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Tuesday, 23 February 2021

Meet our analyst of the week: Sigma Capital’s AbouBakr Emam

OUR ANALYST OF THE WEEK- AbouBakr Emam, head of equity research at Sigma Capital (Linkedin).

I’m AbouBakr Emam, the head of equity research at Sigma Capital and I focus on financial services in Egypt. I studied economics and political science at Cairo University and also hold a CFA. I began my career in banking at CIB and the National Bank of Abu Dhabi in Egypt and then moved to Cairo Capital where I shifted to asset management and also got the chance to work in buy side research, portfolio management, and private equity.

After working on the buy side, I decided to take a risk and move to the sell side. While on the buy side, often I would get reports where I wouldn’t find what I need or want and I thought that I could do something different to make sell side research more beneficial. My goal was to transfer the mentality of buy side in the frame of sell side offerings. I moved to Prime Holdings and became the head of sell side research and two years later in 2018, I landed my current position at Sigma Capital.

At Sigma Capital we’re trying to offer new and innovative products to our clients. We introduced quantitative analysis for the first time in Egypt through reports such as Sigma’s 2021 Strategy. We also launched a specialized platform where asset managers can analyze the risk profile of their portfolio, optimize it, or even construct it from scratch using a multi-risk factor model.

Foreign markets are looking at investments differently, and Egypt needs to catch up. For example, we’ve started giving recommendations based on both the performance of the stocks as well as their corresponding commodities.

Another thing done differently abroad is that people tend to buy growth stories and not just rely on price performance. We did this with Fawry when investors were discouraged that the stock was at EGP 18, but we looked at their fundamentals and their clients took a long position.

Some habits are already changing. Investors, especially foreigners, had a tendency of selling off stocks based on any bad news — even if it wasn’t directly related to the EGX. Institutional investors would follow, leading to red weeks or even months. Recently, however, as retail investors dominated the market, we’ve seen instances where listed companies reported bad news but their shares continued to rise.

My theory of investing is to have a diversified portfolio. There should be a core portfolio dedicated to long-term investments and one positioned in the bank risk-free. Then there’s one in active trading, sometimes in high-risk stocks and sometimes in less risky options based on the timing. And now is a good time for active trading in high-risk stocks due to the volatility of the market and the potential for high yields.

One silver-lining to the covid-19 pandemic is that when stock prices fell, they became more affordable and accessible, leading to an inflow of new customers. Existing clients also became more involved in active trading and it led to a recovery.

I do think 2021 could be the year of Egypt as the stock market emerges as an attractive channel for saving and investment. This has been further fueled by banks’ interest rates going down, making it harder to achieve substantial yields. Other safe haven assets Egyptians would usually run to have also become unreliable. Gold prices have risen, the USD is volatile and doesn’t produce high yields, while real estate has gotten extremely expensive and its resale is difficult. Meanwhile, the stock market offers options for many high-risk, high-yield situations for the risk-takers or a defensive investment for the risk-adverse.

Once the state privatization program takes off, I only expect the stock market to become more attractive and possibly activate new mechanisms such as the secondary bond market, short selling, and the derivatives market.

When recommending a stock, I like to look at the client and assess their targets and their risk profile. Based on that, I recommend one of two styles: either top down or bottom up. This year, we’re mostly recommending a bottom up style of investment.

Even before the pandemic, travel was down as there weren’t new IPOs or options to present to foreign investors. Now travel is at a standstill and everything is on Zoom, which I’m not a fan of at all. I like being face-to-face with people during meetings as it helps me better read them and offer them better propositions. However, I do think that once life returns to normal, the roadshow will emerge once again, but less so than before. A lot of people realized that Zoom allows them to run their business with less cost and they might not go back to the office.

The best thing about my work is that it challenges your way of thinking and forces you to come up with new rationales everyday. It’s not about whether you are right or wrong, but whether your thought process was correct or not. Everyday is different at my job and I don’t feel a sense of routine.

The worst part of my job is that I have to satisfy a large number of clients with different needs and mentalities. You could work very hard on something, but it doesn’t suit everyone and not everyone will get convinced.

If I had to switch to another industry, I would definitely go for private equity. I like the process of searching for a hidden value in a company. If you do find it, then you take on the task of restructuring the company to achieve this value.

I love to study regularly to stay familiar with new theories and methods in my field. The best thing I read recently is Paul Wilmott Introduces Quantitative Finance. I even contacted the author Paul Wilmott because I wanted the excel sheets and models in the book. He was actually very nice and sent it to me. The books I enjoy that are not in my field are memoirs. I especially liked former Foreign Minister Amr Moussa’s memoir, probably because I had experienced many of the events he wrote about.

I also enjoy documentaries. I recently watched Inside Job on Netflix. And I love to travel. Any chance I get, I take my kids and get on a flight. My favorite place to go abroad is Dubai while my favorite destination in Egypt is the Red Sea.

The EGX30 fell 1.2% at today’s close on turnover of EGP 1.76 bn (17.7% above the 90-day average). Local investors were net sellers. The index is up 5.27% YTD.

In the green: MM Group (+5.4%) and Orascom Development (+4.7%).

In the red: Orascom Financial Holding (-4.2%), Orascom Investment Holding (-4.0%) and Fawry (-3.7%).

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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