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Monday, 24 February 2020

Strengthening EGP to put pressure on corporate earnings -Pharos

Strengthening EGP to put pressure on corporate earnings -Pharos: Corporate earnings will come under pressure over the next four quarters as the EGP continues to strengthen against the USD, Pharos Holding’s head of research Radwa El Swaify wrote in a report. The research house forecasts the currency changing hands in the EGP 14.50 to 15.50 band against the greenback this year and predicts “a gradual weakness in earnings over the next four quarters” through both a direct impact and “indirect effects.” On that last bit, El Swaify suggests that when the “exchange rate was depreciating, consumers were rushing into buying to avoid higher cost in the near future. Now, that exchange rate is weakening, the purchase decision is postponed until prices find a bottom.”

In short: The appreciating currency is going to sap export sales and prompt consumers to hold back from major purchases as they wait to see whether prices have hit bottom.

Earnings may also be buffeted by macro headwinds: Cheaper commodity prices, slowing global trade or lower infrastructure spending in Egypt may place further pressure on corporate earnings. “We expect the market to continue to be trapped by these dynamics until the strength in the FX rate comes to a stop or global commodity prices find a floor,” the report says.

Corporate earnings had recovered to pre-float levels at the end of last year, with inflation decelerating rapidly, FX reserves reaching an all-time high, and economic growth clocking in at more than 5.6% in 2019, Bloomberg said in November.

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