El Sisi apparently “agreed in principle” that taxes in the Suez Canal Economic Zone ought to be reviewed from their current 22.5%, said SCZone head Ahmed Darwish. Darwish says he was personally against eliminating preferential tax rates in the economic zones, which were vehemently opposed by former Finance Minister Hany Dimian. Back in 2015, the Mahlab cabinet cut the income tax ceiling to 22.5 percent for individuals and corporations, but raised them for special economic zones, which were taxed at 10%.

The CIT Ministry has no plans to license a fifth mobile network operator provided all three existing operators and new market entrant Telecom Egypt acquire integrated telecom and 4G licenses, CIT Minister Yasser El Kady told Al Masry Al Youm. If the MNOs don’t apply for 4G licenses, the CIT Ministry will tender the license to regional and international operators, he added, referring to Zain’s request to apply to offer 4G services in Egypt, as we noted last week.

But to stay on the safe side, the National Telecommunications Regulatory Authority has set the terms and conditions for foreign companies looking to bid, a government source tells Al Borsa. Naturally, the terms stipulate that the foreign companies must pay for the license fully in USD, as opposed to 50% for local operators. Foreign applicants will also be offered an international gateway license, a landline connection licence, and a license to provide ADSL services. The winner of a 4G license will also have the right to offer 2G and 3G service, the source added.

MOVES- Edita Chief Financial Officer Sherif Fathy has resigned after nearly a decade with the company “to spend more time with family, a fact that means relocating outside Egypt,” he said, according to a company statement (pdf) issued yesterday. Fathy is participating in the search for a new CFO and will provide assistance during the transition period. “We look forward to announcing the engagement of a new chief financial officer in the coming period, and I am pleased Sherif’s successor will have benefit of his experience and wise counsel during the transition period,” said Edita Chairman and Managing Director Hani Berzi. Said Fathy: ““Working with Hani and the team at Edita has been the highlight of the more than three decades I have spent in the finance and auditing industries.”

The Ismail cabinet amended licensing procedures for mines and quarries in the executive regulations of the Mines and Quarries Act, tasking the Local Development Ministry with issuing all licences and permit approvals within one month of receiving security permits to operate. The cabinet statement referred to the law as the Mineral Resources Act, even though that act had been voted down by the House in January. Other decisions taken during their weekly meeting yesterday include:

  • Approved loans on preferential terms from the Export-Import Bank of Korea through the Economic Development Cooperation Fund for development projects signed in March. Though the cabinet does not state the size of the loan, International Cooperation Minister Sahar Nasr had put them at least USD 700 mn back when they were signed. The cabinet also approved a loan agreement to develop railway signalling infrastructure from Nag Hammadi to Luxor;
  • Approved a EUR 47 mn financing agreement with the German government to fund SMEs;
  • Approved a KWD 29 mn (USD 96 mn) facility from the Kuwait Fund for Development to finance five desalination plants in Sinai;
  • Approved maritime and logistical cooperation agreements with Bahrain and Mauritania.

The Egyptian Exchange has agreed to relist DBK Pharma, Al Borsa reported. Its listing had been scrapped last December.

Cyprus draws interest for offshore blocks: Eni, Total, Statoil, ExxonMobil, Qatar Petroleum, and Cairn have expressed interest in a licensing round for Cypriot offshore hydrocarbon blocks that lapsed last week, the country’s Energy Ministry said on Wednesday, Reuters reports. Cyprus has three offshore blocks up for grabs, with interest focused on a sea block close to Egypt’s Zohr field. “The east Mediterranean island is located in the Levant basin, where both Israel and Egypt have made some of the world’s biggest natural gas discoveries in the past decade.” According to the wire, “Cairn through its Capricorn Oil unit had applied jointly with Israel’s Avner and Delek over one block, ENI and Total jointly over two blocks, ENI on its own over another, Exxon Mobil and Qatar Petroleum over one, and Statoil Upsilon Netherlands B.V. on its own.”

Good things come to those who wait: Long-overdue congratulations are in order for Alexandrian weightlifter Abeer Abdelrahman, who has now made history as Egypt’s first female athlete to be awarded an Olympic medal following the retroactive disqualification of Russia, Kazakhstan and Belarus’ athletes. The three medal winners were found to have tested positive for banned performance-enhancing substances at the 2012 London games. Originally finishing in fifth place behind the three athletes now disqualified for doping, Abdelrahman will now be awarded the silver medal. She becomes the second Egyptian weightlifter to be awarded an Olympic medal from the 2012 Olympic games in London following Tarek Yehia, who was promoted to third place after the suspension of Russia’s Apti Aukhadov last month, Ahram Online reported.

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The Macro Picture

The US Federal Reserve opted to leave interest rates unchanged as its two-day meeting wrapped on Wednesday, Reuters reported. The Fed gave “no firm indication of whether it would raise rates at its next policy meeting in September,” said the newswire, adding that the Fed will be looking to the initial estimate of US GDP set to be released on Friday, followed by the US jobs report on 5 August.

Global inflows to EM up, but investors are redeeming from Middle East and Africa Funds: Global portfolio inflows to emerging markets strengthened after Brexit to the tune of USD 24.8 bn in July, nearly doubling compared with June, according to figures released yesterday (pdf) by the International Institute of Finance. “Equity flows were the dominant driver this month,” IIF wrote, led by inflows into Asia and Latin America. Both the Middle East and Africa and emerging Europe saw modest net outflows.

Egypt in the News

Foreign coverage on Egypt is largely concerned with our prospective IMF lifeline: Bloomberg quotes liberally from EFG Hermes economist Mohamed Abu Basha, who says that while the agreement will bring in much-needed liquidity, Egypt “will have to take some tough measures before the economy starts witnessing serious inflows from abroad.”

The Wall Street Journal quotes emerging market economist at Capital Economics William Jackson as saying the loan would “almost certainly entail a further devaluation of the currency.” Abu Basha is a hair more cautious, saying in a note yesterday: “A successful float of the EGP would first require building a liquidity shield to enable authorities to stabilize FX markets post-adjustment and to minimise inflationary impact. We therefore expect such a move, which clearly will be a key component of the IMF programme, to take place once an IMF agreement is concluded rather than in the immediate future.”

On the bright side, Egypt has seen much worse. At least according to a piece in the National from veteran financial writer Patrick Werr. In 1990, “Egypt had [USD 50 bn] in foreign debt, its budget deficit was more than 8 per cent of GDP and banks were refusing to lend the government more funds.” Its “white knight” at the time was the cancellation of almost USD 14 bn in debts after Cairo agreed to send troops to liberate from Iraq’s invasion Kuwait. Egypt then “committed itself to the classical IMF remedy of privatisation, liberalising trade and freeing up currency and interest rates. It also implemented a sales tax. For the next seven years or so the economy boomed,” he writes. If Egypt’s IMF white knight this time around rides to the rescue, “it will be the best economic news the country has had in years. Perhaps even 26 years.”

AIDSKoftaGate doctor finds the Doctors Syndicate’s lack of faith disturbing: One of four physicians facing disciplinary action after an Egyptian Medical Syndicate hearing into allegations they promoted an untested and scientifically unsound device to detect and treat Hepatitis C and HIV is shooting back at the Doctors Syndicate, saying the organization is controlled by the Muslim Brotherhood. “The Brotherhood controls the Medical Syndicate’s board, and the decision is linked to the latter’s row with the state,” according to gastroenterologist Ahmed Mouanes, Al-Monitor reported. The chairman of the syndicate’s ethics committee, Tarek Kamel, said the syndicate’s decision was not political.

Diplomacy + Foreign Trade

The Foreign Ministry is looking into the death of an Egyptian who died while in police custody in Germany, demanding a swift probe by German authorities into the incident, according to a statement from the ministry on Tuesday. Twenty-two-year-old Mohammed Abdel Fattah’s father reported to a “privately-owned TV channel” that his son was tortured to death by German officers in the city of Essen, according to Ahram Online. German authorities confirmed the man was indeed jailed and had died, adding that they were investigating the matter and would inform Cairo of their findings. The German embassy in Cairo on Wednesday said there was no evidence of a criminal act in Abdel Fattah’s death. The embassy made no mention of Abdel Fattah being detained by police, only that he died in a hospital in Essen.

A delegation of senior businessmen from the Arab Mexican Chamber of Industry and Commerce is set to visit Egypt in September, Trade and Industry Minister Tarek Kabil told Amwal Al Ghad. The visit aims to bolster Egyptian exports including leather, animal resources, mineral resources, and agricultural holdings, Kabil added.

The Communication and Information Technology and Environment Ministries launched their Sustainable Recycling Industries project in cooperation with the Swiss Embassy and the Center for Environment and Development for the Arab Region and Europe (CEDARE) Al Borsa reports. The electronic waste recycling project falls under an MoU signed with Switzerland that runs until December 2017.

President Abdel Fattah El Sisi met with Malawi’s Minister of Agriculture, Irrigation and Water Development and the personal envoy of Malawi’s president, George Chaponda, on Wednesday, according to a statement from Ittihadiya. El Sisi and Chaponda reportedly discussed establishing a number of projects in agriculture and manufacturing, with no further details specified on what the projects would entail or the timeframe for their completion.

Energy

International Cooperation Ministry signs MoU with TBEA China to build 1,000 MW solar power plant

The International Cooperation Ministry has signed an MoU with electrical equipment manufacturer TBEA China to build a 1,000 MW solar power plant at the Military Production Ministry Headquarters, Al Mal reported. The International Cooperation Ministry will assist in funding the feasibility study and construction, said Minister Sahar Nasr. The MoU also aims to establish a factory to manufacture photovoltaic cells, as well as feeding industries.

Manufacturing

Honeywell to build smart meter factory in Port Said

US manufacturer Honeywell is looking to build a smart meter factory at the Free Trade Zone in Port Said as part of its plan to grow its domestic investments, Country President Khaled Hashem told Al Borsa. The factory will become Honeywell’s regional operations center for the rest of Africa, according to a GAFI statement. The size of the investment was not disclosed.

CSA Textile Egypt signs export agreements for 580 tonnes worth about USD 2.5 mn

CSA Textile Egypt will export 20 tonnes of textiles to Portugal next Wednesday, the first shipment of a number of agreements inked in June to export 580 tonnes worth USD 2.5 mn to Portugal, Turkey and Italy, the company’s financial and commercial department head Osama Abdel-Metaal told Al Borsa.

Real Estate + Housing

15 investment projects to be signed in Marsa Matrouh today

Fifteen contracts for real estate, touristic and agricultural investments agreed at an October economic conference in Marsa Matrouh will be signed today, Al Mal reported. The projects include hotels, malls, homes in Dabaa, schools in Al-Hammam, a water factory in Siwa, thee water treatment plants in Siwa, Marsa Matrouh and Alamein, an open zoo, water park, a theme park, as well as a number of agricultural projects in Siwa.

Automotive + Transportation

Egyptian Businessmen Association accuses EgyptAir Cargo of air freight monopoly

The Egyptian Businessmen’s Association is accusing EgyptAir Cargo of operating a monopoly on air freight and raising costs for exporters of seasonal crops to Europe. The association is demanding that exporters be allowed to ship with foreign airlines without paying surcharges to the Civil Aviation Ministry for using a carrier other than EgyptAir, Al Mal reported. EgyptAir typically has unused cargo capacity, an agriculture industry player alleges, but still books capacity on other airlines to ensure exporters have no choice but to go through EgyptAir. EgyptAir Cargo chairman Bassem Gohar denied the accusations, saying the company controls only 60% of the air freight industry.

MCV forms partnership with General Motors for exporting mini buses

Commercial vehicles player MCV Group has formed a partnership with General Motors to manufacture mini buses for export to African countries, MCV Chairman Karim Ghabbour told Al Mal. General Motors will supply chassis, while the mini buses will be manufactured at MCV’s factories. The facility’s first order is for 100 buses to be exported to Ghana.

Other Business News of Note

Investment Ministry to prepare national report on doing business in governorates

The Investment Ministry is planning to put together a version of the World Bank’s Doing Business report that will include all the governorates as part of the ministry’s initiative to better Egypt’s ranking, GAFI Vice Chairman Mona Zobaa told Al Borsa. The report will be prepared in cooperation with the Local Development Ministry and the International Finance Corporation. Egypt had previously prepared two similar reports in 2008 and 2014 but did not include all the governorates, she added. Egypt’s rank fell in the World Bank’s Doing Business report to 131 out 189 countries in 2016 from 126 last year.

Suez Canal Economic Zone Authority to sign 3 MoUs for Chinese funding today

The Suez Canal Economic Authority is set to sign MoUs today with China Development Bank, China-Africa Development Fund and Qingdao Port for funding logistic and industrial projects, a source told Al Borsa. The funding institutions will offer credit facilities to establish containers stations at Ain Sokhna Port and will fund industrial projects by Chinese companies in the Zone. The value of the funding was not specified, but the institutions will visit Egypt in September for talks on the terms of the agreement, the source said.

Egypt Politics + Economics

Independent tax syndicate aims to gather one-mn signatures for campaign to cancel Civil Service Act if approved

An independent union of employees in the Finance Ministry’s sales tax division has pledged to challenge the Civil Service Act before the Constitutional Court and will work on gathering 1 mn signatures on a petition demanding the measure be scrapped, syndicate head Fatma Fouad told Al Shorouk.

Al Azhar rejects Ministry of Endowments decision to impose unified written Friday sermon

Al Azhar rejects to a decision imposed by the Ministry of Religious Endowments to enforce verbatim Friday sermons for the country’s imams, according to a statement by the institution’s Senior Scholars Authority on Tuesday, Daily News Egypt reported. The members of the authority said they were unanimous in their rejection of the ministry’s decision, calling it a restriction on religious discourse.

The markets yesterday

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USD CBE auction (Tuesday, 26 July): 8.78 (unchanged since Wednesday, 16 March)
USD parallel market (Wednesday, 27 July): 12.80-13.00(from 12.80-12.99 on Tuesday, 26 July, Al Borsa)

EGX30 (Wednesday): 7,914.74 (+4.97%)
Turnover: EGP 1,344.48 mn (209% Above the 90-day average)
EGX 30 year-to-date: +12.97%

THE MARKET ON WEDNESDAY: EGX30 kicked off Wednesday’s session with an early broad-based surge that was largely supported by index heavyweights EFG Hermes, CIB, and TMG Holding. The benchmark in­dex’s top gainers for the day were EFG Hermes, Pioneers Holding, and SODIC, each of which surged more than 7% on high volumes. Edita and Juhayna were the sole EGX30 constituents to end the day in negative territory. Total turnover in the market stood at EGP 1,344.5 mn — the highest in two months — and local investors were the sole net buyers during the day

Foreigners: Net Short | EGP -23.4 mn
Regional: Net Short | EGP -10.9 mn
Domestic: Net Long | EGP +34.3 mn

Retail: 60.2% of total trades | 50.7% of buyers | 69.7% of sellers
Institutions: 39.8% of total trades | 49.3% of buyers | 30.3% of sellers

Foreign: 9.7% of total | 8.8% of buyers | 10.6% of sellers
Regional: 8.8% of total | 8.4% of buyers | 9.2% of sellers
Domestic: 81.5% of total | 82.8% of buyers | 80.2% of sellers


***
PHAROS VIEW

Government building USD liquidity in preparation for devaluation, liquidity to be injected by Sept/Oct

Several USD funding channels being tapped: Finance Minister Amr El Garhy announced Egypt was chasing a USD 12 bn IMF facility as part of a plan to secure USD 21 bn in foreign financing over three years. This includes USD 4 bn annually from the IMF and USD 2-3 bn per year in international bond issuances (USD2-3 bn) and budgetary support from the World Bank and African Development Bank (USD3 bn over two tranches). In addition, five to six public sector entities will be groomed for listing on EGX, which might attract some foreign portfolio investments.
Sept/Oct seems like the time of USD injections and devaluation. With the IMF delegation set to land in Egypt this Friday for two weeks of talks, September/October seems the more likely time for USD injects, which is around the same time of the Eurobond issuance. This leads us to conclude devaluation will happen around that same time.
Devaluation needs parallel currency defense through an interest rate hike, which we believe needs to go up another 100-200 bps from where they are now, in an attempt to attract foreign portfolio investment into EGP treasury instruments, which had as much as USD10 bn before the 2011 revolution. Yet again, we reiterate our view that this shall not happen unless the parallel currency market disappears and interest rates go up another c.200 bps from where they are now. Tap here to read the full note, including recommendations on your trading strategy.

***


WTI: USD 42.08 (+0.38%)
Brent: USD 43.61 (+0.32%)
Natural Gas (Nymex, futures prices) USD 2.68 MMBtu, (-1.18%, Sep 2016 contract)
Gold: USD 1,337.3 / troy ounce (+0.80%)

TASI: 6,431.6 (-0.6%) (YTD: -6.9%)
ADX: 4,596.8 (+0.1%) (YTD: +6.7%)
DFM: 3,509.9 (-0.9%) (YTD: +11.4%)
KSE Weighted Index: 351.5 (0.0%) (YTD: -7.9%)
QE: 10,604.8 (+0.6%) (YTD: +1.7%)
MSM: 5,821.6 (+0.2%) (YTD: +7.7%)
BB: 1,157.7 (-0.2%) (YTD: -4.8%)

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Calendar

28 July (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

28 July (Thursday): Ruling expected on charges of disseminating false news against former Central Auditing Organization head Hisham Genena.

05-21 August (Friday-Sunday) Rio Olympics.

07 August (Sunday): Deadline for mobile operators to submit applications for 4G licences

29-30 August (Monday-Tuesday): Wastewater Egypt conference.

05-08 September (Monday-Thursday): The 6th EFG Hermes London MENA and Frontier Conference, Emirates Arsenal Stadium, London, UK.

11-13 September (Sunday-Tuesday): Eid El Adha (national holiday, tentative date).

19-20 September (Monday-Tuesday): Euromoney Egypt conference, venue TBD.

22 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

02 October (Sunday): Islamic New Year (national holiday, tentative date) .

06 October (Thursday): Armed Forces Day (national holiday).

November (TBD): Delegation of German companies in the renewable energy sector due to visit to discuss investment opportunities.

11-12 October (Tuesday-Wednesday): Global Islamic Economy Summit, Madinat Jumeirah, Dubai.

17 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

27 November (Sunday): 2016 Cairo ICT, Cairo International Convention Centre.

04-06 December (Sunday-Tuesday): Solar-Tec exhibition, Cairo International Convention Centre.

04-06 December (Sunday-Tuesday): Electricx exhibition, Cairo International Convention Centre.

11 December (Sunday): Prophet Muhammad’s Birthday (national holiday; date to be confirmed).

11-13 December (Sunday-Tuesday): The Middle East Fire, Security & Safety Exhibition and Conference (MEFSEC), Cairo International Convention Centre, Cairo.

29 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

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