Back to the complete issue
Monday, 27 June 2022

Forever-inflation would be worse than recession, says central banks’ bank + Value stocks are outperforming equities — but both are down YTD

What’s worse than a recession? Entrenched inflation, influential banking body warns: The Bank for International Settlements — which performs banking services for central banks worldwide — has called for a “decisive” wave of global rate hikes from central banks to curb inflation in its flagship annual economic report (pdf) published yesterday. “The key for central banks is to act quickly and decisively before inflation becomes entrenched,” said Agustín Carstens, BIS general manager. The fear is that major economies could reach “a tipping point, beyond which an inflationary psychology spreads,” BIS warns, counseling that short-term pain in the form of a recession triggered by rate hikes would be preferable to that scenario.

Value stocks are holding up better than their growth siblings as global policy tightens: Value equities are currently outperforming growth equities with a 13% margin so far this year, which if maintained would mark their largest margin since 2001, the Wall Street Journal writes. “I’ve never been more excited about value,” one investor told the outlet.

But remember — all equities are down, value stocks just less so. The Russell 1000 Value index has dropped 12% so far this year, while the Russell 1000 Growth index saw a 25% drop.

Value vs. growth: Value stocks — companies with cheaper valuations and higher dividend payouts — tend to do well in higher interest rate environments as investors rotate out of the more expensive, dividend-less growth stocks. Why? Higher earnings and larger dividends are a better hedge against rising borrowing costs than growth companies, whose valuations are more reliant on future earnings and vulnerable to rising rates.

The Saudi bourse will launch Single Stock Futures (SSFs) contracts next week, marking the Tadawul’s second derivatives product following the launch of index futures, the bourse said in a disclosure. The move comes “as part of wider efforts to develop an advanced capital market in Saudi Arabia,” the disclosure read.

Up

EGX30

9,444

+0.0% (YTD: -21.0%)

None

USD (CBE)

Buy 18.71

Sell 18.79

None

USD at CIB

Buy 18.73

Sell 18.79

None

Interest rates CBE

11.25% deposit

12.25% lending

Up

Tadawul

11,513

+1.8% (YTD: +2.1%)

Down

ADX

9,238

-0.1% (YTD: +8.8%)

Up

DFM

3,202

+0.1% (YTD: +0.2%)

Up

S&P 500

3,912

+3.1% (YTD: -17.9%)

Up

FTSE 100

7,209

+2.7% (YTD: -2.4%)

Up

Euro Stoxx 50

3,533

+2.8% (YTD: -17.8%)

Down

Brent crude

USD 112.46

-0.6%

Down

Natural gas (Nymex)

USD 6.16

-1.0%

Up

Gold

USD 1,833.70

+0.2%

Down

BTC

USD 21,021

-2.2% (YTD: -54.4%)

THE CLOSING BELL-

The EGX30 rose less than 0.1% at yesterday’s close on turnover of EGP 483 mn (41.4% below the 90-day average). Local investors were net buyers. The index is down 21.0% YTD.

In the green: Madinet Nasr Housing (+8.9%), Abu Dhabi Islamic Bank Egypt (+6.5%) and Heliopolis Housing (+2.7%).

In the red: GB Auto (-6.5%), MM Group (-5.2%) and e-Finance (-3.0%).

Asian markets are up in early trading this morning, with the exception of the Shanghai index, which was in the red as of dispatch time. Futures suggest most European indices will open in the green later on today, though Wall Street is faring less well, with the Dow Jones, Nasdaq, and the S&P 500 all threatening to open down.

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.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.