BY THE NUMBERS
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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
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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.
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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%)
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