1. Today’s Trading Playbook
Amr Hussein Elalfy CFA, Head of Research
KEY THEMES
Welcome back to those of you who have called it a vacation and decided to get back to the market in this 3-day week, the third short week in a row. Since it’s just three days, we should not expect much action, save for any out-of-the-blue corporate event such as Q2 earnings or M&A rhetoric. The real action should start next week. On the macro front, July inflation numbers are due on 10 August, and the CBE will meet on 13 August to review policy rates. On the stock market front, MSCI is scheduled on the night of 12 August to announce its verdict on whether or not to remove Elsewedy Electric [SWDY] off its MSCI EM index and add EFG Hermes Holding [HRHO] instead. Meanwhile, we should expect EGX-listed companies to resume their Q2 earnings season which should officially be concluding by 15 August, but we know that a handful of companies usually snooze off well beyond the EGX deadline.
Last week, we wrapped up the first seven months of the year, which we can split into two parts: before 18 March and after 18 March, with 18 March the trough of both market’s indices EGX 30 and EGX 70. Speaking of which, both indices’ performance, which converged from the start of the year up until 18 March, diverged after 18 March with EGX 70 outperforming EGX 30 by a huge margin. In July alone, EGX 70 added 5.8%, while EGX 30 fell 1.5%. On a ytd basis, EGX 70 is now up 21%, while EGX 30 is down 24%. The top three sectors that exhibited the top positive performance were Telecom & IT, Health Care, and Education. Please check out Chart of the Day below for the ytd performance of all sectors.
POSITIVE
Having been punished since early May for its disappointing Q1 2020 results followed by market speculation of its imminent removal off MSCI EM, we believe SWDY is now poised to recover, to be helped in part by a potentially better Q2 set of results and the possibility — however minute — that it can remain part of Egypt’s three stocks in MSCI EM (the other two being CIB [COMI] and Eastern Co. [EAST]). Incidentally, these two other large cap stocks have underperformed the market since the start of the year, so we believe the upside from current levels makes for a plausible risk-return profile.
NEUTRAL
After the recent run-up in many small-cap stocks so far in 2020, we believe investors should take some of their profits off the table, especially of those stocks that are not supported by strong fundamentals.
negative
Q1 2020 results reported by Al-Ezz Dekheila [IRAX] and Ezz Steel [ESRS] may pressure both companies’ stocks in view of the wider losses reported.
Now, on to the top news and analysis for the day.