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EGP / USD CBE market average: Buy 18.8026 | Sell 19.1434
EGP / USD at CIB: Buy 18.65 | Sell 18.85
EGP / USD at NBE: Buy 18.65 | Sell 18.85

EGX30 (Monday): 12,182.04 (-0.56%)
Turnover: EGP 983.8 mn (126% above the 90-day average)
EGX 30 year-to-date: +73.9%

Foreigners: Net long | EGP +17.1 mn
Regional: Net long | EGP +20.2 mn
Domestic: Net short | EGP -37.3 mn

Retail: 80.6% of total trades | 85.0% of buyers | 76.2% of sellers
Institutions: 19.4% of total trades | 15.0% of buyers | 23.8% of sellers

Foreign: 2.9% of total | 3.7% of buyers | 2.0% of sellers
Regional: 11.1% of total | 12.1% of buyers | 10.1% of sellers
Domestic: 86.0% of total | 84.2% of buyers | 87.9% of sellers

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PHAROS VIEW

Enjoyed the Santa Claus Rally? Wait for the January Effect.

The US Dollar has been the unicorn of 2016, strengthening against major currencies, the most of which is against the EGP. Now, the mn USD question is: When and Where will the EGP Settle? Well, the EGP will settle and potentially strengthen when demand and supply fundamentals return to “the norm.”

Demand is currently overstated due to (1) the backlog of demand that has been piling up since the currency crisis in early 2016; (2) repatriation of profit by “some” foreign investors in Egypt, where some have refused to transfer profits at an exaggerated exchange rate; and (3) excess demand from raw material importers, in an attempt to build up inventory of raw materials to lock up costs and price the products accordingly. Most industrial producers import 70-90% of their raw materials, which represent around 60-70% of their total cost. Egypt’s importation bill is almost three times exports.

Supply is also currently understated due to (1) the weakness in the sustainable sources of foreign currency in Egypt, namely: FDIs, FPIs, Tourism, net exports and remittances; (2) Some hoarders are still holding on to the USD, because the scarcity is obviously not over yet, and (3) the high interest rates on the EGP certificates of deposit have not been the most efficient tool to induce the exchange of USD into EGP, since banking penetration in Egypt is still around 10%.

Will the EGP settle? We would not be surprised if the EGP continues with its gradual weakness, up until 1H2017, after which we expect the trend to start reversing. The question is where. For our thoughts on that, tap here to read the full noteby Pharos Head of Research Radwa El Swaify.

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