EGX posts worst day since 2016 as investors grapple with weekend protests

Let’s get the bad news out of the way: It wasn’t pretty on the EGX yesterday. The EGX30 had its worst day since 2016, closing down 5.3% after tripping circuit breakers earlier in the day, as traders and investors reacted to protests over the weekend. The wider EGX100 fell nearly 5.7% during the day, its sharpest decline since 2012. We have chapter and verse in this morning’s Speed Round, below.

The protests also hit the radars of the talking heads (see Last Night’s Talk Shows, below) and continue to dominate coverage of Egypt in the international press (Egypt in the News, also below).

The central bank’s Monetary Policy Committee will meet on Thursday to review key interest rates. Our poll showed on Sunday that seven of the eight economists we surveyed expect the CBE will cut interest rates on the back of unexpectedly low inflation figures in August. EFG Hermes expects a 50 bps cut, while Pharos, Beltone, HC, and Shuaa expect rates to go down by 100 bps. CI Capital sees room for a more aggressive 150 bps rate cut. Renaissance Capital was the sole dissenting voice, saying the CBE could hold off over a potential rise in September inflation figures. The MPC cut rates 150 bps at its last meeting in August, bringing the overnight deposit and lending rates to 14.25% and 15.25%, respectively.

A handful of other emerging market central banks could also cut rates in the next few days, including in the Philippines and Mexico, according to Bloomberg. Brazil could also follow suit after its central bank suggested it could pursue “a longer and deeper monetary easing cycle,” while Colombia, Kenya, and Angola are not expected to join in on the global rate-cutting parade.

EMs have fared well despite market volatility in recent weeks: The outlook for emerging markets is looking good so far as “global central bank accommodation” is expected to override concerns that growth is lagging globally, says the news information service. Developing nations have managed to more or less weather the storm over the past few weeks caused by trade tensions, soaring oil prices, and the “the US Federal Reserve having possibly reached the limits of its dovishness.”

President Abdel Fattah El Sisi is still in New York for the United Nations General Assembly high-level meetings, which get underway tomorrow and wrap a week from today. We have a rundown the talks he has held so far in this morning’s Diplomacy + Foreign Trade section, below.

CIT Minister Amr Talaat is in Paris today, where he will talk with French officials about cooperation on artificial intelligence, the ministry said in a statement. The visit wraps up on Wednesday, 25 September.

Conference season continues this week:

• “The Future of Investment in Egypt,” a conference organized by the Egyptian Businessmen’s Association, the Egyptian Junior Business Association and the Alexandria Business Association, begins today at the Cairo Marriott Hotel. You can click / tap here for the conference’s agenda and speakers' lineup (pdf).
• The Engineering Export Council of Egypt’s three-day Home Appliance and Tableware Show (HATS) will also starts today at the Kempinski Royal Maxim.
• A roundtable discussion titled “Investing in Renewable Energy and Sustainable Development”will take place at the Nile Ritz Carlton tomorrow.
• The launch of the Mediterranean Business Angels Network will take place at Techne Summit 2019, which runs 28-30 September at Bibliotheca Alexandrina in Alexandria.

If you have excess liquidity sloshing around, where should you invest it? In anything related to sustainability and the green economy, if this Bloomberg survey of six experts is anything to go by. “Our panel shares the belief that investing in a more sustainable global economy can be a great investment, but differ in estimations of just how competitive those returns may be.” At the top of the menu: The electric vehicle industry (whether it’s the vehicles themselves or companies lower on the value chain), renewable energy, plant gene-editing technology to protect against environmental risks, or basically any legitimate company in the circular economy.

Tough time for Bibi: A coalition of Arab parties in the Israeli Knesset, the Joint List, has recommended that Benny Gantz, Israel’s former army chief-of-staff, form a government instead of Prime Minister Benjamin Netanyahu, reports the New York Times. Bibi didn’t take the endorsement too well. He reacted “furiously” in a video on Twitter, saying he will work hard “to form a broad national unity government.” Neither Netanyahu’s Likud — which won 55 seats in last week’s national elections — nor Gantz Blue and White party — which secured 57 — has reached the 61-seat majority seats needed to form a government, putting the Arab Joint List in a powerful position.

The 71st annual Emmys wrapped up just minutes before dispatch, and we’re a little bit offended that not one of the leading ladies from Game of Thrones landed the accolade for Supporting Actress in a Drama Series. We are, however, very pleased that Chernobyl snagged the Emmy for Outstanding Limited Series. Vulture has the full rundown of the winners here.

** Soundtrack for this morning’s issue: Wake me up when September ends.

President Abdel Fattah El Sisi’s trip to New York dominated the airwaves for the second day in a row, setting what we expect will be the theme of the week on the airwaves. El Sisi is set to address world leaders at the UN Climate Action Summit, which kicks off later today, Al Hayah Al Youm’s Lobna Assal reports (watch, runtime: 7:47). Co-host Khaled Abu Bakr, who is in New York with the president, phoned home to give a report on El Sisi’s meetings yesterday. We have more in Diplomacy + Foreign Trade, below.

El Sisi’s meeting with UN Food and Agriculture Organization Director-General Qu Dongyu was of particular interest to Hona Al Asema’s Reham Ibrahim, who highlighted “the close cooperation” between Egypt and FAO in the fields of food safety, food security, and agricultural development (watch, runtime: 2:18).

Gov’t meeting on slums, social housing: Prime Minister Moustafa Madbouly’s meeting with the cabinet economic group to discuss a government plan to develop slum areas and relocate residents in these areas to social housing got some airtime on Hona Al Asema (watch, runtime: 12:54). Head of the Slum Development Fund Khaled Seddik phoned in to tell Ibrahim that the government has spent EGP 22 bn to date on slum development.

The talking heads gave passing mention to demonstrations this weekend. El Hekaya’s Amr Adib — whose big interview of the night was with Mahmoud El Sisi, MD of the 19011 pharmacy chain (watch, runtime: 2:01) — launched a diatribe against social media as it pertains to recent protests. Adib said people are using trending topics on Twitter as an inaccurate proxy for support of the protests and that the Ikhwan is pushing the story through fake social media accounts (watch, runtime: 7:32). He also made sure to highlight a pro-government demonstration in Suez (watch, runtime: 2:12).

Assal also had a lengthy segment running down the foreign press’ coverage of this weekend’s developments, saying that some outlets — including Al Jazeera “and the likes” — have been painting an inaccurate image by using old footage from the 2011 revolution and recent footage of football fans crowding the streets following the Super Cup (watch, runtime: 42:56)

The EGX turned in its worst showing since 2016 yesterday as investors dumped shares following two nights of protests in Egyptian cities. The benchmark EGX30 index fell 5.32%, while the wider EGX100 closed down nearly 5.7%, its worst single-day decline since 2012. Chemical, real estate, and basic materials companies were especially hard hit, but dairy foods player Juhayna was the worst-hit on the EGX30, plunging 9.7%. Trading was halted for half an hour at 12:45 CLT after the market 5%, the first time circuit breakers were triggered since the float of the EGP in November 2016.

Analysts point to protests: The breakout of protests in a number of cities over the weekend weighed on investors, who are keeping an eye on the potential for escalation, analysts said yesterday. “It is definitely due to the small escalation over the weekend, which is making investors cautious,” Ashraf Akhnouk, director at Arqaam Capital, told Reuters, adding that most of the sellers were local and Arab investors. Arun Leslie John, chief market analyst at Century Financial in Dubai, told Bloomberg that the protests have generated uncertainty that has investors “rushing for the exit.” Hundreds of people protested against the government in Cairo, Alexandria, Mansoura, Mahalla, and Suez over the weekend, leading to dozens of arrests.

M&A WATCH- CI Capital-led consortium acquires 60% stake in Taaleem in EGP 1.2 bn transaction: Investment bank CI Capital and a group of co-investors have completed the acquisition of a 60% stake in Taaleem Management Services Company, the owner and operator of Nahda University in Beni Suef, from Thebes Education Management Holdings in an EGP 1.2 bn transaction, CI Capital said in a statement (pdf). The consortium acquired the stake though CI Capital investment vehicle EGY EDU Invest. The firm kicked EGP 305 mn into the kitty for the acquisition, while the co-investors — which included StonePine ACE Fund, a JV between StonePine Capital and ACE — committed EGP 895 mn. CI Capital, which sponsored the transaction, originally said it would pay between 15-20% of the acquisition value. Taaleem’s current management, led by Mohamed El Rashidi, will “continue to lead and scale up the business,” CI said.

ECM WATCH- The state could look to trim its holdings in telecom operator Telecom Egypt (TE) in a secondary offering on the Egyptian Exchange, CIT Minister Amr Talaat told Hapi Journal and Reuters without specifying a timeframe or providing details on the size of the potential offer. The offering is “under study and there is nothing to prevent it in principle,” he told Hapi. TE later said in a statement to the bourse (pdf) that it has discussed the matter with its principal shareholder but that there remains no concrete plans to move ahead with at the moment. The CIT Ministry originally planned to offer an additional stake in the company in 2010, but plans never went through, Hapi Journal noted. The government, which owns 80% of TE, had offered 20% of the company in an IPO in 2005.

M&A WATCH- Fair share value for Emisal acquisition decided soon: A fair share value study for Emisal Salts will be ready before the end of September, Chemical Industries Holding Company (CIHC) Chairman Emad El Din Moustafa told the local press. CIHC aims to sell 3 percentage points of its 13.1% holding in the company while the National Bank of Egypt (NBE) wants to offload its entire 49.8% stake. Egypt Kuwait Holding (EKH) bid to acquire a controlling stake of 52.8% in Emisal back in February. EKH is facing competition from a consortium made up of Kuwait’s Al Madar Finance and Investment and the Saudi-Egyptian Industrial Investment (SEII), which bid EGP 700 mn for the company back in June. NBE is leading the sale process on behalf of other state-owned shareholders.

STARTUP WATCH- Career advice platform Career180 has secured USD 100k in seed funding from education-focused venture capital firm EdVentures, according to an emailed statement (pdf). Career180, which was established in 2016, plans to use the funding to develop its online platform and expand its offline presence by bringing its career advising workshops to more governorates across the country. The startup’s services are geared towards university students and fresh graduates to better prepare them for entry into the labor market.

Also on planet startup: Edtech venture Knowledge Officer has been awarded USD 500k by Innovate UK for being among the best game-changing ideas intended for commercialization, Menabytes reports. The London-based startup, founded by Egyptians Ahmed El Sharkasy and Ahmed Eshra, has over 100k users and describes itself as Google Maps for learning. It offers skills analysis and a customized learning path for people wanting to transition into new careers.

Gov’t to begin talks with banks over USD 2.5-3 bn eurobond issuance within three weeks: The Finance Ministry expects to begin talks within three weeks with some 20 international investment banks and 7-8 local and international law firms to advise on a USD 2.5-3 bn issuance of USD-denominated eurobonds on the Luxembourg Stock Exchange, government sources told the local press. JPMorgan, Morgan Stanley, Natixis, BNP Paribas, HSBC, and Citibank are among the investment banks the ministry plans to approach, the sources reportedly said. Four or five banks in total will be enlisted to manage the planned issuance. The government will choose the advisers by the end of October, with an eye to issue the bonds either at the end of this year or the beginning of 2020.

Background: The ministry had received cabinet approval to issue USD 5 bn-worth of eurobonds this fiscal year, which began in July. The government, which earlier this year raised the limit of its eurobond program to USD 30 bn from USD 20 bn, last issued eurobonds in April when it sold EUR 1.25 bn in 12-year bonds at a 6.375% yield and EUR 750 mn in six-year bonds at a rate of 4.75%.

EXCLUSIVE- Gov’t to digitize its log of real estate asset sales to collect 2.5% levy: The Tax Authority is setting up an electronic system to record real estate sales that would be subject to the 2.5% real estate tax, two government sources told Enterprise. The levy was set last June on the disposition or quick sale value of real estate assets under amendments to the tax code affecting real estate. Under the stipulations, property owners would not have access to basic services such as power and water until they are able to present proof that they have paid the necessary taxes. The system, which is currently operating on a trial basis and will be rolled out officially next month, is expected to increase the state’s real estate tax revenues to EGP 20 bn, compared to EGP 6.5 bn as of June 2018.

So how does it work? The new system will be apply to sales and purchases by individuals and companies and will run through real estate registry and public utility offices. Real estate developers will be required to only provide their clients with official property deeds once they present proof of having paid the tax. Real estate asset sales between individuals will be processed via the same system. The Justice Ministry will be responsible for logging legal cases filed for transfer of ownership between individuals, while the Electricity Ministry will do the same for requests to change homeowner information for electricity meters.

Background: A government source told us last June that the Madbouly Cabinet was devising a new real estate tax formula as part of a major real estate tax overhaul that would impact both business and private landholdings. This new formula would set “clear and simplified” guidelines for the tax assessment of industrial properties, hotels, ports, and airports, our sources told us. It was then revealed to us that the Finance Ministry had developed a real estate tax formula for the oil and gas industry, which already pays the highest corporate taxes in the nation.

EXCLUSIVE- The government has received upward of 100 requests from exporters looking to settle around EGP 900 mn-worth of overdue subsidies, a government official told Enterprise. Authorities have already finished calculating overdue payments for 40 companies, including Toshiba and Zanussi, and is ready to disburse their dues. Under an agreement reached with exporters in May, those companies will be able to write off the overdue amounts against their taxes as an alternative to cash payments. They would also be allowed to apply for industrial land at a discount through the government’s new online land allocation portal.

Background: The government started implementing a new EGP 6 bn new export subsidy framework last week, and said it is taking more steps to settle overdue payments promised by the Export Subsidy Fund since 2012. According to a statement issued then, around 1,000 small companies and exporters are set to receive their dues “immediately,” while larger corporations will be encouraged to commit to new investments to speed up their payments. The first settlement agreement after this promise was signed last weekend with Sumitomo Tires. Finance Minister Mohamed Maait said the ministry has already disbursed some EGP 1.4 bn, according to local press reports. Businesses had earlier claimed that no contracts have been signed.

MOVES- Allianz Egypt Life Insurance Managing Director Ayman Hegazy (LinkedIn) has been appointed as chairman of the board. Hegazy succeeds Antoine Issa, CEO of Allianz Group in the Middle East and North Africa, according to Al Mal. Mohamed Mehran was appointed as vice chairman of the board.

Weekend protests continue to hold the attention of the foreign press: Protesters clashed with police for the second night in a row in Suez on Saturday, AFP reports. Witnesses told the newswire that some demonstrators were met with tear gas and rubber bullets. The story continues to lead the conversation on Egypt (Associated Press | BBC | The Independent | The Guardian | Financial Times). The State Information Service yesterday called on foreign journalists to “strictly abide by professional codes of conduct” when reporting on the protests.

Onetime contractor and actor Mohamed Ali’s role in calling for the protests is the subject of a New York Times piece noting that he was not in the public eye until he began posting videos a few weeks ago alleging the government has been misusing public funds. The AP reports, meanwhile, reports that the brother of 2011 activist Wael Ghonim was ordered held in custody for 15 days pending investigation of charges he participated in the activities of a banned group and disseminated fake news.

GERD is also still a hot topic: The Ethiopian dam should not come at the expense of Egyptian lives, Foreign Minister Sameh Shoukry told Al Monitor at the Egyptian mission to the United Nations in New York. “For Egypt, the matter of the Nile is a matter of life and death,” he said.

Egypt’s human rights record is also getting play in the international press two years after the unfurling of the rainbow flag at a Mashrou’ Leila concert. LGBT people continue to face threats in Egypt, Open Democracy says. The average number of LGBT people arrested in Egypt every year between 2013 and 2017 was five times that of the previous 13 years, according to data cited in the article.

The specter of a global recession makes the very wealthy extra risk-averse: As the Bank of America's global fund manager survey estimates the risk of recession as being at its highest since 2009, ultra high-net worth investors are adopting a more defensive stance in a bid to protect their assets, according to Business Insider. With yields on short-term US bonds eclipsing those of long-term bonds in August for the first time since 2007, the very wealthy are seeing less value in the bond market, and seeking to reduce their exposure to risks associated with interest rate and market fluctuations. Instead, they are increasingly stockpiling cash, hoping to maintain liquidity. Those who don’t want to shift away from equities altogether are gravitating towards index and low volatility ETFs, as well as dividend-paying stocks with solid balance sheets. And gold is outperforming both stocks and bonds, seeing its value soar from USD 1.2k to over USD 1.5k per ounce in the space of a year.

The advice across the board? Don’t get too emotional. Conventional asset protection wisdom stresses the value of a diversified portfolio, with a mixture of stocks and bonds tending to offer stability even in a volatile climate. But wealth managers are also urging their clients not to underestimate the value of time. The markets are jittery at the moment, but short-term swings appear very different when looked at in the long-term. And sometimes it’s worth just staying the course and sticking to a long-term investment plan, rather than seeking to anticipate every market development — an investment approach that, interestingly, reflects the philosophy articulated by EGX chairman Mohamed Farid in a conversation we held back in February.

Is China’s race to lead AI bringing Big Brother to the classroom? A multi-bn USD project in China constitutes one of the world’s biggest experiments in AI education, but the bid to boost the grades of 200 mn students comes at a high cost, this Wall Street Journal video suggests (watch, runtime: 05:43). Among several high-tech initiatives, the daily use of a brainwave-sensing gadget on groups of children aged around 10 is one of the most controversial. The device picks up on electrical signals sent by neurons in the brain, and feeds this data to a computer, where it is intended to assess the attentiveness of each student.

It generates powerful algorithms, but the data may not be fully reliable: Neuroscientists have expressed concern at this measurement — electroencephalography (EEG) — being used in a classroom. Not only is it notoriously susceptible to false readings, but there are likely no privacy protections in place for the students, and, with their every brainwave under scrutiny, many are feeling additional pressure. Teachers, however, say that ultimately the students are more attentive during class and achieve higher grades as a result.

El Sisi sits down with world leaders, FAO director in New York: President Abdel Fattah El Sisi discussed political and economic cooperation with Jordanian King Abdullah II and Iraqi President Barham Salih in New York, where El Sisi landed on Saturday, according to an Ittihadiya statement. El Sisi also held talks with Sierra Leonean President Julius Maada Bio and Food and Agriculture Organization of the UN (FAO) Director-General Qu Dongyu.

Renewable energy company Empower is considering investing EGP 300 mn in the construction of three new waste-to-energy plants, Chairman Hatem El Gamal told Al Shorouk. The plants would be powered by agricultural waste collected from farmers.

Enppi has started working with Saudi Aramco to help repair the Shaybah field, and Abqaiq and Khurais refineries after the recent attack on the facilities, a source told the local press. Enppi engineers have been sent to inspect the facilities and provide a technical report on the size of the necessary repairs.

The Supply Ministry will launch next month Egypt’s first exchange for industrial and agricultural commodities, where traders usually buy and sell futures contracts, Minister Ali El Moselhy said, according to a cabinet statement. The exchange will be 60% owned by the state and 40% by the private sector. It will initially allow five commodities — flour, iron, oil, corn, and cement — to be traded. Setting up a commodities exchange will help the government better calculate taxes, EGX boss Mohamed Farid added.

Saudi Arabian real estate investment company Darwaza Group is planning to invest EGP 10 bn in Egypt, said Hamad Al Showair, head of the National Real Estate Committee at the Council of Saudi Chambers. He did not give details on the company’s projects or a timeframe.

Turkish Airlines will begin operating its first flight to Luxor from Istanbul today, head of the chamber of tourism companies in Luxor Tharwat Agamy told Al Mal. The flights will run four times a week, and are expected to bring European and American tourists.

The restoration of King Tutankhamun’s coffin will take between seven and nine months, Antiquities Minister Khaled El Anany told reporters on Saturday. The coffin arrived at the new Grand Egyptian Museum (GEM) six weeks ago, and is intended to be displayed beside other golden coffins and artifacts of ancient Egypt’s most famous king when the museum opens in 4Q 2020.

Greece’s Port of Piraeus has seen revenues increase 14.1% y-o-y in 1H2019 thanks to shipping alliances abandoning East Port Said due to high fees, according to a report by China’s COSCO Shipping picked up by Al Mal. The Transport Ministry has increased port fees by 200%, prompting shipping companies to search for other alternatives. International shipping alliance Ocean Alliance ceased operations in East Port Said in August 2018 in protest at the higher fees. The group includes CMA CGM Group, APL, Evergreen, and China’s COSCO Shipping, which operates the Piraeus port. The government recently approved new incentives that included a 45% fee discount in order to make Egyptian ports more competitive.

The government will begin operating early next month a shipping line from Ain Sokhna Port to Mombasa Port in Kenya, Public Enterprise Minister Hisham Tawfik said, according to Hapi Journal. The line will offer “a full range of transport and logistics services” to global traders working with East African countries, Tawfik added.

CIB has partnered with money transfer company Transfast to allow Egyptian expats to send remittances to bank accounts in Egypt, reports Akhbar Al Youm. The agreement will also allow collecting money in cash from over 950 locations.

The New Urban Communities Authority (NUCA) will issue another EGP 10 bn in securitized bonds before the end of 2019, sources told the local press. The National Bank of Egypt, CIB, the Arab African International Bank, and EFG Hermes are on board to manage the issuance, and the authority is in talks with the European Bank for Reconstruction and Development to join. NUCA is awaiting a guarantee from the Finance Ministry that should be issued next month, before signing with the banks managing the operation. The authority offered EGP 6 bn of securitized bonds in July, which were fully covered by three local banks.

The National Bank of Egypt (NBE) aims to arrange a EGP 1 bn joint loan for the Saudi Egyptian Company for Development (SECON), banking sources told Al Shorouk without naming the other parties involved. The company, formerly known as the Saudi Egyptian Construction Company, will use the loan to fund part of its EGP 3.5 bn Nile Towers project along Corniche El Maadi. NBE and Banque Misr had loaned SECON EGP 600 mn in 2016 for the same project. The company aims to increase its investment in Egypt’s real estate market by an additional EGP 5 bn in the coming three years.

Zulficar & Partners and the UK’s Allen & Overy have been tapped to restructure Americana Egypt on a regional level, the local press reported. No further details were provided, but the restructuring plans come after the Financial Regulatory Authority (FRA) last month ordered the majority shareholder Adeptio AD Investments to make a mandatory tender offer (MTO). Adeptio, which is led by Emirati businessman Mohamed Alabbar, acquired 67% of Americana Egypt’s parent company Kuwait Food Company (Americana) in 2016. This resulted in Adeptio controlling some 90% of the subsidiary’s shares, and prompted the FRA to order an MTO to purchase the remaining shares.

The Finance Ministry has published the FY2019-2020 citizen budget, an initiative started in 2010 to increase citizen participation in economic policy. The document highlights government spending targets on health, education and social programs contained in the FY2019-2020 budget.

Egyptian, Saudi, Jordanian, Djiboutian, Sudanese, and Yemeni naval forces are taking part in the “Red Waves 2” military drills, which kicked off yesterday in Saudi Red Sea waters, the Armed Forces said in a statement. The drills are expected to wrap up in a few days. Separately, Egyptian and French naval forces held a joint drill in the Mediterranean Sea to boost military ties, the Defense Ministry said in a statement.

Asteroid named after Egyptian scientist Farouk El Baz: The World Astronomical Union of the United Nations named a newly-discovered asteroid, El-Baz, after the Egyptian astronomer Farouk El-Baz in recognition of his scientific contributions, according to the local press. El-Baz worked with Nasa on the Apollo project to explore the surface of the moon in the 1960s. This is not the first time the Egyptian space scientist was recognized by something named after him: El-Baz was also honored by Star Trek, with the naming of a shuttle pod.