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Sunday, 21 March 2021

Who are the foreign buyers in the EGX? Then vs now.

Who are the foreign buyers in the EGX? Then vs now: In the great March selloff of 2020, the EGX saw the sharpest single-day decline since 2012, falling 9.3% to catch up with global equity markets, which tumbled the previous week as the covid-19 pandemic put travel bans and lockdowns into effect across the globe. Foreign institutional investors have largely been sitting on the sidelines of the market ever since, leaving the market to be dominated by retail investors.

IN THE HOT SEAT TODAY– Renaissance Capital’s head of MENA research Ahmed Hafez, Beltone Securities’ senior VP of institutional sales Mohammad A. Waked.

Historically, the biggest buyers of Egyptian equity stories are the frontier market funds, which “at one point in time had 10-11% invested in Egypt, which is sizable for an off-benchmark market,” says RenCap’s Hafez. This reflects the “squeeze” that’s happening to frontier markets as more are upgraded to emerging market status — and the limited investment opportunities for frontier fund managers, he adds.

But even the frontier market funds were among the biggest to exit in the March selloff, sending their exposure to Egypt down to lows of 7-8%, he says. It’s natural in a risk-off.

A pre-covid lull made worse: “Most foreign investors were not increasing their positions in 2019,” says Hafez. By the end of 2020, based on a trend indicator of the net international investment position number against the percentage of total market cap, “we were looking at 5-6 year lows of foreign ownership in the market.” But take this with a grain of salt, he says, “as it’s not a proxy of the actual overall ownership in the market, as it doesn’t take into account GDRs, and ownership past a certain threshold are calculated as foreign direct investment.”

“The foreigners who didn’t exit last March are not currently active,” says Beltone’s Waked. “When they take positions now, they hold them for shorter periods of time,” he adds. “We had captured decent inflows for Ibnsina Pharma, but they immediately cut their losses during the issues over 3elagi,” he adds, citing the Pharmacist Syndicate boycott of Ibnsina Pharma in November over its acquisition of a 75% stake in the pharma app.

Egypt is on the fringe of global emerging-market funds, says Hafez, by virtue of Egypt’s 0.1% weight in the MSCI EM index. And many investors who do take positions in Egypt are simply buying CIB as a proxy for the wider market, he adds.

Appetite for commodity-based names improved only relatively in 1Q2021, but primarily among local investors, and to a lesser extent in GCC institutions, says Waked. Foreign appetite for two of the sector’s biggest names has been muted: ElSewedy Electric could be bumped from the MSCI EMs index by Fawry, while Abu Qir Fertilizers isn’t about to offer another stake soon as it looks to get a new new fair value report.

“The consumer and traditional banking sectors are seeing less enthusiasm in favor of the penetration story,” says Hafez, citing fintech, education, and healthcare among the underserved industries.

That said, “early signs are positive” that the foreigners are coming back, based on the low level of ownership, the high valuation gap between MSCI EM and Egypt, and inflows early in the year, says Hafez, who argues this could spill over to regional investors as well.

African funds, even in most dire times, maintained “significant” exposure to Egypt, he adds, citing Egypt’s attractiveness relative to other African markets, despite any economic issues Egypt was facing pre-EGP float. What’s more, sizeable South African funds have a mandate to make minimum commitments to African equities outside South Africa, effectively channeling AUM to Cairo, Nairobi and Lagos.

Ultimately, only a wave of IPOs will change the stocks foreign investors are looking at, says Beltone’s Waked. “For the big players, the issue remains a lack of investment options that qualify for mandates from a liquidity perspective,” says RenCap’s Hafez.

The EGX30 fell 1.1% at today’s close on turnover of EGP 696 mn (52.8% below the 90-day average). Regional investors were net sellers. The index is down 0.4% YTD.

In the green: Eastern Co. (+2.0%), Orascom Investment (+1.6%) and Orascom Financial (+1.0%).

In the red: GB Auto (-5.2%), Ibnsina Pharma (-4.7%) and Heliopolis Housing (-4.2%).

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