KEY THEMES
Over the past couple of issues of PRIMETime, we had shown in Chart of the Day how Egypt’s economy stands out globally, with expectations of positive economic growth rates. This compares favorably to other parts of the MENA region that are contracting in the wake of the COVID-19 fallout. Nonetheless, foreign investors have been mixed about investing in Egypt. On one hand, foreign portfolio (indirect) investments (FPIs) in the stock market continue to show net selling (for instance, foreign investors were net sellers on the EGX yesterday with net cash outflows in excess of EGP330mn). On the other hand, foreign direct investments (FDIs) have mostly been concentrated in the oil and gas sector, but more recently we have seen signs of interest in other sectors, such as banks. While Bahrain’s Ahli United Bank increased its stake in its Egypt unit, Bahrain’s Bank ABC is looking to acquire Lebanese BLOM Bank’s Egypt unit. We believe the banking sector will be due for further mergers and acquisitions (M&A) activity as we draw closer to the end of the grace period for banks to shore up their paid-in capital to the minimum required EGP5bn. Meanwhile, companies with exposure to non-banking financial services (NBFS) continue to grow their outreach and distribution network in an effort to capture a larger slice of this early stage of high growth.
POSITIVE
EXPA, CICH, HRHO: Export Development Bank of Egypt [EXPA] rose yesterday by close to 4% on the day, with room for further re-rating as the bank continues to trade at a large unjustified (40%) discount to its book value (P/BV of 0.6x). Elsewhere, CI Capital Holding [CICH] is pressing ahead with its NBFS service offerings, which should help the investment bank in its diversification drive and quest for growth. Also, EFG Hermes Holding [HRHO] is another beneficiary of Egypt’s overall financial inclusion theme; it was an early mover into this nascent segment of Egypt’s financial sector. HRHO will soon be a triple play on investment banking, NBFS, and commercial banking once its aiBank acquisition is concluded (expected end of year / early 2021).
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