2021, a year of divergence
Last year, 2021, will go down in history as yet another extraordinary one for the Egyptian Exchange (EGX). Not only has it seen the market’s two indices diverge in terms of performance, but it also saw a total change of direction at the same time. First, EGX 30 had been hitting a negative note from the beginning of the year until Q4 2021, while EGX 70 EWI delivered a high-flying performance through 8M 2021. Then, EGX 30 pared all its losses since the start of the year to close the year up 10.18% at 11,949.18, while EGX 70 EWI almost wiped out all its gains for the year to close up only 2.64% at 2,201.79. EGX 30 reached its 52-week high of 11,950.34 on 29 December 2021, 0.4% shy of hitting the 12,000 psychological mark—a level we haven’t seen since early March 2020. On the other hand, EGX 70 EWI has witnessed the rise and demise of many of its components, mainly driven by speculative trading behavior that was further fueled by margin trading. This lent itself to a heightened level of volatility that pushed stock prices to unprecedented levels before succumbing to the pressure of forced sales instigated by margin calls.
2022, a year of convergence?
But now that this is all behind us, the question is: How can we bring the lessons we learned from 2021 into 2022? We think 2022 will be a year of convergence between market prices and intrinsic values. What happened in 2021 – in our opinion – will not be repeated in 2022 because we will have a new game in town that will lead to the said convergence in certain stocks.\
In this note, we look back at the year that has been and look ahead to the year to be, guided by our macro and stock views and ending up with what we call Egypt Valuation Repertoire, where certain Egypt stocks present deep valuation levels and in some cases absurdly so.