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Tuesday, 9 October 2018

What we’re tracking on 9 October 2018

It’s one of those good-news, bad-news mornings, folks.

On the good news side the ledger: One of the year’s most hotly anticipated IPOs is on as top construction and engineering group Hassan Allam Holding announced yesterday its intention to sell shares. That came as Egypt sold treasury bonds at auction yesterday, sign policymakers have the fortitude to make tough decisions. We have chapter and verse in Speed Round, below.

The benchmark EGX30 slid 3.6% yesterday to its lowest close in 12 months as “weakness in emerging markets and margin calls among local investors” bit hard on reasonably thin volumes. But we’re still not quite in bear territory: The EGX30 is down 15% since the end of August, so we have 5 ppt left to go before we hit the psychological 20% mark an can be said to be a bear market. The EGX30 is off nearly 9.5% year-to-date. We have more in Speed Round, below.

** #1 EM Zombie Apocalypse will bite heading into 2019: The IMF’s World Economic Outlook hit the streets a couple of hours ago, and it’s not looking wonderful for EM as a whole next year: The IMF sees emerging markets growth “flatlining” — unchanged at 4.7% this year and in 2019. That’s a substantial revision downward from the 4.9% for this year and 5.1% for next year that the IMF had predicted in July, and you have problems in Argentina, Turkey, South Africa and Iran (as well as a slowdown in China) to thank.

But on the good news side, the IMF is really bullish on Egypt: The fund writes that “Growth in Egypt is projected to rise to 5.5% in 2019 … reflecting a recovery in tourism, rising natural gas production, and continued improvements in confidence due to implementation of an ambitious reform program supported by the IMF’s Extended Fund Facility.” The IMF is also watching to make certain we stay the course on the reform agenda, writing that “healthy foreign reserves and a flexible exchange rate leave the economy well positioned to manage any acceleration in outflows,” but warning it will be “important” to maintain “sound macroeconomic frameworks and consistent policy implementation, which have led to a successful macroeconomic stabilization.”

What are the IMF’s projections on Egypt?

  • Five years of very strong economic growth: The economy will grow 5.3% this year and 5.5% in 2019 — and still be growing at a very brisk 6% as far out as 2023;
  • Unemployment will fall to 9.9% next year from 10.9% this year — down sharply from 12.2% in 2017.
  • Inflation will cool to 14.0% in 2019, down from 20.9% in 2018 and a high north of 30% last year. (Remember, folks, that the peak in the 30s last year was the central bank’s measure of inflation — real inflation for middle-class and upper-middle-class wage earners was in the low 80% range last year.)
  • The current account balance will improve to -2.4% of GDP next year from -2.6% this year and -6.3% in 2017.

We’re growing at more than 2x the pace of the MENA region, where the IMF sees average growth coming in at 2.0% this year and 2.5% in 2017. We’re also on track to outstrip growth in the wider “Middle East, North Africa, Afghanistan and Pakistan” region, where the fund is predicting 2.4% growth this year and 2.7% next year.

The global business press is having a field day with the notion of lower global growth as the IMF predicts the global economy advancing 3.7% this year and next, down from an original forecast of 3.9% for both years. Look to the Financial Times (great EM angle), Wall Street Journal, Reuters, Bloomberg or CNBC (drilling into the global impact of trade wars), depending on your preferences.

The release of the WEO comes as the Grand Wizards of High Finance convene in Bali for the fall meetings of the IMF and World Bank. Finance Minister Mohamed Maait and Vice Minister Ahmed Kouchouk are among those from Egypt attending. You can visit the World Economic Outlook landing page here or just download the full WEO (pdf). The landing page for the fall meetings is here. The gathering runs through Sunday, 14 October.

From the Department of Duh: The emerging market sell-off suggests that investors view EM as a homogenous “basket,” rather than accounting for individual merits and downsides, Bank Pekao CEO Michael Krupinski writes for the Financial Times’ Beyond BRICS blog. On the flipside, advanced economies are sometimes shrugged off as potential sources of financial instability, despite the 2008 financial crisis proving otherwise. “This flawed dichotomy between emerging and developed countries obscures the landscape and diverts investments away from healthy [ventures]. The recent pessimism regarding emerging markets is probably as unfounded as it is widespread, once we realize how diverse this group of economies really is.” Krupinski suggests setting up a different mechanism for assessing economic health, such as focusing more on the sustainability of each country’s economic policies.

Brent crude fell 1.3% to around USD 83/bbl yesterday as the Trump administration eyes waivers on Iran sanctions. The possible waivers have renewed hopes that the US may soften the blow on sanction on Iranian oil exports, Reuters reports. According to Bloomberg, the US was said to be in talks with countries that want to continue buying from Iran after the US imposes its sanctions on November 4.

In miscellany this morning to help get you through your commute (or that interminably long conference call you’re dreading):

  • Google covered up a massive breach of user data to avoid controversy. An investigation by the Wall Street Journal has prompted Google to announce it is shutting down its Google+ social network.
  • Big regional M&A: GE unit Baker Hughes is buying a 5% stake in Abu Dhabi National Oil Company’s (ADNOC) drilling unit for USD 550 mn
  • Pakistan is starting bailout talks with the IMF for a package to help stabilize its finances as FX reserves plummet, the Financial Times reports.

Want to build a fintech business in Egypt? Pride Capital is running an event looking at how to build a successful monetization strategy for a fintech business today at 5:30pm on the Greek Campus. The event will be featuring our friend Martin Janzen, MD at Simon-Kucher Egypt, and MENA Startup Bootcamp’s Todd OBrien. Simon-Kucher works with global tech outfits including Paypal, Stripe, Uber and Evernote.

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