Are we about to get a piece of this rally in EM equities? Maybe, says RenCap: A strong rebound in equity inflows to emerging markets could spill over to Egypt, potentially reversing the 2020 trend that saw foreign institutional investors firmly positioned as net sellers every month on the EGX, Renaissance Capital’s head of MENA research Ahmed Hafez said in a note yesterday.

EM stocks have been on a tear in past weeks: The MSCI Emerging Markets Index rose to record levels earlier this month as optimism over the global vaccine rollout, Joe Biden’s victory in the US elections, and central bank stimulus caused a surge in risk-on sentiment.

Egypt is yet to reap the benefits, but valuations could prove attractive: “While we are neutral [on] Egypt in our allocation as it does not benefit from the same currency rebound story as other EMs, some inflows could still find their way to the market … on the back of what seems like the widest valuation gap in years,” Hafez says. Foreign investors had snapped up EGP 606 mn-worth of stocks in Egypt by the end of the first two weeks of January, he noted.

Also bolstering the Egypt story: RenCap believes that the worst of the second wave may already be behind us. Daily reported cases have (for the most part) been in decline since 1 January, and with the launch of the country’s vaccination program earlier this week. Business activity also seems to have experienced “far less disruption” in the second wave than it did in the first wave, which saw a nationwide curfew and much more stringent measures to curb the spread of the disease, Hafez notes.

This comes after a not-great year for foreign inflows to the EGX: Foreign investors were net sellers every month last year, offloading EGP 18.9 bn of stocks over the 12 months. This took foreign holdings down to the lowest levels seen in years, falling from USD 2.87 bn (6.1% of market cap) to USD 1.2 bn (2.7%) as of September 2020.

The benchmark EGX30 is up just over 6% year-to-date.