World-Beating Egypt Stocks Defy Trump Slump as Foreigners Return

Bloomberg

Financial traders work beneath digital boards displaying financial data in the trading hall of the Egyptian stock exchange in Cairo. Photographer: Shawn Baldwin/Bloomberg

Investors are finding a rare bright spot amid the emerging-market rout that has followed Donald Trump’s election victory, in a country they had shunned since 2011: Egypt.

The nation’s benchmark stocks gauge is the world’s best performer since the Nov. 8 vote, returning more than 20 percent in dollar terms, according to data compiled by Bloomberg. Thanks to a surge in foreign-investor holdings since the country adopted a free-floating currency policy this month, Egyptian equities were able to buck a 6.1 percent decline for the MSCI Emerging Markets Index.

Egypt scrapped controls of its pound on Nov. 3, prompting the currency to fall almost 50 percent within a week but also eliminating the devaluation risk that previously kept foreign money managers away. Since then, investors repelled by five years of turmoil after the Arab Spring have been returning, with about 2.8 billion Egyptian pounds ($176 million) of overseas funds flowing into the country’s stocks in November, more than any month since August 2013.

"Volatility presents opportunities, and we’re finding them in markets like Egypt," said Andrew Schultz, the Cape Town-based head of frontier sales at Investec Securities who reported a pick-up in demand for Egypt from clients. "We’re seeing investor relief over the authorities’ decision to float the currency. Now it’s a market where you can make investment decisions based on fundamentals, rather than have potential gains capped by an overvalued exchange rate."

While in dollar terms the EGX 30 Index is still at a 26 percent discount to its pre-currency float level, its recovery contrasts with a selloff across emerging markets since Trump was voted U.S. president. Developing-country stocks hit a four-month low this week amid concern the protectionist policy pledges made during his campaign will result in less access to the world’s biggest economy.

Egyptian stocks are the best performers in dollar terms since Nov. 8 among 94 exchanges worldwide, excluding Venezuela because of discrepancies between that country’s official exchange rate and black market.
IMF Loan

Egypt’s decision to float the currency helped the country get a $12 billion loan from the International Monetary Fund. The program will help Egypt restore macroeconomic stability and promote inclusive growth and the nation will receive an immediate disbursement of $2.75 billion, the fund said on Nov. 11.

“We’re sitting on the sidelines until we can better understand the effects of the IMF deal," said Tariq Qaqish, who helps manage about $200 million of equities at Al Mal Capital PSC, including Egyptian shares bought before the pound float. "We don’t see full recovery for all stocks” because the effect of the depreciation will vary depending on the industry and short-term challenges for the economy remain, he said.

Egypt suffers from one of the highest budget deficits in the Middle East and a debt burden that is almost as much as its annual economic output. Business activity fell to the lowest level in more than three years in October before the devaluation, shrinking for a 13th month amid a dollar shortage, according the Emirates NBD Purchasing Managers Index for non-oil industries.

The EGX 30 added another 2.2 percent as of 2:04 p.m. in Cairo, on track for a ninth day of gains out of 11 since the pound’s float. The gauge is trading at 12.1 times forward earnings, marking the first time it’s become more expensive than the emerging market average since March 2015.