AM — The EGX30 is in correction territory as chaos sweeps the global commodities market

Good morning, friends and welcome to another really busy news day. Before we get this show on the road, a quick warning from your friendly neighborhood weather service:

PSA #1- Close your windows — it’s going to be another dusty day. The Egyptian Meteorological Authority is predicting another sandstorm today across several cities including Cairo — and rain in other parts, including Alexandria. The mercury will reach a high of 25°C in Cairo today, with an overnight low of 14°C. Our favourite weather app doesn’t see today’s storm, but is claiming we could face winds and blowing sand on Thursday. Either way, be prepared.

THE BIG STORY in financial markets here and abroad- Stocks are now well into correction territory, meaning benchmark indexes are now down more than 10% from a recent high.

The EGX 30 slipped into correction yesterday after turmoil in global energy markets caused the benchmark index to hit its lowest level since early October. Shares slid 3.6% during trading amid upheaval in the energy and other commodities markets, prompted by fears that the US and Europe could move to blockade Russian oil and gas exports. The index is now down 10.4% year-to-date, putting it in correction territory for the second time in less than a year.

US stocks had their worst day in 17 months yesterday in response to the turmoil in the commodities markets. The S&P 500 re-entered correction territory falling almost 3% (its sharpest drop since May 2020), while the Nasdaq Composite is in a bear market, now down 18% YTD after sliding 3.7% during yesterday’s session.

Germany’s DAX and the pan-European Euro Stoxx 50 became bear markets earlier in the day in Europe.

Today isn’t looking much better: Major Asian benchmarks including the Nikkei, Shanghai, ASX 200, and KOSPI are all in the red this morning, with the Hang Seng being the only one bucking the trend. Futures suggest it will be red as far as the eye can see in Europe at the opening bell. Shares in Toronto will face selling pressure, while Wall Street could yet open in the green.

WHAT’S HAPPENING TODAY-

It’s gadget day for the Apple faithful as the tech giant holds its traditional spring event. Pundits expect a new iPad Air, an updated entry-level iPhone SE, a Mac of some form and — possibly, for the first time in years — a standalone display. The event starts at 8pm CLT and you can tune in here on Apple’s website or here on its Youtube page.

Look out, semsars: The final vote in the House of Representatives on amendments to the law regulating commercial and real estate brokerage will be held in today’s plenary session. After receiving initial approval on Sunday, a further amendment to the bill outlining penalties was given a preliminary nod by lawmakers yesterday. Under the amendment, brokers could face up to two years in prison and fines ranging between EGP 50k and EGP 1 mn if they break the law, according to Ahram Online.

About the bill: The legislation aims to bring real estate brokers into the formal economy and crack down on what policymakers say is illegal activity in the sector. It would set up an electronic registry for licensed brokers, set rules for their activities, and regulate the fees they charge.

SMART POLICY #1- Bank accounts for all. Egyptians can open bank accounts without charge and with no minimum deposit starting today through the end of March as part of the Central Bank of Egypt’s financial inclusion strategy, Al Mal reported yesterday. Banks will also provide an additional number of services at no cost over the next three weeks in an effort to attract more of the unbanked into the financial system.

SMART POLICY #2- Manufacturers will reportedly be required to include expiration dates on product labels starting May, according to new rules issued by the Consumer Protection Agency.

MARKET WATCH- The commodities crunch is accelerating across the globe: The implications of trying to shut out the world’s second-largest commodity producer from the global economy are becoming clearer with each passing day. It was another day of chaos in commodities markets yesterday with everything from energy to metals and wheat seeing historic price moves as investors reckoned with the fallout from the conflict in Ukraine and the attempts by the West to isolate Russia’s economy. Here’s a snapshot:

• Brent futures rose as much as 18% to highs not seen since 2008 on concerns that the US and Europe will ban imports of Russian oil and gas. After surging to almost USD 140 a barrel in early trading, the oil benchmark pared gains to close at USD 124.40 — the biggest daily swing in history.
• US wheat futures reached record highs yesterday, climbing 7% to USD 12.94 a bushel. Chicago wheat has now risen 52% in the past two weeks.
• Natural gas prices in Europe reached dizzying new heights: The benchmark Dutch TTF contract rose as much as 79% yesterday to the equivalent of more than a USD 600 barrel of oil.
• Nickel rose an incredible 90% in a single day to reach a new record high, in what Bloomberg described as “one of the most extreme price moves ever seen on the London Metal Exchange.” Russia is one of the world’s biggest suppliers of the metal.

The bond market is beginning to hint at recession: The spread between 2-year and 10-year US treasuries narrowed below 20 bps yesterday, an indication of growing concerns among investors that the US economy could fall into recession. Inverted yield curves, which occur when short-term bonds are viewed as riskier than long-term debt, have historically been a reliable forecaster of recessions.

Unfortunately for us, saner heads do not seem to be prevailing in Washington or Moscow, meaning that the situation is likely to get worse before it gets better. We have more on this in this morning’s War Watch, below.

FROM THE DEPT. OF “IS THIS WHY HEDGIES UNDERPERFORM?”- Bill Ackman thinks that World War III has already begun and the rest of us are just slow on the uptake. He also “compared the use of Russian rockets against Ukrainian citizens to Adolf Hitler’s gas chambers,” Business Insider notes. The Pershing Square boss said on Twitter he feels today as he did in January 2020, when he was worried that covid-19 would become a pandemic.

MEANWHILE- Keeping track of the covid toll: More than 6 mn people around the world have now died as a result of covid-19, according to data tracked by Johns Hopkins University.

CIRCLE YOUR CALENDAR-

US Deputy Secretary of State Wendy Sherman will be in town for two days this week starting Thursday. Sherman will meet with Foreign Minister Sameh Shoukry and “other senior officials,” including National Council for Human Rights chief Moushira Khattab.

Contemporary art and culture center Darb1718 is hosting its 3031 Art Festival until next Saturday, 12 March on its premises in Fustat, Old Cairo.

Other news triggers to keep your eye on over the next few weeks:

• Inflation: Inflation figures for February will be released on Thursday, 10 March.
• Interest rates: The Central Bank of Egypt will hold its next monetary policy meeting on Thursday, 24 March.

The Ahlan Ramadan supermarket expo will take place from 24 March to 1 April at the Cairo International Convention Center.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

In today’s issue: The executive regulations for the Waste Management Act are finally out. In this week’s Going Green, we parse through the regs to find out how the government is planning to address the country’s serious waste problem.

The government will likely have to revisit its fiscal targets for FY2022-2023 in light of the war in Ukraine and its implications on the global economy, Finance Minister Mohamed Maait said in a presser yesterday. The Finance Ministry had finished the draft 2022-2023 budget earlier this year but will now need to revise it to account for the new supply disruptions, rising commodity prices, and the drop in tourism from Russia and Ukraine, Maait said. “The war has mixed everything up,” he said. “Global markets have been hit by uncertainty because no one knows how long this will last."

Pre-Ukraine targets: Initial figures released by the ministry in January forecast 5.7% economic growth during FY 2022-2023 and saw the budget deficit narrowing to 6.1%. Debt was expected to decline to less than 90% of GDP.

We could miss our deficit target this year: The ministry set an “optimistic” budget deficit target of 6.7% for 2021-2022 but now has to reckon with a higher import bill, Maait said. “We will do our best to stay within the range of 6.7%, but I can’t give exact numbers due to the uncertainty and volatility of the situation,” he said.

Otherwise, he was tightlipped on how the conflict may affect next year’s budget: It was unclear whether the government is planning to make adjustments to spending or to what extent it is reevaluating its fiscal targets in light of the escalating global headwinds.

We’ll find out on 31 March when the updated draft budget is presented to the House of Representatives for discussion, according to the minister.

A REMINDER- Maait, Oil Minister Tarek El Molla and Supply Minister Ali El Moselhy have been leading on cabinet’s effort to keep the public abreast of the impact here of war in Ukraine. Not terribly long ago, our response would have been to bury our head in the sand. Cabinet deserves credit for being up-front and forthright about how they’re handling a crisis they neither created nor control.

US looks to move ahead with Russia oil ban, undeterred by commodities chaos: US lawmakers from both sides of the aisle are backing a plan to ban imports of Russian oil and sever trade relations with the country, Reuters reports. The framework was authored by Republican and Democratic lawmakers who sit on trade committees in the House and Senate, and could be put up for a vote in the House as soon as Tuesday, a congressional aide told the newswire.

Some European countries aren’t on board with an embargo on Russian energy, but two sources told Reuters that Washington is happy to go it alone and ban Russian oil from its shores. US officials have been in talks with European leaders over a joint ban but European nations are split over whether to sanction Russian oil and gas. Germany yesterday publicly opposed the idea while other nations such as Poland are calling for action, Bloomberg reports.

But it does want to slash imports this year: The bloc wants to cut up to two-thirds of its energy imports from Russia, the EU Commission said yesterday. This seems like a tall order given the continent relies on Russia for 40% of its gas, but a realignment of the continent’s energy strategy could open a space for producers such as Egypt to increase exports.

Russia threatens to suspend key gas pipeline to Europe: The Russian deputy prime minister threatened to cut off gas supplies to Europe delivered through the Nordstream 1 pipeline if Western governments move to reduce purchases from Russia, according to Reuters. Alexander Novak, who also handles energy policy, said that a restriction of Russian supplies could push oil prices to USD 300 a barrel, and warned that Moscow could respond to energy sanctions by shuttering the pipeline.

TALKS HAVE BROKEN DOWN-

A third round of direct talks between the two sides failed to produce a breakthrough yesterday after Ukraine rejected Moscow’s demands, the Washington Post reports. The Kremlin said yesterday that it will stop the bombardment “in a moment” if Ukraine accedes to its demands. Moscow wants Kyiv to enshrine neutrality in its constitution, recognize Crimea as Russian territory, and allow the breakaway states in the east of the country to become independent, spokesperson Dmitry Peskov said, according to Reuters.

Small signs of progress: Negotiators brokered an agreement to establish humanitarian corridors to allow civilians to escape the fighting, and Russia’s UN ambassador announced that it will abide by a ceasefire starting 10am Moscow time, according to the Associated Press.

ON THE GROUND-

Rockets continue to be fired on the north and south of the country, disrupting plans to evacuate civilians via humanitarian corridors, the Wall Street Journal reports. More than 200k citizens in the southeastern city of Mariupo are at grave risk, Human Rights Watch said, and have not had access to running water, electricity, or heat since 2 March, when Russian forces began to besiege the city. Three evacuation attempts were canceled since then due to continued attacks.

Meanwhile outside Kyiv, Russian troops are preparing to seize the capital from the east and west in an operation Institute for the Study of War believes will start in the next few days.

THE HUMAN TOLL- Around 1.7 mn Ukrainians have fled their country so far, according to the UN refugee agency. This is the biggest refugee crisis in Europe since World War II.

PLANET WAR FINANCE-

There’s now an 80% chance that Russia will default on its debt, after credit default swaps on Russian bonds rose to record highs yesterday, Bloomberg reported yesterday, citing ICE Data Services. Ratings agencies Moody’s, Fitch and S&P have all slashed the country’s sovereign rating to “junk” status, after the US imposed sanctions on Russian sovereign debt and its central bank, and banned some of its banks from the SWIFT payments system.

Russia is officially the most sanctioned country on Earth, taking the ignominious prize out of the hands of countries like Iran and North Korea. The country has been slapped with almost 2.8k new sanctions since 22 February, taking the total to more than 5.5k, according to Bloomberg.

EXODUS-

Fitch has become the second western credit rating agency to suspend its operations in Russia, according to Reuters. The firm said that its activities in the country would cease with immediate effect and that its analysts would cover the country from abroad. Moody’s was the first major rating agency to leave the country, announcing an end to its operations at the weekend.

The price of unsubsidized bread in the Greater Cairo area has risen by as much as 50% in the course of a week as global wheat prices soar following Russia’s invasion of Ukraine, Bloomberg reports. A pack of five balady loaves can now cost EGP 7.50 in Cairo, up from EGP 5.00 last week, said Khaled Sabri, a member of the bakeries division at the Federation of Egyptian Chambers of Commerce.

Russia’s war in Ukraine has sent global wheat prices spiraling as markets are deprived of supply from the Black Sea region, which accounts for around a quarter of the world’s grain and the bulk of imports to Egypt. As of last week, Egypt was facing prices 37% higher than its forecast in the 2021-2022 budget, a shock that could increase the government’s wheat spend by up to EGP 15 bn this fiscal year.

Bakeries are feeling the strain: Local bakers are “getting a ton of flour for EGP 12.3k versus EGP 9k a week ago, on top of the high price they pay for everything from electricity to fuel,” head of the bakeries division at the Cairo Chamber of Commerce Attia Hamad told Ala Mas’ouleety on Saturday (watch, runtime 10:15).

Where the global price hikes matter most is in their impact on bread subsidies. The majority of our wheat — both local and imported — ends up as subsidized loaves, which are handed out to more than 60 mn Egyptians. The Madbouly government is now considering raising the price of subsidized loaves to cope with the costs and is expected to announce plans to taper its subsidy program at the end of March. While the state will need to find a way to cope with the burden on its coffers, lifting subsidies would come with its own drawbacks — including a likely rise in inflation, Al Ahly Pharos’ head of research Radwa El Swaify said earlier this week.

ANECDOTALLY- Prices of chicken and other staples also seem to be facing some upward pressure. The issue made headlines on last night’s talk shows (below).

Qatar’s Baladna acquires 5% stake in Juhayna: Qatari dairy firm Baladna has acquired a 5% stake (47.1 mn shares) in leading Egyptian dairy company Juhayna (JUFO) for EGP 285.8 mn, the firm said in a disclosure to the Qatar Stock Exchange. That works out to an average price per share of EGP 6.07. JUFO shares fell 2.7% in trading yesterday to EGP 5.70.

This makes Baladna the company’s third-largest shareholder: Pharon Investment — an offshore vehicle owned by the Thabet family — owns 50.1%, and Rimco Investments holds 10.6%.

A good time to jump in on JUFO. The local dairy firm posted strong growth in its latest earnings release, with its bottom line rising 28% during 9M2021 on the back of a 16% increase in revenues. JUFO is also under new management, having tapped new group CEO Niels Thomsen a few weeks ago. Baladna’s entry comes nearly a year after reports that Abu Dhabi’s sovereign wealth fund was eyeing a stake in the dairy producer, though there has been no news on that front since.

OTHER M&A NEWS- Compass again ups stake in Rameda as part of a block transaction that saw 6.4% of the company’s shares change hands: Rameda Pharma’s largest shareholder, Equinox Pharma, has purchased another 1.8% of the company, raising its stake to 17.5%, Rameda announced in a statement (pdf) yesterday. Equinox is owned by Compass Investment, which acquired 100% of Rameda in 2011 before listing it on the EGX in 2019, and last year upped its stake in the pharma firm by 2.7 points to 15.4%.

Equinox wasn’t the only investor to acquire shares: An unnamed GCC institutional investor and an executive board member of Rameda also bought shares in the company, the statement said. Including Equinox’s purchase, 6.4% of the company (64.3 mn shares) was sold via a block trade worth EGP 128.6 mn, for an average share price of EGP 2.00 per share. Rameda shares closed 7% lower yesterday at EGP 2.00.

On the sell-side: The shares were sold by several pre-IPO investors including Seddik Mohamed Seddik, company spokesperson Yasmine Negm told Enterprise. Rameda announced late last year that Seddik was selling a 5% stake (49 mn shares) in the company to an unnamed foreign institutional investor, on the condition that the investor holds onto the shares for the remainder of Seddik’s post-IPO lock-up period.

What they said: “Just two years after its listing, and with solid year-end results reported by the company in 2021, we believe that Rameda is on track to generate exceptional growth in both the short and long-term,” said Equinox MD (and Compass chief) Shamel Aboul Fadel.

Trucking startup Naqla has raised USD 10.5 mn in a pre-series A round led by El Sewedy Capital Holding, Hassan Allam Holding and the Sallam family, according to a press release out yesterday.

How the funding will be deployed: Naqla will use the funding to launch new segments including its Naqla Store selling heavy automotive maintenance products to drivers, as well as for driver financing and “scaling our pool of talent and tech product,” co-founder and CEO Sherif Taher told us.

About Naqla: Founded in 2017 by Taher and Samer Sallam, the startup’s B2B logistics platform connects individual truck drivers with cargo companies and offers road assistance, finance, ins., healthcare and maintenance services to the drivers in its network. The startup is now working with over 400 shipping firms and 10.5k drivers nationwide, and has so far helped deliver over 4.6 mn tons of cargo.

The Sallam family are synonymous with consumer goods in Egypt, having founded brands including Btech and Olympic Group. A family vehicle recently invested in real estate developer MNHD.

Egypt-based pharma delivery platform Chefaa has raised an undisclosed sum in a funding round led by South African VC Newtown Partners, Japan-based Global Brain and US investor GMS Capital Partners, a press release out yesterday. The round marks the three VCs’ first investment in the Egyptian market, according to the release.

Chefaa is branching out into ins. services: The startup will use the fund to launch its Chefaa Prime medical ins. alternative, a subscription-based service “designed for emerging markets.” The round will also fund Chefaa’s “efforts to digitize chronic illness management” and help it enter unspecified new markets, the release read.

Background: Founded in 2017, the female-led startup operates an AI-powered platform for buying pharma products, which allows customers to scan their prescriptions, locate their nearest pharmacies and order meds online. Chefaa closed a seven-figure USD pre-series A round in 2020, after raising a six-figure USD sum from Flat6Labs and 500Startups in a 2019 seed round. The pharma delivery platform was among 10 MENA startups to take part in the first iteration of the Google-led three-month digital accelerator program in MENA last year.

Housing and Development Bank’s (HDB) net income rose 5% in 4Q 2021 to EGP 396 mn, according to the bank’s latest earnings release (pdf). The bank reported net interest income of EGP 818 mn during the quarter, down almost 1% from 4Q 2020.

In 2021: HDB reported EGP 1.8 bn in net income through the year up almost 2% from 2020. This was supported by 17% growth in net interest income, which rose to EGP 3.6 bn on the back of increased gross loans and central bank deposits.

What they said: “With 2021 behind us, HDB can look back on several important achievements. The bank has successfully weathered the uncertainties of recent years and has made remarkable progress in its transition from an institution focused on real estate development and the financing of large projects to a full-fledged commercial bank that is increasingly aligned with the cutting edge of the Egyptian and global markets,” said Chairman Hassan Ghanem.

Palm Hills Developments (PHD) recorded a 16% growth in its bottom line in 2021, driven by a strong increase in new sales, the real estate developer said in its 4Q earnings release (pdf) yesterday. The company reported net income of EGP 824 mn during the year, supported by a 48% increase in revenues which reached EGP 7.7 bn.

In detail: Revenues from new sales grew 35% in 2021 to EGP 17.3 bn, the bulk of which came from the company’s residential developments which brought in EGP 15.3 bn. Growth was strongest in PHD’s North Coast projects, which saw sales increase 70% to EGP 7.1 bn. Developments in West Cairo recorded EGP 7.3 bn in revenues, up 10% from 2020, while East Cairo sales rose 49% to EGP 2.9 bn.

Looking ahead: PHD expects new sales to increase 16% to EGP 20 bn in 2022. The company said it will increase delivered units to more than 2k this year, up from 1.3k in 2021, and it expects to spend EGP 3.4 bn on construction and development.

The economic drumbeat of war was once again amplified on our airwaves last night. Discussions on the rising prices of meat, poultry and food items took place on Masaa DMC (watch, runtime 5:19) with Supply Ministry official Abdel Moneim Khalil saying that price increases are the result of an “exploitation” of the Ukraine situation by some vendors.

Imported inflation: Economics professor Karim El Omda broke down how a war in Europe will affect the cost of food in our supermarkets in a phone-in with Kelma Akhira’s Lamees El Hadidi (watch, runtime 8:59) who also highlighted the rising prices of oil and gold on her show (watch, runtime 15:24).

Could covid restrictions ease during Ramadan? This could be up to debate if we reach a 70% vaccination rate, Health Ministry spokesperson Hossam Abdel Ghaffar told Kelma Akhira in a phone-in (watch, runtime 11:52), adding that the decision is up to the supreme committee responsible for managing the pandemic. Around 30 mn citizens have been vaccinated so far, he added, which has significantly reduced the number of covid cases across the country.

It’s a slow morning in the foreign press as far as Egypt’s concerned — that is, if you ignore the deluge of headlines screaming “wheat crisis.” In non-Ukraine / commodities news, the Washington Post has an opinion piece from Ezzedine C. Fishere on what the ongoing investigation into journalist Ibrahim Eissa says about the contradictory nature of religious discourse in Egypt. Meanwhile, Al Monitor reports that a number of MPs are pushing for people to undergo mandatory psychiatric evaluations before they get married in a bid to stem domestic violence.

EBRD to offer more support for SCZone’s digital transformation: The European Bank for Reconstruction and Development (EBRD) signed an agreement on Saturday to extend its assistance for the digitalization of the Suez Canal Economic Zone, the bank said in a statement yesterday. The lender has already completed the first phase of technical support — helping the SCZone deliver seamless, digital investor services, including licenses and permits — with the second phase set to be launched in 1H2022.

The bank signed three other agreements last week during the launch event for the lender’s new 2022-2027 Egypt strategy. The EBRD signed off on the EUR 250 mn loan for the Alexandria metro project, agreed to set up a new initiative aimed at developing skills in Egypt’s tourism sector, and inked an MoU with the electricity and oil ministries to assess Egypt’s hydrogen production potential.

ALSO- Mass transit app Swvl is partnering with fintech startup Paynas to provide its drivers with financial services (pdf) including compensation payouts, buy-now-pay-later options and ins. policies.