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USD CBE auction (Tuesday, 27 Sep): 8.78 (unchanged since 16 March 2016)
USD parallel market (Monday, 03 Oct): 13.80-13.85 (up from 13.40-13.65 on Sunday, 02 Oct, Al Mal, AMAY)

EGX30 (Monday): 8,133.12 (+3.2%)
Turnover: EGP 757.8 mn (75% above the 90-day average)
EGX 30 year-to-date: +16.1%

THE MARKET ON MONDAY: The benchmark EGX30 jumped 3.2% on the hopes of an imminent devaluation. TMG Holding and CIB were both up, with the sole losers of the day being Domty and Cairo Oils and Soap. The top gainers were Sodic, Global Telecom and EFG Hermes. Market turnover was EGP 757.8 mn with foreign investors the sole net buyers of the day.

Foreigners: Net Long | EGP +52.7 mn
Regional: Net Short | EGP -22.1 mn
Domestic: Net Short | EGP -30.6 mn

Retail: 61.9% of total trades | 61.9% of buyers | 61.9% of sellers
Institutions: 38.1% of total trades | 38.1% of buyers | 38.1% of sellers

Foreign: 21.0% of total | 24.5% of buyers | 17.5% of sellers
Regional: 10.7% of total | 9.2% of buyers | 12.2% of sellers
Domestic: 68.3% of total | 66.3% of buyers | 70.3% of sellers

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PHAROS VIEW

Much ado about something: Thoughts on devaluation

Pharos puts the imminent devaluation into perspective, starting by addressing the media frenzy witnessed about when the devaluation would take place, then breaking down what is really important.

What we know and what we don’t know

In Pharos’ view, timing is secondary to how devaluation happens and how effective it will be. The investment bank then goes on to raise and address the key issues. First, USD funding pledges were made, but have the funds been transferred? As far as we know, funding packages from Saudi Arabia and China have yet to be reflected in NIR. However, there is the possibility that the funds have been transferred with no announcement made to surprise the market with the timing of the devaluation. Next: Does devaluation have to happen before or around the time of the IMF’s annual meeting? Pharos does not see devaluation being mandated to occur before the annual meeting as a show of good faith — devaluation would be around the time of the meetings and not necessarily beforehand.

The IMF agreement entails NIR build-up, which means that the funding packages have to be well-rationed and not utilized in currency defense. Pharos reiterates its theoretical FV for the EGP / USD at around 11.75. Even if overshooting in rate does happen, the rate should eventually come back down to those levels.

Most importantly is the ‘how’ and not the ‘when’ of devaluation: What is key now is how devaluation is executed to attract FX into the banking system and out of the parallel market where it is currently circulating.

Click or tap here to read the full note.

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