KEY THEMES
From time to time, markets do exhibit some paradoxes that can sometimes defy common sense. For example, companies with consistent profitability may fall out of favor only to find its stocks fall in value. In Egypt, we have had a couple of paradoxes in the past few years. For instance, at one point following the EGP flotation, Treasuries were yielding high double-digit returns that dwarfed very low earnings yields for stocks. More recently, we started seeing stocks of companies with zero revenues jump exponentially. For instance, Gulf Canadian Real Estate Investment [CCRS] jumped more than 400% ytd, although the company’s financials do not live up to such stock performance. Meanwhile, EFG Hermes Holding [HRHO] and Orascom Construction [ORAS] posted strong Q3 results, yet their stocks barely moved. That said, we continue to believe that building positions in large caps at current levels, with EGX 30 trading at half MSCI EM index in terms of P/E ratio, and will eventually pay off over time.