Today’s Trading Playbook
KEY THEMES
Egypt's net international reserves (NIR) fell for the first time in almost two years by USD3.9bn to stand at USD37.1bn in by the end of March 2022. The drop came to reveal the sizeable pressures on the country’s external balance, prompting the monetary authorities to deploy approximately 91% of its SDR stock in NIR. The country's existing SDR stock as of March 2022 was close to where it was before the IMF's latest SDR allocation last August. Furthermore, the FX stock declined by c.USD1.0bn to USD29.1bn, the lowest level since June 2017. We note that the stock of gold remained on high record of USD7.8bn up from USD6.9bn driven by appreciated prices by the end of March 2022. Despite such drop, the NIR is still covering more than five months of imports.
Capital outflows, which accelerated sharply in March, have aggravated the situation on the country’s other external buffers, mainly non-official reserves. By the end of March non-official reserves have reached to their lowest level since January 2017, falling by USD7.6bn to USD1.5bn. This means that the country technically has lost c.USD11.6bn from overall reserves.
At this stage, we expect the negotiation with IMF to address the situation of external vulnerability from two important angles: (1) FX rate flexibility, and (2) promoting private-sector and export let growth. In this regard, we anticipate the FX rate will continue to reflect global risk aversion and erratic appetite for EM assets, reaching an average of EGP17.3 in 2022. In this respect we have to remember the IMF conditionality mandated the establishment of a floor on NIR, reflecting the fact that one of the primary objectives of IMF programs is to ensure external viability. Thus, it will be difficult for the CBE to continue supporting the currency in the same way as it did previously, at least in the near run.
Now, on to the top news and analysis for the day.
2. Top News & Analysis
MACRO NEWS
Annual headline urban inflation accelerated to 10.5% y/y by the end of March from 8.8% y/y in February. The reading came above of our expectations of 10% driven by higher food prices than expected. (CAPMAS)
The Housing Minister, Assem El Gazzar stated the government could look into rescheduling debt payments for developers to alleviate the global crisis in a meeting held by The Prime Minister. Meanwhile, the real estate players also called for the government to provide financing for private players and to allow delays in the completion of all projects. (Enterprise)
The Madbouly government now expects the budget deficit to contract to 6.2% this fiscal year, down from a previous 6.9% target, as the economy absorbs the initial shock of the outbreak of war in Ukraine, Finance Minister said. (MoF statement)
The Sovereign Fund of Egypt (SFE) is planning to invest in two companies in the NBFS sector before the end of Q2 2022. (Enterprise)
CORPORATE NEWS
Abu Dhabi wealth fund (ADQ) is reportedly targeting to acquire National Investment Bank’s (NIB) 21.5% stake in Abu Qir Fertilizers [ABUK]. This comes within the context of ADQ’s USD2bn investment program in Egypt. (Bloomberg Asharq)
EFG Hermes Holding [HRHO] will increase its paid capital from EGP4.8bn to EGP5.8bn by EGP973mn, through by a 20% bonus shares distribution. (Arab Finance)
Saudi Public Investment Fund hired EFG Hermes Holding [HRHO] as a financial advisor for its upcoming investment in three Siemens-built power plants in Egypt as part of a proposed USD10bn investment. (Enterprise)
Edita for Food Industries [EFID] plans investing EGP1bn in the coming three years. (Company disclosure)
Vicat Egypt for cement has made an offer that is valid from 10 April 2022 to 21 April 2022 to buy up to 42.12% of Sinai cement [SCEM] shares at a price of EGP6.74/share, which will add up to 100% ownership of the company. (FRA)
Iron And Steel for Mines and Quarries [ISMQ] is targeting net earnings of EGP92mn in 2022/2023, implying forward P/E of 14.5x. (Mubasher)
GLOBAL NEWS
Global food prices surged to a new all-time high in March as the Russia-Ukraine war already inflated commodities and grains markets. The FAO Food Price Index rose to 159.3 points in March, up 34% y/y and eclipsing its record in February by almost 13%. (FAO)
Russia faces its first sovereign external default in over a century after it made arrangements to make an international bond repayment in roubles earlier this week, even though the payment was due in U.S. dollars. (Reuters)
The macro-economic picture is deteriorating fast and could push the U.S. economy into recession as the Federal Reserve tightens its monetary policy to tame surging inflation,BofA strategists warned in a weekly research note. (Reuters)
3. Chart of the Day
Yousef Ghazy | Equity Analyst
Source: Company reports.
In 2021, the leasing arm of CI Capital Holding [CICH], Corplease, achieved revenues of EGP1.4bn (i.e. 39% of total revenues). Meanwhile, EFG Hermes Holding's [HRHO] leasing activities generated EGP215mn in revenues (i.e. 4% of total revenues).
4. Markets Performance
